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the pmfg acquisition expands our end market segment reach , broadens our portfolio of products and strengthens our global geographic footprint , particularly in china , europe and the middle east . it is also a major step forward in our strategy to become a leader in customized solutions for the power and petrochemical industry . we expect the acquisition to generate meaningful cost reduction synergies and global sales opportunities through significant operating and manufacturing synergies , as well as the opportunity to drive important recurring revenues and new highly engineered equipment through an installed equipment base of over $ 5 billion . it also provides us with sales opportunities in our core end markets and gives us greater critical scale . operations overview we operate under a “ hub and spoke ” business model in which executive management , finance , administrative and marketing staff serves as the hub while the sales channels serve as spokes . we use this model throughout our operations . this has provided us with certain efficiencies over a more decentralized model . the company 's segment presidents manage our division managers who are responsible for successfully running their operations , that is , sales , gross margins , manufacturing , pricing , purchasing , safety , employee development and customer service excellence . the segment presidents work closely with our ceo on global growth strategies , operational excellence , and employee development . the headquarters ( hub ) focuses on enabling the core back-office key functions for scale and efficiency , that is , accounting , payroll , human resources/benefits , information technology , safety support , audit controls , and administration . we have excellent organizational focus from headquarters throughout our divisional businesses with clarity and minimal duplicative work streams . we are structured for growth and will do future bolt-on acquisitions . our three reportable segments are : the environmental segment , which produces various types of product recovery and air pollution control technologies , the energy segment , which produces customized solutions for the power and petrochemical industry , and the fluid handling and filtration segment , which produces high quality pump , filtration and fume exhaust solutions . it is through combining the efforts of some or all of these groups that we are able to offer complete turnkey systems to our customers and leverage operational efficiencies . our contracts are obtained either through competitive bidding or as a result of negotiations with our customers . contract terms offered by us are generally dependent on the complexity and risk of the project as well as the resources that will be required to complete the project . our focus is on increasing our operating margins as well as our gross margin percentage , which translates into higher net income . our cost of sales is principally driven by a number of factors including material prices and labor cost and availability . changes in these factors may have a material impact on our overall gross profit margins . we break down costs of sales into five categories . they are : · labor—our direct labor both in the shop and in the field ; · material—raw material that we buy to build our products ; · equipment—fans , motors , control panels and other equipment necessary for turnkey systems ; · subcontracts—electrical work , concrete work and other subcontracts necessary to produce our products ; · factory overhead—costs of facilities and supervision wages necessary to produce our products . in general , labor provides us the most flexibility in margin followed by material and equipment and subcontracts . across our various product lines , the relative relationships of these factors change and cause variations in gross margin percentage . material costs have also increased faster than labor costs , which also reduces gross margin percentage . 27 selling and administrative expense principally includes sales payroll and related fringes , advertising and marketing expenditures as well as all corporate and administrative functions and other costs that support our operations . the majority of these expenses are fixe d. we expect to leverage our fixed operating structure as we continue to grow our revenue . note regarding use of non-gaap financial measures the company 's consolidated financial statements are prepared in accordance with gaap . these gaap financial statements include certain charges the company believes are not indicative of its ongoing operational performance . as a result , the company provides financial information in this md & a that was not prepared in accordance with gaap and should not be considered as an alternative to the information prepared in accordance with gaap . the company provides this supplemental non-gaap financial information , which the company 's management utilizes to evaluate its ongoing financial performance , and which the company believes provides greater transparency to investors as supplemental information to its gaap results . the company has provided the non-gaap financial measures of non-gaap gross profit and non-gaap gross profit margin , non-gaap operating income , non-gaap operating margin , and non-gaap net income attributable to ceco environmental corp. as a result of items that the company believes are not indicative of its ongoing operations . these include charges associated with the company 's acquisition and integration of recent acquisitions , including pmfg , and the items described below in “ consolidated results. ” the company believes that evaluation of its financial performance compared with prior and future periods can be enhanced by a presentation of results that exclude the impact of these items . as a result of the company 's recently completed acquisitions , the company has incurred and expects to continue to incur substantial charges associated with the acquisition and integration . while the company can not predict the exact timing or amounts of such charges , it does expect to treat these charges as special items in its future presentation of non-gaap results . see note 16 to the audited consolidated financial statements for further information . story_separator_special_tag results of operations story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > other expense for 2015 was $ 2.1 million compared with $ 2.3 million in 2014 , and was comprised primarily of foreign currency transaction losses in 2015 and 2014. the expense in 2015 and 2014 is primarily attributable to a translation remeasurement on u.s. dollar denominated intercompany debt at our subsidiary in the netherlands . 30 interest expense increased to $ 6.0 million in 2015 from $ 3.1 million in 2014 , due to higher debt levels in 2015 , which debt was incurred in connection with the pmfg and emtrol acquisit ions . income tax expense was $ 2.6 million and $ 3.1 million in 2015 and 2014 , respectively . the effective tax rate for 2015 was ( 85.2 ) % compared with 19.3 % in 2014. the effective tax rate was adversely impacted $ 3.9 million by nondeductible earnout expenses , $ 1.4 million by nondeductible deal costs related to the pmfg acquisition , as well as $ 1.2 million of certain permanent differences , which more than offset the benefits of $ 1.5 million from foreign rate differences and $ 1.3 million of changes in uncertain tax position reserves . comparison of the years ended december 31 , 2014 and 2013 consolidated sales in 2014 were $ 263.2 million compared with $ 197.3 million in 2013 , an increase of $ 65.9 million . the increase in sales was primarily due to the acquisitions of aarding at the end of february 2013 , met-pro at the end of august 2013 , hee in mid-august 2014 , sat at the end of september 2014 , and emtrol at the beginning of november 2014. these acquisitions contributed an incremental $ 71.6 million of sales in 2014. gross profit increased by $ 23.2 million , or 37.7 % , to $ 84.8 million in 2014 compared with $ 61.6 million in 2013. gross profit as a percentage of sales was 32.2 % in 2014 compared with 31.2 % in 2013. the increase gross profit was the result of the aforementioned acquisitions . on an as adjusted basis , non-gaap gross profit was $ 85.4 million or 32.4 % as a percentage of sales for 2014 , an increase of $ 22.5 million compared with non-gaap gross margin of $ 62.9 million or 31.9 % as a percentage of sales in 2013. selling and administrative expenses were $ 51.4 million in 2014 compared with $ 37.1 million in 2013. the increase in selling and administrative expenses was the result of the aforementioned acquisitions . acquisition and integration expenses of $ 1.3 million in 2014 and $ 7.2 million in 2013 relate to acquisition activities , which include legal , accounting , and banking expenses . amortization and earnout expense was $ 10.1 million in 2014 and $ 6.8 million in 2013. this increase was the result of the aforementioned acquisitions . legal reserves of $ 0.3 million in 2014 relate to the settlement of the valero lawsuit . legal reserves of $ 3.5 million in 2013 relate to the settlement of the sheet workers ' local union no . 80 claim . see note 12 to our consolidated financial statements for more information . operating income for 2014 was $ 21.7 million , an increase of $ 14.7 million from $ 7.0 million in 2013. operating income as a percentage of sales for 2014 was 8.2 % compared with 3.5 % for 2013. the increase in operating income was attributable to the aforementioned acquisitions . on an as adjusted basis , non-gaap operating income was $ 34.0 million for 2014 , an increase of $ 8.2 million from 2013. non-gaap operating income as a percentage of sales for 2014 was 12.9 % compared with 13.1 % for 2013 , which is essentially flat year over year . other ( expense ) income for 2014 was $ ( 2.3 ) million compared with $ 1.0 million in 2013 , and was comprised of foreign currency transaction losses in 2014 and foreign currency transaction gains in 2013. the expense in 2014 and income in 2013 is primarily attributable to a translation remeasurement on u.s. dollar denominated intercompany debt at our subsidiary in the netherlands . interest expense increased to $ 3.1 million in 2014 from $ 1.5 million in 2013 , due to higher debt levels in 2014 , which debt was incurred in connection with the met-pro and emtrol acquisitions . income tax expense ( benefit ) was $ 3.1 million in 2014 compared with $ ( 0.1 ) million in 2013. the effective tax rate for 2014 was 19.3 % compared with ( 1.6 ) % in 2013. included in the income tax provision calculation for 2013 is a $ 2.4 million tax benefit , net of related uncertain tax position reserves , for research and development income tax credits earned during 2009 through 2013. this credit was not factored in the 2012 tax provision because it was not evaluated until 2013. along with the tax benefit of research and development income tax credits , the effective tax rate is beneficially impacted by the domestic production activities deduction , offset by nondeductible deal costs related to the met-pro acquisition . 31 business segments the company 's operations in 2015 , 2014 and 2013 are organized and reviewed by management along its product lines and presented in three reportable segments . the results of the segments are reviewed through to the “ income from operations ” line on the consolidated statements of operations . the amounts presented in the net sales table below and in the following comments regarding our net sales at the reportable business segment level exclude both intra-segment and inter-segment net sales . the income ( loss ) from operations table and corresponding comments regarding operating income at the reportable segment level include both intra-segment and inter-segment operating income . replace_table_token_8_th ( 1 ) includes adjustment for revenue on intercompany jobs .
| ) write-off of deferred financing fees associated with debt extinguishment , and ( 8 ) with respect to net income , associated tax benefits of these charges . the company has adjusted gaap gross profit to exclude inventory valuation and plant , property and equipment valuation adjustments related to the met-pro and pmfg acquisitions . see “ note regarding use of non-gaap financial measures ” above . the following tables present the reconciliation of gaap gross profit and gaap gross profit margin to non-gaap gross profit and non-gaap gross profit margin , gaap operating income and gaap operating margin to non-gaap operating income and non-gaap operating margin , and gaap net income attributable to ceco environmental corp. to non-gaap net income attributable to ceco environmental corp. : replace_table_token_5_th replace_table_token_6_th 29 replace_table_token_7_th comparison of the years ended december 31 , 2015 and 2014 consolidated sales in 2015 were $ 367.4 million compared with $ 263.2 million in 2014 , an increase of $ 104.2 million . the increase in sales was due primarily to the acquisitions of hee in mid-august 2014 , sat at the end of september 2014 , emtrol at the beginning of november 2014 , zhongli at the end of december 2014 , and pmfg at the beginning of september 2015. these acquisitions contributed an incremental $ 103.0 million of sales in 2015. gross profit increased by $ 24.4 million , or 28.8 % , to $ 109.2 million in 2015 compared with $ 84.8 million in 2014. gross profit as a percentage of sales was 29.7 % in 2015 compared with 32.2 % in 2014. the increase in gross profit on a dollar basis was the result of the aforementioned acquisitions , which contributed $ 27.1 million . this increase was partially offset by a decline in overall gross profit percentage due to product mix . on an as adjusted basis , non-gaap gross profit was $ 110.3 million or 30.0 % as a percentage of sales for 2015 , an increase of $ 24.9 million on a dollar
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however , having internal manufacturing capacity exposes us to the risk of under-utilization of manufacturing capacity which results in lower gross profit margins , particularly during downturns in the semiconductor industry . our products and services require investments in capital equipment . analog and mixed-signal manufacturing facilities and processes are typically distinguished by the design and process implementation expertise rather than the use of the most advanced equipment . these processes also tend to migrate more slowly to smaller geometries due to technological barriers and increased costs . for example , some of our products use high-voltage technology that requires larger geometries and that may not migrate to smaller geometries for several years , if at all . additionally , the performance of many of our products is not necessarily dependent on geometry . as a result , our manufacturing base and strategy does not require substantial investment in leading edge process equipment , allowing us to utilize our facilities and equipment over an extended period of time with moderate required capital investments . generally , incremental capacity expansions in our segment of the market result in more moderate industry capacity expansion as compared to leading edge processes . as a result , this market , and we , specifically , are less likely to experience significant industry overcapacity , which can cause product prices to plunge dramatically . in general , we seek to invest in manufacturing capacity that can be used for multiple high-value applications over an extended period of time . we believe this capital investment strategy enables us to optimize our capital investments and facilitates deeper and more diversified product and service offerings . our success going forward will depend upon our ability to adapt to future challenges such as the emergence of new competitors for our products and services or the consolidation of current competitors . additionally , we must innovate to remain ahead of , or at least rapidly adapt to , technological breakthroughs that may lead to a significant change in the technology necessary to deliver our products and services . we believe that our established relationships and close collaboration with leading customers enhance our visibility into new product opportunities , market and technology trends and improve our ability to meet these challenges successfully . in our semiconductor manufacturing services business , we strive to maintain competitiveness and our position as a primary manufacturing services provider to our customers by offering high value added , unique processes , high flexibility and excellent service . 47 recent developments on april 9 , 2010 , we completed the sale of $ 250.0 million in aggregate principal amount of 10.500 % senior notes due 2018 , which we refer to as the senior notes . of the $ 238.4 million of net proceeds , $ 130.7 million was used to make a distribution to our equityholders and $ 61.6 million was used to repay all outstanding borrowings under our term loan . the remaining proceeds of $ 46.1 million were retained to fund working capital and for general corporate purposes . in march 2011 , we completed an initial public offering , which we refer to as the magnachip corporation ipo , of 9,500,000 shares of common stock , and we listed on the nyse . all shares were sold in the form of depositary shares and each depositary share represented an ownership interest in one share of common stock . of the 9,500,000 shares , 950,000 shares were newly issued by us and 8,550,000 shares were sold by selling stockholders . all outstanding depositary shares were automatically cancelled on april 24 , 2011 and the underlying shares of common stock were issued to the holders of such cancelled depositary shares . we received $ 12.4 million of proceeds from the issuance of the new shares of common stock after deducting underwriters ' discounts and commissions , and we did not receive any proceeds from the sale of shares of common stock offered by the selling stockholders . we incurred $ 10.8 million of magnachip corporation ipo expenses that were recorded as decrease of additional paid-in capital in our consolidated balance sheets . prior to the magnachip corporation ipo , our board of directors and the holders of a majority of our outstanding common units converted magnachip semiconductor llc from a delaware limited liability company to magnachip semiconductor corporation , a delaware corporation . in connection with the corporate conversion , outstanding common units of magnachip semiconductor llc were automatically converted into shares of common stock of magnachip semiconductor corporation , outstanding options to purchase common units of magnachip semiconductor llc were automatically converted into options to purchase shares of common stock of magnachip semiconductor corporation and outstanding warrants to purchase common units of magnachip semiconductor llc were automatically converted into warrants to purchase shares of common stock of magnachip semiconductor corporation , all at a ratio of one share of common stock for eight common units . on may 16 , 2011 , two of our wholly-owned subsidiaries , magnachip semiconductor s.a. and magnachip semiconductor finance company , repurchased $ 35.0 million out of $ 250.0 million aggregate principal amount of our senior notes then outstanding at a price of 109.0 % from funds affiliated with avenue capital management ii , l.p. in connection with the may 2011 repurchase of the senior notes , the company recognized $ 4.1 million of loss on early extinguishment of senior notes , which consisted of $ 3.2 million from repurchase premium , $ 0.4 million from write-off of discounts , $ 0.2 million from write-off of debt issuance costs and $ 0.3 million from incurrence of direct legal and advisory service fees . on september 19 , 2011 , two our wholly-owned subsidiaries , magnachip semiconductor s.a. and magnachip semiconductor finance company , repurchased $ 11.3 million out of $ 215 million aggregate principal amount of our senior notes then outstanding at a price of 107.5 % . story_separator_special_tag in connection with the september 2011 repurchase of the senior notes , we recognized $ 1.4 million of loss on early extinguishment of senior notes , which consisted of $ 0.9 million from repurchase premium , $ 0.1 million from write-off of discounts , $ 0.4 million from write-off of debt issuance costs . on october 11 , 2011 , we announced that our board of directors adopted a stock repurchase program whereby we may , subject to prevailing market conditions and other factors , repurchase up to $ 35.0 million of our outstanding common stock . the stock repurchase program began on october 27 , 2011 and will end on october 27 , 2012 unless earlier terminated by our board . on august 13 , 2012 , we announced that our board of directors extended our existing stock repurchase program through october 27 , 2013 , and increased the total amount of common stock we may repurchase by an additional $ 25 million , subject to applicable legal and contractual restrictions , for a maximum aggregate repurchase amount under the program of up to $ 60 million . the stock repurchase program does not require that we purchase a minimum amount of shares of our common 48 stock and may be commenced , suspended , resumed or terminated at any time without notice . as of december 31 , 2012 , we had purchased 3,964,017 shares of our common stock in the open market at an aggregate cost of $ 39.9 million . on march 2 , 2012 , our korean subsidiary , magnachip semiconductor , ltd. , completed the acquisition of dawin electronics , a privately-held semiconductor company that designs and manufactures igbt , fast recovery diode and mosfet modules . the total consideration paid for the acquisition , amounted to $ 9.3 million . as a result of the acquisition , we expect to grow our igbt and frd business position and improve our igbt module cost structure using dawin electronic 's developed technology and engineering know-how . we expect that the acquisition will be synergistic to our power solutions business and be accretive to its revenue . we recorded $ 3.2 million goodwill at the completion of the acquisition . business segments we report in three separate business segments because we derive our revenues from three principal business lines : display solutions , power solutions , and semiconductor manufacturing services . we have identified these segments based on how we allocate resources and assess our performance . display solutions : our display solutions products include source and gate drivers and timing controllers that cover a wide range of flat panel displays used in lcd televisions and led televisions and displays , mobile pcs and mobile communications and entertainment devices . our display solutions support the industry 's most advanced display technologies , such as ltps and amoled , as well as high-volume display technologies such as tft . our display solutions business represented 36.9 % , 43.9 % and 39.7 % of our net sales for the fiscal years ended december 31 , 2012 , 2011 and 2010 , respectively . power solutions : our power solutions segment produces power management semiconductor products including discrete and integrated circuit solutions for power management in high-volume consumer applications . these products include mosfets , led drivers , dc-dc converters , analog switches and linear regulators , such as low-dropout regulators , or ldos . our power solutions products are designed for applications such as mobile phones , lcd televisions , and desktop computers , and allow electronics manufacturers to achieve specific design goals of high efficiency and low standby power consumption . going forward , we expect to continue to expand our power management product portfolio . our power solutions business represented 15.2 % , 12.0 % and 7.4 % of our net sales for the fiscal years ended december 31 , 2012 , 2011 and 2010 , respectively . semiconductor manufacturing services : our semiconductor manufacturing services segment provides specialty analog and mixed-signal foundry services to fabless semiconductor companies that serve the consumer , computing and wireless end markets . we manufacture wafers based on our customers ' product designs . we do not market these products directly to end customers but rather supply manufactured wafers and products to our customers to market to their end customers . we offer approximately 310 process flows to our manufacturing services customers . we also often partner with key customers to jointly develop or customize specialized processes that enable our customers to improve their products and allow us to develop unique manufacturing expertise . our manufacturing services are targeted at customers who require differentiated , specialty analog and mixed-signal process technologies such as high voltage cmos , embedded memory and power . these customers typically serve high-growth and high-volume applications in the consumer , computing and wireless end markets . our semiconductor manufacturing services business represented 47.6 % , 43.8 % and 52.6 % of our net sales for the fiscal years ended december 31 , 2012 , 2011 and 2010 , respectively . additional business metrics evaluated by management adjusted ebitda and adjusted net income we use the terms adjusted ebitda and adjusted net income throughout this report . adjusted ebitda , as we define it , is a non-gaap measure . we define adjusted ebitda for the periods indicated as net income 49 ( loss ) , adjusted to exclude ( i ) depreciation and amortization associated with continuing operations , ( ii ) interest expense , net , ( iii ) income tax expenses ( benefits ) , ( iv ) restructuring and impairment charges , ( v ) the increase in cost of sales resulting from the fresh-start accounting inventory step-up , ( vi ) equity-based compensation expense , ( vii ) foreign currency loss ( gain ) , net , ( viii ) derivative valuation loss ( gain ) , net , ( ix ) expenses incurred for our secondary offering in may 2012 and tax and dues related to value added tax return revisions , which
| net sales from our semiconductor manufacturing services segment were $ 389.8 million for the year ended december 31 , 2012 , a $ 51.5 million , or 15.2 % , increase compared to $ 338.3 million for the year ended december 31 , 2011. this increase was primarily due to an increase in sales volume of eight-inch equivalent wafers driven by higher market demand and an increase in average selling prices . all other . net sales from all other were $ 2.8 million for the year ended december 31 , 2012 , a $ 0.2 million , or 7.3 % , decrease compared to $ 3.0 million for the year ended december 31 , 2011. this decrease was primarily due to a decrease in the disposal of waste materials . net sales by geographic region the following table sets forth our net sales by geographic region and the percentage of total net sales represented by each geographic region for the years ended december 31 , 2012 , and 2011 : replace_table_token_11_th net sales in north america for the year ended december 31 , 2012 increased from $ 81.7 million to $ 126.0 million compared to the year ended december 31 , 2011 , or by $ 44.3 million , or 54.2 % , primarily due to increased demand in the market for semiconductor manufacturing services products . net sales in japan for the year ended december 31 , 2012 decreased from $ 58.2 million to $ 27.4 million compared to the year ended december 31 , 2011 , or by $ 30.8 million , or 52.9 % , primarily due to decreased demand in the market for display solutions products . gross profit total gross profit was $ 263.5 million for the year ended december 31 , 2012 compared to $ 234.3 million for the year ended december 31 , 2011 , a $ 29.2 million , or 12.5 % , increase . gross profit as a percentage of net sales for the year ended december 31 , 2012 increased to 32.2 % compared to 30.3 % for the year ended december 31 , 2011. this increase in gross profit was primarily attributable to an increase in average selling prices in our semiconductor manufacturing services segment and in our power solutions segment , which were partially offset by
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we believe that the use of our platform by active cpaas customer accounts at or above the $ 100 per month threshold is a stronger indicator of potential future engagement than trial usage of our platform at levels below $ 100 per month . a single organization may constitute multiple unique active cpaas customer accounts if it has multiple unique account identifiers , each of which is treated as a separate active cpaas customer account . customers who pay after using our platform and customers that have credit balances are included in the number of active cpaas customer accounts . customers from our other segment are excluded in the number of active cpaas customer accounts , unless they are also cpaas customers . in the years ended december 31 , 2015 , 2016 and 2017 , revenue from active cpaas customer accounts represented approximately 99 % of total cpaas revenue . 58 management 's discussion and analysis dollar-based net retention rate our ability to drive growth and generate incremental revenue depends , in part , on our ability to maintain and grow our relationships with our existing customers that generate cpaas revenue and seek to increase their use of our platform . we track our performance in this area by measuring the dollar-based net retention rate for our customers who generate cpaas revenue . our dollar-based net retention rate compares the cpaas revenue from customers in a quarter to the same quarter in the prior year . to calculate the dollar-based net retention rate , we first identify the cohort of customers that generate cpaas revenue and that were customers in the same quarter of the prior year . the dollar-based net retention rate is obtained by dividing the cpaas revenue generated from that cohort in a quarter , by the cpaas revenue generated from that same cohort in the corresponding quarter in the prior year . when we calculate dollar-based net retention rate for periods longer than one quarter , we use the average of the quarterly dollar-based net retention rates for the quarters in such period . our dollar-based net retention rate increases when such customers increase usage of a product , extend usage of a product to new applications or adopt a new product . our dollar-based net retention rate decreases when such customers cease or reduce usage of a product or when we lower prices on our solutions . as our customers grow their business and extend the use of our platform , they sometimes create multiple customer accounts with us for operational or other reasons . as such , when we identify a significant customer organization ( defined as a single customer organization generating more than 1 % of cpaas revenue in a quarterly reporting period ) that has created a new cpaas customer , this new customer is tied to , and cpaas revenue from this new customer is included with , the original cpaas customer for the purposes of calculating this metric . key components of statements of operations revenue we generate a majority of our revenue from our cpaas segment . cpaas revenue is derived from voice usage , phone number services , 911-enabled phone number services , messaging services and other services . we generate a portion of our cpaas revenue from usage-based fees which include voice calling and messaging services . for the years ended december 31 , 2015 , 2016 and 2017 , we generated 55 % , 56 % and 58 % of our cpaas revenue , respectively , from usage-based fees . we also earn monthly fees from services such as phone number services and 911 access service . for the years ended december 31 , 2015 , 2016 and 2017 , we generated 42 % , 41 % and 40 % of our cpaas revenue in each period from monthly per unit fees . the remainder of our revenue is generated by our other segment . other revenue is composed of revenue earned from our legacy services and indirect revenue . other revenue as a percentage of total revenue is expected to continue to decline over time . we recognize accounts receivable at the time the customer is invoiced . additionally , we record a receivable and revenue for unbilled revenue if the services have been delivered and are billable in subsequent periods . unbilled revenue made up 47 % , 44 % and 41 % of outstanding accounts receivable , net of allowance for doubtful accounts as of december 31 , 2015 , 2016 and 2017 , respectively . 59 management 's discussion and analysis cost of revenue and gross margin cpaas cost of revenue consists primarily of fees paid to other network service providers from whom we buy services such as minutes of use , phone numbers , messages , porting of customer numbers and network circuits . cost of revenue also contains costs related to support of our ip voice network , web services , cloud infrastructure , capacity planning and management , rent for network facilities , software licenses , hardware and software maintenance fees and network engineering services . personnel costs ( including non-cash stock-based compensation expenses ) associated with personnel who are responsible for the delivery of services , operation and maintenance of our communications network , and customer support as well as , third-party support agreements and depreciation of network equipment , amortization of internally developed software and gain ( loss ) on disposal of property and equipment are also included in cost of revenue . other cost of revenue consists of costs supporting non-cpaas services including leased circuit costs paid to third party providers , internet connectivity expenses , minutes of use , direct operations , contractors , regulatory fees , surcharges and other pass-through costs and software and hardware maintenance fees . gross margin is calculated by subtracting cost of revenue from revenue , divided by total revenue , expressed as a percentage . story_separator_special_tag our cost of revenue and gross margin have been , and will continue to be , affected by several factors , including the timing and extent of our investments in our network , our ability to manage off-network minutes of use and messaging costs , the product mix of revenue , the timing of amortization of capitalized software development costs and the extent to which we periodically choose to pass on any cost savings to our customers in the form of lower usage prices . operating expenses the most significant components of operating expenses are personnel costs , which consist of salaries , benefits , bonuses , and stock-based compensation expenses . we also incur other non-personnel costs related to our general overhead expenses , including facility expenses , software licenses , web services , depreciation and amortization of assets unrelated to delivery of our services . we expect that our operating expenses will increase in absolute dollars . research and development r & d consist primarily of personnel costs ( including non-cash stock-based compensation expenses ) , outsourced software development and engineering service and cloud infrastructure fees for staging and development of outsourced engineering services . we capitalize the portion of our software development costs in instances where we invest resources to develop software for internal use . we plan to continue to invest in r & d to enhance current product offerings and develop new services . sales and marketing sales and marketing expenses consist primarily of personnel costs , including commissions for our sales employees and non-cash stock-based compensation expenses . sales and marketing expenses also include expenditures related to advertising , marketing , our brand awareness activities , sales support and professional services fees . 60 management 's discussion and analysis we focus our sales and marketing efforts on creating sales leads and establishing and promoting our brand . we plan to continue to invest in sales and marketing in order to expand our cpaas customer base by growing headcount , driving our go-to-market strategies , building brand awareness , advertising and sponsoring additional marketing events . general and administrative general and administrative expenses consist primarily of personnel costs , including stock-based compensation , for our accounting , finance , legal , human resources and administrative support personnel and executives . general and administrative expenses also include costs related to product management and reporting , customer billing and collection functions , information services , professional services fees , credit card processing fees , rent associated with our headquarters in raleigh , north carolina and our other offices , and depreciation and amortization . we expect that we will incur increased costs associated with supporting the growth of our business and to meet the increased compliance requirements associated with our transition to , and operation as , a public company . income taxes for the years ended december 31 , 2015 , 2016 and 2017 , our effective tax rate was 5.5 % , ( 77.4 ) % and 53.7 % , respectively . the increase in our effective tax rate is due to the release of our valuation allowance against deferred tax assets in the fourth quarter of 2016 and the enactment of the tax cuts and jobs act ( the “ act ” ) in the fourth quarter of 2017 . 61 management 's discussion and analysis results of operations story_separator_special_tag style= '' font-family : inherit ; font-size:12pt ; color : # 231f20 ; '' > in 2016 . during 2016 , we had a full valuation against our deferred tax assets . the valuation allowance was released in december 2016 subsequent to the spin-off . on december 22 , 2017 , the tax cuts and jobs act ( the “ act ” ) was enacted into law . the income tax effects of changes in tax laws are recognized in the period when enacted . among its numerous changes to the internal revenue code , the act reduces u.s. corporate rates from 35 % to 21 % for periods beginning on or after january 1 , 2018 . we have incurred additional income tax expense of $ 2,073 due to the re-measurement of our deferred tax assets at the lower corporate tax rate . additional federal and state interpretive guidance is still forthcoming that could potentially affect the measurement of these balances or give rise to new deferred tax amounts . as such , the re-measurement of our deferred tax balance is provisional pending future guidance . as a result of changes made by the act , starting with compensation paid in 2018 , section 162 ( m ) will limit us from deducting compensation , including performance-based compensation , in excess of $ 1 million paid to anyone who serves as the chief executive officer , chief financial officer , or who is among the three highest compensated executive officers . the only exception to this rule is for compensation that is paid pursuant to a binding contract in effect as of november 2 , 2017 that would have otherwise been deductible under the prior section 162 ( m ) rules . accordingly , any compensation paid in the future pursuant to new compensation arrangements entered into after november 2 , 2017 , even if performance-based , will count towards the $ 1 million fiscal year deduction limit if paid to a covered executive . because many different factors influence a well-rounded , comprehensive executive compensation program , some of the compensation we provide to our executive officers may not be deductible under code section 162 ( m ) if our compensation committee believes it will contribute to the achievement of our business objectives . loss from discontinued operations , net of income tax in 2017 , loss from discontinued operations decreased by $ 3.1 million compared to 2016 .
| in addition , revenue from new cpaas customers contributed $ 5.7 million , or 5 % , to cpaas revenue for 2017 compared to $ 4.2 million , or 4 % to cpaas revenue in 2016 . other revenue decreased by $ 3.7 million , or 10 % , due to expected declines in our legacy services of $ 3.1 million and a decrease in indirect revenue of $ 0.6 million . cost of revenue and gross margin replace_table_token_12_th 64 management 's discussion and analysis in 2017 , total gross profit increased by $ 6.8 million , or 10 % , compared to 2016 . total gross margin increased from 44 % to 45 % during the same period . in 2017 , cpaas cost of revenue increased by $ 4.6 million , or 7 % compared 2016 . cpaas cost of revenue increased primarily due to an increase in voice usage costs of $ 1.9 million due to growth in minutes used by customers , partially offset by a decrease in the cost per minute from vendors . cost of phone numbers increased by $ 0.8 million due to an increase in phone numbers used by customers . cost of messaging increased by $ 0.6 million due to an increase in number of messages used by customers and a slight increase in the cost per message . additional increases were due to network costs and 911 services which increased $ 1.0 million and $ 0.2 million respectively . in 2017 , cpaas gross margin increased from 39 % to 42 % compared to 2016 . excluding depreciation and stock-based compensation of $ 4.6 million and $ 4.4 million for 2016 and 2017 , respectively , cpaas non-gaap gross margin would have been 43 % and 46 % for 2016 and 2017 , respectively , and total non-gaap gross margin would have been 47 % and 48 % for the same periods . other cost of revenue decreased by $ 0.6 million , which was due to a $ 1.3 million decrease as a result of churn in legacy services , partially
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we have been able to leverage our extensive distribution network and large private transportation fleet to help mitigate the impacts of covid-19 . we have experienced and expect to continue to experience volatility in commodity inputs , which has impacted our input costs , in part due to impacts caused by covid-19 . production facility downtime in the back half of fiscal 2020 impacted all our segments ' supply chains . our prepared foods segment depends on adequate supplies of raw materials necessary for its production . high levels of industry pork facility idling during the back half of fiscal 2020 impacted the availability of certain raw materials which temporarily limited production capability and increased formulation costs of various prepared foods products . additionally , our chicken segment had to divert some of its live production to rendering and suboptimal product mixes , while our beef and pork segments had to delay deliveries of live cattle and hogs and also dealt with the impact of heavier harvest weights . since we also export globally , container availability and port capacities have been among the challenges in meeting the global demand for our products . insurance and cares act – although we maintain insurance policies for various risks , we do not believe most covid-19 impacts will be covered by our policies . on march 27 , 2020 , the president signed into law the coronavirus aid , relief and economic security act ( the “ cares act ” ) . the cares act , among other things , includes provisions relating to refundable payroll tax credits , deferral of the employer portion of social security payments , and a number of income tax provisions . the provisions related to income tax will not have a significant impact on our financial statements . we began implementing the deferral of the employer portion of social security payments in the back half of the fiscal year , which had a favorable impact on liquidity . this resulted in the deferral of approximately $ 185 million of payroll taxes in fiscal 2020. we recognized a benefit of approximately $ 30 million related to the refundable payroll tax credit provision . liquidity – we generated approximately $ 3.9 billion of operating cash flows during fiscal 2020 . at october 3 , 2020 , we had $ 3.2 billion of liquidity , which included availability under our revolving credit facility and $ 1,420 million of cash and cash equivalents . we have $ 548 million of current debt . combined with the cash expected to be generated from the company 's operations , we anticipate that we will maintain sufficient liquidity to operate our business , make capital expenditures , pay dividends and address other needs including our ability to meet maturing debt obligations . however , we will continue to monitor the impact of covid-19 on our liquidity and , if necessary , take action to preserve liquidity and ensure that our business can operate during these uncertain times . this may include temporarily suspending share repurchases , suspending or reducing dividend payments or other cash preservation actions as necessary . overall financial condition – we continue to proactively manage the company and its operations through the pandemic . the major challenge we face is the availability of team members to operate our production facilities as our production facilities are experiencing varying levels of absenteeism . we will continue to operate our production facilities with team member health and safety as a top priority . the covid-19-related slowdowns and temporary idling drive higher labor and production costs , which we expect to continue until the return of more normal conditions . however , some of the higher labor and other costs may become more permanent in nature . we also experienced covid-19-related demand shifts away from foodservice and into retail , and we responded to the demand shifts by adjusting parts of our production capacity accordingly . despite adjusting parts of our operational footprint , higher retail volumes did not fully offset the reduced volumes in foodservice . additionally , the price and mix of these volume shifts resulted in lower margin realization for portions of the year in our prepared foods and chicken segments . further , idling of pork facilities could have downstream impacts on the availability of raw material for parts of our prepared foods business , which could subsequently impact its ability to produce at normal levels . consequently , the challenges created by absenteeism and our proactive , temporary idling of production facilities due to covid-19 , adversely affects our operating costs and reduces what would otherwise be a stronger margin environment . however , we can not predict the ultimate impact that covid-19 will have on our short- and long-term demand at this time , as it will depend on , among other things , the severity and duration of the covid-19 pandemic . our liquidity is expected to be adequate to continue to run our operations and meet our obligations as they become due . fiscal year our accounting cycle resulted in a 53-week year for fiscal 2020 and a 52-week year for fiscal 2019 and 2018. general sales grew 2 % in fiscal 2020 over fiscal 2019 to $ 43.2 billion , primarily due to the impact of the additional week and increased average sales prices in the beef , pork and prepared foods segments . fiscal 2020 operating income increased compared to fiscal 2019 , as strong beef and pork segment results were partially offset by a decline in operating income in the chicken and prepared foods segments . in fiscal 2020 , our results were impacted by $ 77 million of restructuring and related charges offset by the positive impact of the additional week . story_separator_special_tag in fiscal 2019 , our results were impacted by a $ 41 million impairment associated with the planned divestiture of a business , $ 41 million of restructuring and related charges , $ 37 million related to keystone foods purchase accounting and acquisition related costs and $ 31 million of costs associated with a fire at one of our beef production facilities . 28 during fiscal 2020 , we incurred direct incremental expenses related to covid-19 totaling approximately $ 540 million , of which approximately $ 500 million and $ 40 million were recorded in cost of sales and selling , general and administrative , respectively , in our consolidated statements of income . these covid-19 direct incremental expenses primarily included team member costs associated with worker health and availability and production facility downtime , including direct costs for personal protection equipment , production facility sanitization , covid-19 testing , donations , product downgrades , rendered product , certain professional fees and $ 114 million of thank you bonuses to frontline team members , which was partially offset by the cares act credits . due to the nature of these direct incremental covid-19 expenses , our segments were primarily impacted based on their relative number of team members , absenteeism and the degree of production disruptions they have experienced , and thus , our beef and chicken segments incurred a greater proportion of the total costs . these direct incremental covid-19 related costs exclude market related impacts that may have been driven in part by covid-19 , including such items as derivatives , deferred compensation investments and other market driven impacts to margin and demand . other indirect costs associated with covid-19 are not reflected in these amounts , including costs associated with raw materials , distribution and transportation , plant underutilization and reconfiguration , premiums paid to cattle producers , and pricing discounts . market environment according to the usda , domestic protein production ( beef , pork , chicken and turkey ) increased approximately 2 % in fiscal 2020 compared to fiscal 2019 . we continue to monitor recent trade and tariff activity as well as covid-19 and its potential impacts to exports and input costs across all of our segments . additionally , all segments experienced increased operating costs in fiscal 2020. we will pursue recovery of these increased costs through pricing . the beef and pork segments experienced strong demand but had lower production throughput associated with the impacts of covid-19 and also experienced lower livestock costs . the chicken segment experienced volatile market conditions associated with increased domestic availability of supply and lower production throughput associated with covid-19 . the prepared foods segment continued to experience growth in the retail channel but faced increased raw material costs and lower production throughput associated with covid-19 . margins – our total operating margin was 7.2 % in fiscal 2020 . operating margins by segment were as follows : beef – 10.7 % pork – 11.0 % chicken – 0.9 % prepared foods – 8.7 % strategy our strategy is to sustainably feed the world with the fastest growing protein brands . we intend to achieve our strategy as we : grow our business through differentiated capabilities ; deliver ongoing financial fitness through continuous improvement ; and sustain our company and our world for future generations . during fiscal 2019 , we acquired two businesses for a total of approximately $ 2.5 billion , net of cash acquired . these businesses included the thai and european operations , which consist of vertically integrated chicken and further-processing operations , and keystone foods , a major supplier to the growing global foodservice industry . they were acquired in furtherance of our growth strategy and expansion of our value-added protein capabilities in domestic and global markets . for further description refer to part ii , item 8 , notes to the consolidated financial statements , note 3 : acquisitions and dispositions . in the first quarter of fiscal 2020 , the company approved a restructuring program ( the `` 2020 program '' ) , which is expected to contribute to the company 's overall strategy of financial fitness through the elimination of overhead and consolidation of certain enterprise functions . in the fourth quarter of fiscal 2020 , the company extended the 2020 program as it identified additional opportunities to eliminate overhead by optimizing organizational structures and other activities . as a result of this restructuring program , we expect to realize savings of approximately $ 140 million and $ 160 million in fiscal 2021 and fiscal 2022 , respectively . we have recognized $ 60 million of cumulative pretax charges in fiscal 2020 associated with the 2020 program consisting of severance and employee related costs . as part of the 2020 program , we are eliminating positions across several areas and job levels , with eliminated positions originating from the corporate offices in springdale , arkansas and chicago , illinois , as well as certain production facility and supply chain administrative positions . the majority of the positions have already been or are expected to be eliminated by the end of fiscal 2021. for further description refer to part ii , item 8 , notes to the consolidated financial statements , note 7 : restructuring and related charges . 29 replace_table_token_7_th 2020 – included the following items : $ 75 million pretax , or ( $ 0.16 ) per diluted share , of restructuring and related charges . $ 65 million pretax , or $ 0.14 per diluted share , related to the additional week in fiscal 2020 . $ 116 million pretax , or $ 0.24 per diluted share , due to gain from pension plan terminations . 2019 – included the following items : $ 37 million pretax , or ( $ 0.08 ) per diluted share , of keystone foods purchase accounting and acquisition related costs , which included an $ 11 million purchase accounting adjustment for the amortization of the fair value step-up of inventory and $ 26 million of acquisition related costs .
| the above amounts include a net increase of $ 2,209 million related to the impact of results from acquisitions and divestitures . 30 replace_table_token_9_th 2020 vs. 2019 – cost of sales increased $ 418 million . this included a net increase of $ 667 million primarily related to the impact of results from acquisitions and divestitures . for the remaining $ 249 million decrease , higher input cost per pound increased cost of sales $ 393 million , offset by lower sales volume , which decreased cost of sales $ 642 million . the $ 393 million impact of higher input cost per pound was impacted by : increase across all of our segments primarily driven by net impacts on average cost per pound from mix changes as well as production inefficiencies due in part to the impact of covid-19 in fiscal 2020. increase of approximately $ 500 million of direct incremental expenses related to covid-19 . increase of approximately $ 80 million in our chicken segment related to net increases in feed ingredient costs , growout expenses and outside meat purchases . increase in raw material and other input costs of approximately $ 90 million as well as an increase in inventory write downs of approximately $ 15 million in our prepared foods segment . increase in incentive-based compensation of approximately $ 70 million . decrease in live cattle costs of approximately $ 530 million in our beef segment . decrease in live hog costs of approximately $ 255 million in our pork segment . the $ 642 million impact of lower sales volume , excluding the impact of acquisitions , was primarily driven by decreased sales volume in each of our segments due to lower production throughput associated with the impact of covid-19 in the back half of fiscal 2020 as well as a reduction in live cattle processing capacity from the temporary closure of a production facility in the first
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issuers are less likely to use financial guaranties on their new issues when credit spreads are narrow , which results in decreased demand or premiums obtainable for financial guaranty insurance , and a resulting reduction in the company 's results of operations . see key business strategies , new business production section below for market volume and penetration . equity markets continued their solid 2017 performance during the first three quarters of 2018 , but turned decidedly lower in the fourth quarter . the company believes that fears that an increasing interest rate environment would hurt the economy in the medium-term , the potential impact of trade negotiations with china , european turmoil ( i.e . brexit ; italy 's political , economic , and sovereign fiscal instability ) , and the partial u.s. government shut down increased market volatility and sent the major u.s. indices lower for the year . the dow jones industrial average ( djia ) , nasdaq composite index and the s & p 500 index all finished in negative territory for the full year . during 2018 the u.s. dollar appreciated by around 8 % against other currencies on a trade-weighted basis according to data from the federal reserve bank of st. louis . the company believes this was the result of the u.s. economy 's stronger economic performance vis-à-vis the rest of the world and the differing monetary policy path pursued by the federal reserve and other key central banks like the bank of japan , the bank of england and the european central bank . see results of operations , consolidated results of operations , other income ( loss ) below for gains/losses on foreign exchange rate changes on the consolidated statements of operations . 71 financial performance of assured guaranty financial results replace_table_token_5_th replace_table_token_6_th ( 1 ) see “ —non-gaap financial measures ” for a definition of the financial measures that were not determined in accordance with accounting principles generally accepted in the united states of america ( gaap ) and a reconciliation of the non-gaap financial measure to the most directly comparable gaap measure , if available . see “ —non-gaap financial measures ” for additional details . ( 2 ) see `` key business strategies – capital management '' below for information on common share repurchases . several primary drivers of volatility in net income or loss are not necessarily indicative of credit impairment or improvement , or ultimate economic gains or losses such as : changes in credit spreads of insured credit derivative obligations , changes in fair value of assets and liabilities of fg vies and committed capital securities ( ccs ) , changes in fair value of credit derivatives related to the company 's own credit spreads , and changes in risk-free rates used to discount expected losses . changes in the company 's and or collateral credit spreads generally have the most significant effect on the fair value of credit derivatives and fg vies ' assets and liabilities . effective january 1 , 2018 , the change in fair value of fg vies ' liabilities with recourse attributed to changes in the credit spreads of agc and agm , or instrument specific credit risk ( iscr ) , is recorded in oci . 72 in addition to non-economic factors , other factors such as : changes in expected claims and recoveries , the amount and timing of the refunding and or termination of insured obligations , realized gains and losses on the investment portfolio ( including other-than-temporary impairments ( otti ) ) , the effects of large settlements , commutations , acquisitions , the effects of the company 's various loss mitigation strategies , and changes in laws and regulations , among others , may also have a significant effect on reported net income or loss in a given reporting period . year ended december 31 , 2018 net income for 2018 was $ 521 million compared with $ 730 million in 2017 . net income for 2017 was higher primarily due to significant gains attributable to commutations , the mbia uk acquisition and representations and warranties ( r & w ) settlements . excluding these items in 2017 , net income increased mainly due to lower loss and lae and a lower effective tax rate , offset in part by lower net earned premiums , and net realized investment losses and foreign exchange losses in 2018 compared with foreign exchange gains in 2017. the company reported non-gaap operating income of $ 482 million in 2018 , compared with $ 661 million in 2017 . excluding commutations , the mbia uk acquisition and r & w settlements in 2017 , non-gaap operating income increased mainly due to lower loss and lae and a lower effective tax rate in 2018 , offset in part by lower net earned premiums . shareholders ' equity decreased since december 31 , 2017 primarily due to share repurchases , dividends and unrealized losses on available for sale investment securities , partially offset by net income . non-gaap operating shareholders ' equity decreased in 2018 primarily due to share repurchases and dividends , partially offset by positive non-gaap operating income . non-gaap adjusted book value decreased in 2018 primarily due to share repurchases and dividends , partially offset by the effect of the sgi transaction and new direct business production . shareholders ' equity per share , non-gaap operating shareholders ' equity per share and non-gaap adjusted book value per share all increased in 2018 to $ 63.23 , $ 61.17 and $ 86.06 , respectively , which benefitted from the repurchase of an additional 13.2 million shares in 2018 under the share repurchase program that began in 2013. see `` accretive effect of cumulative repurchases '' table below . key business strategies the company continually evaluates its business strategies . story_separator_special_tag currently , the company is pursuing the following business strategies , each described in more detail below : new business production capital management alternative strategies loss mitigation new business production the company believes high-profile defaults by municipal obligors , such as puerto rico , detroit , michigan and stockton , california have led to increased awareness of the value of bond insurance and stimulated demand for the product . the company believes there will be continued demand for its insurance in this market because , for those exposures that the company guarantees , it undertakes the tasks of credit selection , analysis , negotiation of terms , surveillance and , if necessary , loss mitigation . the company believes that its insurance : encourages retail investors , who typically have fewer resources than the company for analyzing municipal bonds , to purchase such bonds ; enables institutional investors to operate more efficiently ; and allows smaller , less well-known issuers to gain market access on a more cost-effective basis . on the other hand , the persistently low interest rate environment and relatively tight u.s. municipal credit spreads have dampened demand for bond insurance , and provisions in legislation known as the tax act , such as the termination of the tax-exempt status of advance refunding bonds and the reduction in corporate tax rates , have resulted in a reduction of supply and made municipal obligations less attractive to certain institutional investors . 73 u.s. municipal market data and bond insurance penetration rates ( 1 ) based on sale date replace_table_token_7_th ( 1 ) source : the amounts in the table are those reported by thomson reuters . in addition , the company considers $ 500 million of taxable promedica toledo hospital bonds insured by assured guaranty in 2018 to be public finance business . 74 gross written premiums and new business production replace_table_token_8_th ( 1 ) pvp and gross par written in the table above are based on `` close date , '' when the transaction settles . see “ – non-gaap financial measures – pvp or present value of new business production. ” ( 2 ) includes life insurance capital relief transactions in certain years . ( 3 ) included aircraft rvi policies in certain years . gwp relates to both financial guaranty insurance and non-financial guaranty insurance contracts . credit derivatives are accounted for at fair value and therefore not included in gwp . financial guaranty gwp includes amounts collected upfront on new business written , the present value of future premiums on new business written ( discounted at risk free rates ) , as well as the effects of changes in the estimated lives of transactions in the inforce book of business . non-financial guaranty gwp is recorded as premiums are received . non-gaap pvp , on the other hand , includes upfront premiums and future installments on new business that are estimated at the time of issuance , discounted at 6 % for all contracts whether in insurance or credit derivative form . gwp and pvp for 2018 reached 10-year records due to the assumption of substantially all of the insured portfolio of sgi . on a gaap basis , the sgi transaction generated gwp of $ 330 million , plus $ 86 million in undiscounted expected future credit derivative revenue , including transactions with $ 131 million in expected losses ( discounted at a risk-free rate on a gaap basis ) . on a non-gaap basis , pvp was $ 391 million , including transactions with expected losses of $ 83 million ( discounted at 6 % consistent with the pvp discount rate ) . see also item 8 , financial statements and supplementary data , note 2 , assumption of insured portfolio and business combinations , for additional information . the components of new business production generated by the sgi transaction are presented below . 75 assumed sgi insured portfolio as of june 1 , 2018 replace_table_token_9_th ( 1 ) see “ – non-gaap financial measures – pvp or present value of new business production. ” excluding the assumed business from sgi , u.s. public finance pvp was 5 % higher compared with 2017 , despite a 22 % decline in new u.s. municipal bonds issued . in 2018 , assured guaranty once again guaranteed the majority of u.s. public finance insured par issued . outside the u.s. , the company generated $ 44 million of public finance pvp in 2018 compared with $ 66 million in 2017. in 2018 this included several infrastructure finance and regulated utilities transactions , including the company 's first post-financial crisis transaction in australia . in non-u.s. structured finance , the company closed insurance and reinsurance aircraft residual value insurance policies , which represented all of the new business in 2017 and the majority of new business in 2018. in 2018 , the company also closed transactions in the commercial real estate market , and guaranteed a collateralized loan obligation for the first time since 2008. structured finance transactions tend to have long lead times and may vary from period to period . the company believes its financial guaranty product is competitive with other financing options in certain segments of the global infrastructure market . future business activity in the global infrastructure market will be influenced by the typically long lead times for these types of transactions and may vary from period to period . the company also believes that its financial guaranty product is competitive with other financing options in certain segments of the structured finance market . for example , certain investors may receive advantageous capital requirement treatment with the addition of the company 's guaranty . the company considers its involvement in both international infrastructure and structured finance transactions to be beneficial because such transactions diversify both the company 's business opportunities and its risk profile beyond u.s. public finance . capital management in recent years , the company has developed strategies to manage capital within the assured guaranty group more efficiently .
| 112 commitments and contingencies leases the company leases and occupies approximately 103,500 square feet in new york city through 2032. subject to certain conditions , the company has an option to renew the lease for five years at a fair market rent . in addition , agl and its subsidiaries lease additional office space in various locations under non-cancelable operating leases which expire at various dates through 2029. see “ –contractual obligations ” or item 8 , financial statements and supplementary data , note 15 , commitments and contingencies , for lease payments due by period . rent expense was $ 9 million in 2018 , $ 9 million in 2017 and $ 13 million in 2016 . long-term debt obligations the company has outstanding long-term debt issued primarily by agus and agmh . all of agus 's and agmh 's debt is fully and unconditionally guaranteed by agl ; agl 's guarantee of the junior subordinated debentures is on a junior subordinated basis . the outstanding principal , and interest paid , on long-term debt were as follows : principal outstanding and interest paid on long-term debt replace_table_token_49_th ( 1 ) represents principal amount of junior subordinated debentures issued by agmh that has been purchased by agus . see item 8 , financial statements and supplementary data , note 16 , long-term debt and credit facilities , for additional information . issued by agus : 7 % senior notes . on may 18 , 2004 , agus issued $ 200 million of 7 % senior notes due 2034 for net proceeds of $ 197 million . although the coupon on the senior notes is 7 % , the effective rate is approximately 6.4 % , taking into account the effect of a cash flow hedge . the notes are redeemable , in whole or in part , at their principal amount plus accrued and unpaid interest at the date of redemption or , if greater , the make-whole redemption price . 5 % senior notes . on june 20 , 2014 , agus issued $ 500 million of 5 % senior notes due 2024 for net proceeds of $ 495 million . the net proceeds from the sale
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management currently estimates that we will require an additional 367,000 metric tons of washed coal in order to hit our targeted amount of grade ii coke available for delivery by the end of calendar year 2014. story_separator_special_tag baofeng plant yielded more and better quality coal tar and crude benzol . we started to lease a recovery stamping coke oven in hongfeng plant which is using an upgraded coking technology and conducted trial production in april 2013. with one-year learning curve and quality control management , we were able to produce higher quality crude benzol and coal tar , which resulted in increased production and revenues in fiscal year 2014 compared to fiscal year 2013. although the market demand of coke has been weak since 2013 , our revenues from coke products still increased $ 4.8 million or 12.29 % , resulting from demand from special steel customers such as fangda steel , and favorable market and pricing conditions contributed to coal tar and crude benzol revenues . revenue and quantity sold of each coal product for fiscal 2014 and 2013 are as follows : coal product replace_table_token_14_th our coal revenue continued to suffer from raw coal supply from our coal mine created by the ongoing mining moratorium . we are unable to predict whether or when the moratorium is likely to end . no raw coal revenues were generated for fiscal year 2014 . 38 we purchase raw coal from third parties and wash it for our coking processing . during fiscal 2014 , our business relationships with some of our coal customers terminated due to ( 1 ) weak market demand for raw coals and washed coals in 2014 and ( 2 ) inability to reach certain sale terms , including payment terms and selling price . in response to the termination , our revenues from raw coal and washed coal had been declined significantly , compared with our performance in 2013. when combined with the effect of lower selling prices , our coal product revenues decreased significantly . we believe this trend may continue for at least the near term , if not long term future , as a result of government initiatives aimed at increasing uses of clean energy . this is one reason we have been focusing on moving into the clean energy industry . cost of revenue cost of revenue decreased to $ 41,275,791 from $ 58,478,301 a year ago . this was mainly driven by lower sale volumes for most of our coal products . gross profit gross profit was $ 8,991,902 , an increase of $ 783,902 or 9.55 % from $ 8,208,000 a year ago , despite decreased revenues as discussed above . gross profit margin increased to 17.89 % from approximately 12.09 % for the prior fiscal year , mainly due to stable demand of our coke and improved quality and production capacity of byproducts during the coking procedure , coal tar and crude benzol . operating expenses operating expenses , which consist of selling expenses and general and administrative expenses , was $ 2,276,565 , a decrease of $ 811,838 or 26.29 % from a year ago . selling expenses decreased by $ 9,111 or 5.56 % , to $ 154,716 , from slight reduction in expenses relating to selling activities . general and administrative expenses decreased by $ 802,727 or 27.45 % , to $ 2,121,849 , due to the following factors : ( 1 ) our rental expense decreased by $ 114,000 , from closing our beijing office ; ( 2 ) consulting expenses decreased by $ 382,000 with engaging new consultants with lower charges ; ( 3 ) lower investor relations expenditures , which were reduced by approximately $ 163,000 , and ( 4 ) payroll expense was reduced by $ 90,000 as well as $ 54,000 reduction from entertainment expense and travel expense due to our cost control policy . other income and expense other income and expense includes finance expense ( which consists of interest and other finance expenses , net of interest income ) , income and expense not related to our principal operations , and change in fair value of warrants . finance expense was $ 3,982,378 , an increase of $ 626,199 or 18.66 % from a year ago . this is largely due to the following factors : ( 1 ) we incurred an additional $ 602,020 in interest in connection with extending hongli 's loans with bairui trust co. , ltd. ( “ bairui trust ” ) due to average interest rate increase from 7.01 % to 8.88 % and the penalty interest for overdue interest payment ; ( 2 ) the bank service charge decrease $ 193,218 , or 72.89 % for a year ago . the decrease over our bank service charge was from lower bank acceptance note use as a payment tool in fiscal year 2014 , and ( 3 ) the interest income from $ 8,032,037 in loan receivable decreased by $ 217,397 , due to collections of $ 10.8 million in loan receivable and re-loans of $ 10 million during the fiscal year 2013. we had incomes unrelated to our principal operations of $ 109,100 in fiscal year 2014 , compared to $ 229,036 in fiscal year 2013. the decrease was mainly from a dividend of $ 191,160 from our investment in pingdingshan rural cooperative bank ( “ prcb ” ) – xinhua district branch in fiscal year 2013. we also recorded other income from the gain in fair value of warrants in the amount of $ 5 in fiscal year 2014 compared to $ 716,627 in fiscal year 2013. as a result of the foregoing , we had other expense of $ 3,873,273 as compared other expense of $ 2,410,516 a year ago . provision for income taxes provision for income taxes decreased by $ 190,094 from a year ago , reflecting our higher taxable incomes from chinese operations . net income net income , including the change in fair value of warrants , was $ 990,582 , as compared to $ 1,047,693 a year ago . story_separator_special_tag 39 liquidity and capital resources as of june 30 , 2014 , our working capital was $ 6,760,391 as compared to negative working capital of $ 24,312,407 at june 30 , 2013 , due to reclassification of part of bairui trust 's short-term loans of $ 29,243,566 to long-term loans . our accounts have accordingly been prepared in accordance with u.s. gaap on a going concern basis . the going concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed in the financial statements . our ability to continue as a going concern depends upon expenditure requirement and repayments of our short-term loan and long-term loan facilities with bairui trust as and when they become due . in an effort to improve our financial position , we intend to negotiate with bairui trust to extend our loan maturity date , and to increase sales of higher margin products such as coal tar and crude benzol . in the meantime , we are still waiting for the mining moratorium to conclude . if and when that occurs , we should be able to obtain a line of credit to facilitate additional liquidity by pledging our mining rights . management believes that these and other actions taken can provide us the opportunity to continue as a going-concern . in summary , our cash flows are as follows : replace_table_token_15_th net cash provided by ( used in ) operating activities net cash used in operating activities for fiscal 2014 was approximately $ 0.65 million , as compared to net cash used in operating activities of approximately $ 6.6 million for fiscal 2013. except for $ 1,311,859 in non-cash adjustment such as depreciation , amortization and depletion , bad debt , change in fair value of warrants , inventory impairment , and gain from forgiven payables which increased our cash-based net income , net operating inflow for fiscal 2014 resulted from the following factors : ( 1 ) our accounts receivable decreased by $ 427,486 , due to improved collection of receivables from our customers ; ( 2 ) advances to suppliers decreased by $ 128,205 , due to tightening control of our prepayments ; ( 3 ) our accounts payable decreased by $ 2,800,529 due to more credit from the suppliers ; and ( 4 ) our other payables and liabilities increased by $ 323,870 , including interest payables to bairui trust , salary payables , and others related to general and administrative expenses . cash inflow was mainly offset by the following factors : ( 1 ) other receivable increase by $ 1,558,667 mainly due to a security deposit we made in connection with a not-yet-completed land use right auction ; ( 2 ) inventory increased by $ 4,568,625 mainly due to soft market demand for our products , and ( 3 ) tax payable decreased by $ 373,545 due to less vat payables recognized at the end of fiscal year 2014 because of reduction of our revenues during the same period . net cash provided by operating activities for fiscal 2013 was approximately $ 6.6 million , as compared to net cash used in operating activities of approximately $ 12.2 million for fiscal 2012. except for $ 1,107,666 in non-cash adjustment such as depreciation , amortization and depletion , bad debt and change in fair value of warrants which increased our cash-based net income , net operating inflow for fiscal 2013 resulted from the following factors : ( 1 ) our account receivable decreased by $ 2,757,701 , due to improved collection of receivables from our customers ; ( 2 ) advances to suppliers decreased by $ 3,681,517 , due to tightening control of our prepayments ; ( 3 ) we did not have prepaid expense , which increased our cash inflow by $ 636,908 ; and ( 4 ) our other payables and liabilities increased by $ 1,405,131 , including interest payables to bairui trust , salary payables , and others related to general and administrative expenses . cash inflow was mainly offset as follows : ( 1 ) notes receivable decreased by $ 398,250 due to the maturity and cashing of such notes ; ( 2 ) inventory increased by $ 576,227 mainly due to soft market demands for our products ; and ( 3 ) tax payable decreased by $ 414,772 due to lower taxable income in the fourth quarter of fiscal 2013 , as compare to the same period last year . net cash provided by investing activities we had no cash provided by or used in investing activities in fiscal year 2014. net cash provided by investing activities for fiscal 2013 reflects : ( 1 ) $ 9,558,000 in loan receivable to an unrelated party , which was repaid in april 2013 ; and ( 2 ) $ 1,234,300 in loan receivable we collected from a borrower . net cash provided by ( used in ) financing activities net cash provided by financing activities in fiscal year 2014 included : ( 1 ) restricted cash release from the notes payable maturity amount to $ 9,770,396 ; ( 2 ) a $ 385,000 loan from the ceo ; and ( 3 ) a short-term loan from an individual of $ 163,700 , offset by ( a ) repayment of the notes payable in the same amount $ 9,770,396 ; ( b ) $ 325,680 repaid loan to barirui trust in april 2014 ; and ( c ) a repayment of $ 163,700 on october 2013 .
| revenue and quantity sold by product types for fiscal 2014 and 2013 are as follows : replace_table_token_10_th coke products include finished coke ( a key raw material for producing steel ) , coke powder ( a smaller-grained coke that can be produced along with coke and used by non-ferrous metallurgical industry ) , coal tar , and crude benzol . coal tar and crude benzol are byproducts of the coke manufacturing process with various industrial applications . coal products include unprocessed metallurgical coal , processed or washed coal , mid-coal and coal slurries , which are by-products of the coal washing process and used primarily to generate electricity and for heating . as used in this discussion and analysis , unless otherwise indicated , “ coke ” includes both coke and coke powder , and “ raw coal ” includes coal that is unwashed and relatively unprocessed , as well as mid-coal and coal slurries . average selling prices per metric ton of our products during fiscal 2014 and 2013 are as follows : average selling price of coke products replace_table_token_11_th average selling price of coal products replace_table_token_12_th generally , our selling prices are driven by a number of factors , including the particular composition and quality of the coal or coke we sell , their prevailing market prices locally and throughout china , as well as in the global marketplace , timing of sales , delivery terms , and our relationships with our customers and our negotiations of their purchase orders . however , the increase of $ 552 or 162.48 % at our crude benzol selling prices over the fiscal years of 2014 and 2013 was contributed from our production quality and quantity of crude benzol . during the year ended june 30 , 2014 , our production of crude benzol increased from 180 metric tons in fiscal 2013 to 911 metric tons , and we were able to improve the quality of our crude benzol product , both of which gave us more bargaining power with our customers for higher selling prices . additionally , we started to produce crude benzol using new coking ovens and technology in april 2013. after a
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48 we engage in various sales and market ing efforts to extend our open source distribution model . we employ multi-touch marketing campaigns to nurture our users and customers and keep them engaged after they download our software . additionally , we maintain direct sales efforts focused on users a nd customers who have adopted our software , as well as departmental decision-makers and senior executives who have broad purchasing power in their organizations . our sales teams are primarily segmented by geographies and secondarily by the employee count o f our customers . they focus on both initial conversion of users into customers and additional sales to existing customers . in addition to our direct sales efforts , we also maintain partnerships to further extend our reach and awareness of our products arou nd the world . we continue to make substantial investments in developing the elastic stack and the solutions we address and expanding our global sales and marketing footprint . with a distributed team spanning over 35 countries , we are able to recruit , hire , and retain high-quality , experienced developers , tech leads , product managers and sales personnel and operate at a rapid pace to drive product releases , fix bugs , and create and market new products . we had 1,442 employees as of april 30 , 2019. we have experienced significant growth , with revenue increasing to $ 271.7 million in the year ended april 30 , 2019 from $ 159.9 million in the year ended april 30 , 2018 and $ 88.2 million in the year ended april 30 , 2017 , representing year-over-year growth of 70 % for the year ended april 30 , 2019 and 81 % for the year ended april 30 , 2018. in the year ended april 30 , 2019 , revenue from outside the united states accounted for 43 % of our total revenue . for our non-u.s. operations , the majority of our revenue and expenses are denominated in currencies such as the euro and british pound sterling . no customer represented more than 10 % of our revenue in the years ended april 30 , 2019 , 2018 or 2017. we have not been profitable to date . in the years ended april 30 , 2019 , 2018 and 2017 , we incurred net losses of $ 102.3 million , $ 52.7 million and $ 52.0 million , respectively , and our net cash used in operating activities was $ 23.9 million , $ 20.8 million and $ 16.1 million , respectively . we have experienced losses in each year since our incorporation and as of april 30 , 2019 , had an accumulated deficit of $ 317.1 million . we expect we will continue to incur net losses for the foreseeable future . there can be no assurance as to when we may become profitable . initial public offering in october 2018 , we completed our ipo in which we issued and sold 8,050,000 ordinary shares at an offering price of $ 36.00 per share , including 1,050,000 ordinary shares pursuant to the exercise in full of the underwriters ' option to purchase additional shares . we received net proceeds of $ 263.8 million , after deducting underwriting discounts and commissions of $ 20.3 million and offering expenses of $ 5.7 million . immediately prior to the closing of the ipo , all 28,939,466 shares of our then-outstanding redeemable convertible preference shares automatically converted into 28,939,466 ordinary shares at their respective conversion ratios and the we reclassified $ 200.6 million from temporary equity to additional paid-in capital and $ 0.3 million to ordinary shares on our consolidated balance sheet . key factors affecting our performance we believe that the growth and future success of our business depends on many factors , including those described below . while each of these factors presents significant opportunities for our business , they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations . growing the elastic community . our open source strategy consists of providing a combination of open source , free proprietary and paid proprietary software and fostering a community of users and developers . our strategy is designed to pursue what we believe to be significant untapped potential for the use of our technology . after developers begin to use our software and start to participate in our developer community , they become more likely to apply our technology to additional use cases and evangelize our technology within their organizations . this reduces the time required for our sales force to educate potential leads on our solutions , increasing their efficiency and shortening the sales process . in order to capitalize on our opportunity , we intend to make further investments to keep the elastic stack accessible and well known to software developers around the world . we intend to continue to invest in our products and support and engage our user base and developer community through content , events , and conferences in the u.s. and internationally . our results of operations may fluctuate as we make these investments . 49 developing new features and solutions to expand the use cases to which the elastic stack can be applied . the elastic stack is applied to various use cases both directly by developers and through the solutions we offer . our revenue is derived primarily from subscriptions of the elastic stack and our solutions . we believe that releasing additional open source and proprietary features of the e lastic stack and additional solutions on top of the stack drives usage of our products and ultimately drives our growth . to that end , we plan to continue to invest in building new features and solutions that expand the capabilities of the elastic stack and make it easier to apply to additional use cases . these investments may adversely affect our operating results prior to generating benefits , to the extent that they ultimately generate benefits at all . story_separator_special_tag growing our customer base by converting users of our software to paid subscribers . our financial performance depends on growing our paid customer base by converting free users of our software into paid subscribers . our open source distribution model has resulted in rapid adoption by developers around the world . we have invested , and expect to continue to invest , heavily in sales and marketing efforts to convert additional free users to paid subscribers . our investment in sales and marketing is significant given our large and diverse user base . the investments are likely to occur in advance of the anticipated benefits resulting from such investments , such that they may adversely affect our operating results in the near term . expanding within our current customer base . our future growth and profitability depend on our ability to drive additional sales to existing customers . customers often expand the use of our software within their organizations by increasing the number of developers using our products , increasing the utilization of our products for a particular use case , and expanding use of our products to additional use cases . we focus some of our direct sales efforts on encouraging these types of expansion within our customer base . an indication of how our customer relationships have expanded over time is through our net expansion rate , which is based upon trends in the acv of customers that have entered into annual subscription agreements . to calculate an expansion rate as of the end of a given month , we start with the acv from all such customers as of twelve months prior to that month end , or prior period value . we then calculate the acv from these same customers as of the given month end , or current period value , which includes any growth in the value of their subscriptions and is net of contraction or attrition over the prior twelve months . we then divide the current period value by the prior period value to arrive at an expansion rate . the net expansion rate at the end of any period is the weighted average of the expansion rates as of the end of each of the trailing twelve months . we believe that our net expansion rate provides useful information about the evolution of our business ' existing customers . the net expansion rate includes the dollar-weighted value of our subscriptions that expand , renew , contract , or attrit . for instance , if each customer had a one-year subscription and renewed its subscription for the exact same amount , then the net expansion rate would be 100 % . customers who reduced their annual subscription dollar value ( contraction ) or did not renew their annual subscription ( attrition ) would adversely affect the net expansion rate . our net expansion rate was over 130 % at the end of each of our last ten fiscal quarters . as large organizations expand their use of the elastic stack across multiple use cases , projects , divisions and users , they often begin to require centralized provisioning , management and monitoring across multiple deployments . to satisfy these requirements , we offer elastic cloud enterprise , a proprietary product . we will continue to focus some of our direct sales efforts on driving adoption of our elastic cloud enterprise offering . increasing adoption of elastic cloud . elastic cloud , our family of saas products that includes elasticsearch service , site search service , and app search service , is an important growth opportunity for our business . organizations are increasingly looking for saas deployment alternatives with reduced administrative burdens . in some cases , open source users that have been self-managing deployments of the elastic stack subsequently become paying subscribers of elastic cloud . in the years ended april 30 , 2019 , 2018 and 2017 , elastic cloud contributed 17 % , 16 % and 11 % of our total revenue , respectively . we believe that offering a saas deployment alternative is important for achieving our long-term growth potential , and we expect elastic cloud 's contribution to our subscription revenue to increase over time . however , an increase in the relative contribution of elastic cloud to our business could adversely impact our gross margin as a result of the associated hosting and managing costs . 50 non-gaap financial measures in addition to our results determined in accordance with u.s. gaap , we believe the following non-gaap measures are useful in evaluating our operating performance . we use the following non-gaap financial information to evaluate our ongoing operations and for internal planning and forecasting purposes . we believe that non-gaap financial information , when taken collectively , may be helpful to investors because it provides consistency and comparability with past financial performance . however , non-gaap financial information is presented for supplemental informational purposes only , has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with u.s. gaap . in particular , free cash flow is not a substitute for cash used in operating activities . additionally , the utility of free cash flow as a measure of our financial performance and liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period . in addition , other companies , including companies in our industry , may calculate similarly-titled non-gaap measures differently or may use other measures to evaluate their performance , all of which could reduce the usefulness of our non-gaap financial measures as tools for comparison . a reconciliation is provided below for each non-gaap financial measure to the most directly comparable financial measure stated in accordance with u.s. gaap .
| this increase was primarily due to an increase of $ 12.9 million in cloud infrastructure costs and increases of $ 9.4 million in personnel and related charges together with $ 1.0 million in software and equipment expense from growth in headcount in our support organization . in addition , amortization of acquired intangible assets increased $ 0.9 million . stock-based compensation expense , included within personnel and related costs , increased by $ 2.7 million . total subscription margin decreased to 78 % in the year ended april 30 , 2019 from 81 % in the prior year . this decrease is due to growth and related investment in our saas offerings which incur costs related to cloud infrastructure and the increased costs associated with scaling our support organization . cost of professional services revenue increased by $ 11.6 million , or 94 % , in the year ended april 30 , 2019 compared to the prior year . this increase was primarily due to an increase of $ 6.9 million in personnel and related costs and an increase of $ 1.1 million in travel expenses driven by an increase in headcount in our consulting and training organizations . in addition , subcontractor costs increased by $ 1.8 million to supplement our internal resources providing services to our customers and charges for training facility rentals increased by $ 0.9 million . stock-based compensation expense , included within personnel and related costs , increased by $ 0.9 million . gross margin for professional services revenue was ( 3 ) % in the year ended april 30 , 2019 compared to ( 18 ) % for the prior year . historically , our professional services offerings have primarily consisted of training , however we have recently experienced increased demand for consulting services . in the year ended april 30 , 2019 , we have invested in headcount for our professional services organization that we believe will be needed as we continue to grow . our gross margin for professional services may fluctuate or decline in the near-term as we seek to expand our professional services business . operating expenses research and development < td bgcolor= '' # ffffff '' style= '' padding-left:0pt ; padding-right:0.75pt ; padding-top:0.75pt ; width:1.26 % ; border-bottom : solid 0.75pt transparent ; ''
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while returns have historically been within our expectations and the provisions established , future return rates may differ from those experienced in the past . in the event that our products are performing poorly in the retail market and or we experience product damages or defects at a rate significantly higher than our historical rate , the resulting returns could have an adverse impact on the operating results for the period or periods in which such returns occur . if our allowance for product returns were to change by 10 % , the result , excluding taxes , would have been an approximate $ 3.5 million change to net income ( loss ) . inventories . inventories are stated at the lower of cost and net realizable value , including any applicable duty and freight charges . we account for estimated obsolescence or unmarketable inventory equal to the difference between the average cost of inventory and the estimated net realizable value based upon assumptions about future demand , market conditions and available liquidation channels . if actual future demand or market conditions are less favorable than those projected by management , or if liquidation channels are not readily available , additional inventory valuation reductions may be required . we assess our off-price sales on an ongoing basis and update our estimates accordingly . revenue from sales of our products that are subject to inventory consignment agreements is recognized when title and risk of loss transfers , delivery has occurred , the price to the buyer is determinable and collectability is reasonably assured . impairment of goodwill and trade names . we evaluate goodwill for impairment annually as of the end of the fiscal year by comparing the fair value of the reporting unit to its recorded value . additionally , if events or conditions were to indicate the carrying value of a reporting unit may not be recoverable , we would evaluate goodwill for impairment at that time . we have three reporting units for which we evaluated goodwill for impairment : americas , europe and asia . the fair value of each reporting unit was estimated using market comparable information and discounted cash flows . in fiscal year 2017 , we determined goodwill was fully impaired and recognized a pre-tax impairment charge in operations of $ 202.3 million , $ 114.3 million and $ 42.9 million in the americas , europe and asia segments , respectively . we evaluate indefinite-lived trade names by comparing the fair value of the asset to its recorded value annually as of the end of the fiscal year and whenever events or conditions indicate that the carrying value of the trade name may not be recoverable . the fair value of the asset is estimated using discounted cash flow methodologies . the michele trade name represented approximately 29 % of our total trade name balances at the end of fiscal year 2017 , 21 % at the end of fiscal year 2016 and 19 % at the end of fiscal year 2015 . the skagen trade name represented approximately 71 % of our total trade name balance at the end of fiscal year 2017 , 63 % at the end of fiscal year 2016 and 65 % at the end of fiscal year 2015 . in fiscal year 2017 , as a result of interim impairment testing , we recorded impairment charges of $ 28.3 million and $ 7.6 million related to the skagen and michele trade names , respectively . in fiscal year 2016 , no impairment charges were recorded related to the skagen or the michele trade names . in fiscal year 2015 , $ 9.1 million in impairment charges were recorded related to the skagen trade name , and no impairment charges were recorded to the michele trade name . as of december 30 , 2017 , the fair value of the michele trade name exceeded its carrying value by approximately 12 % , and the fair value of the skagen trade name exceeded its carrying value by approximately 13 % . the misfit trade name represented approximately 15 % of our total trade name balance at the end of fiscal year 2016 and 17 % at the end of fiscal year 2015. the misfit trade name was being amortized over its estimated useful life , however during fiscal year 2017 , the trade name was deemed not recoverable , resulting in an impairment charge of $ 11.8 million . due to the inherent uncertainties involved in making the estimates and assumptions used in the fair value analysis , actual results may differ , which could alter the fair value of the trade names and possibly cause impairment charges to occur in future periods . 36 judgments and assumptions are inherent in our estimate of future cash flows used to determine the estimate of the reporting unit 's fair value . the most significant assumptions associated with the fair value calculations include net sales growth rates and discount rates . if the actual future sales results do not meet the assumed growth rates , future impairments of goodwill and trade names may be incurred . other asset impairment . we test for asset impairment of property , plant and equipment and other long-lived assets whenever events or conditions indicate that the carrying value of an asset might not be recoverable based on expected undiscounted cash flows related to the asset . in evaluating long-lived assets for recoverability , we calculate fair value using our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition . when undiscounted cash flows estimated to be generated through the operations of our company-owned retail stores are less than the carrying value of the underlying assets , the assets are impaired . if it is determined that assets are impaired , an impairment loss is recognized for the amount that the asset 's book value exceeds its fair value . should actual results or market conditions differ from those anticipated , additional losses may be recorded . story_separator_special_tag we recorded impairment losses in restructuring charges of approximately $ 8.3 million , $ 13.5 million and $ 3.4 million in fiscal years 2017 , 2016 and 2015 , respectively . we recorded impairment losses in selling , general , and administrative expenses of approximately $ 1.6 million , $ 2.8 million and $ 7.7 million in fiscal years 2017 , 2016 and 2015 , respectively . in fiscal year 2017 , an increase of 100 basis points to the discount rate used in our impairment testing would not have resulted in additional impairment expense . a 10 % decrease in future expected cash flows would have increased impairment expense by $ 0.3 million . we recorded non-impairment restructuring charges related to the write off of property , plant and equipment of approximately $ 0.4 million and $ 1.5 million in fiscal years 2017 and 2016 , respectively . we record impairment charges on long-lived assets held for sale when the carrying amount of those assets exceeds their fair value . we recorded impairment charges on long-lived assets held for sale of approximately $ 0.7 million in fiscal year 2017 based on a preliminary sales contract . i ncome taxes . we record valuation allowances against our deferred tax assets , when necessary , in accordance with asc 740 , income taxes ( `` asc 740 '' ) . realization of deferred tax assets is dependent on future taxable earnings and is therefore uncertain . at least quarterly , we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income . to the extent we believe that recovery is not likely , we establish a valuation allowance against our deferred tax asset , increasing our income tax expense in the period such determination is made . the valuation allowance for fiscal years 2017 , 2016 and 2015 was $ 78.3 million , $ 19.4 million and $ 10.8 million , respectively . in addition , in fiscal year 2017 , we recorded a state deferred tax liability of $ 1.0 million on foreign earnings not considered to be indefinitely reinvested outside of the u.s. due to the imposition of the one-time repatriation tax , we reversed the prior year federal deferred tax liability of $ 53.7 million . our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense . we accrue an amount for our estimate of additional income tax liability which we believe we are more likely than not to incur as a result of the ultimate resolution of tax audits ( `` uncertain tax positions '' ) . we review and update the estimates used in the accrual for uncertain tax positions as more definitive information becomes available from taxing authorities , upon completion of tax audits , upon expiration of statutes of limitation , or upon occurrence of other events . the results of operations and financial position for future periods could be impacted by changes in assumptions or resolutions of tax audits . the new global intangible low-taxed income ( “ gilti ” ) provisions of the tax act requiring the inclusion of certain foreign earnings in u.s. taxable income will increase our effective tax rate in future years . due to the complexity of these new tax rules , we are continuing to evaluate these provisions of the tax act . we are not yet able to reasonably estimate the effect of the gilti provision of the tax act and have not made any adjustments related to potential gilti tax in our financial statements . if applicable , gilti tax would first apply to our fiscal year 2018 , and will be accounted for as incurred under the period cost method . accounting for the income tax effects of the tax act requires significant judgments and estimates in the interpretation and calculations of the provisions of the tax act . due to the timing of the enactment and the complexity involved in applying the provisions of the tax act , we have made reasonable estimates of the effects and recorded provisional amounts in our financial statements for fiscal year 2017 as permitted under staff accounting bulletin no . 118 , ( “ sab 118 ” ) income tax accounting implications of the tax cuts and jobs act , which provides guidance on accounting for the tax act 's impact . as we collect and prepare necessary data , and interpret any additional guidance issued by the u.s. treasury department or the internal revenue service , we may make adjustments to the provisional amounts . in addition , our valuation allowance analysis is affected by various aspects of the tax act , including the new limitation on the deductibility of interest expense and the impact of the gilti . those adjustments may materially impact the provision for income taxes and the effective tax rate in the period in which the adjustments are made . the accounting for the tax effects of the enactment of the tax act will be completed in fiscal year 2018 . 37 warranty costs . our watch products are covered by limited warranties against defects in materials or workmanship . historically , our fossil and relic watch products sold in the u.s. have been covered for warranty periods of 11 years and 12 years , respectively , and our skagen branded watches have been covered by a lifetime warranty . beginning in 2017 , these brands are covered by a two year warranty . generally , all other products , including leathers and jewelry , sold in the u.s. and internationally are covered by a comparable one to two year warranty . we determine our warranty liability using historical warranty repair experience . as changes occur in sales volumes and warranty costs , the warranty accrual is adjusted as necessary . due to the nature of connected products , their warranty costs are usually more than traditional products . a shift in product mix from traditional to connected products generally results in an increase in warranty liabilities .
| our fossil and skagen watch performance was favorably impacted by wearables . while display watches continue to represent the largest percentage of wearables for the fossil brand , we have had some success in hybrids as well , led by our marketing efforts , store experience and celebrity influencer campaigns . fossil watch sales increased in europe and asia partially offset by a decrease in the americas in fiscal 2017 as compared to the prior fiscal year . skagen watch sales decreased in the americas and europe and were flat in asia over the same period . the following table presents as reported and constant currency net sales percentage change information by brand for fiscal year 2017 as compared to fiscal year 2016 : growth percentage brand as reported constant currency fossil ( 5.4 ) % ( 6.5 ) % skagen ( 8.2 ) ( 9.0 ) our multi-brand global watch portfolio decreased 6 % ( same in constant currency ) during fiscal year 2017 . growth in emporio armani , armani exchange and fossil branded watches , driven by wearables , was more than offset by declines in most other brands . we launched armani exchange hybrid watches at the beginning of fiscal year 2017 , and launched emporio armani display and hybrid connected watches late in the third quarter of fiscal year 2017. our fossil connected watches are now on their third generation . in fiscal 2017 , our most significant declines were in michael kors and marc jacobs watches . although we have seen some stabilization in the trajectory of michael kors , the growth in connected watches was not able to compensate for the declines in traditional watches . sales of watches declined in the wholesale channel in all three regions and in the americas retail channel , which were partially offset by strong growth in e-commerce in all regions and to a lesser extent retail store growth in asia and europe . during fiscal 2017 , global comparable retail sales ( including e-commerce ) declined 6 % year-over-year , with increases
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in addition , we have disposed of one property . we may sell properties from time to time when we believe the prospective total return from a property is particularly low relative to its market value and or the market value of the property is significantly greater than its estimated replacement cost . capital from such sales will be reinvested into properties that are expected to provide better prospective returns or returned to shareholders . 30 2012 developments acquisition activity during the year ended december 31 , 2012 , we acquired 22 industrial buildings containing 1,781,402 square feet for a total purchase price of approximately $ 180.9 million . the properties were acquired from unrelated third parties using existing cash on hand , net of assumed mortgage loans payable of approximately $ 14.8 million and borrowings under our senior revolving credit facility . the following table sets forth the wholly-owned industrial properties we acquired during the year ended december 31 , 2012 : replace_table_token_8_th 1 excludes intangible liabilities and mortgage premiums totaling approximately $ 4.2 million . the total aggregate investment was approximately $ 185.3 million . 2 stabilized cap rates are calculated , at the time of acquisition , as annualized cash basis net operating income for the property stabilized to market occupancy ( generally 95 % ) divided by the total acquisition cost for the property . total acquisition cost basis for the property includes the initial purchase price , the effects of marking assumed debt to market , buyer 's due diligence , lease intangible adjustments , estimated acquisition capital expenditures and leasing costs necessary to achieve stabilization . we define cash basis net operating income for the property as net operating income excluding straight-line rents and amortization of lease intangibles . these stabilized cap rates are subject to risks , uncertainties , and assumptions and are not guarantees of future performance , which may be affected by known and unknown risks , trends , uncertainties , and factors that are beyond our control , including risks related to our ability to meet our estimated forecasts related to stabilized cap rates and those risk factors contained in this annual report on form 10-k. 31 disposition activity during the year ended december 31 , 2012 , we sold one property located in san bernardino , ca for a sales price of approximately $ 17.0 million , resulting in a gain of approximately $ 4.0 million . public follow-on offering on january 13 , 2012 , we completed a public follow-on offering of 4,000,000 shares of our common stock at a price per share of $ 14.25 , including 93,000 shares that were sold in the offering to our executive and senior officers and members of our board of directors . no underwriting discount or commission was paid on the shares sold to such officers and directors . on february 13 , 2012 , we sold an additional 61,853 shares of our common stock at a price per share of $ 14.25 upon the exercise by the underwriters of their option to purchase additional shares . the net proceeds of the offering were approximately $ 54.7 million after deducting the underwriting discount and offering costs of approximately $ 3.1 million . we used approximately $ 41.0 million of the net proceeds to repay outstanding borrowings under our senior revolving credit facility and the remaining net proceeds were used to invest in industrial properties and for general business purposes . preferred stock offering on july 19 , 2012 , we completed a public offering of 1,840,000 shares of our 7.75 % series a cumulative redeemable preferred stock ( the series a preferred stock ) , including 240,000 shares sold upon the exercise by the underwriters of their option to purchase additional shares , at a price per share of $ 25.00. the net proceeds of the offering were approximately $ 44.3 million after deducting the underwriting discount and other offering expenses of approximately $ 1.7 million . we used the net proceeds to reduce outstanding borrowings under our credit facility . dividends on the series a preferred stock are payable when , as and if authorized by our board of directors quarterly in arrears on or about the last day of march , june , september and december of each year . the series a preferred stock ranks , with respect to dividend rights and rights upon our liquidation , dissolution or winding-up , senior to our common stock . generally , we may not redeem the series a preferred stock prior to july 19 , 2017 , except in limited circumstances relating to our ability to qualify as a reit , and pursuant to a special optional redemption related to a specified change of control ( as defined in the articles supplementary for the series a preferred stock ) . on and after july 19 , 2017 , we may , at our option , redeem the series a preferred stock , in whole or in part , at any time or from time to time , for cash at a redemption price of $ 25.00 per share , plus any accrued and unpaid dividends ( whether or not authorized or declared ) up to but excluding the redemption date . amendments to our senior revolving credit facility on january 19 , 2012 , we entered into a second amendment to amended and restated senior revolving credit agreement ( the facility ) with keybank national association , as the administrative agent and as a lender and the other lenders thereunder , 32 which provided for certain modifications to our $ 80.0 million revolving credit facility . the amendment extended the maturity date to january 19 , 2015 and provided for one 12-month extension option exercisable by us , subject to , among other things , there being an absence of an event of default under the facility and to our payment of an extension fee . story_separator_special_tag the amendment provided that outstanding borrowings were limited to the lesser of $ 80.0 million and 60 % of the value of the borrowing base properties ( 50 % prior to the amendment ) . interest on the facility continued to generally be paid based upon , at our option , either ( i ) libor plus the applicable libor margin or ( ii ) the applicable base rate which is the greater of the administrative agent 's prime rate plus 1.00 % , 0.50 % above the federal funds effective rate , or thirty-day libor plus the applicable libor margin for libor rate loans under the facility . the applicable libor margin was amended to range from 2.50 % to 3.50 % ( 3.00 % to 4.25 % prior to the amendment ) depending on the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value . on june 15 , 2012 , we entered into a third amendment to our facility with keybank national association , as administrative agent and as a lender , and pnc bank , national association , and union bank , n.a. , as lenders , to increase our facility from $ 80.0 million to $ 100.0 million by exercising the accordion feature under the facility . the amendment provided that outstanding borrowings under the facility were limited to the lesser of $ 100.0 million or 60.0 % of the value of the borrowing base properties . the amount available under the facility could be increased up to $ 150.0 million , subject to the approval of the administrative agent and the identification of lenders willing to make additional amounts available . the facility continued to require payment of an annual unused facility fee in an amount equal to 0.25 % or 0.35 % depending on the unused portion of the facility . we continued to guarantee the obligations of the borrower ( a wholly-owned subsidiary ) under the facility . as set forth under recent developments-term loan and amendment to senior credit agreement below , we entered into a second amended and restated senior credit agreement on january 17 , 2013 , which provides for certain amendments to the facility and a term loan . secured financings on january 30 , 2012 , we entered into a $ 20.1 million non-recourse mortgage loan at a fixed annual interest rate of 3.79 % that matures on february 5 , 2019. the mortgage loan is secured by five of our properties aggregating approximately 442,000 square feet . a portion of the loan proceeds was used to pay down our senior secured term loan ( the term loan ) . the remaining loan proceeds were used to invest in industrial properties and for general business purposes . on june 26 , 2012 , we entered into a $ 39.8 million non-recourse mortgage loan at a fixed annual interest rate of 3.65 % that matures on march 5 , 2020. the mortgage loan is secured by three of our properties . the loan proceeds were used to reduce outstanding borrowings under the facility and for general business purposes . in august 2012 , we repaid our senior secured term loan , which had an outstanding balance of approximately $ 10.1 million , that was scheduled to mature on february 22 , 2013 with proceeds from the facility . distribution activity the following table sets forth the cash dividends paid or payable per share during the year ended december 31 , 2012 : replace_table_token_9_th recent developments term loan and amendment to senior credit agreement on january 17 , 2013 , we entered into a second amended and restated senior credit agreement ( the amended facility ) with keybank national association , as administrative agent and as a lender , keybanc capital markets , as a lead arranger , and pnc bank , national association , union bank , n.a . and regions bank as lenders ( collectively the lenders ) to add a five-year $ 50.0 million term loan and amend our existing $ 100.0 million facility . 33 the five-year $ 50.0 million term loan maturity date under the amended facility is january 16 , 2018 and we will have up to six months to borrow the full $ 50.0 million . the amendment extends the maturity date for the $ 100.0 million facility under the amended facility to january 2016 and provides for one 12-month extension option exercisable by the company , subject , among other things , to there being an absence of an event of default under the amended facility and to our payment of an extension fee . interest on the amended facility , including the term loan , will continue to generally be paid based upon , at our option , either ( i ) libor plus the applicable libor margin or ( ii ) the applicable base rate which is the greater of the administrative agent 's prime rate plus 1.00 % , 0.50 % above the federal funds effective rate , or thirty-day libor plus the applicable libor margin for libor rate loans under the amended facility . the applicable libor margin was reduced to a range from 1.65 % to 2.65 % depending on the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value . the aggregate amount of the amended facility may be increased to a total of up to $ 300.0 million , subject to the approval of the administrative agent and the identification of lenders willing to make available additional amounts . the amended facility continues to be guaranteed by the company and by substantially all of the borrower 's current and to-be-formed subsidiaries that own a borrowing base property. in addition , the amended facility continues to be secured by a pledge of the borrower 's equity interests in the subsidiaries that hold each of the borrowing base properties .
| as of december 31 , 2012 , the non-same store properties , which we acquired or disposed of during the course of 2011 and 2012 , consisted of 25 properties aggregating approximately 2.9 million square feet . our future financial condition and results of operations , including rental revenues , straight-line rents and amortization of lease intangibles , may be impacted by the acquisitions of additional properties , and expenses may vary materially from historical results . comparison of the year ended december 31 , 2012 to the year ended december 31 , 2011 : replace_table_token_10_th 35 1 includes straight-line rents and amortization of lease intangibles . see non-gaap financial measures in this annual report on form 10-k for a reconciliation of net operating income and same store net operating income from net income ( loss ) and a discussion of why we believe net operating income and same store net operating income are useful supplemental measures of our operating performance . revenues . total revenues increased approximately $ 15.2 million for the year ended december 31 , 2012 compared to the prior year . approximately $ 1.4 million , net of approximately $ 1.1 million due to the write-off related to the tenant default , of this increase is from same store revenues mainly due to increased occupancy , as same store consolidated occupancy at year end increased to 93.0 % as of december 31 , 2012 as compared to 90.3 % from the same period in 2011. the remaining increase in total revenues is due to property acquisitions during 2011 and 2012. for the quarter and year ended december 31 , 2012 , approximately $ 0.4 million and $ 1.9 million , respectively was recorded in straight-line rental revenues related to contractual rent abatements given to certain tenants . property operating expenses . total property operating expenses increased approximately $ 2.9 million during the year ended december 31 , 2012 compared to the same period from the prior year . the increase in total property operating expenses was due to an increase of approximately $ 3.4 million attributable to property acquisitions during 2011 and
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cost of revenues and gross profit cost of revenues is comprised primarily of product costs , warranty , manufacturing personnel and logistics costs , freight costs , depreciation and amortization of test equipment and hosting services costs . our product costs are impacted by technological innovations , such as advances in semiconductor integration and new product introductions , economies of scale resulting in lower component costs , and improvements in production processes and automation . certain costs , primarily personnel and depreciation and amortization of test equipment , are not directly affected by sales volume . we outsource our manufacturing to third-party contract manufacturers and generally negotiate product pricing with them on a quarterly basis . we believe our contract manufacturing partners have sufficient production capacity to meet the anticipated demand for our products for the foreseeable future . however , shortages in the supply of certain key raw materials could adversely affect our ability to meet customer demand for our products . we contract with third parties , including one of our contract manufacturers , to serve as our logistics providers by warehousing and delivering our products in the united states , europe and asia . gross profit may vary from quarter to quarter and is primarily affected by our average selling prices , product cost , product mix , warranty costs and sales volume fluctuations resulting from seasonality . operating expenses operating expenses consist of research and development , sales and marketing , general and administrative and restructuring expenses . personnel-related costs are the most significant component of each of these expense categories and include salaries , benefits , payroll taxes , recruiting costs , sales commissions , incentive compensation and stock-based compensation . research and development expense includes personnel-related expenses , third-party design and development costs , testing and evaluation costs , depreciation expense and other indirect costs . research and development employees are primarily engaged in the design and development of power electronics , semiconductors , powerline communications , networking and software functionality , and storage . we devote substantial resources to research and development programs that focus on enhancements to , and cost efficiencies in , our existing products and timely development of new products that utilize technological innovation to drive down product costs , improve functionality , and enhance reliability . we intend to continue to invest appropriate resources in our research and development efforts because we believe they are critical to maintaining our competitive position . sales and marketing expense consists primarily of personnel-related expenses such as salaries , commissions , stock-based compensation , employee benefits and travel . it also includes trade shows , marketing , customer support and other indirect costs . we expect to continue to make the necessary investments to enable us to execute our strategy to increase our market penetration geographically and enter into new markets by expanding our customer base of distributors , large installers , oems and strategic partners . we currently offer 34 microinverter systems targeting the residential and commercial markets in the united states , canada , mexico and certain central american markets , the united kingdom , france , the benelux region , certain other european markets , australia , new zealand and certain other asian markets . we expect to continue to expand the geographic reach of our product offerings and explore new sales channels in addressable markets in the future . general and administrative expense consists primarily of salaries , incentive compensation , stock-based compensation and employee benefits for personnel related to our executive , finance , human resources , information technology and legal organizations . general and administrative expense also includes facilities costs and fees for professional services , which consist primarily of outside legal , accounting and information technology consulting costs . restructuring charges are the net of charges resulting from restructuring initiatives implemented in 2016 to improve operational performance and reduce overall operating expense and gain on divestiture of our services business . costs included in restructuring primarily consist of severance for workforce reduction actions , non-cash charges related to the disposition of assets and impairment of property and equipment , and the establishment of lease loss reserves . see note 9 , “ restructuring and other charges ” for additional information . other expense , net other expense , net primarily consists of interest expense and commitment fees under our revolving credit facility , term loans , and non-cash interest expense related to the amortization of deferred financing costs . other expense , net also includes gains or losses upon conversion of foreign currency transactions into u.s. dollars . provision for income taxes we are subject to income taxes in the countries where we sell our products . historically , we have primarily been subject to taxation in the united states because we have sold the vast majority of our products to customers in the united states . as we have expanded the sale of products to customers outside the united states , we have become subject to taxation based on the foreign statutory rates in the countries where these sales took place . as sales in foreign jurisdictions increase in the future , our effective tax rate may fluctuate accordingly . due to the history of losses we have generated in the united states since inception , we believe that it is more-likely-than-not that all of our u.s. and state deferred tax assets will not be realized as of december 31 , 2016 . story_separator_special_tag resulted in increased expense of $ 4.0 million from salaries and stock-based compensation partially offset by lower incentive compensation costs . other increases include a $ 1.3 million increase in bad debt expense , $ 0.7 million in marketing and consulting expenses and a $ 0.7 million increase in facilities related costs . these increases were partially offset by a $ 1.8 million benefit related to a revaluation of acquisition-related contingent consideration liability . 37 general and administrative replace_table_token_10_th 2016 compared to 2015 . general and administrative expenses decreased by $ 3.4 million in 2016 as compared to 2015 . story_separator_special_tag the decrease was primarily the result of a $ 1.7 million reduction in compensation costs due to lower headcount , a $ 0.2 million decrease in travel and entertainment expenses and a $ 1.8 million reduction in professional services , which was primarily attributable to lower legal and other professional fees . this decrease was partially offset by a $ 0.4 million increase in corporate expenses including rent , utilities and depreciation . we expect general and administrative expenses to decline in the near term as we realize the benefits of the cost savings initiatives we have implemented . 2015 compared to 2014 . general and administrative expenses slightly decreased in 2015 as compared to 2016. personnel-related costs decreased $ 2.5 million primarily due to lower incentive compensation expense in 2015 , as compared to 2014. this decrease was offset by a $ 1.4 million increase related to corporate-level expenses , including rent , utilities and depreciation related to corporate fixed assets , a $ 0.5 million increase in recruiting costs and a $ 0.3 million increase in professional services costs . restructuring and other charges replace_table_token_11_th 2016 compared to 2015 . in 2016 restructuring and other charges included $ 1.3 million of severance and other costs related to reduction in workforce , $ 2.6 million in asset impairments , $ 0.6 million lease loss reserves and contract termination costs and a gain of $ 0.6 million related to the disposition of our services business . we expect to incur additional restructuring charges in 2017 as we continue to take actions to reduce operating expenses . other income ( expense ) , net replace_table_token_12_th 2016 compared to 2015 . other expense increased by $ 1.9 million in 2016 , as compared to 2015 , primarily as a result of higher interest paid due to higher average outstanding borrowings on our revolving credit facility in 2016 and interest paid on an additional $ 25 million of term debt that funded in july 2016 . 38 2015 compared to 2014 . other expense decreased $ 2.9 million in 2015 as compared to 2014 , primarily as a result of lower interest paid due to the full repayment of our term loan with hercules technology growth capital , inc. in december 2014. liquidity and capital resources as of december 31 , 2016 , we had $ 17.8 million in cash and cash equivalents and working capital of $ 35.1 million . cash and cash equivalents held in the united states was $ 9.6 million and consisted primarily of non-interest bearing checking deposits , with the remainder held in various foreign subsidiaries . we consider amounts held outside the u.s. to be accessible and have provided for the estimated u.s. income tax liability associated with the potential repatriation our foreign earnings . although we have taken actions to improve our liquidity and help us achieve profitability , the solar market is volatile , and we are subject to market dynamics that are beyond our control . based on our cash position at december 31 , 2016 and our recent operating losses , we have concluded that substantial doubt exists as to our ability to continue as a going concern within the next year . the accompanying consolidated financial statements for the fiscal year ended december 31 , 2016 are presented on a going concern basis and do not include any adjustments that might result from the outcome of this uncertainty . information about the actions we have taken and are taking to mitigate our liquidity constraints is presented below . actions we have taken to reduce our operating expenses include a reduction in our global workforce in third quarter of 2016 and a second reduction in january of 2017. we also eliminated certain projects that did not have a near-term return on investment , consolidated office space at our headquarters and divested our services business . we expect the cumulative impact of these actions to decrease our operating expenses by approximately 35 % , and we expect to realize the full benefit beginning in the second quarter of 2017. sources of liquidity we have taken and are taking actions to improve our liquidity , including raising funds in the capital markets . in 2016 , we completed a public offering of 13,000,000 shares of our common stock . including the subsequent over-allotment , we sold approximately 15 million shares and realized net proceeds of approximately $ 16.2 million . in december of 2016 , we entered into an at the market issuance sales agreement ( atm ) under which we may sell shares of our common stock up to a gross aggregate offering price of $ 17.0 million . we are not obligated to make any sales of the shares under the sales agreement . as of december 31 , 2016 , we had not sold any shares under the atm . we will have realized the full $ 17.0 million of gross proceeds available under the atm at the time of this filing . in january 2017 , we completed a private placement of common stock that resulted in gross proceeds of $ 10.0 million . in july 2016 , we entered into a loan and security agreement ( the “ term loan agreement ” or “ original term loan agreement ” ) with lenders that are affiliates of tennenbaum capital partners , llc ( “ tcp ” ) , which has subsequently been amended and modified as discussed below and in notes 10 , “ debt ” and 18 , “ subsequent event. ” under the agreement , the lenders committed to advance a term loan in an aggregate principal amount of up to $ 25.0 million with a maturity date of july 1 , 2020. we drew down the $ 25.0 million term loan commitment at closing . payments under the original agreement are interest only through june 30 , 2017 , followed by consecutive equal monthly payments of principal plus accrued interest beginning on july 1 , 2017 and continuing through the maturity date .
| in 2016 , our gross margin also included the impact of higher warranty expense , as compared to 2015 . the higher warranty expense in 2016 was primarily due to incremental provisions recorded for changes in estimates , which reduced gross margin by 1.2 percentage points . see note 7 , “ warranty obligations ” to the consolidated financial statements for further discussion . 2015 compared to 2014 . cost of revenues increased by 8 % in 2015 , as compared to 2014 , and was attributable to the greater volume of shipments of our products . gross margin decreased by 2.6 percentage points to 30.3 % in 2015 , as compared to 32.9 % in 2014 . while we experienced a reduction in our product costs , the adoption of a more aggressive pricing strategy resulted in a decrease to our gross margin . in 2015 our gross margin included the benefit of lower warranty expense , as compared to 2014 . the higher warranty expense in 2014 was primarily due to incremental provisions recorded for changes in estimates , which reduced gross margin by 2.4 percentage points . see note 7 , “ warranty obligations ” to the consolidated financial statements for further discussion . 36 research and development replace_table_token_8_th 2016 compared to 2015 . research and development expenses decreased by $ 0.1 million in 2016 as compared to 2015 . the decrease is primarily due to decreased compensation costs and depreciation expense as a result of the restructuring actions taken in september 2016. the decrease was partially offset by higher outside professional fees utilized to support the development of new products as well as enhancements and cost reductions to existing products . although the amount of research and development expenses may fluctuate from period to period due to the differing levels and stages of development activity , we expect it to decrease in the near-term as we realize the full
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the prior fiscal year included incremental borrowing of $ 20.0 million to fund the scb acquisition . interest rates on the majority of our debt are variable based on the ratio of debt to ebitdars . the weighted average interest rate on iec 's debt decreased from 4.85 % in the fiscal year ended september 30 , 2011 to 3.25 % in the fiscal year ending september 30 , 2012 due to improvement in this ratio . with respect to ongoing operations , we are committed to our goals of managing working capital , maximizing positive cash flow and reducing the level of debt and corresponding interest expense . detailed information regarding our borrowings is provided in note 9 - credit facilities to the consolidated financial statements included in this annual report . 21 the other ( income ) /expense category of iec 's income statement reflects non-operating items . in the fiscal year ending september 30 , 2012 , $ 1.1 million of additional income was recorded for contingent consideration owed to iec by the sellers of southern california braiding company , inc. the income is the result of a shortfall in scb 's calendar-year 2011 sales and backlog as compared to a target specified in the acquisition agreement . combined with a $ 1.1 million estimate recorded in the fiscal year ended september 30 , 2011 , the total gain related to the contingent consideration is $ 2.2 million . we received payment in the form of cash and common stock during the third fiscal quarter of 2012 through settlement of the escrow account established at the time of the scb acquisition . income tax expense increased by $ 1.2 million for the twelve months ended september 30 , 2012 , and increased 4.2 % to 35.4 % of pre-tax net income compared to the same period in the prior fiscal year . with respect to tax payments , in the near term iec expects to be sheltered by sizable net operating loss carryforwards for federal and new york state income tax purposes . at the end of fiscal 2012 , the carryforwards amounted to approximately $ 11.9 million and $ 24.9 million for federal and new york state , respectively . the carryforwards expire in varying amounts between 2020 and 2025 unless utilized prior to these dates . they are not available to offset state taxable income earned by iec 's operations in new mexico and california . liquidity and capital resources cash flow from operations , before considering changes in iec 's working capital accounts , amounted to $ 17.7 million in the fiscal year ended september 30 , 2012 , compared to $ 13.4 million in fiscal 2011. the increase was driven by a $ 1.0 million increase in net income as well as higher add-backs for non-cash expenses such as depreciation , contingent consideration and deferred taxes . the net change in current asset and liability accounts used $ 4.8 million and $ 0.5 million of cash in fiscal 2012 and 2011 , respectively . investing activities utilized $ 3.0 million of cash flow in fiscal 2012 , compared to $ 29.3 million in fiscal 2011. in december 2010 , we acquired scb for cash of $ 24.5 million plus common stock . equipment added in fiscal 2012 to enhance productivity and facilitate growth amounted to $ 3.1 million , compared to $ 4.9 million in fiscal 2011. for the fiscal year ended september 30 , 2012 , cash was used by financing activities to pay term loans , mortgage loans and the revolving credit facility . bank funding for acquisitions , through term loans , a mortgage loan and the revolving credit facility , represented most of the cash generated from financing activities the during the fiscal year ended september 30 , 2011. in addition to satisfying scheduled debt service requirements , favorable operating cash flows enabled us to repay borrowings of $ 7.5 million in fiscal 2012 and $ 4.6 million in fiscal 2011. as of september 30 , 2012 , borrowings under the revolving credit facility amounted to $ 6.6 million , and the maximum available was $ 20.0 million . the company believes that its liquidity is sufficient to satisfy anticipated operating requirements during the next twelve months . the company 's primary borrowing arrangement is contained in the third amended and restated credit facility agreement ( `` credit agreement '' ) entered into with manufacturers and traders trust company ( `` m & t '' ) in december 2010 , as amended and supplemented to date . the credit agreement contains a borrowing base as well as various affirmative and negative covenants , including financial covenants . we are required to maintain ( i ) a minimum level of quarterly ebitdars , ( ii ) a ratio of debt to twelve-month ebitdars that is below a specified limit , and ( iii ) a minimum fixed charge coverage ratio . the company was in compliance with each of the covenants on september 30 , 2012 and september 30 , 2011 , as summarized in a table below . ebitdars , a non-gaap financial measure , is reconciled to net income , the most directly comparable gaap financial measure in “ note 9 - credit facilities ” to our consolidated financial statements included in item 8 of this annual report on form 10-k. 22 replace_table_token_7_th ( a ) the ratio compares ( i ) 12-month ebitda plus non-cash stock compensation expense minus unfinanced capital expenditures minus cash taxes paid , to ( ii ) the sum of interest expense , principal payments , sale-leaseback payments and dividends , if any ( fixed charges ) . a reconciliation of ebitdars to net income follows : replace_table_token_8_th ebitdars is a non-gaap financial measure . story_separator_special_tag it should not be considered in isolation or as a measure of the company 's profitability or liquidity ; it is in addition to , and is not a substitute for , financial measures under gaap . ebitdars may be different from non-gaap financial measures used by other companies , and may not be comparable to similarly titled measures reported by other companies . non-gaap financial measures have limitations since they do not reflect all of the amounts associated with the company 's results of operations as determined in accordance with gaap . the company defines ebitdars as earnings before interest , taxes , depreciation , amortization , rent expense and non-cash stock compensation . ebitdars does not take into account working capital requirements , capital expenditures , debt service requirements and other commitments , and accordingly , ebitdars is not necessarily indicative of amounts that may be available for discretionary use . the company presents ebitdars because certain covenants in the company 's credit facilities are tied to that measure . the company also views ebitdars as a useful measure of operating performance given the company 's strong operating margins and large net operating loss carryforward and because , as a supplemental measure : ( i ) it is a basis upon which the company assesses its liquidity position and performance and ( ii ) the company believes that investors will find the data useful in assessing its ability to service and or incur indebtedness . the company believes that ebitdars , when considered with both the company 's gaap results and the reconciliation to operating income , provides a more complete understanding of the company 's business than could be obtained absent this disclosure . off-balance sheet arrangements iec is not a party to any material off-balance sheet arrangements . critical accounting policies and use of estimates iec 's financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the united states of america , as presented in the financial accounting standards board 's ( fasb ) accounting standards codification ( asc ) . in preparing financial statements , management is required to ( i ) determine the manner in which accounting principles are applied and ( ii ) make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses . a discussion of the company 's critical accounting policies follows . 23 revenue recognition : under fasb asc 605-10 ( revenue recognition ) , revenue from sales is recognized when ( i ) goods are shipped or title and risk of ownership have passed , ( ii ) the price to the buyer is fixed or determinable , and ( iii ) realization is reasonably assured . service revenues are generally recognized as services are rendered or , in the case of material management contracts , in proportion to materials procured to date . provisions for discounts and rebates to customers , estimated returns and allowances and other adjustments are recorded in the period the related sales are recognized . doubtful accounts : fasb asc 310-10-35 ( receivables ) requires us to establish an allowance for doubtful accounts when it is probable that losses have been incurred in the collection of accounts receivable and the amount of loss can reasonably be estimated . if losses are probable and estimable , they are to be accrued even though the particular customer accounts on which losses will be incurred can not yet be identified . inventory reserves : fasb asc 330-10-35 ( inventory ) requires us to reduce the carrying value of inventory when there is evidence that the utility of goods will be less than cost , whether due to physical deterioration , obsolescence , changes in price levels or other causes . inventory balances are generally reduced to the lower of cost or market value by establishing offsetting balance sheet reserves . intangible assets : fasb asc 805-20 ( business combinations ) requires corporate acquirers to recognize , separately from goodwill , intangible assets that meet either a separability or contractual-legal criterion . establishing the initial value for such intangible assets typically involves estimating cash flows to be derived from the assets and discounting the cash flows back to the acquisition date . significant judgment is required in estimating future cash flows , selecting discount rates and determining useful lives over which to amortize the assets . in connection with recent corporate acquisitions , iec has established intangible assets for customer relationships , a property-tax abatement , and a non-compete agreement . goodwill : goodwill represents the excess of cost over fair value of net assets acquired in a corporate acquisition . under asc 350 , goodwill is not amortized but is required to be reviewed for impairment at least annually or when events or circumstances indicate that carrying value may exceed fair value . the review process entails comparing the overall fair value of the unit to which goodwill relates to carrying value . if fair value exceeds carrying value , no goodwill write-down is required . if fair value of the unit is less than carrying value , a valuation of the unit 's individual assets and liabilities is required to determine whether or not goodwill is impaired . quantitative evaluations of goodwill may be avoided if qualitative assessments indicate a greater-than-50 percent likelihood that fair value of the corresponding unit exceeds its carrying value . impairment of long-lived assets : fasb asc 360-10 ( property , plant and equipment ) and 350-30 ( intangibles ) require the company to test long-lived assets ( pp & e and amortizing intangible assets ) for recoverability whenever events or circumstances indicate that the carrying amount may not be recoverable . if carrying value exceeds undiscounted future cash flows attributable to an asset , it is considered impaired and carrying amount must be reduced to fair value . legal contingencies : when legal proceedings are brought or
| selling and administrative ( “ s & a ” ) expenses decreased $ 1.0 million to 9.7 % of revenue in the fourth fiscal quarter of 2012 , as compared to 13.0 % in the same fiscal quarter of the prior year . the decrease is primarily due to decreased payroll and bonus costs . interest expense decreased to $ 0.3 million in the quarter ended september 30 , 2012 from $ 0.4 million in the same quarter of the prior fiscal year . the decrease is primarily the result of a $ 11.2 million decrease in average borrowings . borrowings were significantly higher in the fourth quarter of the prior fiscal year due to incremental borrowing of $ 20.0 million to fund the scb acquisition in december 2010. interest rates on the majority of our debt are variable based on the ratio of debt to ebitdars ( earnings before interest , taxes , depreciation , amortization , rent payments and non-cash stock compensation expense ) . the weighted average interest rate on iec 's debt decreased from 3.47 % for the quarter ended september 30 , 2011 to 3.19 % for the quarter ended september 30 , 2012 due to improvement in this ratio . with respect to ongoing operations , we are committed to our goals of managing working capital , maximizing positive cash flow and reducing the level of debt and corresponding interest expense . detailed information regarding our borrowings is provided in note 9 - credit facilities to the consolidated financial statements included in this annual report . the other ( income ) /expense category of iec 's income statement reflects non-operating items . compared to the prior year 's fourth fiscal quarter , net other income decreased by $ 1.2 million due to a gain on contingent consideration recorded in the prior fiscal year . income tax expense increased by $ 0.3 million , or 47.6 % for the fiscal quarter ended september 30 , 2012 , and increased 12.3 % to 31.5 % of pre-tax net income compared to the same quarter in the prior
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allowance for loan losses we consider the determination of alll to be among our critical accounting policies , requiring judicious estimates and assumptions in the preparation of the company 's financial statements and being particularly susceptible to significant change . the company maintains an alll at a level deemed appropriate by management to provide for known or probable incurred losses in the portfolio at the consolidated statements of financial condition date . the company has implemented and adheres to an internal loan review system and loss allowance methodology designed to provide for the detection of problem loans and maintenance of an adequate allowance to cover loan losses . management 's determination of the adequacy of alll is based on an evaluation of the composition of the portfolio , actual loss experience , industry charge-off experience on loans , current economic conditions , and other relevant factors in the areas in which the company 's lending and real estate activities are based . these factors may affect the borrowers ' ability to pay and the value of the underlying collateral . the allowance is calculated by applying loss factors to loans held for investment according to loan type and loan credit classification . the loss factors are evaluated on a quarterly basis and established based primarily upon the bank 's historical loss experience and , to a lesser extent , the industry charge-off experience . various regulatory agencies , as an integral part of their examination process , periodically review the company 's alll . such agencies may require the bank to recognize additions to the allowance based on judgments different from those of management . in the opinion of management , and in accordance with the credit loss allowance methodology , the present allowance is considered adequate to absorb estimable and probable credit losses . additions and reductions to the allowance are reflected in current period operating results . charge-offs to the allowance are made when specific loans ( or portions thereof ) are considered uncollectible or are transferred to oreo and the fair value of the property securing the loan is less than the loan 's recorded investment . recoveries are credited to the allowance . 46 although management uses the best information available to make these estimates , future adjustments to the allowance may be necessary due to economic , operating , regulatory and other conditions that may be beyond the company 's control . for further information on the alll , see notes 1 and 5 to the consolidated financial statements in item 8 hereof . business combinations we account for acquisitions under the acquisition method . all identifiable assets acquired and liabilities assumed are recorded at fair value . any excess of the purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as goodwill . identifiable intangible assets include core deposit intangibles , which have a definite life . core deposit intangibles ( “ cdi ” ) are subsequently amortized over the estimated life up to 10 years and are tested for impairment annually . goodwill generated from business combinations is deemed to have an indefinite life and is not subject to amortization , and instead is tested for impairment at least annually . as part of the estimation of fair value , we review each loan or loan pool acquired to determine whether there is evidence of deterioration in credit quality since inception and if it is probable that the company will be unable to collect all amounts due under the contractual loan agreements . we consider expected prepayments and estimated cash flows including principal and interest payments at the date of acquisition . if a loan is determined to be a purchased credit impaired ( “ pci ” ) loan , the amount of contractual cash flows in excess of the estimated future cash flows is not accreted into earnings ( non-accretable difference ) . the amount of the estimated future cash flows in excess of the book value of the loan is accreted into interest income over the remaining life of the loan ( accretable yield ) . the company records these loans on the acquisition date at their fair value . thus , an allowance for loan losses is not established on the acquisition date . losses or a reduction in cash flow , which arise subsequent to the date of acquisition are reflected as a charge through the provision for loan losses . increases in expected future cash flows are reflected as an adjustment to the accretable yield and are recognized on a prospective basis over the remaining life of the loan . income taxes deferred tax assets and liabilities are recorded for the expected future tax consequences of events that have been recognized in the company 's financial statements or tax returns using the asset liability method . in estimating future tax consequences , all expected future events other than enactments of changes in the tax laws or rates are considered . the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date . deferred tax assets are to be recognized for temporary differences that will result in deductible amounts in future years and for tax carryforwards if , in the opinion of management , it is more likely than not that the deferred tax assets will be realized . see also note 14 of the consolidated financial statements in item 8 hereof . fair value of financial instruments we use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures . investment securities available-for-sale are financial instruments recorded at fair value on a recurring basis . additionally , from time to time , we may be required to record at fair value other financial assets on a non-recurring basis , such as impaired loans and oreo . these non-recurring fair value adjustments typically involve application of lower-of-cost-or-fair value accounting or write-downs of individual assets . story_separator_special_tag during the first quarter of 2018 , the company adopted asu 2016-01 and measures the fair value of financial instruments reported at amortized cost on the consolidated statement of financial condition using the exit price notion . further , we include in note 18 to the consolidated financial statements information about the extent to which fair value is used to measure assets and liabilities , the valuation methodologies used and its impact to earnings . additionally , for financial instruments not recorded at fair value we disclose the estimate of their fair value . 47 story_separator_special_tag style= '' font-family : inherit ; font-size:11pt ; '' > the table also sets forth our net interest income , net interest rate spread and net interest rate margin for the periods indicated . the net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities . the net interest rate margin reflects the ratio of net interest income as a percentage of interest-earning assets for the year . 51 for the year ended december 31 , 2019 2018 2017 average balance interest average yield/cost average balance interest average yield/cost average balance interest average yield/cost ( dollars in thousands ) assets interest-earning assets : cash and cash equivalents $ 187,935 $ 1,217 0.65 % $ 221,236 $ 2,123 0.96 % $ 140,402 $ 842 0.60 % investment securities 1,363,228 39,227 2.88 1,087,835 30,890 2.84 718,564 18,136 2.52 loans receivable , net ( 1 ) ( 2 ) 8,768,389 485,663 5.54 7,527,004 415,410 5.52 4,724,808 251,027 5.31 total interest-earning assets 10,319,552 526,107 5.10 % 8,836,075 448,423 5.07 % 5,583,774 270,005 4.84 % noninterest-earning assets 1,227,360 958,842 511,109 total assets $ 11,546,912 $ 9,794,917 $ 6,094,883 liabilities and equity interest-bearing deposits : interest checking $ 549,221 $ 2,340 0.43 % $ 438,698 $ 1,167 0.27 % $ 293,450 $ 365 0.12 % money market 3,046,593 28,279 0.93 2,624,106 19,567 0.75 1,701,209 6,720 0.40 savings 242,127 382 0.16 241,686 357 0.15 189,408 251 0.13 retail certificates of deposit 1,017,445 17,807 1.75 897,033 10,937 1.22 556,121 3,390 0.61 wholesale/brokered certificates of deposit 389,978 9,489 2.43 334,728 5,625 1.68 227,822 2,645 1.16 total interest-bearing deposits 5,245,364 58,297 1.11 % 4,536,251 37,653 0.83 % 2,968,010 13,371 0.45 % fhlb advances and other borrowings 405,188 9,829 2.43 558,518 11,343 2.03 341,782 4,411 1.29 subordinated debentures 183,383 10,680 5.82 107,732 6,716 6.23 81,466 4,721 5.80 total borrowings 588,571 20,509 3.48 % 666,250 18,059 2.71 % 423,248 9,132 2.16 % total interest-bearing liabilities 5,833,935 78,806 1.35 % 5,202,501 55,712 1.07 % 3,391,258 22,503 0.66 % noninterest-bearing deposits 3,564,809 2,909,588 1,758,730 other liabilities 151,407 82,942 54,039 total liabilities 9,550,151 8,195,031 5,204,027 stockholders ' equity 1,996,761 1,599,886 890,856 total liabilities and equity $ 11,546,912 $ 9,794,917 $ 6,094,883 net interest income $ 447,301 $ 392,711 $ 247,502 net interest rate spread 3.75 % 4.00 % 4.18 % net interest margin ( 3 ) 4.33 % 4.44 % 4.43 % cost of deposits 0.66 % 0.51 % 0.28 % cost of funds ( 4 ) 0.84 % 0.69 % 0.44 % ratio of interest-earning assets to interest-bearing liabilities 176.89 % 169.84 % 164.65 % ( 1 ) average balance includes loans held for sale and nonperforming loans and is net of deferred loan origination fees/costs and discounts/premiums . ( 2 ) interest income includes net discount accretion of $ 20.6 million , $ 16.1 million and $ 12.9 million , respectively . ( 3 ) represents net interest income divided by average interest-earning assets . ( 4 ) represents annualized total interest expense divided by the sum of average total interest-bearing liabilities and noninterest-bearing deposits . 52 changes in our net interest income are a function of changes in both volumes and mix as well as rates of interest-earning assets and interest-bearing liabilities . the following table presents the impact the volume and rate changes have had on our net interest income for the years indicated . for each category of interest-earning assets and interest-bearing liabilities , we have provided information on changes to our net interest income with respect to : changes in volume ( changes in volume multiplied by the prior period rate ) ; changes in interest rates ( changes in interest rates multiplied by the prior period volume ) ; and the net change or the combined impact of volume and rate changes allocated proportionately to changes in volume and changes in interest rates . replace_table_token_6_th provision for credit losses . for 2019 , we recorded a $ 5.7 million provision for credit losses compared to $ 8.3 million recorded in 2018 . the current year provision included a $ 1.4 million provision reversal for unfunded commitments and $ 53,000 provision reversal for sold loans . the provision in 2018 included $ 163,000 provision for unfunded commitment , partially offset by $ 66,000 provision reversal for sold loans . net loan charge-offs for 2019 amounted to $ 7.5 million , an increase of $ 6.5 million from $ 1.0 million in 2018 . for 2018 , we recorded an $ 8.3 million provision for credit losses compared to $ 8.4 million recorded in 2017 . the $ 179,000 decrease in the provision for credit losses was primarily attributable to a lower level of net charge-offs for the year , partially offset by the growth in our loan portfolio . net loan charge-offs for 2018 amounted to $ 1.0 million , virtually unchanged from $ 1.0 million in 2017 . replace_table_token_7_th 53 noninterest income . for 2019 , noninterest income totaled $ 35.2 million , an increase of $ 4.2 million or 13.6 % from 2018 .
| return on average tangible common equity : this figure is calculated by excluding cdi amortization expense and excluding the average cdi and average goodwill from the average stockholders ' equity during the period . core net interest income and core net interest margin : core net interest income is calculated by excluding scheduled accretion income , accelerated accretion income , cd mark-to-market and nonrecurring nonaccrual interest paid from net interest income . the core net interest margin is calculated as the ratio of core net interest income to average interest-earning assets . 48 the following tables provide reconciliations of the non-gaap measures with financial measures defined by gaap : tangible common equity amounts and ratios replace_table_token_2_th efficiency ratio replace_table_token_3_th 49 return on average tangible common equity replace_table_token_4_th core net interest margin replace_table_token_5_th 50 net interest income . our primary source of revenue is net interest income , which is the difference between the interest earned on loans , investment securities , and interest earning balances with financial institutions ( “ interest-earning assets ” ) and the interest paid on deposits and borrowings ( “ interest-bearing liabilities ” ) and capital deployed . net interest margin is net interest income expressed as a percentage of average interest earning assets . net interest income is affected by changes in both interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities . for 2019 , net interest income totaled $ 447.3 million , an increase of $ 54.6 million or 14 % from 2018 . the increase reflected an increase in average interest-earning assets of $ 1.48 billion , primarily due to the acquisition of grandpoint on july 1 , 2018 , which at acquisition added $ 2.40 billion of loans , and organic loan growth from new loan originations of $ 1.56 billion in 2019 , partially offset by an increase in average interest-bearing liabilities of $ 631.4 million and loan paydowns of $ 1.36 billion . net interest margin decreased 11 basis points to 4.33 % from 2018 , primarily due to cost of funds increasing 15 basis points , offset by yield on interest-earning assets increasing 3 basis points . for 2018 , net
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delivered over 300 total expansion sites in eight mh and rv properties . completed the construction of over 1,000 total sites at four ground-up developments and one re-development property . closed two underwritten registered public offerings for proceeds net of offering related expenses totaling approximately $ 1.9 billion . our successful execution of our operational and financial plans has helped us mitigate the impact of covid-19 . property operations occupancy in our mh and annual rv properties , as well as our ability to increase rental rates , directly affect revenues . our revenue streams are predominantly derived from customers renting our sites on a long-term basis . our same community properties continue to achieve revenue and occupancy increases which drive continued noi growth . we continue to sell homes at a high level in our communities and expect this trend to continue . replace_table_token_22_th ( 1 ) occupancy percent includes annual rv sites and excludes transient rv sites . ( 2 ) occupancy percent excludes recently completed but vacant expansion sites . ( 3 ) same community is based on the as reported year end same community count for each respective year . 46 sun communities , inc. acquisition activity during the past three years , we have completed acquisitions of over 190 properties with over 24,200 sites and over 38,800 wet slips and dry storage spaces located in high growth areas and retirement and vacation destinations such as california , florida , texas , arizona and the eastern united states coastal areas . during 2020 , we acquired 24 ( 1 ) mh communities and rv resorts , and 106 ( 1 ) marinas , as detailed below : mh & rv property name property type sites development sites state month acquired cape cod rv 230 — ma january jellystone natural bridge rv 299 — va february forest springs mh 372 — ca may crown villa rv 123 — or june flamingo lake rv 421 — fl july woodsmoke rv 300 — fl september jellystone lone star rv 344 — tx september el capitan & ocean mesa rv 266 109 ca september highland green estates & troy villa mh 1,162 — mi september gig harbor rv 115 — wa november maine mh portfolio mh 1,083 — me november mouse mountain mh / rv 304 — fl december lakeview mobile estates mh 296 — ca december shenandoah acres rv 522 — va december jellystone at barton lake rv 555 — in december kittatinny portfolio rv 527 — ny & pa december total 6,919 109 marina property name property type wet slips & dry storage state month acquired safe harbor marinas marina 37,305 various october safe harbor hideaway bay marina 628 ga november safe harbor anacapa isle marina 453 ca december annapolis marina 184 md december wickford marina 60 ri december rybovich portfolio marina 78 fl december rockland marina 173 me december 38,881 ( 1 ) refer to note 3 , “ real estate acquisitions and dispositions , ” for information on the acquisition of the southfield office space not included in the table above , and additional detail on the acquisition of mh , rv and marina . disposition activity on july 1 , 2020 , we sold a manufactured home community located in montana , containing 226 sites , for $ 12.6 million . the gain from the sale of the property was $ 5.6 million . construction activity there are 10,025 additional mh and rv sites suitable for development . in 2021 , we expect to construct and expand between 1,150 - 1,600 additional sites . ground-up developments - during the year ended december 31 , 2020 , we constructed over 1,000 total sites at four ground-up development properties and one re-development located in colorado , north carolina and south carolina . 47 sun communities , inc. expansions - we have been focused on expansion opportunities adjacent to our existing properties , and we have developed over 2,800 sites within the past three years . we have expanded over 300 total sites at eight mh and rv properties in 2020. we continue to expand our properties utilizing our inventory of owned and entitled land ( approximately 10,000 sites available for development in 82 communities ) . markets our mh and rv properties are largely concentrated in florida , michigan , texas and california . we have expanded our market share in multiple states through recent acquisitions and increased our property holdings in high growth areas of the u.s. including retirement and vacation destinations . we have also experienced strong revenue growth through recent acquisitions of rv resorts . the age demographic of rv resorts is attractive , as the population of retirement age baby boomers in the u.s. is growing . rv resorts have become a trending vacation opportunity not only for the retiree population , but as an affordable vacation alternative for families and millennials . the following table identifies our mh and rv markets by total sites : replace_table_token_23_th 48 sun communities , inc. replace_table_token_24_th our marinas are largely concentrated in florida , connecticut , rhode island and new york . the following table identifies our marina markets by total wet slips and dry storage spaces : replace_table_token_25_th 49 sun communities , inc. non-gaap financial measures in addition to the results reported in accordance with gaap in our “ results of operations ” below , we have provided information regarding net operating income ( “ noi ” ) and funds from operations ( “ ffo ” ) as supplemental performance measures . we believe noi and ffo are appropriate measures given their wide use by and relevance to investors and analysts following the real estate industry . noi provides a measure of rental operations and does not factor in depreciation , amortization and non-property specific expenses such as general and administrative expenses . ffo , reflecting the assumption that real estate values rise or fall with market conditions , principally adjusts for the effects of gaap depreciation / amortization of real estate assets . story_separator_special_tag in addition , noi and ffo are commonly used in various ratios , pricing multiples / yields and returns and valuation calculations used to measure financial position , performance and value . noi is derived from revenues minus property operating expenses and real estate taxes . noi is a non-gaap financial measure that we believe is helpful to investors as a supplemental measure of operating performance because it is an indicator of the return on property investment and provides a method of comparing property performance over time . we use noi as a key measure when evaluating performance and growth of particular properties and / or groups of properties . the principal limitation of noi is that it excludes depreciation , amortization , interest expense and non-property specific expenses such as general and administrative expenses , all of which are significant costs . therefore , noi is a measure of the operating performance of our properties rather than of the company overall . we believe that gaap net income ( loss ) is the most directly comparable measure to noi . noi should not be considered to be an alternative to gaap net income ( loss ) as an indication of our financial performance or gaap cash flow from operating activities as a measure of our liquidity ; nor is it indicative of funds available for our cash needs , including our ability to make cash distributions . because of the inclusion of items such as interest , depreciation and amortization , the use of gaap net income ( loss ) as a performance measure is limited as these items may not accurately reflect the actual change in market value of a property , in the case of depreciation and in the case of interest , may not necessarily be linked to the operating performance of a real estate asset , as it is often incurred at a parent company level and not at a property level . ffo is defined by the national association of real estate investment trusts ( “ nareit ” ) as gaap net income ( loss ) , excluding gains ( or losses ) from sales of depreciable operating property , plus real estate related depreciation and amortization , real estate related impairments , and after adjustments for unconsolidated partnerships and joint ventures . ffo is a non-gaap financial measure that management believes is a useful supplemental measure of our operating performance . by excluding gains and losses related to sales of previously depreciated operating real estate assets , impairment and excluding real estate asset depreciation and amortization ( which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates ) , ffo provides a performance measure that , when compared period-over-period , reflects the impact to operations from trends in occupancy rates , rental rates , and operating costs , providing perspective not readily apparent from gaap net income ( loss ) . management believes the use of ffo has been beneficial in improving the understanding of operating results of reits among the investing public and making comparisons of reit operating results more meaningful . we also use ffo excluding certain gain and loss items that management considers unrelated to the operational and financial performance of our core business ( “ core ffo ” ) . we believe that core ffo provides enhanced comparability for investor evaluations of period-over-period results . we believe that gaap net income ( loss ) is the most directly comparable measure to ffo . the principal limitation of ffo is that it does not replace gaap net income ( loss ) as a performance measure or gaap cash flow from operations as a liquidity measure . because ffo excludes significant economic components of gaap net income ( loss ) including depreciation and amortization , ffo should be used as a supplement to gaap net income ( loss ) and not as an alternative to it . further , ffo is not intended as a measure of a reit 's ability to meet debt principal repayments and other cash requirements , nor as a measure of working capital . ffo is calculated in accordance with our interpretation of standards established by nareit , which may not be comparable to ffo reported by other reits that interpret the nareit definition differently . 50 sun communities , inc. results of operations we report operating results under two segments : real property operations and home sales and rentals . the real property operations segment owns , operates , develops , or has an interest in , a portfolio of mh communities , rv resorts and marinas throughout the u.s. and in canada , and is in the business of acquiring , operating , and expanding mh communities , rv resorts and marinas . the home sales and rentals segment offers mh and rv park model sales and leasing services to tenants and prospective tenants of our communities . we evaluate segment operating performance based on noi and gross profit . refer to note 11 , “ segment reporting , ” in our accompanying consolidated financial statements for additional information . story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > the 4.0 percent growth in noi is primarily due to increased income from real property of $ 30.8 million , or 3.6 percent . the 3.6 percent increase is primarily attributable to a 1.8 percent increase in mh & rv blended occupancy and a 3.8 percent increase in total monthly base rent per site when compared to 2019 , offset by discounts and bad debt expense . the increase in income from real property was partially offset by a $ 8.2 million , or 3.0 percent , increase in property operating expenses , primarily attributable to increases in payroll and benefits , supplies and repairs and real estate taxes .
| ( 6 ) adjusted occupancy percentages include mh and annual rv sites , and exclude transient rv sites and recently completed but vacant expansion sites . ( 7 ) monthly base rent pertains to annual rv sites and excludes transient rv sites . ( 8 ) canadian currency figures included within the year ended december 31 , 2019 and 2018 have been translated at 2020 and 2019 average exchange rates , respectively . the $ 62.6 million increase in real property noi from 2019 to 2020 consists of $ 22.6 million from same communities as detailed below and $ 40.0 million from recently acquired properties in the year ended december 31 , 2020 as compared to 2019 . 52 sun communities , inc. the $ 62.5 million increase in real property noi from 2018 to 2019 consists of $ 37.7 million from same communities as detailed below and $ 24.8 million from recently acquired properties in the years ended december 31 , 2019 as compared to 2018. real property operations - same communities a key management tool used when evaluating performance and growth of our properties is a comparison of same communities . same communities refer to properties that we have owned for at least the preceding year . the same community data may change from time-to-time depending on acquisitions , dispositions , management discretion , significant transactions , or unique situations . in order to evaluate the growth of the same communities , management has classified certain items differently than our gaap statements . the reclassification difference between our gaap statements and our same community portfolio is the reclassification of water and sewer revenues from income from real property to utilities . a significant portion of our utility charges are re-billed to our residents . for the years ended december 31 , 2020 and 2019 , canadian currency figures included within the year ended december 31 , 2019 have been translated at 2020 average exchange rates . for the years ended december 31 , 2019 and 2018 , canadian currency figures included within the year ended december 31 , 2018 have been translated at 2019 average exchange rates .
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however , despite our solid progress in mobile , our traditional desktop business accounted for approximately 67 % and 74 % of our advertising spend during the year ended december 31 , 2016 and year ended december 31 , 2015 , respectively , and is expected to continue to represent a significant part of our business in the near term . therefore , the weight of our desktop business and its decreasing advertising spend trend will continue to have a significant effect on our growth until our advertising spend mix has shifted more fully to growth areas . another factor impacting our business is that a large share of the growth in digital advertising spending worldwide is being captured by owned and operated sites , such as facebook and google . although we believe our pricing is competitive , we experience requests from buyers and sellers for discounts , fee concessions or revisions , rebates , and greater levels of pricing transparency and specificity . buyers on our platform have come under growing pressure from their clients to reduce their fees and or to provide fee transparency , and sellers are also under revenue pressure , and these pressures may be increasingly conducted to us . in light of increasing market trends toward transparency , commodification of intermediary services , and disintermediation , we may reduce our fees in an effort to be more competitive in attracting demand and capturing inventory . while fee reductions could make us more competitive , it is not clear whether they would result in increases in spending on our platform or whether any spending increases will compensate fully for the reduction in fees . another factor that we expect to contribute to declining take rate is an increase in orders as a percentage of overall advertising 51 spend because orders carries lower fees . an increase in orders as a percentage of our advertising spend could yield higher revenue despite lower fees due to the higher cpms typically associated with orders transactions , but it is not certain that our orders business will increase or this effect will be realized . although our advertising spend and revenue has increased in prior years as a result of an increase in overall advertising spending in the market , increased use of our solution by buyers and sellers , and increases in take rate and average cpm , our growth slowed significantly in 2016 due to market and competitive pressures , deceleration in traditional desktop display spending , header bidding dynamics as described above and decreases in our fees . we expect these dynamics to continue to affect us in 2017. consequently , we have taken steps to reduce costs and relocate resources to growth areas . in the third quarter of 2016 , we terminated our static bidding offering , which accounted for only approximately 1 % of total revenue in 2016 and was continuing to contract due to shifts in market spending from static bidding to rtb . in the fourth quarter of 2016 , we restructured our workforce , reducing our headcount by approximately 125 persons . in the first quarter of 2017 , we exited our intent marketing business , closed our toronto office , and implemented a management restructuring involving the departure of seven senior leaders . these measures are intended to facilitate investment in market share growth , technology and r & d for growth areas including mobile , video , orders , header bidding , and our consumer initiative . while we are confident that our restructuring and growth initiatives will yield positive results , industry dynamics are challenging and make it difficult to predict with confidence the timing and net effect of our initiatives . therefore , we expect lower year-over-year revenue , earnings and adjusted ebitda through the first quarter of 2017 . components of our results of operations we report our financial results as one operating segment . our consolidated operating results , together with non-gaap financial measures and the operational performance measures , are regularly reviewed by our chief operating decision maker , principally to make decisions about how we allocate our resources and to measure our consolidated operating performance . revenue we generate revenue from buyers and sellers who use our solution for the purchase and sale of advertising inventory . our solution enables buyers and sellers to purchase and sell advertising inventory , by matching buyers and sellers , and establishing rules and parameters for open and transparent auctions of advertising inventory . buyers use our solution to reach their intended audiences by buying advertising inventory that we make available from sellers through our platform . sellers use our solution to monetize their inventory . we recognize revenue upon the fulfillment of our contractual obligations in connection with a completed transaction , subject to satisfying all other revenue recognition criteria our revenue recognition policies are discussed in more detail below and in the notes to our consolidated financial statements presented in `` item 8. financial statements and supplementary data . '' expenses we classify our expenses into the following six categories : cost of revenue . our cost of revenue consists primarily of data center costs , bandwidth costs , depreciation and maintenance expense of hardware supporting our revenue-producing platform , amortization of software costs for the development of our revenue-producing platform , amortization expense associated with acquired developed technologies , personnel costs , facilities-related costs , and for transactions we report on a gross basis , the amounts we pay sellers . personnel costs included in cost of revenue include salaries , bonuses , stock-based compensation , and employee benefit costs , and are primarily attributable to personnel in our network operations group who support our platform . we capitalize costs associated with software that is developed or obtained for internal use and amortize the costs associated with our revenue-producing platform in cost of revenue over their estimated useful lives . we amortize acquired developed technologies over their estimated useful lives . sales and marketing . story_separator_special_tag our sales and marketing expenses consist primarily of personnel costs , including stock-based compensation and the sales bonuses paid to our sales organization , marketing expenses such as brand marketing , travel expenses , trade shows and marketing materials , professional services , and amortization expense associated with customer relationships and backlog from our business acquisitions , and to a lesser extent , facilities-related costs and depreciation and amortization . our sales organization focuses on increasing the adoption of our solution by existing and new buyers and sellers . we amortize acquired intangibles associated with customer relationships and backlog from our business acquisitions over their estimated useful lives . technology and development . our technology and development expenses consist primarily of personnel costs , including stock-based compensation and bonuses , and professional services associated with the ongoing development and maintenance of our solution , and to a lesser extent , facilities-related costs and depreciation and amortization , including amortization expense associated with acquired intangible assets from our business acquisitions that are related to technology and development functions . these expenses include costs incurred in the development , implementation , and maintenance of internal use software , including platform and related infrastructure . technology and development costs are expensed as incurred , except to the extent that such costs are 52 associated with internal use software development that qualifies for capitalization , which are then recorded as internal use software development costs , net , on our consolidated balance sheet . we amortize internal use software development costs that relate to our revenue-producing activities on our platform to cost of revenue and amortize other internal use software development costs to technology and development costs or general and administrative expenses , depending on the nature of the related project . we amortize acquired intangibles associated with technology and development functions from our business acquisitions over their estimated useful lives . general and administrative . our general and administrative expenses consist primarily of personnel costs , including stock-based compensation and bonuses , associated with our executive , finance , legal , human resources , compliance , and other administrative personnel , as well as accounting and legal professional services fees , facilities-related costs and depreciation , and other corporate-related expenses . general and administrative expenses also include amortization of internal use software development costs and acquired intangible assets from our business acquisitions over their estimated useful lives that relate to general and administrative functions and changes in fair value associated with the liability-classified contingent consideration related to acquisitions . restructuring and other exit costs . our restructuring and other exit costs are cash and non-cash charges consisting primarily of employee termination costs , facility closure and relocation costs , and contract termination costs . impairment of intangible assets . our impairment charges are non-cash charges related to its intangible assets . intangible assets are reviewed for impairment annually in the fourth quarter and whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable . conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset , a significant change in the extent or manner in which an asset is used , or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable . for intangible assets used in operations , impairment losses are only recorded if the asset 's carrying amount is not recoverable through its undiscounted , probability-weighted future cash flows . we measure the impairment loss based on the difference between the carrying amount and estimated fair value . intangible assets are considered held for sale when certain criteria are met , including when management has committed to a plan to sell the asset , the asset is available for sale in its immediate condition , and the sale is probable within one year of the reporting date . assets held for sale are reported at the lower of cost or fair value less costs to sell . we had no assets held for sale as of december 31 , 2016 and 2015 . other ( income ) , expense interest ( income ) expense interest expense is mainly related to our credit facility . interest income consists of interest earned on our cash equivalents and marketable securities and was insignificant for the years ended december 31 , 2016 , 2015 and 2014 . other income . other income consists primarily of rental income from commercial office space we hold under lease and have sublet to other tenants . change in fair value of convertible preferred stock warrant liability . prior to our initial public offering , or ipo , the convertible preferred stock warrants were subject to re-measurement to fair value at each balance sheet date , and any change in fair value was recognized as a component of other expense , net . in connection with the closing of our ipo in april 2014 , one warrant for 845,867 shares of convertible preferred stock was exercised on a net basis , resulting in the issuance of 286,055 shares of common stock , and the remaining warrant for 25,174 shares of convertible preferred stock was automatically converted into a warrant exercisable for 12,587 shares of common stock . following the closing of our ipo , we are no longer required to re-measure the converted common stock warrants to fair value and record any changes in the fair value of these liabilities in our consolidated statements of operations . the common stock warrant was net exercised in june 2014. as of december 31 , 2016 , we had no outstanding warrants . foreign currency exchange ( gain ) loss , net . foreign currency exchange ( gain ) loss , net consists primarily of gains and losses on foreign currency transactions .
| the increase in average cpm was partially offset by a decrease in paid impressions resulting from the same shift in mix of advertising spend on our platform from static bidding to rtb and orders . while impressions associated with rtb and orders increased during the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , paid impressions associated with static bidding decreased , resulting in an overall decrease of 11 % from 920 billion for the year ended december 31 , 2015 to 819 billion for the year ended december 31 , 2016 . revenue increased $ 123.2 million , or 98 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 . the increase in 2015 revenue was primarily due to the same reasons as described above for 2016. average cpm increased to $ 1.09 for the year ended december 31 , 2015 from $ 0.67 for the year ended december 31 , 2014 , an increase of $ 0.42 , or 63 % . 55 overall , paid impressions decreased from 999 billion for the year ended december 31 , 2014 to 920 billion for the year ended december 31 , 2015 , a decrease of 8 % . in addition , revenue in 2015 included revenue reported on a gross basis following the acquisition of chango as discussed earlier ; there was no gross revenue reporting in 2014. revenue may be impacted by seasonality , shifts in the mix of advertising spend by transaction type and channel , changes in the fees we are able to charge or choose to charge buyers and sellers for our services ( which drives take rate ) , whether we are the principal in the transactions and therefore report revenue on a gross basis , and other factors such as changes in the market , our execution of the business , and competition . industry dynamics are challenging due to market and competitive pressures and make it difficult to predict the near term effect of our growth initiatives . consequently , in 2017 we expect a
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we account for non-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received , rather than when the payment is made . the following summarizes our most advanced current research and development programs . 68 cf-301 we are conducting a multi-site , international phase 2 clinical study of our cf-301 product candidate for the treatment of adult subjects with staph aureus bacteremia , including endocarditis , caused by methicillin-resistant ( mrsa ) or methicillin-susceptible ( mssa ) staph aureus . this study is a randomized , double-blind , placebo-controlled trial with expected enrollment of 115 patients to evaluate the efficacy , safety , tolerability and pk in our target population . cf-301 is a parenteral formulation , dosed as a single , two-hour iv infusion , of a potent , bactericidal lysin targeting staph aureus bacteria , making it a highly specific therapeutic candidate . we previously completed a phase 1 single ascending dose study in healthy volunteers . cf-301 was generally well-tolerated and there were no clinical adverse safety signals in the study . we have worldwide intellectual property , development and commercial rights to cf-301 and expect to fund the future development and commercialization costs related to this program . other programs we continue to explore variants of cf-301 to expand our portfolio of lysins targeting biofilm-dependent staph aureus infections . we have engineered a novel mutant variant , cf-296 , which has properties we believe may make it particularly useful for the treatment of prosthetic joint infections . we are evaluating cf-296 in animal models to further characterize this compound . in addition , we are continuing to progress cf-404 , which is an aerosolized treatment for life-threatening human influenza composed of three human mabs which target all seasonal and most pandemic strains of influenza . we have focused our research and discovery efforts on identifying lysins that selectively kill specific species of gram-negative bacteria that are considered to be urgent or serious threats to global health by the cdc or critical priority by the who . we have also acquired worldwide exclusive license rights to patents for composition of matter for nine lysins from rockefeller . each lysin targets a specific species of gram-positive bacteria , including drug-sensitive and drug-resistant forms of staphylococcus aureus , streptococcus pneumoniae , enterococcus faecalis , group b streptococcus and bacillus anthracis . to date , a large portion of our research and development work has related to the establishment of our lysin platform technologies , the advancement of our research projects to discovery of clinical candidates , manufacturing and preclinical testing of our clinical candidates and clinical testing of cf-301 . we currently expect to focus the majority of our resources on the cf-301 program . in the future , we intend to further leverage our employee and infrastructure resources across multiple development programs well as research projects . in the years ended december 31 , 2017 , 2016 and 2015 , we recorded approximately $ 17.3 million , $ 22.1 million and $ 15.0 million , respectively , of research and development expenses . a breakdown of our research and development expenses by category is shown below . we do not currently utilize a formal time or laboratory project expense allocation system to allocate employee-related expenses , laboratory costs or depreciation to any particular project . accordingly , we do not allocate these expenses to individual projects or product candidates . however , we do allocate some portions of our research and development expenses in the product development , external research and licensing and professional fees categories , by project , including cf-301 and cf-404 , as shown below . 69 the following table summarizes our research and development expenses by category for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_4_th the following table summarizes our research and development expenses by program for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_5_th we anticipate that our research and development expenses will increase substantially in connection with the commencement of clinical trials for our product candidates . however , the successful development of future product candidates is highly uncertain . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : the scope , rate of progress and expense of our research and development activities ; clinical trial results ; the terms and timing of regulatory approvals ; our ability to market , commercialize and achieve market acceptance for our product candidates in the future ; and the expense , filing , prosecuting , defending and enforcing of patent claims and other intellectual property rights . a change in the outcome of any of these variables with respect to the development of cf-301 , cf-404 or any other product candidate that we may develop could mean a significant change in the costs and timing associated with the development of cf-301 , cf-404 or any such product candidate . for example , if the fda or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of cf-301 or if we experience significant delays in enrollment in any clinical trials of cf-301 , we could be required to expend significant additional financial resources and time on the completion of the clinical development of cf-301 . 70 general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for personnel , including non-cash share-based compensation expense , in our executive , finance , legal , human resource and business development functions . other general and administrative expenses include facility costs , insurance expenses and professional fees for legal , consulting and accounting services . story_separator_special_tag we anticipate that our general and administrative expenses will increase in future periods to support increases in our research and development activities and as a result of increased headcount , expanded infrastructure , increased legal , compliance , accounting and investor and public relations expenses associated with being a public company and increased insurance premiums , among other factors . interest income interest income consists of interest earned on our cash and cash equivalents and available-for-sale securities . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and judgments . we base our estimates on our limited historical experience , known trends and events and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this annual report on form 10-k , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations . fair value of warrant liability in accordance with financial accounting standards board accounting standards codification topic 820 , fair value measurements and disclosures ( asc 820 ) , we classify and account for our warrant liability as a level 3 financial instrument . the valuation of a level 3 financial instrument requires inputs that reflect our own assumptions that are both significant to the fair value measurement and unobservable . we calculate the fair value estimate of our warrant liability on a recurring basis at each measurement date , based on relevant market information . we use the black-scholes option pricing model to estimate the fair value of our warrant liability using various assumptions that require management to apply judgment and make estimates , including : the expected term of the warrant , which we estimate to be the remaining contractual life ; the expected volatility of the underlying common stock , which we estimate based on the historical volatility of a representative peer group of publicly traded biopharmaceutical companies with similarities to us , including stage of drug development , area of therapeutic focus , number of employees and market capitalization ; the risk-free interest rate , which we based on the yield curve of u.s. treasury securities with periods commensurate with the expected term ; and 71 the expected dividend yield , which we estimate to be zero based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends . these estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore can not be determined with precision . if factors change and different assumptions are used , our warrant liability could be materially different in the future . accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued expenses . this process involves reviewing quotations and contracts , identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . the significant estimates in our accrued research and development expenses are related to fees paid to cros in connection with research and development activities for which we have not yet been invoiced . we base our expenses related to cros on our estimates of the services received and efforts expended pursuant to quotes and contracts with cros that conduct research and development on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual or prepayment expense accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period . differences between our estimates and amounts actually incurred to date , and any resulting adjustments , have not been material .
| this increase was primarily attributable to an increase in non-cash income of $ 5.2 million related to the change in fair value of our warrant liability , a decrease of $ 0.6 million in issuance costs allocated to warrants issued in our follow-on offerings and an increase in interest income of $ 0.2 million . comparison of years ended december 31 , 2016 and 2015 the following table summarizes our results of operations for the years ended december 31 , 2016 and 2015 : replace_table_token_7_th research and development expenses research and development expense was $ 22.1 million for the year ended december 31 , 2016 , compared with $ 15.0 million for the year ended december 31 , 2015 , an increase of $ 7.1 million . this increase was primarily attributable to a $ 5.6 million increase in expenditures on our product candidates as we concluded our phase 1 clinical study and prepared for a phase 2 clinical trial of cf-301 and continued to progress cf-404 through ind related manufacturing activities . the increase was also due to a $ 1.5 million increase in expenses related to our research headcount , including salaries , benefits and laboratory costs in support of the discovery and study of additional product candidates . general and administrative expenses general and administrative expense was $ 11.4 million for the year ended december 31 , 2016 , compared with $ 10.0 million for the year ended december 31 , 2015 , an increase of $ 1.4 million . this increase was primarily attributable to increased severance costs of $ 1.4 million , including $ 0.5 million of non-cash share-based compensation expense , and a $ 0.2 million increase in accounting and filing costs related to our sec filings . these increases were partially offset by a $ 0.2 million decrease in our board of directors fees and expenses . other income ( expense ) other income was $ 5.0 million for the year ended december 31 , 2016 compared with other expense of $ 0.1 million for the year ended december 31 , 2015 , an
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while the actions of the federal reserve have been successful in causing investors to sell lower-yielding assets , such as agency rmbs and u.s. treasury securities , and buy higher-yielding assets such as non-agency mbs and high-yield corporate bonds , more recently , these actions have been somewhat less successful in lowering yields on agency rmbs and u.s. treasury securities . market volatility notwithstanding , agency rmbs prices remain at high levels and prepayment risk remains elevated . as a result , prepayments on our agency rmbs may increase , which would reduce the yields on these securities . in light of these risks , we continue to seek agency rmbs investments with prepayment protection characteristics . or “ prepayment protected pools. ” examples of prepayment protected pools are those comprised of low loan balance mortgages , mortgages backing investor properties , those containing mortgages originated through the government-sponsored “ making homes affordable ” refinancing programs , and those containing mortgages with various other prepayment protection characteristics . the increased volatility , as a result of market perception of uncertainty with respect to future federal reserve actions , reinforces the importance of the company 's ability to hedge its risks using a variety of tools , including tbas , as it navigates the changing market landscape . mortgage market statistics the percentage of subprime mortgages either delinquent or in foreclosure has declined over the period beginning december 31 , 2010 through december 31 , 2012 , as reported by the mortgage bankers association , or the “ mba , ” in their national delinquency survey : replace_table_token_9_th ( 1 ) source : based on mortgage bankers association , national delinquency survey press releases issued february 21 , 2013 , february 16 , 2012 and february 17 , 2011 . ( 2 ) includes loans that are at least one payment past due but does not include loans in foreclosure , seasonally adjusted . the improving trend in delinquency and foreclosure statistics is at least in part due to the improvement in home prices that has occurred over the past year . as homeowners re-establish equity in their homes through recovering real estate prices , they are less likely to become delinquent on their mortgages . data released by s & p indices for its s & p/case-shiller home price indices for november 2012 showed that , on average , home prices increased 4.5 % for its 10-city composite and by 5.5 % for the 20-city composite as compared to november 2011. according to the report , home prices remain below the peak levels of 2006 , but on average , are back to their autumn 2003 levels for both the 10-city and 20-city composites . in addition to home prices rising , new and existing home sales have increased . existing home sales in november 2012 were the highest since november 2009 and new home sales were the highest since 2010. the slow pace of the recovery of the u.s. economy , including the still elevated level of unemployment , continues to create potential risk to the recovering housing market . however , recent trends continue to indicate a recovery has taken hold in the housing market . on march 8 , 2013 , the u.s. department of labor reported that , as of february 2013 , the u.s. unemployment rate was 7.7 % . this compares to 8.3 % as of february 2012. while it is difficult to quantify the relationship between the unemployment rate and the housing and mortgage markets , we believe that continued unemployment at such levels could impede the positive trends that have occurred in the housing market and could contribute to further increases in mortgage delinquencies and decreases in home prices . as a mitigating factor , however , the federal reserve 's accommodative monetary policies continue to support the housing market , and furthermore the federal reserve has announced that it will maintain these accommodative policies as long as the unemployment rate remains above 6.5 % and as long as inflation seems to remain contained . government homeowner assistance programs according to the fhfa , fannie mae and freddie mac refinanced approximately one million loans in the eleven month period ended november 30 , 2012 under harp , more than twice the harp refinancing activity for all of 2011. the increase in harp refinancings is attributable to record-low mortgage rates and enhancements to the program made in late 2011 , including 49 removal of the loan-to-value ceiling for borrowers who refinance into fixed-rate loans and the elimination or lowering of fees for certain borrowers . given the low level of mortgage rates , it is likely that harp refinancing volume will remain elevated . currently , the program is due to expire at the end of 2013 ; however , there is some market speculation that the program could be extended . in november 2012 , the fhfa announced the results of pilot transactions completed by fannie mae under the reo pilot program . under this program , single-family foreclosed properties owned by fannie mae and freddie mac are sold to institutional investors in bulk and converted to rental properties , with seller financing available under certain conditions . since the july 2012 launch of this program , almost 1,800 properties have been sold . reo to rental in addition to the fhfa 's pilot program , a number of large institutional investors have been purchasing significant numbers of single family properties in select regions of the country with the objective of generating rental income and , potentially , long-term gains . certain banks are also providing financing for these “ reo to rental ” purchases , in some cases with the goal of ultimately replacing such borrowings with long term debt through securitization of rental cashflows . meanwhile , in late 2012 one newly formed real estate investment trust focused solely on reo to rental strategies successfully completed an initial public offering . in those regions where reo to rental activity is most concentrated , this activity is having two primary effects on the housing market . story_separator_special_tag first , it is removing some of the foreclosure property inventory from the market , and second , the robust purchasing activity is supporting , and in many cases lifting , home prices . gse developments in the third quarter of 2012 , the fhfa implemented several changes designed to more rationally price their risk , to broaden homeowner access to mortgage financing , and to increase the participation of private capital in the mortgage market . in august 2012 , the fhfa directed fannie mae and freddie mac to raise guarantee fees on single-family mortgages by an average of 10 basis points . the increase became effective with mortgage settlements starting on december 1 , 2012 for mortgage loans exchanged for mortgage-backed securities and on november 1 , 2012 for mortgage loans sold for cash . in september 2012 , the fhfa announced that fannie mae and freddie mac are launching a new representation and warranty framework for conventional loans sold or delivered on or after january 1 , 2013. this change , which is part of a broader seller-servicer contract harmonization effort , will relieve lenders of certain repurchase obligations for mortgage loans that meet specific payment requirements , and certain other conditions and requirements . in august 2012 , the u.s. department of treasury , or the “ treasury , ” announced a set of modifications to its preferred stock agreements with the fhfa , with a goal of expediting the wind down of fannie mae and freddie mac . the revised agreements replace the 10 % dividend payments made to the treasury with a sweep of all profits from fannie mae and freddie mac going forward . in addition , the modifications require an accelerated reduction of fannie mae and freddie mac 's investment portfolios , which will be wound down at an annual rate of 15 % ( rather than 10 % per the previous agreements ) . as a result of this change , the gse 's investment portfolios must be reduced to the $ 250 billion target set in the previous agreements four years earlier than previously scheduled . on march 4 , 2013 , in connection with these ongoing efforts to wind down the gses , the fhfa announced its plans for the remainder of 2013. first , the fhfa plans to establish a new business entity that will be initially owned and funded by fannie mae and freddie mac and operate as a replacement for some of their legacy infrastructure . the longer term goal of this new entity is to create a common securitization platform that could eventually be sold or used by policy makers as a foundational element of the mortgage market of the future . second , for 2013 the fhfa reiterated its goal of executing risk-sharing transactions for both fannie mae and freddie mac was set , and could include transactions involving expanded mortgage insurance , credit-linked securities , senior/subordinated securities , and others . third , the fhfa also expects to continue increasing guarantee fees in 2013 so as to make these fees more aligned with what might be expected to be charged by private sector providers . fourth , plans for 2013 also include maintaining foreclosure prevention activities , such as harp refinancings for underwater borrowers . while this was not explicitly stated , it could potentially mean an extension in the harp program beyond its scheduled expiration of december 31 , 2013. we believe that those efforts aimed at more rationally pricing risk taken by the gses and aimed at reducing the gses ' portfolios and thereby accelerating the re-entry of private capital into the u.s. mortgage market , are potentially beneficial to our business . however , this process has been slow and will likely continue to evolve over an extended period . notwithstanding the effective stabilization of the financial condition of the gses in the aftermath of the financial crisis , the gse 's continue to support the overwhelming majority of the u.s. single-family mortgage market . alternatives to gses will become more and more necessary as they are wound down , which could increase the breadth and depth of attractive investment opportunities that are available to us and may serve as a catalyst for the rebirth of the non-agency mortgage securitization market . 50 mortgage servicing and origination the mortgage servicing industry continued to consolidate , as the largest and most efficient mortgage servicers continued to acquire mortgage servicing rights , or “ msrs , ” in a number of high-profile transactions . non-bank servicers in particular are gaining market share , as msrs will carry less favorable capital treatment under the impending basel iii framework . as a result of this industry consolidation , prepayment rates have jumped significantly for mortgage pools whose servicing was transferred to more efficient servicers . in the second half of 2012 , we have also seen a growing convergence in refinancing rates among these servicers for certain collateral types , such as loans that became eligible for streamlined financing as part of harp . as staffing by mortgage originators has remained low following the bursting of the housing bubble , an important bottleneck constraint keeping prepayment rates low is the limited capacity of mortgage originators to refinance and originate new loans . this has resulted in a more protracted refinancing process for borrowers , as well as a significant increase in the spread between primary market mortgage rates ( the rates paid by borrowers ) and the secondary market mortgage rates ( the yields demanded by rmbs investors for the loans they buy from originators ) ; this increased spread is driving record high profit margins for mortgage originators . we expect these dynamics to persist well into 2013. first , it will take many months for originators to increase hiring to sufficient levels . second , there is still a large supply of harp-eligible loans that originators can profitably refinance . based on refinancing rates of harp-eligible loans in 2012 , we expect prepayment rates of harp-eligible loans to remain elevated .
| however , at any particular point in time , depending on how we perceive the market 's pricing of risk both generally and across sectors , we may favor higher-risk assets or we may favor lower-risk assets , or a combination of the two in the interests of portfolio diversification or other considerations . through december 31 , 2012 , our non-agency rmbs strategy has been the primary driver of our risk and return , and we expect that it will continue to be over the near term . we continue to maintain a highly leveraged portfolio of agency rmbs to take advantage of opportunities in that market sector and to maintain our exclusion from regulation as an investment company under the investment company act . unless we acquire very substantial amounts of whole mortgage loans or there are changes to the rules and regulations applicable to us under the investment company act , we expect that we will always maintain some core amount of agency rmbs . we also expect that we will continue to allocate some of our capital to cmbs and commercial mortgage loan strategy . we also use leverage in our non-agency mbs strategies , albeit significantly less leverage than that used in our agency rmbs strategy . through december 31 , 2012 , we financed our purchases of agency rmbs and non-agency mbs almost exclusively through reverse repo agreements , which we account for as collateralized borrowings . in january 2012 , we completed a small resecuritization transaction using one of our non-agency rmbs assets ; this transaction is accounted for as a collateralized borrowing and is classified on our consolidated statement of assets , liabilities , and shareholders ' equity as “ securitized debt. ” this securitized debt represents long-term financing for the related asset , in contrast to our reverse repos collateralized by non-agency mbs which typically have 30 to 180 day terms . however , we expect to continue to obtain the vast majority of our financing through the use of reverse repos . the strategies that we are currently employing are intended to
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the decrease in the current year tax expense is primarily attributable to the previously mentioned reduction in the corporate income tax rate from 35 % to 21 % as a result of the tax cuts and jobs act . the income tax expense of $ 10.1 million in 2017 was also impacted by the $ 1.8 million adjustment increase to income tax expense as a result of the write-down of the company 's deferred tax asset from 35 % to 21 % . the effective tax rates are less than the statutory tax rate primarily due to nontaxable interest and dividend income . the effective income tax rate was 14.9 % for 2018 and 30.7 % for 2017. we anticipate that the effective rate in 2019 will be in the range of 15 % to 16 % . refer to note 16 to the consolidated financial statements for additional information regarding the effective tax rate . comparison of operating results for the years ended december 31 , 2017 and 2016. the company 's net income totaled $ 22.7 million during 2017 , compared to $ 20.6 million for 2016. on a per share basis , diluted earnings per share were $ 0.82 as compared to $ 0.76 diluted earnings per share for 2016. excluding a $ 1.8 million adjustment of the net deferred tax asset resulting from the tax cut and jobs act that became law in december 2017 and $ 524 thousand in expenses related to acquisition activities , net income for 2017 would have been $ 24.8 million , or $ 0.90 per share . common comparative ratios for results of operations include the return on average assets and return on average stockholders ' equity . for 2017 , the return on average equity was 9.92 % , compared to 9.72 % for 2016. the return on average assets was 1.09 % for 2017 and 1.07 % for 2016. excluding expenses related to acquisition activities , the return on average assets and return on average stockholders ' equity for 2017 would have been 1.19 % and 10.83 % in 2017 , while the return on average tangible equity would have been 13.48 % . net interest income for 2017 , taxable equivalent net interest income increased $ 6.1 million , or 8.7 % , from 2016. interest-earning assets averaged $ 1.9 billion during 2017 , increasing $ 162 million compared to 2016. the company 's interest-bearing liabilities increased 7.3 % from $ 1.35 billion in 2016 to $ 1.45 billion in 2017. the previously mentioned acquisition of monitor increased interest-earning assets by $ 38.1 million and interest-bearing liabilities by $ 17.8 million at the completion date . total taxable equivalent interest income was $ 83.7 million for 2017 , which is $ 8.6 million more than the $ 75.1 million reported in 2016. in comparing the years ending december 31 , 2017 and 2016 , yields on earning assets increased 9 basis points while the cost of interest bearing liabilities increased 15 basis points . average loans increased $ 149.2 million , or 11.1 % , in 2017 , and the loan yield decreased one basis point to 4.73 % . tax equated income from securities , federal funds and other increased $ 1.8 million , or 15.9 % , in 2017. farmers saw its yields on these assets increase slightly from 2.72 % in 2016 to 3.05 % in 2017. the average balance of investment securities and federal funds sold also increased from $ 416.8 million in 2016 to $ 429.6 million in 2017. total interest expense amounted to $ 6.9 million for 2017 , a 57.2 % increase from $ 4.4 million reported in 2016. the increase in 2017 is the result of a $ 49.1 million or 4.4 % increase in interest-bearing deposits and a $ 49.1 million or 21.2 % increase in other borrowings . the cost of interest-bearing liabilities increased from 0.32 % in 2016 to 0.47 % in 2017. noninterest income total noninterest income increased by $ 807 thousand or 3.5 % in 2017. the increase in noninterest income is due to several factors . gains on the sale of mortgage loans increased from $ 2.8 million to $ 3.1 million , representing an increase of $ 300 thousand or 8 % . insurance agency commissions also increased to $ 2.4 million compared to $ 1.6 million in 2016 and service charges on deposit accounts increased from $ 4.0 million in 2016 to $ 4.1 million in 2017 , reflecting the size of the company after previous bank acquisitions . debit card interchange fees also increased $ 430 thousand or 16.1 % . these increases were offset by a decrease in other operating income of $ 478 thousand and a decrease in investment commissions of $ 291 thousand . 33 noninterest expenses noninterest expense for 2017 was $ 61.6 million , compared to $ 59.5 million in 2016 , representing an increase of $ 2.1 million , or 3.6 % . most of the increase was from salaries and employee benefits , which increased $ 2.9 million or 8.9 % , mainly due to an increase in salaries , as the acquisition of bowers insurance agency , inc. ( bowers ) was completed on june 1 , 2016 which resulted in seven months of expense in 2016 compared to a full year in 2017. the company also experienced an increase in employee health care insurance expense in 2017. the company 's full time equivalent employees ( “ fte ” ) increased by 1.0 % from december 31 , 2016 to december 31 , 2017. other operating expenses decreased by $ 1.0 million as a result of increased efficiencies gained as the company grew in 2017. excluding expenses related to acquisition activities , noninterest expenses measured as a percentage of average assets decreased from 3.06 % in 2016 to 2.93 % in 2017. the company 's tax equivalent efficiency ratio for the 12 month period ended december 31 , 2017 was 59.66 % , compared to 61.59 % for the same period in 2016. excluding expenses related to story_separator_special_tag acquisition activities , the efficiency ratio for the year ended december 31 , 2017 improved to 58.79 % compared to 60.99 % in 2016. the main factors leading to the improvement in the efficiency ratio was the increase in net interest income and noninterest income , along with the stabilized level of noninterest expenses relative to average assets as explained in the preceding paragraph . the efficiency ratio is calculated as follows : non-interest expense divided by the sum of tax equivalent net interest income plus non-interest income , excluding security gains and losses and intangible amortization . this ratio is a measure of the expense incurred to generate a dollar of revenue . management will continue to closely monitor and keep the increases in other expenses to a minimum . income taxes income tax expense totaled $ 10.1 million for 2017 and $ 7.5 million in 2016. the increase in the current year tax expense can be mainly attributed to the 16.9 % increase in income before taxes . the previously mentioned tax cuts and jobs act also added $ 1.8 million to 2017 's income tax expense as a result of the write-down of the company 's deferred tax asset from 35 % to 21 % . the effective tax rates are less than the statutory tax rate primarily due to nontaxable interest and dividend income . the effective income tax rate was 30.7 % for 2017 and 26.7 % for 2016. liquidity farmers maintains , in the opinion of management , liquidity sufficient to satisfy depositors ' requirements and meet the credit needs of customers . the company depends on its ability to maintain its market share of deposits as well as acquiring new funds . the company 's ability to attract deposits and borrow funds depends in large measure on its profitability , capitalization and overall financial condition . principal sources of liquidity include assets considered relatively liquid , such as short-term investment securities , federal funds sold and cash and due from banks . along with its liquid assets , farmers has additional sources of liquidity available which help to insure that adequate funds are available as needed . these other sources include , but are not limited to , loan repayments , the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds and borrowings on approved lines of credit at two major domestic banks . at december 31 , 2018 , farmers had not borrowed against these lines of credit . management feels that its liquidity position is more than adequate and will continue to monitor the position on a monthly basis . the company also has additional borrowing capacity with the fhlb , as well as access to the federal reserve discount window , which provides an additional source of funds . the company views its membership in the fhlb as a solid source of liquidity . as of december 31 , 2018 , the bank is eligible to borrow an additional $ 309 million from the fhlb under various fixed rate and variable rate credit facilities . advances outstanding from the fhlb at december 31 , 2018 amounted to $ 243.8 million . farmers ' primary investing activities are originating loans and purchasing securities . during 2018 , net cash used by investing activities amounted to $ 180.5 million , compared to $ 137.1 million used in 2017. net increases in loans were $ 160.2 million in 2018 , compared to $ 132.3 million in 2017. the cash used by lending activities during 2017 can be attributed to the activity in the commercial real estate , commercial and industrial , residential real estate , and agricultural loan portfolios . purchases of securities available for sale were $ 70.9 million in 2018 , compared to $ 114.6 million in 2017 , and proceeds from maturities and sales of securities available for sale were $ 53.3 million in 2018 , compared to $ 97.6 million in 2017. net cash of $ 16.3 million was received as a result of the acquisition of monitor in 2017 . 34 farmers ' primary financing activities are obtaining deposits , repurchase agreements and other borrowings . net cash provided by financing activities amounted to $ 140.9 million for 2018 , compared to $ 122.4 million in 2017. the majority of this increase can be attributed to the net change in deposits . the increase in deposits was $ 195 million in 2018 compared to an increase of $ 45.4 million in 2017. short-term borrowings decreased $ 44.8 million in 2018 compared to an increase of $ 91.1 million in 2018. the decrease in short-term borrowings is mainly a result of the growth in deposit balances , which allowed the company to pay down short-term federal home loan bank advances during the year . loan portfolio maturities and sensitivities of loans to interest rates the following schedule shows the composition of loans and the percentage of loans in each category at the dates indicated . balances include unamortized loan origination fees and costs . replace_table_token_9_th the following schedule sets forth maturities based on remaining scheduled repayments of principal for commercial and commercial real estate loans listed above as of december 31 , 2018 : replace_table_token_10_th the amounts of commercial , commercial real estate and agricultural loans as of december 31 , 2018 , based on remaining scheduled repayments of principal , are shown in the following table : replace_table_token_11_th total loans were $ 1.7 billion at year-end 2018 , compared to $ 1.6 billion at year-end 2017. loans grew 10 % organically during the past twelve months . the organic increase in loans is a direct result of farmers ' focus on loan growth utilizing a talented lending and credit team , while adhering to a sound underwriting discipline . most of the increase in loans has occurred in the commercial real estate , agricultural , residential real estate and commercial loan portfolios .
| pursuant to the terms of the merger agreement , common shareholders of monitor were entitled to elect to receive consideration in cash or in common shares , without par value , of the farmers national banc corp. , subject to an overall limitation of 85 % of the monitor common shares being exchanged for farmers common shares and 15 % exchanged for cash . the per share cash consideration of $ 769.38 is equal to monitor 's march 31 tangible book value multiplied by 1.25. based on the volume weighted average closing price of farmers common shares for the 20 trading days ended august 11 , 2017 of $ 14.04 , the final stock exchange ratio was 54.80 , resulting in an implied value per monitor common share of $ 769.38. net interest income net interest income , the principal source of the company 's earnings , represents the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities . for 2018 , taxable equivalent net interest income increased $ 3.5 million , or 4.6 % , from 2017. interest-earning assets averaged $ 2.075 billion during 2018 , increasing $ 151.3 million compared to 2017. the company 's interest-bearing liabilities increased 7.1 % from $ 1.449 billion in 2017 to $ 1.553 billion in 2018. the company finances its earning assets with a combination of interest-bearing and interest-free funds . the interest-bearing funds are composed of deposits , short-term borrowings and long-term debt . interest paid for the use of these funds is the second factor in the net interest income equation . interest-free funds , such as demand deposits and stockholders ' equity , require no interest expense and , therefore , contribute significantly to net interest income . the profit margin , or spread , on invested funds is a key performance measure . the company monitors two key performance indicators - net interest spread and net interest margin . the net interest spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities . the net interest spread in 2018 was 3.66 % , decreasing from 3.88 % in 2017. the net interest margin represents the overall profit margin –
| 10,696 |
provisions for title losses , as a percentage of title operating revenues , were 4.8 % , 5.6 % and 4.7 % for the years ended december 31 , 2016 , 2015 and 2014 , respectively . actual loss payment experience , including the impact of large losses , is the primary reason for increases or decreases in our loss provision . a change of 100 basis points in the loss provisioning percentage , a reasonably likely scenario based on our historical loss experience , would have increased or decreased our provision for title losses and pretax operating results by approximately $ 19.0 million for the year ended december 31 , 2016 . replace_table_token_6_th provisions for known claims relate primarily to prior policy years as claims are not typically reported until several years after policies are issued . provisions - incurred but not reported ( ibnr ) are estimates of claims expected to be incurred over the next 20 years and are subject to considerable judgment in their determination ; therefore , it is not unusual or unexpected to experience adjustments to the provisions for both current and prior policy years as additional loss experience on policy years is obtained subsequent to the year of issuance . this loss experience may result in changes to our estimate of total ultimate losses expected ( i.e. , the ibnr policy loss reserve ) . current year provisions - ibnr are recorded on policies issued in the current year as a percentage of premiums realized ( provisioning rate ) . as claims become known , provisions are reclassified from ibnr to known claims . adjustments relating to large claims ( those individually in excess of $ 1.0 million ) may impact provisions either for known claims or for ibnr . 14 in 2016 , total known claims provisions decreased to $ 85.4 million from $ 95.1 million in 2015 , primarily as a result of relatively lower dollar amount of claims reported to us during the year relating to policies issued in previous years . current year provisions - ibnr decreased in 2016 by $ 2.0 million to $ 52.0 million compared to 2015 , and increased in 2015 by $ 7.8 million to $ 54.0 million compared to 2014 principally due to the decrease and increase , respectively , of our provisioning rate for those years . as a percentage of title operating revenues , provisions - ibnr ( current year ) was 2.7 % , 2.9 % and 2.7 % in 2016 , 2015 and 2014 , respectively . provisions - ibnr relating to prior policy years decreased in 2016 as compared to 2015 mainly due to the losses experienced in 2015 relating to certain older policy years with higher than normal claims . in 2016 , changes in the estimated aggregate loss associated with large claims resulted in a decrease to expense of $ 3.1 million compared with a $ 22.1 million increase in 2015 and an $ 8.0 million decrease in 2014. in addition to title policy claims , we incur losses in our direct operations from escrow , closing and disbursement functions . these escrow losses typically relate to errors or other miscalculations of amounts to be paid at closing , including timing or amount of a mortgage payoff , payment of property or other taxes and payment of homeowners ' association fees . escrow losses also arise in cases of mortgage fraud , and in those cases the title insurer incurs the loss under its obligation to ensure that an unencumbered title is conveyed . escrow losses are recognized as expense when discovered or when contingencies associated with them ( such as litigation ) are resolved and are typically paid less than 12 months after the loss is recognized . for the years ended december 31 , 2016 and 2015 , we accrued approximately $ 3.3 million and $ 1.0 million , respectively , for policy loss reserves relating to legacy escrow losses arising principally from mortgage fraud . we consider our actual claims payments and incurred loss experience , including consideration of the frequency and severity of claims compared to our actuarial estimates of claims payments and incurred losses in determining whether our overall loss experience has improved or worsened compared to prior periods . we also consider the impact of economic or market factors on particular policy years to determine whether the results of those policy years are indicative of future expectations . in addition , we evaluate the frequency and severity of large losses in determining whether our experience has improved or worsened . our method for recording the reserves for title losses on both an interim and annual basis begins with the calculation of our current loss provision rate which is applied to our current premium revenues , resulting in a title loss expense for the period . this loss provision rate is set to provide for losses on current year policies and is determined using moving average ratios of recent actual policy loss payment experience ( net of recoveries ) to premium revenues . at each quarter end , our recorded reserve for title losses begins with the prior period 's reserve balance for claim losses , adds the current period provision to that balance and subtracts actual paid claims , resulting in an amount that our management compares to its actuarially-based calculation of the ending reserve balance necessary to provide for future title losses . the actuarially-based calculation is a paid loss experience calculation where loss experience factors are selected based on company data and input from our third-party actuaries . we also obtain input from third-party actuaries in the form of a reserve analysis utilizing generally accepted actuarial methods . while we are responsible for determining our loss reserves , we utilize this actuarial input to assess the overall reasonableness of our reserve estimation . story_separator_special_tag if our recorded reserve amount is not at the actuary 's point estimate but is within a reasonable range ( +5.0 % /-4.0 % ) of our actuarially-based reserve calculation and the actuary 's point estimate , our management assesses the major factors contributing to the different reserve estimates in order to determine the overall reasonableness of our recorded reserve , as well as the position of the recorded reserves relative to the point estimate and the estimated range of reserves . the major factors considered can change from period to period and include items such as current trends in the real estate industry ( which management can assess although there is a time lag in the development of this data for use by the actuary ) , the size and types of claims reported and changes in our claims management process . if the recorded amount is not within a reasonable range of our third-party actuary 's point estimate , we will adjust the recorded reserves in the current period and reassess the provision rate on a prospective basis . once our reserve for title losses is recorded , it is reduced in future periods as a result of claims payments and may be increased or reduced by revisions to our estimate of the overall level of required reserves . 15 large claims , including large title losses due to independent agency defalcations , are analyzed and reserved for separately due to the potential higher dollar amount of loss , lower volume of claims reported and sporadic reporting of such claims . large title losses due to independent agency defalcations typically occur when the independent agency misappropriates funds from escrow accounts under its control . such losses are usually discovered when the independent agency fails to pay off an outstanding mortgage loan at closing ( or immediately thereafter ) from the proceeds of the new loan . once the previous lender determines that its loan has not been paid off timely , it will file a claim against the title insurer . it is at this point that the title insurance underwriter is alerted to the potential theft and begins its investigation . as an industry practice , these claims are considered a claim on the newly issued title insurance policy since such policy insures the holder ( in this case , the new lender ) that all previous liens on the property have been satisfied . accordingly , these claim payments are charged to policy loss expense . these incurred losses are typically more severe in terms of dollar value compared with traditional title policy claims since the independent agency is often able , over time , to conceal misappropriation of escrow funds relating to more than one transaction through the constant volume of funds moving through its escrow accounts . as long as new funds continue to flow into escrow accounts , an independent agency can mask one or more defalcations . in declining real estate markets , lower transaction volumes result in a lower incoming volume of funds , making it more difficult to cover up the misappropriation with incoming funds . thus , when the defalcation is discovered , it often relates to several transactions . in addition , the overall decline in an independent agency 's revenues , profits and cash flows increases the agency 's incentive to improperly utilize the escrow funds from real estate transactions . internal controls relating to independent agencies include , but are not limited to , periodic audits , site visits and reconciliations of policy inventories and premiums . the audits and site visits cover examination of the escrow account bank reconciliations and an examination of a sample of closed transactions . in some instances , the scope of our review is limited by attorney agencies that cite client confidentiality . certain states have mandated annual reviews of all agencies by their underwriter . we also determine whether our independent agencies have appropriate internal controls as defined by the american land title association 's best practices and us . however , even with adequate internal controls in place , their effectiveness can be circumvented by collusion or improper override of the controls by management at the independent agencies . to aid in the selection of independent agencies to review , we have developed an agency risk model that aggregates data from different areas to identify possible problems . this is not a guarantee that all independent agencies with deficiencies will be identified . in addition , we are typically not the only underwriter for which an independent agency issues policies , and independent agencies may not always provide complete financial records for our review . due to improved agency internal controls as well as better overall economic conditions , we did not experience any significant agency defalcation losses during the three years ended december 31 , 2016. due to the inherent uncertainty in predicting future title policy losses , significant judgment is required by both our management and our third party actuaries in estimating reserves . as a consequence , our ultimate liability may be materially greater or less than current reserves and or our third party actuary 's calculated estimate . agency revenues we recognize revenues on title insurance policies written by independent agencies ( agencies ) when the policies are reported to us . in addition , where reasonable estimates can be made , we accrue for revenues on policies issued but not reported until after period end . we believe that reasonable estimates can be made when recent and consistent policy issuance information is available . our estimates are based on historical reporting patterns and other information about our agencies . we also consider current trends in our direct operations and in the title industry . in this accrual , we are not estimating future transactions ; we are estimating revenues on policies that have already been issued by agencies but not yet reported to or received by us .
| total commercial revenues in 2016 decreased $ 2.4 million , or 1.2 % , compared to 2015 and increased $ 15.0 million , or 8.2 % , in 2015 compared to 2014 consistent with the trend of our commercial orders closed . while year-to-year results for commercial business can fluctuate considerably due to timing of when large transactions close , our commercial operations continued to be stable in the marketplace . revenues from independent agencies increased $ 18.5 million , or 1.9 % , in 2016 compared to 2015 and increased $ 85.3 million , or 9.4 % , in 2015 compared to 2014. revenues from independent agencies fluctuate based on the same general factors that influence revenues from direct title operations , although we do not specifically know our agents ' order composition . the 2016 gross agency revenue increase was driven by increased revenues primarily from texas , michigan , washington and florida , offset by declines in new york , california and new jersey . the 2015 gross agency revenue increase resulted from increases primarily in utah , georgia , california , florida and minnesota , offset by declines in texas and new york . we continue to focus on increasing profit margins in every state , increasing premium revenue in states where remittance rates are above 20 % , and maintaining the quality of our agency network , which we believe to be the industry 's best , in order to mitigate claims risk and drive consistent future performance . title revenues by geographic location . the approximate amounts and percentages of consolidated title operating revenues for the last three years were as follows : replace_table_token_10_th ancillary services revenues . ancillary services revenues decreased $ 45.7 million , or 35.2 % , in 2016 compared to 2015 and decreased $ 2.9 million , or 2.2 % , in 2015 compared to 2014. the revenue reduction in both years was primarily due to decreased demand and lower pricing within our delinquent loan servicing activities . the relatively higher revenue decline in 2016 was due to our exit of the delinquent loan servicing activities in the first quarter 2016. the
| 10,697 |
at december 31 , 2019 , we had total assets of $ 5.060 billion , including gross loans held for investment of $ 4.195 billion , compared to $ 4.560 billion of total assets and $ 3.609 billion of gross loans held for investment at december 31 , 2018. organic loan growth totaled $ 585.9 million during the year ended december 31 , 2019. our commercial finance loans increased from $ 1.184 billion in aggregate as of december 31 , 2018 to $ 1.250 billion as of december 31 , 2019 , an increase of 5.6 % , and constitute 30 % of our total loan portfolio at december 31 , 2019. our national lending lines increased from $ 386.9 million in aggregate as of december 31 , 2018 to $ 850.4 million as of december 31 , 2019 , an increase of 119.8 % , and constitute 20 % of our total loan portfolio at december 31 , 2019. our community bank lending lines increased from $ 2.038 billion in aggregate as of december 31 , 2018 to $ 2.094 billion as of december 31 , 2019 , an increase of 2.7 % , and constitute 50 % of our total loan portfolio at december 31 , 2019. at december 31 , 2019 , we had total liabilities of $ 4.424 billion , including total deposits of $ 3.790 billion , compared to $ 3.923 billion of total liabilities and $ 3.450 billion of total deposits at december 31 , 2018. deposits increased $ 339.6 million during the year ended december 31 , 2019. at december 31 , 2019 and 2018 , we had total stockholders ' equity of $ 636.6 million . the increase in total equity from our net income for the year ended december 31 , 2019 was offset by common stock repurchased during the period . capital ratios remained strong with holding company tier 1 capital and total capital to risk weighted assets ratios of 10.29 % and 12.76 % , respectively , at december 31 , 2019. for the year ended december 31 , 2019 , triumphpay processed 874,790 invoices paying 66,218 distinct carriers a total of $ 975.1 million . 2019 items of note warehouse solutions inc. investment on october 17 , 2019 , we made a minority equity investment of $ 8 million in warehouse solutions inc. ( “ wsi ” ) , purchasing 8 % of the common stock of wsi and receiving warrants to purchase an additional 10 % of the common stock of wsi upon exercise of the warrants at a later date . wsi provides technology solutions to help reduce supply chain costs for a global client base across multiple industries . 44 stock repurchase program on october 29 , 2018 , we announced that our board of directors had authorized us to repurchase up to $ 25.0 million of our outstanding common stock . on july 17 , 2019 , our board of directors authorized the repurchase of up to an additional $ 25.0 million of our outstanding common stock . on october 16 , 2019 our board of directors authorized us to repurchase up to an additional $ 50.0 million of our outstanding common stock . we may repurchase these shares from time to time in open market transactions or through privately negotiated transactions at our discretion . the amount , timing and nature of any share repurchases will be based on a variety of factors , including the trading price of our common stock , applicable securities laws restrictions , regulatory limitations and market and economic factors . this repurchase program is authorized for a period of up to one year and does not require us to repurchase any specific number of shares . the repurchase program may be modified , suspended or discontinued at any time , at our discretion . no repurchases were made under these programs during the year ended december 31 , 2018 ; however , during the year ended december 31 , 2019 , we repurchased into treasury stock 2,080,791 shares at an average price of $ 30.90 for a total of $ 64.4 million . 2018 items of note first bancorp of durango , inc. and southern colorado corp. effective september 8 , 2018 , we acquired first bancorp of durango , inc. ( “ fbd ” ) and its two community banking subsidiaries , the first national bank of durango and bank of new mexico , which were merged into tbk bank upon closing , in an all-cash transaction for $ 134.7 million . on the same date , we acquired southern colorado corp. ( “ scc ” ) and its community banking subsidiary , citizens bank of pagosa springs , which was merged into tbk bank upon closing , in an all-cash transaction for $ 13.3 million . as part of the fbd and scc acquisitions , we acquired a combined $ 287.8 million of loans held for investment , assumed a combined $ 674.7 million of deposits , and recorded a combined $ 14.1 million of core deposit intangible assets and $ 72.1 million of goodwill . interstate capital corporation on june 2 , 2018 we acquired substantially all of the operating assets of , and assumed certain liabilities associated with , interstate capital corporation 's ( “ icc ” ) accounts receivable factoring business and other related financial services for total consideration of $ 180.3 million , which was comprised of $ 160.3 million in cash and contingent consideration with an initial fair value of $ 20.0 million . as part of the icc acquisition , we acquired $ 131.0 million of factored receivables and recorded $ 13.9 million of intangible assets and $ 43.0 million of goodwill . common stock offering on april 12 , 2018 , we completed an underwritten common stock offering issuing 5.4 million shares of our common stock , including 0.7 million shares sold pursuant to the underwriters ' full exercise of their option to purchase additional shares , at $ 37.50 per share for total gross proceeds of $ 202.7 million . story_separator_special_tag net proceeds after underwriting discounts and offering expenses were $ 192.1 million . a significant portion of the net proceeds of this offering were used to fund the fbd , scc and icc acquisitions and for general corporate purposes . triumph healthcare finance on january 19 , 2018 , we entered into an agreement to sell the assets of triumph healthcare finance ( “ thf ” ) and exit the healthcare asset-based lending line of business . the sale was finalized on march 16 , 2018 and resulted in a net pre-tax contribution to earnings for the three months ended march 31 , 2018 of $ 1.1 million , or approximately $ 0.8 million net of tax . for further information on the above transactions , see note 2 – business combinations and divestitures in the accompanying notes to the consolidated financial statements included elsewhere in this report . story_separator_special_tag estate and general commercial and industrial loans , due to organic growth period over period . the increase is also attributable to growth in our factored receivable operations as a result of a full-year impact of the icc acquisition . the average balance of our higher yielding commercial finance loans increased $ 125.0 million , or 11.7 % , from $ 1.066 billion for the year ended december 31 , 2018 to $ 1.191 billion for the year ended december 31 , 2019 as a result of the full-year icc acquisition impact and organic growth in our equipment finance portfolio . additionally , our average mortgage warehouse lending balance was $ 370.4 million for the year ended december 31 , 2019 compared to $ 242.9 million for the year ended december 31 , 2018. a component of interest income consists of discount accretion on acquired loan portfolios . we recognized discount accretion on purchased loans of $ 5.6 million and $ 8.3 million for the years ended december 31 , 2019 and 2018 , respectively . interest expense increased $ 19.3 million , or 53.8 % , as a result of growth in average customer deposits and other borrowings as well as higher average rates . average total interest bearing deposits increased $ 605.2 million , or 26.8 % , primarily due to a full-year impact of $ 674.7 million of customer deposits assumed in the fbd and scc acquisitions . excluding the acquired customer deposits , we also experienced growth in our certificates of deposit and brokered deposits as these higher cost deposit products were used to fund our growth period over period . in addition , our use of other interest bearing borrowings , consisting primarily of fhlb advances , was also increased to fund growth in our mortgage warehouse product . net interest margin decreased to 5.92 % for the year ended december 31 , 2019 from 6.35 % for the year ended december 31 , 2018 , a decrease of 43 basis points or 6.8 % . the decrease in our net interest margin primarily resulted from an increase in our average cost of interest bearing liabilities of 33 basis points . this increase was caused by an increased use of higher rate certificates of deposit and brokered deposits to fund our growth period over period , and higher rates on short term and floating rate fhlb advances as a result of higher interest rates in the macro economy . this increase was partially offset by a change in the mix of our interest bearing deposits resulting from the full-year impact of lower cost customer deposits assumed in the fbd and scc acquisitions . our net interest margin was also impacted by a decrease in yields on our interest earning assets of 15 basis points to 7.20 % for the year ended december 31 , 2019. this decrease was driven by a change in the overall mix within our loan portfolio period over period which drove a 32 basis point reduction in our loan yield to 7.75 % for the same period . our higher yielding average commercial finance products as a percentage of the average total loan portfolio decreased throughout the year from 34.0 % for the year ended december 31 , 2018 to 31.1 % for the year ended december 31 , 2019 contributing to the overall decrease in yield on our interest earning assets . in addition , our transportation factoring balances , which generate a higher yield than our non-transportation factoring balances , decreased as a percentage of the overall factoring portfolio to 77 % at december 31 , 2019 compared to 79 % at december 31 , 2018 and were also impacted by macroeconomic conditions in the transportation industry discussed below as part of our discussion of our factoring segment . average factored receivables as a percentage of the total commercial finance portfolio increased from 48.3 % for the year ended december 31 , 2018 to 49.0 % for the year ended december 31 , 2019 partially offsetting the decrease in loan yields . 47 changes in net interest income due to changes in rates and volume . the following table shows the effects chan ges in average balances ( volume ) and average interest rates ( rate ) had on the interest earned in our interest earning assets and the interest incurred on our interest bearing liabilities for the periods indicated . for purposes of this table , changes attributable to both rate and volume which can not be segregated have been allocated to volume . replace_table_token_11_th provision for loan losses the provision for loan losses is the amount of expense that , based on our judgment , is required to maintain the allowance for loan and lease losses ( the “ alll ” ) at an appropriate level to absorb estimated incurred losses in the loan portfolio at the balance sheet date . the determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity .
| details of the changes in the various components of net income are further discussed below . net interest income our operating results depend primarily on our net interest income , which is the difference between interest income on interest earning assets , including loans and securities , and interest expense incurred on interest bearing liabilities , including deposits and other borrowed funds . interest rate fluctuations , as well as changes in the amount and type of interest earning assets and interest bearing liabilities , combine to affect net interest income . our net interest income is affected by changes in the amount and mix of interest earning assets and interest bearing liabilities , referred to as a “ volume change. ” it is also affected by changes in yields earned on interest earning assets and rates paid on interest bearing deposits and other borrowed funds , referred to as a “ rate change. ” the following table presents the distribution of average assets , liabilities and equity , as well as interest income and fees earned on average interest earning assets and interest expense paid on average interest bearing liabilities : replace_table_token_9_th 1. balance totals include respective nonaccrual assets . 2. net interest spread is the yield on average interest earning assets less the rate on interest bearing liabilities . 3. net interest margin is the ratio of net interest income to average interest earning assets . 46 the following table presents loan yields earned on our community banking and commercial finance loan portfolios : replace_table_token_10_th we earned net interest income of $ 255.9 million for the year ended december 31 , 2019 compared to $ 227.1 million for the year ended december 31 , 2018 , an increase of $ 28.8 million , or 12.7 % , primarily driven by the following factors . interest income increased $ 48.2 million , or 18.3 % , as a result of an increase in total average interest earning assets of $ 747.4 million , or 20.9 % , which was attributable to a
| 10,698 |
in connection with the merger closing , ( i ) the common units of wes operating , which previously traded under the symbol “ wes , ” ceased to trade on the nyse , ( ii ) the common units of wes , which previously traded under the symbol “ wgp , ” began to trade on the nyse under the symbol “ wes , ” ( iii ) wes changed its name from western gas equity partners , lp to western midstream partners , lp , and ( iv ) wes operating changed its name from western gas partners , lp to western midstream operating , lp . the merger agreement also provided that wes , wes operating , and anadarko cause their respective affiliates to execute the following transactions , among others , immediately prior to the merger becoming effective in the following order : ( 1 ) anadarko e & p onshore llc and wgrah ( the “ contributing parties ” ) contribute to wes operating , and wes operating subsequently contributes to wgr operating , lp , kerr-mcgee gathering llc , and dbm ( each wholly owned by wes operating ) , all of their interests in each of anadarko wattenberg oil complex llc , anadarko dj oil pipeline llc , anadarko dj gas processing llc , wamsutter pipeline llc , dbm oil services , llc , anadarko pecos midstream llc , anadarko mi vida llc , and apc water holdings 1 , llc ( “ apcwh ” ) in exchange for aggregate consideration of $ 1.814 billion of cash , less the outstanding amount payable pursuant to an intercompany note ( the “ apcwh note payable ” ) assumed by wes operating in connection with the transfer , and 45,760,201 wes operating common units ; ( 2 ) amh transfers its interests in saddlehorn pipeline company , llc , and panola pipeline company , llc to wes operating in exchange for $ 193.9 million of cash ; ( 3 ) wes operating contributes cash in an amount equal to the outstanding balance of the apcwh note payable immediately prior to the effective time of the merger to apcwh , which in turn uses the contributed cash to satisfy the apcwh note payable to anadarko ; ( 4 ) the wes operating class c units convert into wes operating common units on a one-for-one basis ; and ( 5 ) wes operating and wes operating gp convert the idrs and the 2,583,068 general partner units in wes operating held by wes operating gp into a non-economic general partner interest in wes operating and 105,624,704 wes operating common units . the 45,760,201 wes operating common units issued to the contributing parties , less 6,375,284 wes operating common units retained by wgrah , convert into the right to receive an aggregate of 55,360,984 common units of wes at merger completion . each wes operating common unit issued and outstanding immediately prior to the closing of the merger ( other than wes operating common units owned by wes and wes operating gp , and certain common units held by subsidiaries of anadarko ) converts into the right to receive 1.525 common units of wes . see note 13—debt and interest expense in the notes to consolidated financial statements under part ii , item 8 of this form 10-k for additional information . additional significant financial and operational events during the year ended december 31 , 2019 , included the following : we increased our per-unit distribution to $ 0.62200 for the fourth quarter of 2019 , representing a 0.3 % increase over the third -quarter 2019 distribution and a 3 % increase over the fourth -quarter 2018 distribution . in july 2019 , wes operating entered into an amendment to the term loan facility to ( i ) extend the maturity date from february 2020 to december 2020 , and ( ii ) increase commitments available under the term loan facility from $ 2.0 billion to $ 3.0 billion , the incremental $ 1.0 billion of which was subsequently drawn by wes operating on september 13 , 2019 , and used to repay outstanding borrowings under the rcf . in december 2019 , wes operating amended certain provisions of the term loan facility . see liquidity and capital resources within this item 7 for additional information . in march 2019 , wes operating entered into additional interest-rate swap agreements with an aggregate notional principal amount of $ 375.0 million . in november and december 2019 , wes operating entered into additional interest-rate swap agreements with an aggregate notional principal amount of $ 1,125.0 million , effectively offsetting those entered into in december 2018 and march 2019. in december 2019 , all outstanding interest-rate swap agreements were cash-settled . see liquidity and capital resources within this item 7 for additional information . in march 2019 , the wgp rcf matured and the outstanding borrowings were repaid . see liquidity and capital resources within this item 7 for additional information . 82 we commenced operations of mentone train ii at the west texas complex ( with capacity of 200 mmcf/d ) and latham train i at the dj basin complex ( with capacity of 200 mmcf/d ) at the end of the first and fourth quarters , respectively , of 2019. in february 2019 , wes operating increased the size of the rcf from $ 1.5 billion to $ 2.0 billion and extended the maturity date of the rcf to february 2024. in december 2019 , wes operating extended the maturity date of the rcf to february 2025 for the extending lenders and modified the change of control definition in the rcf . see liquidity and capital resources within this item 7 for additional information . in january 2019 , we acquired a 30 % interest in red bluff express from a third party . see acquisitions and divestitures under part i , items 1 and 2 of this form 10-k for additional information . story_separator_special_tag natural-gas throughput attributable to wes totaled 4,248 mmcf/d for the year ended december 31 , 2019 , representing a 9 % increase compared to the year ended december 31 , 2018 . crude-oil , ngls , and produced-water throughput attributable to wes totaled 1,195 mbbls/d for the year ended december 31 , 2019 , representing a 57 % increase compared to the year ended december 31 , 2018 . operating income ( loss ) was $ 1,231.3 million for the year ended december 31 , 2019 , representing a 43 % increase compared to the year ended december 31 , 2018 . adjusted gross margin for natural-gas assets ( as defined under the caption how we evaluate our operations within this item 7 ) averaged $ 1.07 per mcf for the year ended december 31 , 2019 , representing a 6 % increase compared to the year ended december 31 , 2018 . adjusted gross margin for crude-oil , ngls , and produced-water assets ( as defined under the caption how we evaluate our operations within this item 7 ) averaged $ 1.77 per bbl for the year ended december 31 , 2019 , representing an 8 % decrease compared to the year ended december 31 , 2018 . the following table provides additional information on throughput for the periods presented below : replace_table_token_12_th 83 items affecting the comparability of our financial results our historical results of operations and cash flows for the periods presented may not be comparable to future or historic results of operations or cash flows for the reasons described below . refer to story_separator_special_tag style= '' font-family : inherit ; font-size:10.5pt ; '' > 2019 , 59 % of total revenues and other , 38 % of our throughput for natural-gas assets ( excluding equity-investment throughput ) , and 83 % of our throughput for crude-oil , ngls , and produced-water assets ( excluding equity-investment throughput ) were attributable to transactions with occidental . in addition , occidental supports our operations by providing dedications and or minimum-volume commitments . for the year ended december 31 , 2019 , 93 % of our wellhead natural-gas volume ( excluding equity investments ) and 100 % of our crude-oil , ngls , and produced-water throughput ( excluding equity investments ) were serviced under fee-based contracts under which fixed and variable fees are received based on the volume or thermal content of the natural gas and on the volume of ngls , crude oil , and produced water we gather , process , treat , transport , or dispose . this type of contract provides us with a relatively stable revenue stream that is not subject to direct commodity-price risk , except to the extent that ( i ) we retain and sell drip condensate that is recovered during the gathering of natural gas from the wellhead or production facilities or ( ii ) actual recoveries differ from contractual recoveries under a limited number of processing agreements . we also have indirect exposure to commodity-price risk in that the relatively volatile commodity-price environment has caused and may continue to cause current or potential customers to delay drilling or shut-in production in certain areas , which would reduce the volumes of hydrocarbons available to our systems . we also bear limited commodity-price risk through the settlement of imbalances . read item 7a . quantitative and qualitative disclosures about market risk under part ii of this form 10-k. as a result of previous acquisitions from anadarko and third parties , our results of operations , financial position , and cash flows may vary significantly in future periods . see items affecting the comparability of our financial results within this item 7 . 85 how we evaluate our operations our management relies on certain financial and operational metrics to analyze our performance . these metrics are significant factors in assessing our operating results and profitability and include ( i ) throughput , ( ii ) operating and maintenance expenses , ( iii ) general and administrative expenses , ( iv ) adjusted gross margin ( as defined below ) , ( v ) adjusted ebitda ( as defined below ) , and ( vi ) distributable cash flow ( as defined below ) . throughput . throughput is a significant operating variable that we use to assess our ability to generate revenues . to maintain or increase throughput on our systems , we must connect to additional wells or production facilities . our success in maintaining or increasing throughput is impacted by the successful drilling of new wells by producers that are dedicated to our systems , recompletions of existing wells connected to our systems , our ability to secure volumes from new wells drilled on non-dedicated acreage , and our ability to attract natural-gas , crude-oil , ngls , or produced-water volumes currently serviced by our competitors . operating and maintenance expenses . we monitor operating and maintenance expenses to assess the impact of these costs on asset profitability and to evaluate the overall efficiency of our operations . operating and maintenance expenses include , among other things , field labor , insurance , repair and maintenance , equipment rentals , contract services , utility costs , and services provided to us or on our behalf . for periods commencing on the date of and subsequent to the acquisition of assets from anadarko , certain of these expenses are incurred under our services and secondment agreement with occidental , which was amended and restated on december 31 , 2019 ( see executive summary– december 2019 agreements within this item 7 ) . general and administrative expenses . to assess the appropriateness of our general and administrative expenses and maximize our cash available for distribution , we monitor such expenses by way of comparison to prior periods and to the annual budget approved by our board of directors . pursuant to the wes and wes operating omnibus agreements , occidental and our general partner performed centralized corporate functions for us .
| income taxes . with respect to assets acquired from anadarko , we recorded anadarko 's historic current and deferred income taxes for the periods prior to our ownership of the assets . for periods subsequent to asset acquisitions from anadarko , we are not subject to tax except for the texas margin tax and , accordingly , do not record current and deferred federal income taxes related to such assets . acquisitions and divestitures . for the year ended december 31 , 2019 , there was a ne t increase in adjusted gross margin of $ 4.1 million related to our third-party asset acquisition during 2019 . for the year ended december 31 , 2018 , there was a net increase in adjusted gross margin of $ 40.5 million related to our third-party asset acquisitions and divestitures during 2018 . see note 3—acquisitions and divestitures in the notes to consolidated financial statements under part ii , item 8 of this form 10-k for additional information and how we evaluate our operations within this item 7 for the definition of adjusted gross margin . impairments . during 2018 , we recognized impairments of $ 230.6 million , including impairments of ( i ) $ 125.9 million at the third creek gathering system and $ 8.1 million at the kitty draw gathering system due to the shutdown of the systems , ( ii ) $ 38.7 million at the hilight system , and ( iii ) $ 34.6 million at the migc system . during 2017 , we recognized impairments of $ 180.1 million , including an impairment of $ 158.8 million at the granger complex due to a reduced throughput fee as a result of a producer 's bankruptcy . see note 1—summary of significant accounting policies and note 8—property , plant , and equipment in the notes to consolidated financial statements under part ii , item 8 of this form 10-k. 84 dbm complex . in december 2015 , there was an initial fire and
| 10,699 |
story_separator_special_tag style= '' text-indent : 0pt ; margin-left : 0pt ; margin-right : 0pt '' > 46 economic interest expense and economic net interest income ( in thousands ) interest expense on repurchase agreements gains ( losses ) on eurodollar futures contracts net interest income gaap attributed economic gaap economic interest interest to current interest net interest net interest income expense period ( 1 ) expense ( 2 ) income income ( 3 ) three months ended december 31 , 2013 $ 2,806 $ 309 $ ( 42 ) $ 351 $ 2,497 $ 2,455 september 30 , 2013 2,551 294 ( 28 ) 322 2,257 2,229 june 30 , 2013 2,429 322 ( 4 ) 326 2,107 2,103 march 31 , 2013 1,412 201 ( 65 ) 266 1,211 1,146 december 31 , 2012 473 94 ( 62 ) 156 379 317 september 30 , 2012 697 58 ( 28 ) 86 639 611 june 30 , 2012 769 74 ( 10 ) 84 695 685 march 31 , 2012 759 51 ( 4 ) 55 708 704 years ended december 31 , 2013 $ 9,198 $ 1,126 $ ( 139 ) $ 1,265 $ 8,072 7,933 december 31 , 2012 2,698 277 ( 104 ) 381 2,421 2,317 ( 1 ) reflects the effect of eurodollar futures contract hedges for only the period presented ( 2 ) calculated by subtracting the effect of eurodollar hedges attributed to the period presented from gaap interest expense . ( 3 ) calculated by adding the effect of eurodollar hedges attributed to the period presented to gaap net interest income net interest income during the year ended december 31 , 2013 , we generated $ 8.1 million of net interest income , consisting of $ 9.2 million of interest income from rmbs assets offset by $ 1.1 million of interest expense on repurchase liabilities . for the comparable period ended december 31 , 2012 , we generated $ 2.4 million of net interest income , consisting of $ 2.7 million of interest income from rmbs assets offset by $ 0.3 million of interest expense on repurchase liabilities . the increases in interest income and interest expense for the year ended december 31 , 2013 primarily reflects the deployment of our ipo proceeds into the rmbs portfolio on a leveraged basis . on an economic basis , our interest expense on repurchase liabilities for the years ended december 31 , 2013 and 2012 was $ 1.3 million and $ 0.4 million , respectively , resulting in $ 7.9 million and $ 2.3 million of economic net interest income , respectively . 47 the tables below provide information on our portfolio average balances , interest income , yield on assets , average repurchase agreement balances , interest expense , cost of funds , net interest income and net interest spread for each quarter in 2013 and 2012 and for the years ended december 31 , 2013 and 2012 on both a gaap and economic basis . replace_table_token_4_th replace_table_token_5_th ( 1 ) portfolio yields and costs of borrowings presented in the tables above and the tables on pages 49 and 50 are calculated based on the average balances of the underlying investment portfolio/repurchase agreement balances and are annualized for the quarterly periods presented . average balances for quarterly periods are calculated using two data points , the beginning and ending balances . average balances for the year to date periods are calculated as the average of the average quarterly periods . ( 2 ) interest income presented in the table above includes only interest earned on the company 's rmbs investments and excludes interest earned on cash balances , and excludes the impact of discounts or premiums on rmbs investments , as discounts or premiums are not amortized under the fair value option . interest income and net portfolio interest income may not agree with the information presented in the statements of operations . ( 3 ) economic interest expense and economic net interest income presented in the table above and the tables on page 50 includes the effect of our eurodollar futures contract hedges for only the periods presented . ( 4 ) represents interest cost of our borrowings and effect on eurodollar futures contracts hedges attributed to the period related to hedging activities divided by average rmbs held . ( 5 ) economic net interest spread is calculated by subtracting average economic cost of funds from yield on average rmbs securities . 48 interest income and average asset yield our interest income for the years ended december 31 , 2013 and 2012 was $ 9.2 million and $ 2.7 million , respectively . we had average rmbs holdings of $ 316.1 million and $ 74.9 million for the years ended december 31 , 2013 and 2012 , respectively . the yield on our portfolio was 2.91 % and 3.60 % for the years ended december 31 , 2013 and 2012 , respectively . for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 , there was a $ 6.5 million increase in interest income due to a $ 241.2 million increase in average rmbs , partially offset by a 69 basis point decrease in the yield on average rmbs for the year ended december 31 , 2013 when compared to the year ended december 31 , 2012. the increase in average rmbs during the year ended december 31 , 2013 reflects the deployment of the proceeds of our initial public offering . the table below presents the average portfolio size , income and yields of our respective sub-portfolios , consisting of structured rmbs and pass-through rmbs ( “ pt rmbs ” ) . replace_table_token_6_th interest expense and the cost of funds we had average outstanding repurchase agreements of $ 284.5 million and $ 63.9 million and total interest expense of $ 1.1 million and $ 0.3 million for the years ended december 31 , 2013 and 2012 , respectively . story_separator_special_tag our average cost of funds was 0.40 % and 0.43 % for years ended december 31 , 2013 and 2012 , respectively . there was a 3 basis point decrease in the average cost of funds and a $ 220.6 million increase in average outstanding repurchase agreements during the year ended december 31 , 2013 as compared to the year ended december 31 , 2012. the increase in average outstanding repurchase agreements reflects the deployment of the proceeds of our initial public offering on a leveraged basis . our economic interest expense was $ 1.3 million and $ 0.4 million for the years ended december 31 , 2013 and 2012 , respectively . there was a 16 basis point decrease in the average economic cost of funds to 0.44 % for the year ended december 31 , 2013 from 0.60 % for the previous year . since all of our repurchase agreements are short-term , changes in market rates directly affect our interest expense . our average cost of funds calculated on a gaap basis was 23 basis points above average one-month libor and 4 basis points above average six-month libor for the quarter ended december 31 , 2013. our average economic cost of funds was 28 basis points above average one-month libor and 9 basis points above average six-month libor for the quarter ended december 31 , 2013. the average term to maturity of the outstanding repurchase agreements was 15 days at both december 31 , 2013 and 2012 . 49 the tables below presents the average repurchase agreements outstanding , interest expense and average cost of funds , and average one-month and six-month libor rates for each quarter in 2013 and 2012 and for the years ended december 31 , 2013 and 2012 on both a gaap and economic basis . replace_table_token_7_th replace_table_token_8_th gains or losses owing to the increased size of the rmbs portfolio and material increases in interest rates in 2013 , realized and unrealized losses on our rmbs portfolio and gains in our eurodollar futures contracts were both material and significantly larger than those experienced in 2012. the table below presents our gains or losses for the years ended december 31 , 2013 and 2012. replace_table_token_9_th 50 during the years ended december 31 , 2013 and 2012 , the company received proceeds of $ 409.0 million and $ 129.1 million , respectively , from the sales of rmbs . we do not expect to sell assets on a frequent basis , but may from time to time sell existing assets to acquire new assets , which our management believes might have higher risk-adjusted returns or to manage our balance sheet as part of our asset/liability management strategy . in may and again in june of 2013 , the federal reserve hinted to the markets that it would begin to taper its quantitative easing program , possibly as soon as fall 2013. the quantitative easing program involves the purchase of $ 40 billion agency rmbs and $ 45 billion us treasury securities per month by the federal reserve . the us treasury and agency rmbs markets reacted strongly to this news and interest rates rose by approximately 100 basis points from early may levels in the case of the 10 year us treasury note . with the release of improving economic data during the remainder of the year , interest rates continued to rise , with the yield on the 10 year us treasury reaching 3.03 % at december 31 , 2013. in december 2013 , the federal reserve announced that it would start to taper its bond-buying program by $ 10 billion a month beginning in january 2014. on january 29 , 2014 , the u.s. federal reserve announced additional $ 5 billion reductions to its monthly purchase of both agency rmbs and treasury bonds to take effect in february 2014. this market activity initially had an adverse effect on our pass-through portfolio since the prices of rmbs assets generally move in an inverse relationship to interest rates . conversely , our interest only structured securities rose in price as the market anticipated slower prepayment rates as a result of higher mortgage rates . the table below presents historical interest rate data for each quarter end during 2013 and 2012. replace_table_token_10_th ( 1 ) historical 10 year treasury rates are obtained from quoted end of day prices on the cboe . ( 2 ) historical 30 year and 15 year fixed rate mortgage rates are obtained from freddie mac 's primary mortgage market survey . expenses total operating expenses were $ 1.7 million and $ 0.7 million for the years ended december 31 , 2013 and 2012 , respectively . the table below provides a breakdown of operating expenses for the years ended december 31 , 2013 and 2012. replace_table_token_11_th 51 under the terms of a management agreement that was in effect during all of 2012 and through the completion of our initial public offering , the company paid bimini a monthly management fee equal to 1/12 of 1.50 % per annum of the stockholders ' equity ( as defined in the management agreement ) of the company . in addition , the company paid bimini a monthly fee of $ 7,200 , which represented an allocation of overhead expenses for items that included , but were not limited to , occupancy costs , insurance and administrative expenses . these expenses were allocated based on the ratio of the company 's assets and bimini 's consolidated assets . at the completion of the ipo , the company entered into a management agreement with bimini advisors , llc , a wholly owned subsidiary of bimini , which provides for an initial term through february 20 , 2016 with automatic one-year extensions and is subject to certain termination rights . under the terms of the new management agreement , overhead costs will not be allocated to the company until its equity , as defined in the management agreement , equals or exceeds $ 100 million for the first time .
| for the purpose of computing economic net interest income and ratios relating to cost of funds measures , gaap interest expense has been adjusted to reflect the realized gains or losses on specific eurodollar contracts that pertain to each period presented . as of december 31 , 2013 , the company has eurodollar futures contracts in place through 2018. since the company has taken short positions on these contracts , when interest rates move higher the value of our short position may increase in value . the opposite would be true if interest rates were to decrease . adjusting our interest expense for the periods presented by the gains on all eurodollar futures would not accurately reflect our economic interest expense for these periods . for each period presented the company has combined the effects of the eurodollar positions in place for the respective period with the actual interest expense incurred on repurchase agreements to reflect total expense for the applicable period . interest expense , including the effect of eurodollar futures contracts for the period , is referred to as economic interest expense . net interest income , when calculated to include the effect of eurodollar futures contracts for the period , is referred to as economic net interest income . 45 however , under asc 815 , because the company has not elected hedging treatment , the gains or losses on all of the company 's eurodollar futures contracts held during the period are reflected in our statements of operations . this presentation includes gains or losses on all contracts in effect during the reporting period — covering the current period as well as periods in the future . the company believes that economic interest expense and economic net interest income provides meaningful information to consider , in addition to the respective amounts prepared in accordance with gaap . the non-gaap measures help the company to evaluate its financial position and performance without the effects of certain transactions and gaap adjustments that are not necessarily indicative of its current investment portfolio or operations . the realized and unrealized gains or
| 10,700 |
our performance obligations are satisfied at a point in time . revenue from products transferred to customers at a single point in time accounted for 99 % of net sales for the year ended june 30 , 2019. revenue for non-recurring engineering projects is based on the percentage completion of a project and accounted for 1.0 % of net sales for the year ended june 30 , 2019. the majority of our revenue recognized at a point in time is for the sale of hot-spot router products . revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product which generally coincides with title transfer at completion of the shipping process . as of june 30 , 2019 , our contracts do not contain any unsatisfied performance obligations , except for undelivered products . capitalized product development costs asc topic 350 , “ intangibles - goodwill and other ” includes software that is part of a product or process to be sold to a customer and shall be accounted for under subtopic 985-20. our products contain embedded software internally developed by fti which is an integral part of these products because it allows the various components of the products to communicate with each other and the products are clearly unable to function without this coding . the costs of product development that are capitalized once technological feasibility is determined ( noted as technology in progress in the intangible assets table , in note 2 to notes to consolidated financial statements ) include certifications , licenses , payroll , employee benefits , and other headcount-related expenses associated with product development . we determine that technological feasibility for our products is reached after all high-risk development issues have been resolved . once the products are available for general release to our customers , we cease capitalizing the product development costs and any additional costs , if any , are expensed . the capitalized product development costs are amortized on a product-by-product basis using the straight-line amortization . the amortization begins when the products are available for general release to our customers . as of june 30 , 2019 , and june 30 , 2018 , capitalized product development costs in progress were $ 465,352 and $ 100,000 , respectively , and these amounts are included in intangible assets in our consolidated balance sheets . during the year ended june 30 , 2019 , we incurred $ 465,352 in capitalized product development costs , and such amounts are primarily comprised of certifications and licenses . all costs incurred before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income . income taxes deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . as of june 30 , 2019 , we have federal and state net operating loss carryforwards of approximately $ 5.6 million and no state net operating loss carryforwards . under the tax cuts and jobs act ( the “ act ” ) , which was signed into law on december 22 , 2017 , the federal net operating loss recognized on or after january 1 , 2018 will carryforward indefinitely . the federal net operating loss of $ 2.5 million , which was recognized on or before december 31 , 2017 , will expire through 2035 , and the federal net operating loss of $ 3.1 million recognized on or after january 1 , 2018 will carryforward indefinitely . the utilization of net operating loss carryforwards may be subject to limitations under provisions of the internal revenue code section 382 and similar state provisions . under the provision of asc 740 “ application of the uncertain tax position provisions ” related to accounting for uncertain tax positions , which prescribes a recognition threshold and measurement process for recording in the financial statements , uncertain tax positions taken or expected to be taken in a tax return , the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority . tax benefits of an uncertain tax position will not be recognized if it has less than a 50 % likelihood of being sustained based on technical merits . 13 recently issued accounting pronouncements refer to note 2 - summary of significant accounting policies in the consolidated financial statements . story_separator_special_tag operating activities for the year ended june 30 , 2019 was primarily due to the decrease in accounts receivable of $ 3,852,985 as well as the decrease in inventory of $ 304,813 , which was partially offset by the decrease in accounts payable of $ 1,937,071. the $ 2,008,694 in net cash used in operating activities for the year ended june 30 , 2018 was primarily due to the decrease in accounts payable of $ 5,250,597 as well as our operating results ( net loss adjusted for depreciation , amortization and other non-cash charges ) , which were partially offset by the decrease in accounts receivable of $ 3,039,951 and the decrease in inventory of $ 1,613,733. investing activities – net cash used in investing activities for the years ended june 30 , 2019 and 2018 was $ 6,250,710 and $ 399,185 , respectively . the $ 6,250,710 in net cash used in investing activities for nine months ended june 30 , 2019 was primarily due to the payments for purchase of short-term investments of $ 5,380,226 and additional shares of the subsidiary of $ 234,330 as story_separator_special_tag our performance obligations are satisfied at a point in time . revenue from products transferred to customers at a single point in time accounted for 99 % of net sales for the year ended june 30 , 2019. revenue for non-recurring engineering projects is based on the percentage completion of a project and accounted for 1.0 % of net sales for the year ended june 30 , 2019. the majority of our revenue recognized at a point in time is for the sale of hot-spot router products . revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product which generally coincides with title transfer at completion of the shipping process . as of june 30 , 2019 , our contracts do not contain any unsatisfied performance obligations , except for undelivered products . capitalized product development costs asc topic 350 , “ intangibles - goodwill and other ” includes software that is part of a product or process to be sold to a customer and shall be accounted for under subtopic 985-20. our products contain embedded software internally developed by fti which is an integral part of these products because it allows the various components of the products to communicate with each other and the products are clearly unable to function without this coding . the costs of product development that are capitalized once technological feasibility is determined ( noted as technology in progress in the intangible assets table , in note 2 to notes to consolidated financial statements ) include certifications , licenses , payroll , employee benefits , and other headcount-related expenses associated with product development . we determine that technological feasibility for our products is reached after all high-risk development issues have been resolved . once the products are available for general release to our customers , we cease capitalizing the product development costs and any additional costs , if any , are expensed . the capitalized product development costs are amortized on a product-by-product basis using the straight-line amortization . the amortization begins when the products are available for general release to our customers . as of june 30 , 2019 , and june 30 , 2018 , capitalized product development costs in progress were $ 465,352 and $ 100,000 , respectively , and these amounts are included in intangible assets in our consolidated balance sheets . during the year ended june 30 , 2019 , we incurred $ 465,352 in capitalized product development costs , and such amounts are primarily comprised of certifications and licenses . all costs incurred before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income . income taxes deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . as of june 30 , 2019 , we have federal and state net operating loss carryforwards of approximately $ 5.6 million and no state net operating loss carryforwards . under the tax cuts and jobs act ( the “ act ” ) , which was signed into law on december 22 , 2017 , the federal net operating loss recognized on or after january 1 , 2018 will carryforward indefinitely . the federal net operating loss of $ 2.5 million , which was recognized on or before december 31 , 2017 , will expire through 2035 , and the federal net operating loss of $ 3.1 million recognized on or after january 1 , 2018 will carryforward indefinitely . the utilization of net operating loss carryforwards may be subject to limitations under provisions of the internal revenue code section 382 and similar state provisions . under the provision of asc 740 “ application of the uncertain tax position provisions ” related to accounting for uncertain tax positions , which prescribes a recognition threshold and measurement process for recording in the financial statements , uncertain tax positions taken or expected to be taken in a tax return , the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority . tax benefits of an uncertain tax position will not be recognized if it has less than a 50 % likelihood of being sustained based on technical merits . 13 recently issued accounting pronouncements refer to note 2 - summary of significant accounting policies in the consolidated financial statements . story_separator_special_tag operating activities for the year ended june 30 , 2019 was primarily due to the decrease in accounts receivable of $ 3,852,985 as well as the decrease in inventory of $ 304,813 , which was partially offset by the decrease in accounts payable of $ 1,937,071. the $ 2,008,694 in net cash used in operating activities for the year ended june 30 , 2018 was primarily due to the decrease in accounts payable of $ 5,250,597 as well as our operating results ( net loss adjusted for depreciation , amortization and other non-cash charges ) , which were partially offset by the decrease in accounts receivable of $ 3,039,951 and the decrease in inventory of $ 1,613,733. investing activities – net cash used in investing activities for the years ended june 30 , 2019 and 2018 was $ 6,250,710 and $ 399,185 , respectively . the $ 6,250,710 in net cash used in investing activities for nine months ended june 30 , 2019 was primarily due to the payments for purchase of short-term investments of $ 5,380,226 and additional shares of the subsidiary of $ 234,330 as
| net sales in emea decreased by $ 111,418 , or 33.2 % , to $ 224,427 for the year ended june 30 , 2019 , from $ 335,845 for the corresponding period of 2018. the decrease in net sales was due to the discontinued orders of a product placed by a carrier customer in africa . net sales in asia decreased by $ 228,921 , or 89.4 % , to $ 27,086 for the year ended june 30 , 2019 , from $ 256,007 for the corresponding period of 2018. the decrease in net sales was primarily due to lower component sales generated by fti , which typically vary from period to period in connection with its customers ' production schedule . gross profit - gross profit increased by $ 547,775 , or 10.6 % , to $ 5,739,489 for the year ended june 30 , 2019 , from $ 5,191,714 for the corresponding period of 2018. the gross profit in terms of net sales percentage was 15.7 % for the year ended june 30 , 2019 , compared to 17.3 % for the corresponding period of 2018. the increase in gross profit was primarily due to the change in net sales as described above . the decrease in gross profit in terms of net sales percentage was primarily due to variations in customer and product mix , competitive selling prices and product costs which generally vary from period to period and region to region . 14 operating expenses - operating expenses decreased by $ 36,638 , or 0.5 % , to $ 7,846,946 for the year ended june 30 , 2019 , from $ 7,883,584 for the corresponding period of 2018. for the year ended june 30 , 2019 , operating expenses consisted of selling , general , and administrative costs of $ 4,891,365 and research and development costs of $ 2,955,581 , respectively . selling , general , and administrative costs increased by $ 379,797 , or 8.4 % , to $ 4,891,365 for the year ended june 30 , 2019 , from $ 4,511,568 for the corresponding period of 2018. the increase in selling , general , and administrative costs was primarily due to the increase in
| 10,701 |
we define a customer as a separate and distinct buying entity , such as a company , an educational or government institution , or a distinct business unit of a large company that has an active contract with us or one of our partners to access our platform . dollar-based net retention rate our ability to generate revenue is dependent upon our ability to maintain our relationships with our customers and to increase their utilization of our platform . we believe we can achieve these goals by focusing on delivering value and functionality that enables us to both retain our existing customers and expand the number of users and products used within an existing customer . we assess our performance in this area by measuring our dollar-based net retention rate . our dollar-based net retention rate measures our ability to increase revenue across our existing customer base through expansion of users and products associated with a customer as offset by churn and contraction in the number of users and or products associated with a customer . our dollar-based net retention rate is based upon our annual contract value , or acv , which is calculated based on the terms of that customer 's contract and represents the total contracted annual subscription amount as of that period end . we calculate our dollar-based net retention rate as of a period end by starting with the acv from all customers as of twelve months prior to such period end , or prior period acv . we then calculate the acv from these same customers as of the current period end , or current period acv . current period acv includes any upsells and is net of contraction or churn over the trailing twelve months but excludes revenue from new customers in the current period . we then divide the total current period acv by the total prior period acv to arrive at our dollar-based net retention rate . 51 our strong dollar-based net retention rate is primarily attributable to an expansion of users and up-selling additional products within our existing customers . larger enterprises often implement a limited initial deployment of our platform before increasing their deployment on a broader scale . remaining performance obligations remaining performance obligations , or rpo , represent all future , noncancelable , contracted revenue under our subscription contracts with customers that has not yet been recognized , inclusive of deferred revenue that has been invoiced and noncancelable amounts that will be invoiced and recognized as revenue in future periods . current rpo represents the portion of rpo expected to be recognized during the next 12 months . remaining performance obligations fluctuate due to a number of factors , including the timing , duration and dollar amount of customer contracts . calculated billings calculated billings represent our total revenue plus the change in deferred revenue and less the change in unbilled receivables in the period . calculated billings in any particular period reflects sales to new customers plus subscription renewals and upsells to existing customers , and represent amounts invoiced for subscription , support and professional services . we typically invoice customers in advance in annual installments for subscriptions to our platform . calculated billings increased 44 % in the year ended january 31 , 2020 over the year ended january 31 , 2019 . as our calculated billings continue to grow in absolute terms , we expect our calculated billings growth rate to trend down over time . see the section titled “ selected consolidated financial data and other data—non-gaap financial measures ” for additional information and a reconciliation of calculated billings to total revenue . components of results of operations revenue subscription revenue . subscription revenue primarily consists of fees for access to and usage of our cloud-based platform and related support . we generate subscription fees pursuant to noncancelable contracts with a weighted average duration of 2.6 years as of january 31 , 2020 . subscription revenue is driven primarily by the number of customers , the number of users per customer and the products used . we typically invoice customers in advance in annual installments for subscriptions to our platform . professional services and other . professional services revenue includes fees from assisting customers in implementing and optimizing the use of our products . these services include application configuration , system integration and training services . we generally invoice customers as the work is performed for time-and-materials arrangements , and up front for fixed fee arrangements . all professional services revenue is recognized as the services are performed . overhead allocation and employee compensation costs we allocate shared costs , such as facilities ( including rent , utilities and depreciation on assets shared by all departments ) , information technology costs , and recruiting costs to all departments based on headcount . as such , allocated shared costs are reflected in each cost of revenue and operating expense category . employee compensation costs include salaries , bonuses , benefits and stock-based compensation for each operating expense category and sales commissions for sales and marketing . cost of revenue and gross margin cost of subscription . cost of subscription primarily consists of expenses related to hosting our services and providing support . these expenses include employee-related costs associated with our cloud-based infrastructure and our customer support organization , third-party hosting fees , software and maintenance costs , outside services associated with the delivery of our subscription services , travel-related costs , amortization expense associated with capitalized internal-use software and acquired technology , and allocated overhead . we intend to continue to invest additional resources in our platform infrastructure and our platform support organizations . as we continue to invest in technology innovation , we expect capitalized internal-use software costs 52 and related amortization to increase . we expect our investment in technology to expand the capability of our platform , enabling us to improve our gross margin over time . the level and timing of investment in these areas could affect our cost of subscription revenue in the future . story_separator_special_tag cost of professional services and other . cost of professional services consists primarily of employee-related costs for our professional services delivery team , travel-related costs , and costs of outside services associated with supplementing our professional services delivery team . the cost of providing professional services has historically been higher than the associated revenue we generate . gross margin . gross margin is gross profit expressed as a percentage of total revenue . our gross margin may fluctuate from period to period as our revenue fluctuates , and as a result of the timing and amount of investments to expand our hosting capacity , our continued efforts to build platform support and professional services teams , increased stock-based compensation expenses , as well as the amortization of costs associated with capitalized internal-use software and acquired intangible assets . operating expenses research and development . research and development expenses consist primarily of employee compensation costs and allocated overhead . we believe that continued investment in our platform is important for our growth . we expect our research and development expenses will increase in absolute dollars as our business grows . sales and marketing . sales and marketing expenses consist primarily of employee compensation costs , costs of general marketing activities and promotional activities , travel-related expenses and allocated overhead . commissions earned by our sales force that are considered incremental and recoverable costs of obtaining a contract with a customer are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be generally five years . we expect our sales and marketing expenses will increase in absolute dollars and continue to be our largest operating expense category for the foreseeable future as we expand our sales and marketing efforts . however , we expect our sales and marketing expenses to decrease as a percentage of our revenue as our revenue grows . general and administrative . general and administrative expenses consist primarily of employee compensation costs for finance , accounting , legal and human resources personnel . in addition , general and administrative expenses include non-personnel costs , such as legal , accounting and other professional fees , charitable contributions , and all other supporting corporate expenses not allocated to other departments . we expect our general and administrative expenses will increase in absolute dollars as our business grows . interest expense and other , net interest expense and other , net consists of interest expense , which primarily includes amortization of debt discount and issuance costs and contractual interest expense for our notes , interest income from our investment holdings and loss on early extinguishment of debt . benefit from income taxes benefit from income taxes consists of federal and state income taxes in the united states and income taxes in certain foreign jurisdictions . the primary difference between our effective tax rate and the federal statutory rate relates to the net operating losses in jurisdictions with a valuation allowance against related deferred tax assets . 53 story_separator_special_tag due to interest and other income earned on higher cash and short-term investment balances . loss on early extinguishment of debt increased $ 14.6 million for the year ended january 31 , 2020 due to the 2023 notes partial repurchase in september 2019 . 58 quarterly results of operations data and other data the following tables set forth selected unaudited consolidated quarterly statements of operations data for each of the eight fiscal quarters ended january 31 , 2020 , as well as the percentage of revenue that each line item represents for each quarter . the information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this annual report on form 10-k and , in the opinion of management , includes all adjustments , which consist only of normal recurring adjustments , necessary for the fair presentation of the results of operations for these periods . this data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. these quarterly results are not necessarily indicative of our results of operations to be expected for any future period . replace_table_token_17_th ( 1 ) amounts include stock-based compensation expense as follows : replace_table_token_18_th 59 replace_table_token_19_th quarterly revenue trends our quarterly revenue increased sequentially in each of the periods presented due primarily to increases in the number of new customers , as well as expansion within existing customers and sales of new products . we have typically acquired more new customers in the fourth quarter of our fiscal year , though this seasonality is sometimes not immediately apparent in our revenue due to the fact that we recognize subscription revenue over the term of the contract . as of january 31 , 2020 , our contracts had a weighted-average duration of 2.6 years . quarterly cost of revenue and gross margin trends our quarterly gross margin has generally been increasing due to increasing subscription revenue and related economies of scale . our professional services margin has declined from additional investment in our professional services organization , which has been more than offset by the increase in subscription margin . quarterly operating expense and interest expense and other , net trends total costs and expenses generally increased sequentially for the fiscal quarters presented , primarily due to the addition of personnel in connection with the expansion of our business . our research and development expenses can fluctuate quarter to quarter based on the timing and extent of capitalizable internal-use software development activities . sales and marketing expenses generally increased sequentially over the periods . sales and marketing expenses included $ 10.1 million and $ 6.2 million of expenses related to our annual customer conference in the first quarter of fiscal 2020 and the second quarter of fiscal 2019 , respectively . our sales and marketing expenses generally increase in the quarter in which the conference is held .
| cost of revenue , gross profit and gross margin replace_table_token_12_th cost of subscription revenue increased by $ 39.1 million , or 51 % , for the year ended january 31 , 2020 compared to the year ended january 31 , 2019 , primarily due to an increase of $ 21.6 million in employee compensation costs related to higher headcount to support the growth in our subscription services , an increase of $ 6.2 million in data center costs as we increased capacity to support our growth , and an increase of $ 4.7 million related to the amortization of purchased developed technology intangible assets . our gross margin for subscription revenue remained consistent at 79 % during the year ended january 31 , 2020 , compared to the year ended january 31 , 2019 . while our subscription revenue gross margin may fluctuate in the near- 56 term as we invest in our growth , we expect our subscription revenue gross margin to increase over time as we achieve additional economies of scale . cost of professional services and other revenue increased by $ 6.9 million , or 19 % , for the year ended january 31 , 2020 , compared to the year ended january 31 , 2019 , primarily due to an increase of $ 5.7 million in employee compensation costs related to higher headcount . our gross margin for professional services and other revenue decreased to ( 29 ) % during the year ended january 31 , 2020 from ( 27 ) % during the year ended january 31 , 2019 primarily due to additional investment in our professional services organization . operating expenses research and development expenses replace_table_token_13_th research and development expenses increased $ 56.9 million , or 56 % , for the year ended january 31 , 2020 compared to the year ended january 31 , 2019 . the increase was primarily due to an increase of $ 50.6 million in employee compensation costs due to higher headcount , an increase of $ 2.3 million in other research related costs , and
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the decrease in the average selling price of homes delivered in our east segment was the result of a greater percentage of closings from our more affordable product offerings . gross margin our gross margin from home sales for the year ended december 31 , 2020 increased 200 basis points year-over-year from 18.8 % to 20.8 % . gross margin from home sales increased across each of our segments on both build-to-order and speculative home deliveries driven by price increases implemented across nearly all of our communities over the past twelve months . 19 inventory impairments inventory impairments recognized by segment for the years ended december 31 , 2020 , 2019 and 2018 are shown in the table below . replace_table_token_11_th the table below provides quantitative data , for the periods presented , where applicable , used in determining the fair value of the impaired inventory . replace_table_token_12_th 20 selling , general and administrative expenses replace_table_token_13_th for the year ended december 31 , 2020 , the increase in our general and administrative expenses was primarily due to an increase in salaries and other compensation-related expenses due to a higher average headcount and strong operating results . for the year ended december 31 , 2020 , marketing expenses increased as a result of increased deferred selling amortization and master marketing fees resulting from increased closings as well as increased compensation expense due to a higher average headcount . for the year ended december 31 , 2020 , commissions expenses increased as a result of the increase in homes sale revenues year-over-year . 21 other homebuilding operating data net new orders and active subdivisions : changes in the dollar value of net new orders are impacted by changes in the number of net new orders and the average selling price of those homes . commentary for each of our segments on significant changes in these two metrics is provided below replace_table_token_14_th replace_table_token_15_th * calculated as total net new orders in period ÷ average active communities during period ÷ number of months in period replace_table_token_16_th west segment commentary for the year ended december 31 , 2020 , the increase in net new orders was primarily due to an increase in the monthly sales absorption rates in all of our markets in the west segment . an increase in active subdivisions within our california markets also contributed to the increase in net new orders . the increase in average selling price was due to price increases implemented over the past twelve months within nearly all of our communities as well as a shift in mix of homes sold to more expensive southern california markets . these increases were slightly offset by a shift in mix to lower priced communities , consistent with our ongoing strategy of offering more affordable home plans . mountain segment commentary for the year ended december 31 , 2020 , the increase in net new orders was due to an increase in the monthly sales absorption rates in each of our colorado and utah markets . the increase in average selling price was due to price increases implemented over the last twelve months within nearly all of our communities . 22 east segment commentary for the year ended december 31 , 2020 , the increase in net new orders was driven by increases in the monthly sales absorption rate and the number of average active subdivisions . the increase in the average selling price of net new orders is due to price increases implemented over the last twelve months within nearly all of our communities . additionally , we experienced a shift in mix to our mid-atlantic market resulting from an increase in net new orders that was driven by increases in both monthly sales absorption rates and average active subdivisions . cancellation rate : replace_table_token_17_th our cancellations as a percentage of gross sales ( “ cancellation rate ” ) decreased from 21 % for the year ended december 31 , 2019 to 19 % for the year ended december 31 , 2020. while our full year cancellation rate decreased , we did experience higher cancellation rates during the first and second quarter of 2020 as a result of general economic uncertainty surrounding the pandemic . consistent with our quarterly homebuilding operating data provided , we have also included below the cancellations as a percentage of homes in beginning backlog for each quarter during the years ended december 31 , 2020 and 2019. replace_table_token_18_th backlog : replace_table_token_19_th at december 31 , 2020 , we had 6,655 homes in backlog with a total value of $ 3.26 billion , representing respective increases of 75 % and 87 % from december 31 , 2019. the increase in the number of homes in backlog is primarily a result of the year-over-year increase in net new orders in the second half of 2020. the increase in the average selling price of homes in backlog is due to price increases implemented over the past twelve months in nearly all of our communities as well as a shift in our net new order mix in our east segment as discussed above . these increases were slightly offset by a shift in mix to lower priced communities , consistent with our ongoing strategy of offering more affordable home plans . our ability to convert backlog into closings could be negatively impacted in future periods by the pandemic , the extent to which is highly uncertain and depends on future developments . 23 homes completed or under construction : replace_table_token_20_th the increase in sold homes under construction or completed is due to the year-over-year increase in the number of homes in backlog noted above . total unsold started homes have decreased year-over-year due to the strong demand for new homes . lots owned and optioned ( including homes completed or under construction ) : replace_table_token_21_th our total owned and optioned lots at december 31 , 2020 were 29,469 , up 8 % from december 31 , 2019 , due to our land acquisition approval activity over the past year across nearly all of our markets . story_separator_special_tag we believe that our total lot supply can support growth in future periods . see `` forward-looking statements '' above . financial services replace_table_token_22_th for the year ended december 31 , 2020 , our financial services pretax income increased $ 18.8 million or 31 % from the same period in the prior year . the increase was due to our mortgage operations , which saw an increase in pretax income of $ 42 million due to ( 1 ) a higher interest rate lock volume driven by the year-over-year increase in homes in backlog , ( 2 ) an increased capture rate and ( 3 ) an increased profit margin on loans originated during the year due to diminished competition driven by the refinance volume experienced by the mortgage industry during the year . this increase was partially offset by a decrease in our other financial services segment , which had $ 8.3 million of net losses on equity securities during the period as compared to $ 11.8 million of net gains for the same period in the prior year . 24 the table below sets forth information for our mortgage operations relating to mortgage loans originated and capture rate . replace_table_token_23_th income taxes we recorded an income tax provision of $ 89.9 million , $ 66.7 million and $ 53.1 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively , and our resulting effective income tax rates were 19.7 % , 21.9 % and 20.1 % , respectively . our tax provision and effective tax rate is driven by ( i ) pre-tax book income for the full year , adjusted for items that are deductible/non-deductible for tax purposes only ( i.e. , permanent items ) ; ( ii ) benefits from federal energy credits ; ( iii ) taxable income generated in state jurisdictions that varies from consolidated income and ( iv ) stock based compensation windfalls recorded as discrete items . the difference between our effective tax rate for the year ended december 31 , 2020 and the federal statutory rate was primarily due to 5.1 % in benefits for federal energy credits and 1.7 % in benefits for stock based compensation windfalls , partially offset by 3.8 % in state taxes and 1.8 % for limitations on deductible executive compensation . 25 liquidity and capital resources we use our liquidity and capital resources to ( 1 ) support our operations , including the purchase of land , land development and construction of homes ; ( 2 ) provide working capital ; and ( 3 ) provide mortgage loans for our homebuyers . our liquidity includes our cash and cash equivalents , marketable securities , revolving credit facility ( as defined below ) and mortgage repurchase facility ( as defined below ) . additionally , we have an existing effective shelf registration statement that allows us to issue equity , debt or hybrid securities up to $ 2.0 billion . following the issuance of $ 350 million of 2.500 % senior notes on january 11 , 2021 ( see note 24 , subsequent events , in the notes to the financial statements for further discussion ) , $ 1.35 billion remains on our effective shelf registration statement . capital resources our capital structure is primarily a combination of ( 1 ) permanent financing , represented by stockholders ' equity ; ( 2 ) long-term financing , represented by our 5.500 % senior notes due 2024 , 3.850 % senior notes due 2030 and our 6.000 % senior notes due 2043 ; ( 3 ) our revolving credit facility and ( 4 ) our mortgage repurchase facility . on january 11 , 2021 , we completed an offering of $ 350 million of 2.500 % senior notes due january 2031 ( see note 24 , subsequent events , in the notes to the financial statements for further discussion ) . because of our current balance of cash , cash equivalents , ability to access the capital markets , and available capacity under both our revolving credit facility and mortgage repurchase facility , we believe that our capital resources are adequate to satisfy our short and long-term capital requirements , including meeting future payments on our senior notes as they become due . see “ forward-looking statements ” above . we may from time to time seek to retire or purchase our outstanding senior notes through cash purchases , whether through open market purchases , privately negotiated transactions or otherwise . such repurchases , if any , will depend on prevailing market conditions , our liquidity requirements , contractual restrictions and other factors . the amounts involved may be material . senior notes , revolving credit facility and mortgage repurchase facility senior notes . our senior notes are not secured and , while the senior note indentures contain some restrictions on secured debt and other transactions , they do not contain financial covenants . our senior notes are fully and unconditionally guaranteed on an unsecured basis , jointly and severally , by most of our homebuilding segment subsidiaries . we believe that we are in compliance with the representations , warranties and covenants in the senior note indentures . revolving credit facility . we have an unsecured revolving credit agreement ( “ revolving credit facility ” ) with a group of lenders , which may be used for general corporate purposes .
| however , even with this strong demand to end the year , we remain cautious and continue to closely monitor developments related to covid-19 , which are highly uncertain and could adversely impact our operations and financial results in future periods . we ended the year with total liquidity of $ 1.70 billion following the expansion of our credit facility in december , which increased the total amount available under the facility to $ 1.20 billion . additionally , on january 11 , 2021 , we issued $ 350 million of 10-year senior notes at a rate of 2.500 % , which is the lowest rate for any senior note issuance in our company 's history . we believe that our financial position ranks among the best in the homebuilding industry and provides us with the capital resources to drive the continued growth of our business . we enter 2021 with a goal of delivering between 10,000 and 11,000 homes and growing our year-end active community count by at least 10 % . results for the twelve months ended december 31 , 2020 for the year ended december 31 , 2020 , we reported net income of $ 367.6 million , or $ 5.58 per diluted share , a 54 % increase compared to net income of $ 238.3 million , or $ 3.72 per diluted share , for the prior year period . both our homebuilding and financial services businesses contributed to these year-over-year improvements , as pretax income from our homebuilding operations increased $ 133.8 million , or 55 % , and our financial services pretax income increased $ 18.8 million , or 31 % . the increase in homebuilding pretax income was the result of a 260 basis point increase in our operating margin and a 17 % increase in home sale revenues . the increase in operating margin is the result of our improved pricing over the last twelve months as well as better operating leverage as we continue to
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delinquent accounts are written-off when it is determined that the amounts are uncollectible . inventory inventory is reported at the lower of cost or market on the first-in , first-out ( fifo ) method . our inventory is subject to expiration and obsolescence . accordingly , quantities purchased and sell through rates are periodically monitored for potential overstocking or pending expiration as a basis for establishing the appropriate reserve for any estimated expiration or obsolescence . 10 revenue recognition revenue is recognized when a product is shipped . the company manages the collection process for transactions processed on its website , but it outsources its fulfillment ( delivery ) process to third parties . the company 's revenue recognition policies are in compliance with asc topic 605 , revenue recognition , which establishes criteria that must be satisfied before revenue is realized or realizable and earned . the company recognizes revenue when all of the following four criteria are met : · persuasive evidence of a sales arrangement exists , · delivery has occurred , · the sales price is fixed or determinable and · collectability is probable . shipping and handling charges related to sales transactions are recorded as sales revenues when billed to customers or included in the sales price . shipping and handling costs are included in cost of goods sold . research and development the company incurs formulation costs that include salaries , materials and consultant fees . these costs are classified as product development , selling and general and administrative expenses in the consolidated statements of operations . income taxes the company accounts for income taxes under the liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled . a valuation allowance is recorded when it is more likely than not that some portion or all of a deferred tax asset will be realized . earnings per share the company computes basic and diluted earnings per share amounts in accordance with asc topic 260 , earnings per share . basic earnings per share is computed by dividing net income ( loss ) available to common shareholders by the weighted average number of common shares outstanding during the reporting period . diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the company . story_separator_special_tag page-break-before : always '' > · $ 142,732 in licenses and permits due to a one time credit in 2014 of $ 120,000 resulting from the cancellation of the nutra origin license , · $ 135,046 for bad debts , primarily as a result of successful collection efforts , · $ 24,470 due to reduced profitability bonus in mexico partially offset by reductions in us payroll as a result of cost cutbacks , · $ 76,463 in legal services as a result of resolving certain litigation and modifications in fee structure , and · $ 56,746 in credit card fees due to renegotiation of our merchant services contract and reduction in payments made by credit card . – the forgoing decreases were partially offset by the following increases of : · $ 39,601 for insurance , as a result of expanded coverage , · $ 33,813 for rent , primarily as a result of rate increases , · $ 16,098 for utilities due to “ second shift ” production during peak loads , and · $ 58,229 , for various other general and administrative costs primarily associated with ds mexico . liquidity and capital resources we had cash and cash equivalents of $ 1,128,556 and working capital of $ 3,767,179 at december 31 , 2014. our operating and capital requirements in connection with supporting our expanding operations and introducing new products have been and will continue to be significant to us . since inception , our losses from operations and working capital required to grow our business were satisfied through the initial contribution by our founders in 2007 , through sales of our common stock and by credit financing . we have sustained operational losses since our inception . at december 31 , 2014 , we had an accumulated deficit of $ 9,613,375. the company can not predict how long it will continue to incur further losses or whether it will ever become profitable as this is dependent upon the reduction of certain operating expenses , success of new and existing products and increase in overall revenue among other things . these conditions raise substantial doubt about the entity 's ability to continue as a going concern . we have commenced implementing , and will continue to implement , various measures to address our financial condition , including increasing gross profit margins and reducing operational costs and overhead . we are continuing to seek debt and equity financing ; however , there can be no assurances that the company will be able to raise additional capital on favorable terms , or at all . the company was party to a credit facility which provided for asset based lending collateralized by all assets of the company . the credit facility was secured by 70 % of qualified accounts receivable and 40 % of eligible finished goods inventory and provided for interest and bank fees at 8 % per annum which was renewed with a reduced $ 200,000 credit facility and subsequently expired on august 15 , 2014 , when it was fully repaid . the credit facility was personally guaranteed by our chief executive officer . as of december 31 , 2014 and 2013 , the company had $ 0 and $ 582,383 outstanding , respectively . story_separator_special_tag we also satisfied our working capital requirements in 2014 and 2013 , through the sale of common stock and advances from third parties . during the third quarter of 2014 , we entered into a note for $ 350,000 structured as a replacement for our previous abl credit facility . the note is secured by finished goods and bears interest at 1 % per month . the note originally matured on march 28 , 2015 and was extended to may 28 , 2015. also during the third quarter of 2014 , we received a $ 24,360 short term advance from dr. fernando tamez , our president of mexican operations , to supplement temporary cash flow timing issues of our mexican subsidiary . the advance is unsecured and non-interest bearing . 13 cash flows for the year ended december 31 , 2014 cash flows from operating activities operating activities used net cash for the year ended december 31 , 2014 of $ 1,508,764. that amount has two primary components ; net loss adjusted by non-cash items and changes in operating assets and liabilities . our net loss , when adjusted by various items which impact net loss but do not impact cash during the period , such as issuance of warrants or stock for services and for depreciation and amortization , resulted in a net loss adjusted by noncash items of $ 477,807 which was added to changes in operating assets and liabilities which used cash of $ 1,030,957 as follows : · $ 456,513 provided by a decrease in gross accounts receivable not including the non-cash effect of changes in the allowance for doubtful accounts , · $ 1,119,486 used for increased inventory levels associated with reducing backorders , · $ 1,000,858 used to reduce accounts payable outstanding vendor balances , · $ 21,163 provided by accrued expenses as a result of increase in certain accrued expenses such as commissions , and · $ 611,711 provided by net changes in other current assets and liabilities primarily as a result of changes in other current liabilities , primarily related to increases in customer deposits of approximately $ 112,000 ; credit cards of approximately $ 143,000 and marketing programs of approximately $ 228,000. cash flows used in investing activities our investing activities used $ 143,148 in net cash during the year ended december 31 , 2014. net cash used is primarily composed of the following : · $ 130,078 used to purchase equipment for production in the us and sales operations in mexico , · $ 32,141 used to increase security deposits , primarily for facilities lease , · $ 5,750 used to purchase injection molds , and · $ 24,822 provided from sale of fixed assets . cash flows from financing activities our financing activities used $ 56,812 in net cash as a result of the following : · $ 582,383 used by net repayments under our asset based credit facility , · $ 350,000 provided by advances under our short term asset based credit facility , · $ 11,429 used to repay loans and notes , and · $ 187,000 provided from the sale of common stock under the private placement initiated in december 2013 , less issuance costs . financial position total assets – our total assets decreased $ 1,117,589 or 11.5 % from $ 9,714,592 as of december 31 , 2013 to $ 8,597,002 as of december 31 , 2014 , primarily as a result of a decrease in cash . there was also a net decrease in current assets of $ 893,762 the components of which are discussed further below . the decrease in total assets was also the result of an increase of $ 21,741 in other assets which is considered nominal ; a decrease of $ 551 in furniture and equipment , net which is also nominal ; and a decrease of $ 245,016 in intangible assets due to amortization and impairment . current assets the net decrease in current assets of $ 893,762 was primarily associated with a decrease in cash of $ 1,744,390 as a result of the net use of cash for operational activities and a $ 420,151 decrease in accounts receivables . these decreases were partially offset by a $ 1,281,948 net increase in inventory . these net changes are primarily driven by changes in sales and other factors more specifically discussed as follows inventory inventory levels increased 47.4 % , as a result of efforts to reduce backorders , increased skus and in anticipation of increased future sales . 14 because inventory on hand has increased , average inventory represents approximately 63 % of cogs or just over a five month supply based on the sell through rate achieved for the year ended december 31 , 2014 , resulting in an inventory turnover rate of 1.6 times . we intend to improve this turnover rate in the future and our ultimate goal is to achieve at least a 3.0 times inventory turnover rate in 2015 , once we have satisfactorily explored alternative production methodologies and established a profitable and sustainable production cost structure . the below target turnover is a result of stocking chemicals and materials in anticipation of planned sales increases and custom-made inventory in 2015. accounts receivable , net accounts receivable , net decreased $ 420,151 primarily as a result of a decrease in credit sales due to a large prepaid sales at year end in 2014. prepaid expenses and other current assets prepaid expenses were comparable with less than a 1.5 % change from 2013. material commitments short term credit facility during the fourth quarter of 2014 , the company has replaced its asset based lending facility with a $ 350,000 short term credit facility , funded by a private party . the short term financing originally matured on march 28 , 2015 , was extended to may 28 , 2015 and provides for interest of 1 % per month . the facility is secured by the company 's finished goods inventory .
| this subsidiary generated approximately $ 3.9 million and $ 2.9 million of net revenues during the years ended december 31 , 2014 and 2013 , respectively . we continue our marketing and sales efforts to expand our customer base , with our primary focus on expanding our distributors , both domestic and foreign . we conduct a significant portion of business with various distributors under exclusive distribution agreements . revenues from our top ten customers accounted for approximately 49 % and 41 % of our total revenues during the years ended december 31 , 2014 and 2013 , respectively . cost of goods sold total cost of goods sold decreased $ 1,662,434 or 23.9 % , from $ 6,943.043 ( 2013 ) to $ 5,280,909 ( 2014 ) . the decrease in cost of goods sold relates to the following : · a $ 162,462 reduction in the obsolescence reserve , · $ 237,396 decrease as a result of decreased sales and · $ 1,262,575 in cost cutting initiatives were achieved from cost cutting measures undertaken in q2 and q3 2014. cost cutting measures included , improved purchasing planning , decrease in labor expenses by reducing over-time labor through improved output forecast , curtailment of expediting orders and shipments and optimizing formulations to avoid wastage , improved packaging efficiencies and cost while increasing manufacturing output and profitability . the improved cost and resulting improved gross profit is also attributable to the increased sales from the higher margin gross profit of our mexican subsidiary , and increased sales from our higher margin polaris products . sales from our newly introduced online platform have also contributed to our increased gross margin . cost cutting efforts initiated in q2 and q3 2014 were partially offset by one-time charges associated with increased production and delivery costs incurred in addressing the order backlog . the cost cutting efforts initiated , functionally included : · departmental restructuring to improve production scheduling to reduce backorders , · negotiating improved cost from suppliers , · reducing freight costs and avoid expediting shipments , and · improving
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we recognize real estate services revenues from property development and management as we satisfy our performance obligations under these service arrangements . operating property acquisitions in connection with operating property acquisitions , we identify and recognize all assets acquired and liabilities assumed at their relative fair values as of the acquisition date . the purchase price allocations to tangible assets , such as land , site improvements , and buildings and improvements , are presented within income producing property in the consolidated balance sheets and depreciated over their estimated useful lives . acquired lease intangible assets and liabilities are presented within other assets and liabilities in the consolidated balance sheets and amortized over their respective lease terms . we amortize in-place lease assets as depreciation and amortization expense on a straight-line basis over the remaining term of the related leases . we amortize above-market lease assets as reductions to rental revenues on a straight-line basis over the remaining term of the related leases . we amortize below-market lease liabilities as increases to rental revenues on a straight-line basis over the remaining term of the related leases . we amortize below-market ground lease assets as increases to rental expenses on a straight-line basis over the remaining term of the related leases . prior to october 1 , 2016 , we expensed all costs incurred related to operating property acquisitions . on october 1 , 2016 , we adopted newly issued accounting guidance that allows capitalization of costs related to operating property acquisitions . 50 we value land based on a market approach , looking to recent sales of similar properties , adjusting for differences due to location , the state of entitlement , and the shape and size of the parcel . improvements to land are valued using a replacement cost approach . the approach applies industry standard replacement costs adjusted for geographic specific considerations and reduced by estimated depreciation . the value of buildings acquired is estimated using the replacement cost approach , assuming the buildings were vacant at acquisition . the replacement cost approach considers the composition of the structures acquired , adjusted for an estimate of depreciation . the estimate of depreciation is made considering industry standard information and depreciation curves for the identified asset classes . the value of acquired lease intangible assets and liabilities considers the estimated cost of leasing the properties as if the acquired buildings were vacant , as well as the value of the current leases relative to market-rate leases . the in-place lease value is determined using an estimated total lease-up time and lost rental revenues during such time . the value of current leases relative to market-rate leases is based on market rents obtained for market comparables . given the significance of unobservable inputs used in the valuation of acquired real estate assets , we classify them as level 3 inputs in the fair value hierarchy . we value debt assumed in connection with operating property acquisitions based on a discounted cash flow analysis of the expected cash flows of the debt . such analysis considers the contractual terms of the debt , including the period to maturity , credit characteristics , and other terms of the arrangements , which are level 3 inputs in the fair value hierarchy . real estate project costs we capitalize direct and certain indirect costs clearly associated with the development , redevelopment , construction , leasing , or expansion of our real estate assets . capitalized project costs include direct material , labor , subcontract costs , real estate taxes , insurance , utilities , ground rent , interest on borrowing obligations , and salaries and related personnel costs . we capitalize direct and indirect project costs associated with the initial construction or redevelopment of a property up to the time the property is substantially complete and ready for its intended use . we believe the completion of the building shell is the proper basis for determining substantial completion of initial construction . we also capitalize direct and indirect costs , including interest costs , on vacant space during extended lease-up periods after construction of the building shell has been completed if costs are being incurred to prepare the vacant space for its intended use . if costs and activities incurred to prepare the vacant space for its intended use cease , then cost capitalization is also discontinued until such activities are resumed . once necessary work has been completed on a vacant space , project costs are no longer capitalized . in addition , all leasing commissions paid to third parties for new leases or lease renewals are capitalized . we depreciate buildings on a straight-line basis over 39 years and tenant improvements over the shorter of their estimated useful lives or the term of the related lease . real estate impairment we evaluate our real estate assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable . if such an evaluation is necessary , we compare the carrying amount of any such real estate asset with the undiscounted expected future cash flows that are directly associated with , and that are expected to arise as a direct result of , its use and eventual disposition . our estimate of the expected future cash flows attributable to a real estate asset is based upon , among other things , our estimates regarding future market conditions , rental rates , occupancy levels , tenant improvements , leasing commissions , tenant concessions , and assumptions regarding the residual value of our properties . if the carrying amount of a real estate asset exceeds its associated undiscounted expected future cash flows , we recognize an impairment loss to reduce the carrying amount of the real estate asset to its fair value based on marketplace participant assumptions . interest income interest income on notes receivable is accrued based on the contractual terms of the loans and when , in the opinion of management , it is deemed collectible . story_separator_special_tag many loans provide for accrual of interest that will not be paid until maturity of the loan . interest is recognized on these loans at the accrual rate subject to management 's determination that accrued interest is ultimately collectible , based on the underlying collateral and the status of development activities , as applicable . if management can not make this determination , recognition of interest income may be fully or partially deferred until it is ultimately paid . 51 notes receivable impairment we evaluate the collectibility of both the interest on and principal of each of our notes receivable based primarily upon the financial condition of the individual borrowers and the value of the underlying development project . a loan is determined to be impaired when , based upon then-current information , it is no longer probable that we will be able to collect all contractual amounts due from the borrower . we consider factors such as the progress of development activities , including leasing activities , projected development costs , and current and projected loan balances . the amount of impairment loss recognized is measured as the difference between the carrying amount of the loan and its estimated realizable value . guarantees we measure and record a liability for the fair value of our guarantees on a nonrecurring basis upon issuance using level 3 internally-developed inputs . these guarantees typically relate to payments that we could be required to make to senior lenders on our mezzanine loan investments . we base our estimated fair value on the market approach , which compares the guarantee terms and credit characteristics of the underlying development project to other projects for which guarantee pricing terms are available . the offsetting entry for the guarantee liability is a premium on the related loan receivable . the liability is amortized on a straight-line basis over the remaining term of the guarantee . on a quarterly basis , we assess the likelihood of a contingent liability in connection with these guarantees and will record an additional guarantee liability if the remaining unamortized guarantee liability is determined to be insufficient . segment results of operations as of december 31 , 2018 , we operated our business in four segments : ( i ) office real estate , ( ii ) retail real estate , ( iii ) multifamily residential real estate , and ( iv ) general contracting and real estate services that are conducted through our taxable reit subsidiaries ( “ trs ” ) . net operating income ( segment revenues minus segment expenses ) ( “ noi ” ) is the measure used by management to assess segment performance and allocate our resources among our segments . noi is not a measure of operating income or cash flows from operating activities as measured by gaap and is not indicative of cash available to fund cash needs . as a result , noi should not be considered an alternative to cash flows as a measure of liquidity . not all companies calculate noi in the same manner . we consider noi to be an appropriate supplemental measure to net income because it assists both investors and management in understanding the core operations of our real estate and construction businesses . see note 3 to our consolidated financial statements in item 8 of this annual report on form 10-k for a reconciliation of noi to net income , the most directly comparable gaap measure . we define same store properties as those that we owned and operated and that were stabilized for the entirety of both periods compared . we generally consider a property to be stabilized upon the earlier of : ( i ) the quarter after the property reaches 80 % occupancy or ( ii ) the thirteenth quarter after the property receives its certificate of occupancy . additionally , any property that is fully or partially taken out of service for the purpose of redevelopment is no longer considered stabilized until the redevelopment activities are complete , the asset is placed back into service , and the occupancy criterion above is again met . a property may also be fully or partially taken out of service as a result of a partial disposition , depending on the significance of the portion of the property disposed . finally , any property classified as held for sale is taken out of service for the purpose of computing same store operating results . office segment data replace_table_token_12_th ( 1 ) stabilized properties as of the end of the periods presented . 52 rental revenues for the year ended december 31 , 2018 increased $ 1.5 million compared to the year ended december 31 , 2017 . noi for the year ended december 31 , 2018 increased $ 0.9 million compared to the year ended december 31 , 2017 . the increase in rental revenues and noi resulted from new tenants and renewals across the town center office portfolio , most notably at 4525 main street . these increases were partially offset by the disposition of the commonwealth of virginia-chesapeake and commonwealth of virginia-virginia beach properties , which occurred in the third quarter of 2017. rental revenues for the year ended december 31 , 2017 decreased $ 1.7 million compared to the year ended december 31 , 2016 . noi for the year ended december 31 , 2017 decreased $ 1.5 million compared to the year ended december 31 , 2016 . the decreases in rental revenues and noi resulted from the disposition of four properties , including richmond tower and oyster point , which occurred in the first quarter and third quarter of 2016 , respectively , as well as the commonwealth of virginia-chesapeake and commonwealth of virginia-virginia beach properties , which occurred in the third quarter of 2017. story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; padding-left:0px ; '' > ( 1 ) same store excludes johns hopkins village , greenside apartments , premier apartments , and the cosmopolitan . ( 2 ) same store excludes johns hopkins village .
| the increases in rental revenues and noi resulted primarily from property acquisitions and new real estate placed into service during 2018 and 2017. during the year ended december 31 , 2018 , we acquired indian lakes crossing , parkway centre , and lexington square and placed into service premier retail as well as certain outparcels at lightfoot marketplace . during the year ended december 31 , 2017 , we acquired an outparcel phase of wendover village . rental revenues for the year ended december 31 , 2017 increased $ 6.6 million compared to the year ended december 31 , 2016 . noi for the year ended december 31 , 2017 increased $ 4.7 million compared to the year ended december 31 , 2016 . the increases in rental revenues and noi resulted primarily from property acquisitions and new real estate placed into service during 2017 and 2016. during the year ended december 31 , 2017 , we acquired an outparcel phase of wendover village . during the year ended december 31 , 2016 , we acquired the 11-property retail portfolio , southgate square , southshore shops , columbus village ii , and renaissance square and placed into service brooks crossing retail and lightfoot marketplace . retail same store results retail same store rental revenues , property expenses , and noi for the comparative years ended december 31 , 2018 and 2017 and december 31 , 2017 and 2016 were as follows : replace_table_token_15_th ( 1 ) same store excludes lightfoot marketplace , brooks crossing , the outparcel phase of wendover village , indian lakes crossing , parkway centre , lexington square , premier retail , broad creek shopping center , and waynesboro commons . ( 2 ) same store excludes the 11-property retail portfolio , southgate square , lightfoot marketplace , southshore shops , brooks crossing , columbus village ii , renaissance square , and the outparcel phase of wendover village . same store rental revenues and noi for the year ended december 31 , 2018 increased slightly compared to the year ended december 31 , 2017 . the increases in rental revenues from new tenants and renewals were mostly offset by increases in real estate taxes and operating expenses
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we believe that this strategic cooperation has reinforced sogou as a leader in the large and fast-growing china market for search and internet services , particularly on the mobile side . sogou is one of the top three players in the online search sector in china . for 2015 , we reinforced our competitive position , as we continually raised the bar in terms of quality for our core search service and further differentiated our search service through deepening our cooperation with tencent 's social platforms and bringing in more unique and high-quality content . for 2015 , aggregate paid clicks and cost-per-click continued to grow , with improving mobile monetization . for changyou , tlbb and tlbb 3d continued to be the two biggest revenue contributors . however , both games are experiencing revenue declines as a natural course of their lifecycles . we expect further sequential decrease in revenues from tlbb and tlbb 3d in the first quarter of 2016. nevertheless , we will explore new social interactive features that can be added to the games in order to prolong their life spans . for the three months ended december 31 , 2015 , the pc games and mobile games that changyou operates had approximately 7.3 million total average monthly active accounts and approximately 2.1 million total active paying accounts . 98 critical accounting policies and management estimates our discussion and analysis of our financial condition and results of operations relates to our consolidated 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 these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , costs and expenses , and related disclosures . on an on-going basis , we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . identified below are the accounting policies that reflect our more significant estimates and judgments , and those that we believe are the most critical to fully understanding and evaluating our consolidated financial statements . basis of consolidation our consolidated financial statements include the accounts of sohu.com inc. and its direct and indirect wholly-owned and majority-owned subsidiaries and consolidated vies . all intercompany transactions are eliminated . vie consolidation our vies are wholly or partially owned by certain of our employees as nominee shareholders . for our consolidated vies , management made evaluations of the relationships between us and our vies and the economic benefit flow of contractual arrangements with the vies . in connection with such evaluation , management also took into account the fact that , as a result of such contractual arrangements , we control the shareholders ' voting interests in these vies . as a result of such evaluation , management concluded that we are the primary beneficiary of our consolidated vies . noncontrolling interest recognition noncontrolling interests are recognized to reflect the portion of the equity of majority-owned subsidiaries and vies which is not attributable , directly or indirectly , to the controlling shareholder . currently , the noncontrolling interests in our consolidated financial statements primarily consist of noncontrolling interests for sogou and changyou . noncontrolling interest for sogou as we control the election of the board of directors of sogou , we are sogou 's controlling shareholder . accordingly , we consolidate sogou in our consolidated financial statements , and recognize noncontrolling interest reflecting economic interests in sogou held by shareholders other than us . to reflect the economic interest in sogou held by shareholders other than us ( the sogou noncontrolling shareholders ) , sogou 's net income / ( loss ) attributable to the sogou noncontrolling shareholders is recorded as noncontrolling interest in our consolidated statements of comprehensive income . sogou 's cumulative results of operations attributable to the sogou noncontrolling shareholders , along with changes in shareholders ' equity / ( deficit ) and adjustment for share-based compensation expense in relation to those share-based awards which are unvested and vested but not yet settled and the sogou noncontrolling shareholders ' investments in sogou preferred shares and ordinary shares are accounted for as a noncontrolling interest classified as permanent equity in our consolidated balance sheets , as we have the right to reject a redemption requested by the noncontrolling interest . these treatments are based on the terms governing investment , and on the terms of the classes of sogou shares held , by the noncontrolling shareholders in sogou . by virtue of these terms , sogou 's losses have been and will be allocated in the following order : ( i ) net losses were allocated to holders of sogou class a ordinary shares and the holder of sogou class b ordinary shares until their basis in sogou decreased to zero ; ( ii ) additional net losses were allocated to holders of sogou series a preferred shares until their basis in sogou decreased to zero ; ( iii ) additional net losses will be allocated to the holder of sogou series b preferred shares until its basis in sogou decreases to zero ; and ( iv ) further net losses will be allocated between sohu and noncontrolling shareholders based on their shareholding percentage in sogou . story_separator_special_tag 99 net income from sogou has been , and future net income from sogou will be , allocated in the following order : ( i ) net income will be allocated between sohu and noncontrolling shareholders based on their shareholding percentage in sogou until their basis in sogou increases to zero ; ( ii ) additional net income will be allocated to the holder of sogou series b preferred shares to bring its basis back ; ( iii ) additional net income will be allocated to holders of sogou series a preferred shares to bring their basis back ; ( iv ) further net income will be allocated to holders of sogou class a ordinary shares and the holder of sogou class b ordinary shares to bring their basis back ; and ( v ) further net income will be allocated between sohu and noncontrolling shareholders based on their shareholding percentage in sogou . noncontrolling interest for changyou as of the date of this report , we held approximately 69 % of the combined total of changyou 's outstanding ordinary shares , and controlled approximately 96 % of the total voting power in changyou . as we are changyou 's controlling shareholder , we consolidate changyou in our consolidated financial statements , but recognize noncontrolling interest reflecting the economic interest in changyou held by shareholders other than us . to reflect the economic interest in changyou held by shareholders other than us ( changyou noncontrolling shareholders ) , changyou 's net income / ( loss ) attributable to the changyou noncontrolling shareholders is recorded as noncontrolling interest in our consolidated statements of comprehensive income , based on their share of the economic interest in changyou . changyou 's cumulative results of operations attributable to the changyou noncontrolling shareholders , along with changes in shareholders ' equity , adjustment for share-based compensation expense in relation to those share-based awards which are unvested and vested but not yet settled and adjustment for changes in our ownership in changyou , are recorded as noncontrolling interest in our consolidated balance sheets . segment reporting our group 's segments are business units that offer different services and are reviewed separately by the codm , or the decision making group , in deciding how to allocate resources and in assessing performance . the codm is sohu.com inc. 's chief executive officer . revenue recognition we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable , and collectability is reasonably assured . the recognition of revenues involves certain management judgments . the amount and timing of our revenues could be materially different for any period if management made different judgments or utilized different estimates . barter trade transactions in which physical goods or services ( other than advertising services ) are received in exchange for advertising services are recorded based on the fair values of the goods and services received . for online advertising-for-online advertising barter transactions , no revenue or expense is recognized because the fair value of neither the advertising surrendered nor the advertising received is determinable . online advertising revenues online advertising revenues include revenues from brand advertising services as well as search and search-related services . we recognize revenue for the amount of fees we receive from our advertisers , after deducting agent rebates and net of value-added tax ( vat ) and related surcharges . brand advertising revenues business model through pcs and mobile devices , we provide advertisement placements to our advertisers on different internet platforms and in different formats , which include banners , links , logos , buttons , full screen , pre-roll , mid-roll , post-roll video screens , pause video screens , loading page ads , news feed ads and in-feed video infomercial ads . 100 currently we have four main types of pricing models , consisting of the fixed price model , the cost per impression ( cpm ) model , the e-commerce model , and the cost per click ( cpc ) model . fixed price model under the fixed price model , a contract is signed to establish a fixed price for the advertising services to be provided . cpm model under the cpm model , the unit price for each qualifying display is fixed , but there is no overall fixed price for the advertising services stated in the contract with the advertiser . a qualifying display is defined as the appearance of an advertisement , where the advertisement meets criteria specified in the contract . advertising fees are charged to the advertisers based on the unit prices and the number of qualifying displays . e-commerce model under the e-commerce model , revenues were mainly generated from sales of membership cards which allow potential home buyers to purchase specified properties from real estate developers at a discount greater than the price that focus charges for the card . membership fees are refundable until the potential home buyer uses the discounts to purchase properties . focus recognizes such revenues upon obtaining confirmation that the membership card has been redeemed to purchase a property . cpc model under the cpc model , there is no overall fixed price for advertising services stated in the contract with the advertiser . we charge advertisers on a per-click basis when the users click on the advertisements . the unit price for each click is fixed or auction-based . revenue recognition for brand advertising revenue recognition , prior to entering into contracts , we make a credit assessment of the advertiser . for contracts for which collectability is determined to be reasonably assured , we recognize revenue when all revenue recognition criteria are met . in other cases , we only recognize revenue when the cash is received and all other revenue recognition criteria are met . in accordance with asu no .
| the number of advertisers for sohu media portal was 3,471 for 2015 , compared to 2,673 and 1,176 , respectively , for 2014 and 2013. sohu video revenues from sohu video were $ 212.8 million for 2015 , compared to $ 175.8 million and $ 109.3 million , respectively , for 2014 and 2013 , representing a year-on-year growth rate of 21 % and 61 % , respectively , for 2015 and 2014. the increase was mainly attributable to increased spending by our advertisers . the average amount spent per advertiser was approximately $ 676,000 , $ 553,000 and $ 425,000 , respectively , for 2015 , 2014 and 2013 , representing a year-on-year growth rate of 22 % and 30 % , respectively , for 2015 and 2014. the number of advertisers on sohu video sites was 315 , 318 and 257 , respectively , as of the end of 2015 , 2014 and 2013. focus revenues from focus were $ 109.6 million for 2015 , compared to $ 108.8 million and $ 87.1 million , respectively , for 2014 and 2013. revenues for 2015 were generally stable when compared to 2014 , while revenues for 2014 increased $ 21.7 million , representing a year-on-year growth rate of 25 % when compared to 2013 . 113 revenues from focus were generated through the fixed price model and the e-commerce model . for the fixed price model , revenues were $ 55.4 million for 2015 , compared to $ 67.6 million and $ 57.6 million , respectively , for 2014 and 2013. the year-on-year decrease was $ 12.2 million for 2015 , representing a decrease rate of 18 % , primarily as a result of advertisers being more willing to adopt the e-commerce model than the fixed price model in the current market in china . the year-on-year increase was $ 10.0 million for 2014 , representing a year-on-year growth rate of 17 % . for the e-commerce model , revenues were $ 54.2 million for 2015 , compared to $ 41.2 million and $ 29.5 million , respectively , for 2014 and 2013 , representing year-on-year growth rates of 32 % and 40 % , respectively , for 2015 and 2014. the increase was mainly driven by our subscription membership services offered to prospective purchasers of real estate as a result of the expansion of the focus business through our establishment of more partnerships with property developers . the number of developers with which we had cooperation arrangements was
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see note 3 , acquisitions and divestitures , to the consolidated financial statements for additional information . as part of our cadbury acquisition , we incurred and expensed transaction related fees of $ 218 million in 2010 and $ 40 million in 2009. we recorded these expenses within selling , general and administrative expenses . we also incurred acquisition financing fees of $ 96 million in 2010. we recorded these expenses within interest and other expense , net . to secure eu regulatory approval of the acquisition , we were required to divest certain cadbury confectionery operations in poland and romania . in 2010 , we completed the sale of the assets of these businesses and generated $ 342 million in sale proceeds . the impacts of these divestitures were primarily reflected as adjustments to the cadbury purchase price allocations . cadbury contributed net revenues of $ 9,143 million and net earnings of $ 530 million from february 2 , 2010 through december 31 , 2010. the following unaudited pro forma summary presents kraft foods ' consolidated information as if cadbury had been acquired on january 1 , 2009. these amounts were calculated after conversion to u.s. gaap , applying our accounting policies , and adjusting cadbury 's results to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property , plant and equipment , and intangible assets had been applied from january 1 , 2009 , together with the consequential tax effects . these adjustments also reflect the additional interest expense incurred on the debt to finance the purchase , and the divestitures of certain cadbury confectionery operations in poland and romania . replace_table_token_8_th 21 our february 2 , 2010 , cadbury acquisition was valued at $ 18,547 million , or $ 17,503 million net of cash and cash equivalents . as part of that acquisition , we acquired the following assets and assumed the following liabilities ( in millions ) : replace_table_token_9_th ( 1 ) the gross amount of acquired receivables was $ 1,474 million , of which $ 141 million was reserved as uncollectable . ( 2 ) goodwill will not be deductible for statutory tax purposes and is attributable to cadbury 's workforce and the significant synergies we expect from the acquisition . ( 3 ) we acquired $ 10.3 billion of indefinitely lived intangible assets , primarily trademarks , and $ 2.6 billion of amortizable intangible assets , primarily customer relationships and technology . customer relationships will be amortized over approximately 13 years and technology will be amortized over approximately 12 years . ( 4 ) within other current liabilities , a reserve for exposures related to taxes of approximately $ 70 million was established within our developing markets segment . the cumulative exposure was approximately $ 150 million at december 31 , 2010. pizza divestiture : on march 1 , 2010 , we completed the sale of the assets of our north american frozen pizza business ( frozen pizza ) to nestlé usa , inc. ( nestlé ) for $ 3.7 billion . our frozen pizza business was a component of our u.s. convenient meals and canada & north america foodservice segments . the sale included the digiorno , tombstone and jack 's brands in the u.s. , the delissio brand in canada and the california pizza kitchen trademark license . it also included two wisconsin manufacturing facilities ( medford and little chute ) and the leases for the pizza depots and delivery trucks . approximately 3,600 of our employees transferred with the business to nestlé . accordingly , the results of our frozen pizza business have been reflected as discontinued operations on the consolidated statement of earnings for all periods presented . as a result of the divestiture , we recorded a gain on discontinued operations of $ 1,596 million , or $ 0.92 per diluted share , in 2010. pursuant to the frozen pizza business transition services agreement , we agreed to provide certain sales , co-manufacturing , distribution , information technology , accounting and finance services to nestlé for up to two years . as of december 31 , 2011 , these service agreements were substantially complete . summary results of operations for the frozen pizza business through march 1 , 2010 were as follows : replace_table_token_10_th 22 earnings before income taxes as presented exclude associated allocated overheads of $ 25 million in 2010 and $ 108 million in 2009. the 2010 gain on discontinued operations from the sale of the frozen pizza business included tax expense of $ 1.2 billion . the following assets of the frozen pizza business were included in the frozen pizza divestiture ( in millions ) : 00,000,000 inventories , net $ 102 property , plant and equipment , net 317 goodwill 475 divested assets of the frozen pizza business $ 894 other divestitures : in 2009 , we received $ 41 million in net proceeds and recorded pre-tax losses of $ 6 million on the divestitures of our balance bar operations in the u.s. , a juice operation in brazil and a plant in spain . we recorded after-tax gains of $ 58 million , or $ 0.04 per diluted share , on these divestitures , primarily due to the differing book and tax bases of our balance bar operations . the aggregate operating results of the divestitures discussed above , other than the divestiture of the frozen pizza business , were not material to our financial statements in any of the periods presented . refer to note 16 , segment reporting , for details of the gains and losses on divestitures by segment . integration program and cost savings initiatives integration program our combination with cadbury continues to have the potential for meaningful synergies and costs savings . we now expect to recognize approximately $ 800 million of cost savings by the end of the third year following completion of the acquisition , up from our original estimate of $ 750 million . story_separator_special_tag additionally , we expect to create revenue synergies from investments in distribution , marketing and product development . in order to achieve these cost savings and synergies , we expect to incur total integration charges of approximately $ 1.5 billion in the first three years following the acquisition to combine and integrate the two businesses ( the integration program ) . integration program costs include the costs associated with combining our operations with cadbury 's and are separate from the costs related to the acquisition . we incurred charges under the integration program of $ 521 million in 2011 and $ 657 million in 2010. we recorded these charges primarily in operations as a part of selling , general and administrative expenses within our kraft foods europe and kraft foods developing markets segments , as well as general corporate expenses . since the inception of the integration program , we have incurred approximately $ 1.2 billion of the $ 1.5 billion in expected charges . at december 31 , 2011 , we had an accrual of $ 346 million related to the integration program . see note 7 , integration program and cost savings initiatives , to the consolidated financial statements for additional information . cost savings initiatives cost savings initiatives generally include exit , disposal and other project costs and consisted of the following specific initiatives : in 2011 , we recorded a $ 64 million charge primarily within the segment operating income of kraft foods europe and related to severance benefits provided to terminated employees and charges in connection with kraft foods europe reorganization . we also reversed $ 37 million of cost savings initiative program costs across all segments except kraft foods europe . in 2010 , we recorded $ 170 million primarily within the segment operating income of kraft foods europe and canada & n.a . foodservice and in connection with the kraft foods europe reorganization . in 2009 , we recorded $ 318 million primarily for severance benefits provided to terminated employees , associated benefit plan costs and other related activities . these were recorded in operations , primarily within the segment operating income of kraft foods europe , with the remainder spread across all other segments . within our integration program and cost savings initiatives , we include certain costs along with exit and disposal costs that are directly attributable to these activities and do not qualify for treatment as exit or disposal costs under u.s. gaap . these costs , which we commonly refer to as other project costs or implementation costs , generally include the integration and reorganization of operations and facilities , the discontinuance of certain product lines and the incremental expenses related to the closure of facilities . we believe the disclosure of these charges within our operating income provides greater transparency of the impact of these programs and initiatives on our operating results . 23 starbucks cpg business on march 1 , 2011 , the starbucks coffee company ( starbucks ) , without our authorization and in what we contend is a violation and breach of our agreements with starbucks , took control of the starbucks packaged coffee business ( starbucks cpg business ) in grocery stores and other channels , after alleging we had breached the supply and license agreement . the dispute is pending arbitration in chicago , illinois . we are seeking appropriate remedies , including but not limited to payment of the fair market value of the supply and license agreement plus the premium this agreement specifies . starbucks has counterclaimed for unspecified damages . the arbitration proceeding is set to begin on july 11 , 2012 and is expected to conclude on july 31 , 2012. the results of the starbucks cpg business were included primarily in our u.s. beverage and canada and n.a . foodservice segments through march 1 , 2011. accounting calendar changes in 2011 and 2010 the majority of our operating subsidiaries report results as of the last saturday of the year . a portion of our international operating subsidiaries report results as of the last calendar day or the last saturday of the year . because a significant number of our operating subsidiaries report results on the last saturday of the year and this year , that day fell on december 31 , our results included an extra week ( 53 rd week ) of operating results than in the prior two years which had 52-weeks . in 2011 , we changed the consolidation date for certain operations of our kraft foods europe segment and in the latin america and central and eastern europe , middle east and africa ( ceema ) regions within our kraft foods developing markets segment . previously , these operations primarily reported results two weeks prior to the end of the period . now , our kraft foods europe segment reports results as of the last saturday of each period . our operations in latin america and certain operations in ceema report results as of the last calendar day of the period or the last saturday of the period . these changes and the 53 rd week in 2011 resulted in a favorable impact to net revenues of approximately $ 920 million and a favorable impact of approximately $ 150 million to operating income in 2011. in 2010 , we changed the consolidation date for certain european biscuits operations , which are included within our kraft foods europe segment , and certain operations in asia pacific and latin america within our kraft foods developing markets segment . previously , these operations primarily reported period-end results one month or two weeks prior to the end of the period . kraft foods europe moved the reporting of these operations to two weeks prior to the end of the period , and asia pacific and latin america moved the reporting of these operations to the last day of the period .
| ( 2 ) impact of acquisition reflects the incremental january 2011 operating results from our cadbury acquisition . higher pricing outpaced increased input costs during 2011. the increase in input costs was driven by significantly higher raw material costs , partially offset by lower manufacturing costs . favorable volume/mix was driven by a strong contribution from kraft foods developing markets , partially offset by a net decline for the segments within kraft foods north america . total selling , general and administrative expenses increased $ 139 million from 2010. excluding the impacts of divestitures ( including for reporting purposes the starbucks cpg business ) , foreign currency , accounting calendar changes , our cadbury acquisition ( including integration program and acquisition-related costs ) and the costs associated with the proposed spin-off of the north american grocery business , selling , general and administrative expenses increased $ 6 million from 2010. favorable foreign currency increased operating income by $ 178 million , due primarily to the strength of the euro , australian dollar , canadian dollar and brazilian real versus the u.s. dollar . accounting calendar changes ( including the 53 rd week of shipments in 2011 and excluding the effects of foreign currency ) added $ 129 million in operating income , as we realized operating income from accounting calendar changes of $ 152 million in 2011 , versus $ 23 million in 2010. the cadbury acquisition , due to the incremental january 2011 operating results , increased operating income by $ 83 million . during 2011 , we reversed $ 7 million in restructuring program charges recorded in prior years , versus a reversal of $ 37 million in restructuring program charges recorded in prior years during 2010. we recorded asset impairment charges of $ 55 million in 2010 related to intangible assets in china and the netherlands and on a biscuit plant and related property , plant and equipment in france . the change in unrealized gains/losses on hedging activities decreased operating income by $ 167 million , as we recognized losses of $ 100 million in 2011 , versus
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% due in 2020 . · subsequent to the end of fiscal 2010 , we repurchased 1.9 million shares of our common stock , which completed the availability under our $ 300 million stock repurchase program . on february 8 , 2011 our board of directors authorized a new $ 500 million stock repurchase program . business update our positive financial results in fiscal 2010 are a result of the investments we have made in each of our four key strategies over the past three years , the successful execution of the initiatives supporting each of our strategies and favorable conditions in the automotive aftermarket . our initial focus on our commercial acceleration and availability excellence strategies has resulted in consistent double-digit increases in our commercial comparable store sales and strong overall gross profit improvement over this timeframe . through our diy transformation and 21 superior experience strategies , our diy sales have also improved throughout fiscal 2010 as a result of a renewed focus on customer service . in fiscal 2010 , we narrowed our focus on fewer customer facing initiatives to ensure we consistently execute these initiatives in an effort to provide better customer service while decelerating our pace of incremental spending . in fiscal 2011 , we have begun to focus on differentiating advance from our competition through our commitment to exceptional service which is reflected in our new promise , ‘ service is our best part sm ' and the convergence of our four key strategies into two strategies – service leadership and superior availability . through these two strategies , we believe we can continue to build on the initiatives discussed below and produce favorable financial results . our comparable store sales results for fiscal 2010 were comprised of favorable commercial and diy sales results . our commercial sales , as a percentage of total sales , increased to 34 % for fiscal 2010 as compared to 32 % for fiscal 2009. over the past three years we have completed incremental investments in additional parts professionals , delivery trucks and drivers in approximately half of our aap stores with commercial programs . we decelerated our pace of completing these investments during the second half of fiscal 2010 and will continue to roll out these investments to the entire store chain at a more moderate rate over the next two years . our growth in commercial is dependent on the previous investments we have made and plan on making in the future and maintaining successful relationships with our existing customers and attracting new customers . if we succeed in these strategies , we anticipate the pace of our growth in commercial to continue to exceed the pace of diy growth . our e-commerce website is also expected to contribute to our commercial sales due to the completion of the roll out of our business-to-business platform during the fourth quarter of fiscal 2010. the continued growth in our commercial sales emphasizes our focus on an integrated service model and our goal of achieving a 50/50 mix of commercial and diy sales . our diy initiatives include the ongoing improvement of our customer driven staffing model , rollout of more effective training programs and a number of marketing strategies . we are utilizing a more focused marketing approach to better target our highest potential customers and our underserved customers , which has resulted in a more effective use of our advertising spending . our re-launched e-commerce website has been operational for five complete fiscal quarters and is beginning to contribute favorably to our diy sales results . on an ongoing basis , we closely monitor independent customer satisfaction scores for both commercial and diy customers , as a measure of customer service and product availability , and have experienced improvement since the program 's inception . both our commercial and diy sales have benefitted from our added parts availability and merchandising initiatives . we added many new brands to our parts offering in fiscal 2009 and we continued to rollout custom assortments of product in our stores in fiscal 2010. we continue to complete additions to our supply chain network to increase our ability to get the right product to our customers . as of january 1 , 2011 , we were supporting multiple daily deliveries to a majority of our stores from our 176 hub stores and 31 parts delivered quickly , or pdq ® , facilities . our hub stores are larger stores that stock a wider selection and greater supply of inventory . in addition to driving sales , we believe these initiatives are responsible for the continued improvement in our gross profit rate . our gross profit rate for fiscal 2010 increased 113 basis points compared to fiscal 2009. we experienced gross profit rate improvements in both parts and non-parts categories resulting from the custom mix availability , price optimization and other merchandising capabilities and the impact of our growing global sourcing operation . we plan to continue increasing the amount of product we source globally which is expected to provide us significant gross profit improvement and allow us to more quickly source the products our customers need . automotive aftermarket industry the automotive aftermarket industry benefitted in 2010 from the economic environment as people kept their vehicles longer . other favorable industry dynamics which existed throughout most of 2010 included : · modest increase in miles driven ; · increase in number and average age of vehicles ; and · relatively stable gas prices . many of these favorable industry dynamics are continuing into 2011. we anticipate miles driven will continue to increase over the long-term future based on historical trends and the increasing number of vehicles on the road ; however , there is the potential of market pressure from the recent increase in gas prices and the rebound of new car 22 sales . story_separator_special_tag we believe that our focus on differentiating through our strategies of service leadership and superior availability will allow us to continue to increase our share of the total automotive aftermarket with a higher growth potential driven by the more fragmented commercial market . store development by segment the following table sets forth the total number of new , closed and relocated stores and stores with commercial delivery programs during fiscal 2010 , 2009 and 2008. we lease approximately 80 % of our stores . replace_table_token_11_th during fiscal 2011 , we anticipate adding 110 to 120 aap and 10 to 20 ai stores and closing approximately 10 total stores . components of statement of operations net sales net sales consist primarily of merchandise sales from our retail store locations to both our diy and commercial customers . our total sales growth is comprised of both comparable store sales and new store sales . we calculate comparable store sales based on the change in store sales starting once a store has been opened for 13 complete accounting periods ( approximately one year ) . we include sales from relocated stores in comparable store sales from the original date of opening . beginning in fiscal 2008 , we began including in comparable store sales the net sales from the offshore and ai stores . the comparable periods have been adjusted accordingly . fiscal 2008 comparable store sales exclude the effect of the 53 rd week . cost of sales our cost of sales consists of merchandise costs , net of incentives under vendor programs ; inventory shrinkage , defective merchandise and warranty costs ; and warehouse and distribution expenses . gross profit as a percentage of net sales may be affected by ( i ) variations in our product mix , ( ii ) price changes in response to competitive factors and fluctuations in merchandise costs , ( iii ) vendor programs , ( iv ) inventory shrinkage , ( v ) defective merchandise and warranty costs and ( v ) warehouse and distribution costs . we seek to minimize fluctuations in merchandise costs and instability of supply by entering into long-term purchasing agreements , without minimum purchase volume requirements , when we believe it is advantageous . our gross profit may not be comparable to those of our 23 competitors due to differences in industry practice regarding the classification of certain costs . see note 2 to our consolidated financial statements elsewhere in this report for additional discussion of these costs . selling , general and administrative expenses sg & a expenses consist of store payroll , store occupancy ( including rent and depreciation ) , advertising expenses , commercial delivery expenses , other store expenses and general and administrative expenses , including salaries and related benefits of store support center team members , share-based compensation expense , store support center administrative office expenses , data processing , professional expenses , self-insurance costs , closed store expense , impairment charges , if any , and other related expenses . see note 2 to our consolidated financial statements for additional discussion of these costs . consolidated results of operations the following table sets forth certain of our operating data expressed as a percentage of net sales for the periods indicated . replace_table_token_12_th fiscal 2010 compared to fiscal 2009 net sales net sales for fiscal 2010 were $ 5,925.2 million , an increase of $ 512.6 million , or 9.5 % , over net sales for fiscal 2009. this growth was primarily due to an increase in comparable store sales and sales from new aap and ai stores opened within the last year . aap produced sales of $ 5,691.1 million , an increase of $ 472.8 million , or 9.1 % , over fiscal 2009. the aap comparable store sales increase was driven by an increase in average ticket sales as well as an increase in overall customer traffic . ai produced sales of $ 249.5 million , an increase of $ 46.9 million , or 23.2 % , over fiscal 2009. replace_table_token_13_th gross profit gross profit for fiscal 2010 was $ 2,961.3 million , or 50.0 % of net sales , as compared to $ 2,644.2 million , or 48.9 % of net sales , in fiscal 2009 , or an increase of 113 basis points . this increase in gross profit as a percentage of net sales was driven by improved merchandising and pricing capabilities ( such as price optimization ) , improved parts availability and supply chain efficiencies . we believe the added parts availability has been a primary driver of our increase in parts sales , which generally contribute a higher gross profit . favorable product costs from global 24 sourcing are beginning to drive improvements in our gross profit on accessories . sg & a expenses sg & a expenses for fiscal 2010 were $ 2,376.4 million , or 40.1 % of net sales , as compared to $ 2,189.8 million , or 40.5 % of net sales , for fiscal 2009 , representing a decrease of 35 basis points . this overall decrease in sg & a expenses was primarily due to the absence of store divestiture costs in fiscal 2010 , leverage in occupancy and other fixed costs driven by our 8.0 % comparable store sales increase in fiscal 2010 and a planned decrease in incremental spending on our strategic capabilities , partially offset by increased incentive compensation and advertising . operating income operating income for fiscal 2010 was $ 584.9 million , representing 9.9 % of net sales , as compared to $ 454.4 million , or 8.4 % of net sales , for fiscal 2009 , or an increase of 148 basis points . this increase in operating income , as a percentage of net sales , reflects a significant increase in sales and gross profit rate combined with a slightly lower sg & a expense rate .
| our capital expenditures were $ 199.6 million in fiscal 2010 , or $ 6.7 million more than fiscal 2009. during fiscal 2010 , we opened 110 aap stores and 38 ai stores , remodeled 9 aap stores and relocated 9 aap and 3 ai stores . our future capital requirements will depend in large part on the number of and timing for new stores we open within a given year and the investments we make in information technology and supply chain networks . we anticipate adding approximately 110 to 120 aap and 10 to 20 ai stores and closing approximately 10 total stores during fiscal 2011. we expect to relocate and remodel existing stores only in the normal course of business . we also plan to make continued investments in the maintenance of our existing stores and supply chain network and to invest in new information systems to support our key strategies . in fiscal 2011 , we anticipate that our capital expenditures will be approximately $ 275.0 million to $ 300.0 million . the increase in capital expenditures over fiscal 2010 will be primarily driven by supply chain investments as part of our superior availability strategy . these expenditures include a new warehouse management system and costs associated with the completion of our remington , in distribution center scheduled to open in late 2011. stock repurchase program our stock repurchase program allows us to repurchase our common stock on the open market or in privately negotiated transactions from time to time in accordance with the requirements of the sec . during fiscal 2010 , we repurchased an aggregate of 13.0 million shares of our common stock at a cost of $ 633.9 million , or an average price of $ 48.67 per share . of these , we repurchased 2.7 million shares at a cost of $ 178.4 million under our $ 300 million stock repurchase program authorized by our board of directors on august 10 , 2010 , and 10.3 million shares at a cost of $ 455.5 million under our $ 500 million stock repurchase program authorized by our board of directors on february 16 , 2010. at january 1 , 2011 , we had $
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35 hebei xingtai steel group project on april 8 , 2007 , our board of directors approved and made effective a trt project joint-operation agreement ( “ joint-operation agreement ” ) which was conditionally entered into on february 1 , 2007 between shanghai tch and xi'an yingfeng science and technology co. , ltd. ( “ yingfeng ” ) . under the joint-operation agreement , shanghai tch and yingfeng jointly pursued a project to design , construct , install and operate two trt systems for xingtai iron and steel company , ltd. ( “ xingtai ” ) . these two projects were completed and put into operation in february and august 2007 , respectively . on october 31 , 2007 , shanghai tch entered an asset-transfer agreement with yingfeng . the terms and conditions of this agreement required the transfer of all electricity-generating related assets owned by yingfeng to shanghai tch . as a result , the contractual relationship between shanghai tch and yingfeng under the trt project joint-operation agreement was terminated . xingtai power generation system lease term ended in january 2012 , and , as a result , the system was subsequently transferred to xingtai . shengda project on march 15 , 2011 , the company incorporated a new wholly owned subsidiary pingshan county shengda energy technology co. , ltd ( “ shengda ” ) . xi'an tch contributed cash of $ 4,559,271 ( rmb 30,000,000 ) into shengda as initial capital . shengda was set up to undertake waste energy recycling projects from a steel and chemical company in pingshan county in accordance with and pursuant to a non-binding recycling economy projects cooperative framework agreement entered into by the parties . however , final terms for the projects were not reached , and , as a result , shengda was not operational . in july 2012 , shengda applied for cancellation of its registration with the appropriate authorities . in september 2012 , shengda was liquidated and deregistered . shanxi zhangzhi steel group project under the joint-operation agreement discussed above , shanghai tch and yingfeng also jointly pursued a project , which was entered into between yingfeng and zhangzhi iron and steel company , ltd. ( “ zhangzhi ” ) on june 22 , 2006 , to design , construct , install and operate a trt system for zhangzhi . shanghai tch contributed various investments and properties to the project , including cash , hardware , software , equipment , major components and devices . in return , shanghai tch obtained all the rights , titles , benefits and interests that yingfeng originally had under the project contract , including but not limited to , the regular cash payments made by xingtai and other property rights and interests . on october 31 , 2007 , shanghai tch acquired this contract as part of its asset-transfer agreement with yingfeng discussed above . per the transferred contracts , shanghai tch installed and owns the trt system and leases it to zhangzhi for 13 years , from july 25 , 2007 to july 25 , 2020. during the term of the lease , zhangzhi will pay shanghai tch a monthly rent of $ 0.16 million ( rmb 1.1 million ) . after the lease expires and all rents owed are paid , shanghai tch will transfer the title of the system to zhangzhi free of charge . shengwei group – tong chuan in november 2007 , shanghai tch signed a cooperative agreement with shengwei group to build two sets of 12mw cement low temperature heat power generation systems for shengwei 's two 2,500-tons-per-day cement manufacturing lines in jing yang and for a 5,000-tons-per-day cement manufacturing line in tong chuan . at the end of 2008 , construction of the cement low temperature heat power generation in tong chuan was completed at a cost of $ 6,191,000 ( rmb 43,000,000 ) and put into operation . under the original agreement , the ownership of the cement low temperature heat power generation systems would have belonged to shengwei starting from the date the projects were put into service . on may 20 , 2009 , shanghai tch entered into a supplementary agreement with shengwei group to change the timing of title transfer to shengwei from the date the projects put into operation to the end of the lease term . shanghai tch is responsible for the daily maintenance and repair of the projects , and charges shengwei a monthly electricity fee based on the actual power generated by the projects at 0.4116 rmb per kwh for an operating period of five years , from the date that the project is put in service for power generation or eleven ( 11 ) months after the agreement date whichever comes first , with assurances from shengwei of a properly functioning 5,000-tons-per-day cement manufacturing line and not less than 7,440 heat hours per year for the electricity generator system . shengwei group collateralized the cement manufacturing line in tong chuan to guarantee its obligations to provide the minimum electricity income from the power generator system under the agreement during the operating period . at the end of the five-year operating period , shanghai tch will have no further obligations under the cooperative agreement . on november 11 , 2008 , shanghai tch transferred all of its rights and obligations under the agreement to xi'an tch . in addition , the supplementary agreement entered into on may 20 , 2009 provided that xi'an tch will charge shengwei based on actual power usage subject to a minimum of $ 0.31 million ( rmb 2.1 million ) per month during the operating period ( lease term ) . story_separator_special_tag 36 shengwei group – jing yang project on june 29 , 2009 , construction of the cement low temperature heat power generation system in jing yang was completed at a cost of $ 7,318,000 ( rmb 50,000,000 ) and put into operation pursuant to a waste heat power generation cooperative agreement entered into in november 2007. shanghai tch charges shengwei a monthly technical service fee of $ 336,600 ( rmb 2,300,000 ) for the 60 months of the lease , starting from the date that the project is put into service for power generation or 11 months after the date of the agreement whichever comes first . shengwei has the right to purchase the cement low temperature heat power generation system for $ 29,000 ( rmb 200,000 ) at the end of the lease . shengwei is required to provide assurances of properly functioning two 2,500-tons-per-day cement manufacturing lines and not less than 7,440 heat hours per year for the cement low temperature heat power generation . shengwei group collateralized the cement manufacturing lines in jing yang to guarantee its obligations to provide the minimum electricity income from the waste energy power generator system under the agreement during the operating period . on november 11 , 2008 , shanghai tch transfered all of its rights and obligations under the agreement to xi'an tch . effective july 1 , 2009 , xi'an tch started outsourcing the operation and maintenance of the cement low temperature heat power generation systems in tong chuan and jingyang to a third party for $ 732,000 ( rmb 5,000,000 ) per year . shenmu project on september 30 , 2009 , xi'an tch delivered to shenmu county jiujiang trading co. , ltd. ( “ shenmu ” ) a set of three 6mw capacity waste gas power generation systems pursuant to a cooperative contract on coke-oven gas power generation project ( including its supplementary agreement ) and a gas supply contract for coke-oven gas power generation project ( the “ contracts ” ) . the contracts are for 10 years and state xi'an tch will recycle coke furnace gas from the coke-oven plant of shenmu to generate power , which will be supplied back to shenmu . shenmu agreed to supply xi'an tch the coke-oven gas free of charge . under the contracts , shenmu will pay xi'an tch an annual “ energy-saving service fee ” of approximately $ 5.6 million in equal monthly installments for the life of the contracts , as well as such additional amounts as may result from the supply of power to shenmu in excess of 10.8 million kilowatt hours per month . xi'an tch is responsible for operating the projects , which it does through an unrelated third party . shenmu guarantees that monthly gas supply will not be less than 21.6 million standard cubic meters . if gas supply is less , shenmu agrees to pay xi'an tch the energy-saving service fee described above for up to 10.8 million kilowatt-hours per month . xi'an tch maintains ownership of the project throughout the term of the contracts , including the already completed investment , design , equipment , construction and installation as well as the operation and maintenance of the project . at the end of the 10-year term , ownership of the projects will be transferred to shenmu at no charge . shenmu provided a lien on its production line to guarantee its performance under the contracts . shenmu 's three major stockholders provided an unlimited joint liability guarantee to xi'an tch guaranteeing shenmu 's performance under the contracts and the yulin huiyuan group , an independent third party , provides a guarantee to xi'an tch for shenmu 's performance under the contracts . on december 31 , 2011 , xi'an tch entered into a repurchase agreement for the coke-oven gas power generation project ( the “ repurchase agreement ” ) with shenmu . under the repurchase agreement , shenmu will purchase the set of 18mw capacity power generating systems ( the “ systems ” ) from xi'an tch and pay outstanding energy saving service fees of $ 3.08 million ( rmb 19.44 million ) to xi'an tch within three working days from the date of the repurchase agreement . xi'an tch will transfer the systems to shenmu for $ 18.75 million ( rmb 120 million ) ( the “ repurchase price ” ) to be paid in three installments within 180 days . in june 2012 , the company received the full payment of the outstanding energy saving service fees and system repurchase price , and , as a result , ownership of the systems was transferred to shenmu and the cooperative contract was terminated . erdos projects on april 14 , 2009 , the company incorporated a joint venture ( “ jv ” ) with erdos metallurgy co. , ltd. ( “ erdos ” ) to recycle waste heat from erdos ' metal refining plants to generate power and steam , which will then be sold back to erdos . the name of the jv is inner mongolia erdos tch energy saving development co. , ltd ( “ erdos tch ” ) with a term of 20 years , and initial registered capital of $ 2,635,000 ( rmb 18,000,000 ) . as of december 31 , 2012 , total registered capital was increased to $ 17.55 million ( rmb 120 million ) , of which $ 16.37 million ( rmb 112 million ) was contributed by xi'an tch and $ 1.18 million ( rmb 8 million ) was from erdos metallurgy . total investment for the project is estimated at $ 79 million ( rmb 500 million ) with an initial investment of $ 17.55 million ( rmb 120,000,000 ) . as of december 31 , 2012 , erdos contributed 7 % of the total investment of the project , and xi'an tch contributed 93 % . with respect to profit distribution , xi'an tch and erdos will receive 80 % and 20 % of the profit from the jv , respectively , until xi'an tch has received the complete return of its investment .
| gross profit was $ 1.25 million for the year ended december 31 , 2012 compared to $ 8.28 million for the year ended december 31 , 2011. this decrease was mainly due to no gross profit for systems sold in 2012 ; while in 2011 , we had $ 7.18 million gross profit or 24 % gross margin for systems sold . interest income on sales type leases . interest income on sales-type leases for the year ended december 31 , 2012 was $ 18.23 million , a $ 3.87 million decrease from $ 22.10 million for the year ended december 31 , 2011. during the year ended december 31 , 2012 , interest income was derived from 11 systems : one trt systems , two chpg systems , two systems with erdos phase i project and three systems of erdos phase ii project , the pucheng biomass power generation system , shenqiu biomass power generation system and zhongbao whpg system . in comparison , during the year ended december 31 , 2011 , interest income was derived from 12 systems : two trt systems , two chpg systems , one wgpg system , two waste heat power generating systems associated with our erdos phase i project and two systems of erdos phase ii project , the pucheng biomass power generation system , shenqiu biomass power generation system and zhongbao whpg system , and the 3rd 9mw waste heat power generating system of erdos phase ii project . xingtai power generation system reached maturity of the lease term in january , 2012 , and the system was transferred to xingtai . operating expenses . operating expenses consisted of selling , general and administrative expenses totaling $ 5.66 million for the year ended december 31 , 2012 compared to $ 4.74 million for the year ended december 31 , 2011 , an increase of $ 0.92 million or 19 % . the increase was mainly due to $ 2.97 million loss resulting from the termination of the erdos tch phase iii power generation projects . our regular g & a expenses decreased by $ 2.04 million in 2012 as a result of our efforts relating to operational efficiency and expense control . 43 non-operating
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our ability to compete effectively depends on , among other things , our ability to continue delivering high-quality journalism and content that is interesting and relevant to our audience ; our ability to develop , maintain and monetize new and existing print and digital products ; the popularity , ease of use and performance of our products compared to those of our competitors ; our ability to attract , retain and motivate talented journalists and other employees to develop products that users find engaging ; and our ability to manage and grow our business in a cost-effective manner . continuing shift to digital from print circulation revenue is a significant source of revenue for us and an increasingly important driver as the overall composition of our revenues has shifted in response to transformations in our industry . the largest portion of our circulation revenue is currently from traditional print products , where we have experienced declining print circulation volume in recent years . this is due to , among other factors , increased competition from digital media formats ( which are often free to users ) , higher print subscription and single-copy rates and a growing preference among some consumers to receive their news from sources other than a print newspaper . the distribution of news and other content is increasingly through mobile devices , reshaping consumer behavior and expectations for consumption of news and other information . our ability to retain and continue to build on our digital subscription base and audience for our digital products depends on , among other things , continued market acceptance of our pricing and overall digital subscription model , consumer behavior , available alternatives from current and new competitors and our ability to continue delivering high-quality journalism and content that is interesting and relevant to users . advertising market dynamics we derive substantial revenues from the sale of advertising in our products . in determining whether to buy advertising , our advertisers will consider the demand for our products , demographics of our reader base , advertising rates , results observed by advertisers , and alternative advertising options . the advertising industry continues to experience a shift towards digital advertising , which is less expensive and can offer more directly measurable returns than traditional print media . because rates for digital advertising are generally lower than for traditional print advertising , our digital advertising revenue may not replace in full print advertising revenue lost as a result of the shift . in addition , margins on certain of our digital advertising revenues tend to be lower than on our print advertising revenues . growing consumer reliance on mobile devices adds additional pressure , as advertising rates are generally lower on mobile devices than on personal computers . the digital advertising market continues to undergo significant changes . digital advertising networks and exchanges , real-time bidding and other programmatic buying channels that allow advertisers to buy audiences at the new york times company – p. 21 scale have led to audience fragmentation and caused downward pricing pressure . the wide range of advertising choices across digital products and platforms and the large inventory of available digital advertising space has exacerbated this pressure . the character of our digital advertising business is also changing , as demand for newer advertising formats like branded content , mobile and video advertising increases . some of these newer formats may generate lower margins than traditional desktop display advertising . if we are unable to effectively grow advertising revenues from these newer formats through the development of advertising products that are compelling to both marketers and consumers , our results of operations could be adversely affected . in addition , technologies have been and will continue to be developed that enable consumers to block digital advertising on websites and mobile devices . advertisements blocked by these technologies are treated as not delivered and any revenue we would otherwise receive from the advertiser for that advertisement is lost . competition from a variety of digital media and services , many of which charge lower rates than us , and the significant increase in inventory of digital advertising space have affected , and will likely continue to affect , our ability to attract and retain advertisers and to maintain or increase our advertising rates . in addition , evolving standards for the delivery of digital advertising , such as the industry-wide standard on viewability , could also negatively affect our digital advertising revenues . economic conditions global , national and local economic conditions affect various aspects of our business . the level of advertising sales in any period may be affected by advertisers ' decisions to increase or decrease their advertising expenditures in response to anticipated consumer demand and general economic conditions . changes in spending patterns and priorities , including shifts in marketing strategies and budget cuts of key advertisers , in response to economic conditions , have depressed and may continue to depress our advertising revenues . in addition , subscription revenue is sensitive to discretionary spending available to subscribers in the markets we serve , and to the extent poor economic conditions lead consumers to reduce spending on discretionary activities , our ability to retain current and obtain new subscribers could be hindered . fixed costs a significant portion of our costs are fixed , and therefore we are limited in our ability to reduce these costs in the short term . employee-related costs and raw materials together accounted for approximately 50 % of our total operating costs in 2015. changes in employee-related costs and the price and availability of newsprint can materially affect our operating results . for a discussion of these and other factors that could affect our business , results of operations and financial condition , see “ forward-looking statements ” and “ item 1a — risk factors. ” our strategy we are operating during a period of transformation for our industry and amidst uncertain economic conditions . story_separator_special_tag we anticipate that the challenges we currently face will continue , and we believe that the following elements are key to our efforts to address them . strengthening the new york times brand through innovation our priority is to maintain the high-quality and robust news-gathering operation that sets our company apart , while at the same time positioning our organization for growth . we continue to focus on innovations in our digital products , particularly our mobile platforms , that enhance our journalism . during 2015 , we made significant improvements to the times 's core news mobile applications , and in the fall launched a virtual reality mobile application through which we have released virtual reality films on wide-ranging topics . we plan to continue our focus on digital innovation and expand our capabilities on our mobile , video and other platforms . we are also committed to the continued success of our print products . despite the ongoing industry shift to digital from print , our print products have been and will continue to be a significant source of revenue for us and we have made a number of investments in them . during 2015 , for example , we re-launched the new york times magazine and launched men 's style , the first new print section in the times in a decade . p. 22 – the new york times company as we continue to look for ways to innovate our products , we remain committed to creating quality content and a quality user experience , regardless of the distribution model or platform . deepening our engagement with readers we are focused on deepening the engagement of our current readers and expanding our reach to new readers around the world , which we believe will drive revenue growth . our paid digital-only subscription model has created a meaningful revenue stream that has partially offset declines in our print advertising and circulation revenues . in july , we reached a milestone of one million paid digital-only subscribers , less than four-and-a-half years after launching our digital pay model . we believe the continued growth in our digital-only subscriber base in 2015 underscores the willingness of our readers to pay for the high-quality journalism across multiple platforms , and we will continue to look for ways to strengthen the relationship we have with these subscribers . we will also continue to focus on developing new audiences , including by expanding our global reach and working to engage younger readers . in february 2016 , for example , we announced the launch of the new york times en español , a mobile-optimized website covering news and issues of interest to a spanish-speaking audience . we will also continue to experiment with reaching new readers on third-party platforms , while remaining committed to building engagement with readers on our own platforms . creating compelling digital advertising solutions we are focused on continuing to grow our digital advertising revenue by developing innovative and compelling advertising offerings that integrate with and add value to the user experience . we believe we have a very powerful and trusted brand that , because of the quality of our journalism , attracts educated , affluent and influential audiences , and we continue to focus on leveraging our brand in developing and refining these offerings . in 2015 , for example , we created innovative digital advertising solutions for our mobile and other platforms , and our virtual reality mobile application provided advertisers new ways of reaching our audience . we have also continued to expand our branded content studio , which has become a fast-growing part of our advertising business since we launched it in early 2014. managing our cost structure we continue to focus on managing our cost structure to ensure that we are operating our businesses efficiently , while maintaining our commitment to investing in high-quality content and achieving our strategic goals . in 2015 , we succeeded in reducing operating costs through , among other things , efficiencies in our print distribution . in 2016 , we plan to make investments across our business to grow our digital revenue , while at the same time maintaining our focus on cost management . strengthening our liquidity we have continued to strengthen our liquidity position and we remain focused on further de-leveraging and de-risking our balance sheet . in march 2015 , we repaid , at maturity , the remaining principal amount of our 5.0 % senior notes . as of december 27 , 2015 , our cash , cash equivalents and marketable securities exceeded total debt and capital lease obligations by approximately $ 473 million . we believe our cash balance and cash provided by operations , in combination with other sources of cash , will be sufficient to meet our financing needs over the next 12 months . managing our retirement-related costs we remain focused on managing the underfunded status of our pension plans and adjusting the size of our pension obligations relative to the size of our company . our qualified pension plans were underfunded ( meaning the present value of future obligations exceeded the fair value of plan assets ) as of december 27 , 2015 , by approximately $ 273 million , compared with approximately $ 264 million as of december 28 , 2014. we made contributions of approximately $ 7 million to certain qualified pension plans in 2015 , compared with approximately $ 15 million in 2014. we expect contributions in 2016 to total approximately $ 8 million to satisfy minimum funding requirements . we have taken steps over the last few years to address our pension obligations , including freezing accruals under most of our qualified defined benefit pension plans , which cover both our non-union employees and those covered by collective bargaining agreements . we have also made immediate pension benefits offers in the form of lump-sum payments to certain former employees and we will continue to look for ways to reduce the size of our pension obligations .
| on january 14 , 2015 , carlos slim helú , a beneficial owner of our class a common stock , exercised warrants to purchase 15.9 million shares of our class a common stock at a price of $ 6.3572 per share , and the company received cash proceeds of approximately $ 101.1 million from this exercise . on january 13 , 2015 , the board of directors terminated an existing authorization to repurchase shares of the company 's class a common stock and approved a new repurchase authorization of $ 101.1 million , equal to the cash proceeds received by the company from the warrant exercise . as of december 27 , 2015 , the company had repurchased 5,511,233 class a shares under this authorization for a cost of $ 69.8 million ( excluding commissions ) . as of february 17 , 2016 , repurchases under this authorization totaled $ 84.9 million ( excluding commissions ) and $ 16.2 million remained under this authorization . our board of directors has authorized us to purchase shares from time to time , subject to market conditions and other factors . there is no expiration date with respect to this authorization . we have paid quarterly dividends of $ 0.04 per share on the class a and class b common stock since late 2013. we currently expect to continue to pay comparable cash dividends in the future , although changes in our dividend program will be considered by our board of directors in light of our earnings , capital requirements , financial condition and other factors considered relevant . in addition , the board of directors will consider restrictions in any existing indebtedness , such as the terms of our 6.625 % notes . during 2015 , we made contributions of approximately $ 7 million to certain qualified pension plans in 2015 . we expect contributions to total approximately $ 8 million to satisfy minimum funding requirements in 2016 . the new york times company – p. 33 capital resources sources and uses of cash cash flows provided by/ ( used in ) by category were as follows : replace_table_token_16_th * represents an increase or decrease in excess of 100 % . operating activities cash from operating activities is generated by cash receipts from circulation , advertising sales and
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many of the conditions that drove these markets in 2015 will continue throughout 2016. aerospace is expected to be driven by large commercial aircraft due to a greater than nine-year order backlog . for building and construction , awarded nonresidential contracts are projected to be up once again in north america while a slight decline in europe is expected . in packaging , growth in china and europe , mainly driven by the penetration of aluminum in the growing beer segment and the conversion from steel cans to aluminum cans , respectively , is expected to more than offset a slight decrease in north america . for automotive , growth is anticipated in the united states ( due to the replacement of older vehicles , low borrowing rates , and the decline in gasoline prices ) and china ( due to evolving emissions policies based on new clean air legislation enacted in 2014 and a continued increase in the percentage of the population driving automobiles ) , as well as europe . industrial gas turbines are expected to see growth as a result of new demand for high technology turbines and upgrades of existing turbines . in commercial transportation , improving conditions in both europe and china are expected to be more than offset by weakness in north america , due to high inventory levels as a result of one of the highest production years ever in 2015 and projected lower orders . looking ahead over the next year , management will continue to focus on lowering alcoa 's refining and smelting operations on the respective global cost curves to the 21st and 38th percentiles , respectively . at december 31 , 2015 , alcoa 's refining operations were at the 23rd percentile , a two-percentage point improvement from 2014 , and its smelting operations remained at the 43rd percentile on the respective global cost curves . actions taken to improve alcoa 's position on the global alumina cost curve included , in late 2014 , the sale of an ownership interest in a mining and refining joint venture in jamaica and the conversion of the fuel source from fuel oil to natural gas at a refinery in spain , and , in 2015 , the curtailment of 1,330 kmt of high-cost capacity in suriname . actions taken in the smelting operations included , in late 2014 , the sale of an ownership interest in a smelter in the united states and the renewal of a power contract at each of the three smelters in canada , and , in 2015 , the curtailment and closure of 170 kmt combined of high-cost capacity in brazil . also , both the refining and smelting operations benefitted from productivity improvements , new initiatives as well as the full realization of those implemented in 2014. while the benefits of the actions in the refining operations can be seen in alcoa 's improved position on the global alumina cost curve at the end of 2015 , the benefits from the actions in the smelting operations were offset by a downward shift in the global aluminum cost curve , primarily due to the strong u.s. dollar and curtailments/closures of capacity from other smelting industry participants . 52 other actions taken in 2015 to help drive a lower position on the respective global cost curves include additional curtailments and or closures of 2,100 kmt of refining capacity and 499 kmt of smelting capacity , all within the united states . the initiation of these actions occurred late in 2015 and will be completed during the first half of 2016 ; therefore , management expects to realize the benefits of curtailing/closing this high-cost capacity during 2016. additionally , alcoa has initiatives to drive further productivity improvements during 2016 , including from procurement and overhead programs . furthermore , the smelter and the refinery at the joint venture in saudi arabia are expected to provide a two-percentage point reduction on each of the respective global cost curves by the end of 2016 ( from 2013 ) . management will also continue to focus on revenue growth for both the midstream and downstream operations , which is expected from multiple sources . the midstream operations anticipate positive contributions from both the davenport , ia rolling mill facility and tennessee rolling mill facility ( expansion completed in september 2015 ) , both of which serve the growing demand for aluminum sheet in the u.s. automotive and market as a result of changing emission regulations . likewise , the downstream operations expect favorable results from projects completed in late 2014 and throughout 2015 to meet growing demand in both the aerospace and commercial transportation end markets . these projects include an expansion of aluminum lithium capabilities in lafayette , in , expansions in laporte , in and hampton , va to provide nickel-based super alloy structural components and airfoil blades for jet engines , and an expansion at a facility in hungary to double production of aluminum wheels . additionally , the downstream operations completed three acquisitions ( mostly aerospace-related ) in november 2014 through july 2015 ( see engineered products and solutions in segment information under results of operations below ) that will incrementally increase revenue . furthermore , in 2014 and 2015 , alcoa entered into a number of multi-year supply agreements related to the aerospace end market valued at approximately $ 13,500 , including six contracts valued at more than $ 6,700 combined with four major customers in the aerospace end market . under one of these six contracts , the midstream operations will supply aluminum sheet and plate , and under the other five contracts , the downstream operations will supply jet engine components ( including aluminum and aluminum-lithium fan blades ) , multi-material fastening systems , titanium plate and billet , and titanium seat track assemblies . in addition to focusing on the above-mentioned operational improvements , management has committed to executing the following transaction . on september 28 , 2015 , alcoa announced that its board of directors approved a plan to separate into two independent , publicly-traded companies . story_separator_special_tag one company will comprise the alumina and primary metals segments and the other company will comprise the global rolled products , engineered products and solutions , and transportation and construction solutions segments . alcoa is targeting to complete the separation in the second half of 2016. the transaction is subject to a number of conditions , including , but not limited to , final approval by alcoa 's board of directors , receipt of a favorable opinion of legal counsel with respect to the tax-free nature of the transaction for u.s. federal income tax purposes , and the effectiveness of a form 10 registration statement to be filed with the u.s. securities and exchange commission . upon completion of the separation , alcoa shareholders will own all of the outstanding shares of both companies . alcoa may , at any time and for any reason until the proposed transaction is complete , abandon the separation plan or modify or change its terms . story_separator_special_tag style= '' font-family : times new roman '' > provision for depreciation , depletion , and amortization the provision for dd & a was $ 1,280 in 2015 compared with $ 1,371 in 2014. the decrease of $ 91 , or 7 % , was mostly due to favorable foreign currency movements due to a stronger u.s. dollar , particularly against the australian dollar and brazilian real , and the absence of dd & a ( $ 71 ) related to the divestiture and or permanent closure of five smelters , six rolling mills , one refinery , and one rod mill ( see alumina , primary metals , and global rolled products in segment information below ) , all of which occurred from march 2014 through june 2015. these positive impacts were partially offset by new dd & a ( $ 93 ) associated with three acquisitions that occurred from november 2014 through july 2015 ( see engineered products and solutions in segment information below ) . the provision for dd & a was $ 1,371 in 2014 compared with $ 1,421 in 2013. the decrease of $ 50 , or 4 % , was principally the result of favorable foreign currency movements due to a stronger u.s. dollar , particularly against the australian dollar and brazilian real , and a reduction in expense related to the permanent shutdown of smelter capacity in australia , canada , the united states , and italy that occurred at different points during both 2013 and 2014 ( see primary metals in segment information below ) . these items were somewhat offset by new dd & a associated with both the acquisition of firth rixson in november 2014 ( see engineered products and solutions in segment information below ) and assets placed into service in january 2014 related to the completed automotive expansion at the davenport , ia plant . impairment of goodwill in 2015 and 2013 , alcoa recognized an impairment of goodwill in the amount of $ 25 and $ 1,731 ( $ 1,719 after noncontrolling interest ) , respectively , related to the annual impairment review of the soft alloy extrusion business in brazil and the primary metals segment , respectively , ( see goodwill in critical accounting policies and estimates below ) . 55 restructuring and other charges restructuring and other charges for each year in the three-year period ended december 31 , 2015 were comprised of the following : replace_table_token_13_th layoff costs were recorded based on approved detailed action plans submitted by the operating locations that specified positions to be eliminated , benefits to be paid under existing severance plans , union contracts or statutory requirements , and the expected timetable for completion of the plans . 2015 actions . in 2015 , alcoa recorded restructuring and other charges of $ 1,195 ( $ 836 after-tax and noncontrolling interest ) , which were comprised of the following components : $ 438 ( $ 281 after-tax and noncontrolling interest ) for exit costs related to decisions to permanently shut down and demolish three smelters and a power station ( see below ) ; $ 246 ( $ 118 after-tax and noncontrolling interest ) for the curtailment of two refineries and two smelters ( see below ) ; $ 201 ( pre- and after-tax ) related to legal matters in italy ; a $ 161 ( $ 151 after-tax and noncontrolling interest ) net loss related to the march 2015 divestiture of a rolling mill in russia ( see global rolled products in segment information below ) and post-closing adjustments associated with three december 2014 divestitures ; $ 143 ( $ 102 after-tax and noncontrolling interest ) for layoff costs , including the separation of approximately 2,100 employees ( 425 in the transportation and construction solutions segment , 645 in the engineered products and solutions segment , 380 in the primary metals segment , 90 in the global rolled products segment , 85 in the alumina segment , and 475 in corporate ) ; $ 34 ( $ 14 after-tax and noncontrolling interest ) for asset impairments , virtually all of which was related to prior capitalized costs for an expansion project at a refinery in australia that is no longer being pursued ; an $ 18 ( $ 13 after-tax ) gain on the sale of land related to one of the rolling mills in australia that was permanently closed in december 2014 ( see 2014 actions below ) ; a net charge of $ 4 ( a net credit of $ 7 after-tax and noncontrolling interest ) for other miscellaneous items ; and $ 14 ( $ 11 after-tax and noncontrolling interest ) for the reversal of a number of small layoff reserves related to prior periods . during 2015 , management initiated various alumina refining and aluminum smelting capacity curtailments and or closures .
| sales sales for 2015 were $ 22,534 compared with sales of $ 23,906 in 2014 , a decline of $ 1,372 , or 6 % . the decrease was primarily due to the absence of sales related to capacity that was closed , sold or curtailed in the midstream and upstream operations ( see global rolled products and primary metals in segment information below ) , a lower average realized price for aluminum in both the upstream and midstream operations and for alumina in the upstream operations , unfavorable foreign currency movements in the midstream and downstream operations , and lower energy sales ( both as a result of lower pricing and unfavorable foreign currency movements ) . these negative impacts were partially offset by the addition of sales from three recently acquired businesses ( see engineered products and solutions in segment information below ) , higher volume across all segments , favorable product mix in the midstream operations , and higher buy/resell activity for primary aluminum . sales for 2014 were $ 23,906 compared with sales of $ 23,032 in 2013 , an improvement of $ 874 , or 4 % . the increase was mainly the result of higher volumes in the midstream , downstream , and alumina portion of the upstream operations , higher energy sales resulting from excess power due to curtailed smelter capacity , increased buy/resell activity for primary aluminum , and a higher average realized price for primary aluminum . these positive impacts were partially offset by lower primary aluminum volumes , including those related to curtailed and shutdown smelter capacity , and unfavorable price/product mix in the midstream operations . cost of goods sold cogs as a percentage of sales was 80.2 % in 2015 compared with 80.1 % in 2014. the percentage was negatively impacted by a lower average realized price for both aluminum and alumina in the upstream operations , unfavorable price/product mix in the midstream and downstream operations , lower energy sales , and higher costs . these negative impacts were mostly offset by net favorable foreign currency movements due to a stronger u.s .
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quarantines , travel restrictions , prohibitions on non-essential gatherings , shelter-in-place orders and other similar directives and policies intended to reduce the spread of the disease , may reduce our productivity and that of the third parties on which we rely and may disrupt and delay many aspects of our business . the company is complying with state mandated requirements for safety in the workplace to ensure the health , safety and welling-being of our employees . these measures included personal protective equipment , social distancing , cleanliness of the facilities and daily monitoring of the health of employees in our facilities . we have not developed a specific and comprehensive contingency plan designed to address the challenges and risks presented by the covid-19 pandemic and , even if and when we do develop such a plan , there can be no assurance that such plan will be effective in mitigating the potential adverse effects on our business , financial condition and results of operations . on february 15 , 2020 , steve cooper was terminated as president and ceo of one stop systems , inc. , and was replaced by david raun who is now the president and ceo of the company . on april 7 , 2020 , the company implemented a cost reduction plan which included the termination of certain employees and elimination of certain costs . savings from this effort are estimated to be approximately $ 2.5 million on an annual basis . on april 24 , 2020 , the company completed a $ 6.0 million debt financing on a non-interest bearing convertible note with a 10 % original issue discount . the first tranche of $ 3.0 million was received on april 27 , 2020 , with an additional $ 3.0 million available seven months from the date of closing at the option of the company conditioned upon meeting certain requirements which have been satisfied . the note is repayable in twenty-two installments beginning three months after closing in cash or shares of the company 's common stock . on march 1 , 2021 , the company entered into a securities purchase agreement with an accredited investor , pursuant to which the company agreed to issue and sell , in a registered direct offering , 1,497,006 shares of the company 's common stock , par value $ 0.0001 per share , to the purchaser at an offering price of $ 6.68 per share . the registered offering was conducted pursuant to the company 's effective shelf registration statement on form s-3 ( registration no . 333-231513 ) , which was initially filed with the securities and exchange commission on may 15 , 2019 , and was declared effective on june 19 , 2019. as compensation for their services , the company paid to the placement agents a fee equal to 7 % of the gross proceeds received by the company as a result of the registered offering , and reimbursed the placement agents for certain expenses incurred in connection with such offering . the company estimates that the net proceeds from the registered offering will be approximately $ 9.25 million after deducting certain fees due to the placement agents ' and the company 's estimated transaction expenses . the net proceeds received by the company will be used for general corporate and working capital purposes . story_separator_special_tag december 31 , 2020 resulted in net expenses of $ 53,612 as compared to net other income of $ 130,381 in the prior year 2019 , for a net change of $ 183,993. the majority of the decrease is a reduction in foreign currency transactions gains and losses . ( benefit ) provision for income taxes we have recorded an income tax ( benefit ) provision of $ ( 603,744 ) and $ 237,252 , respectively , for the years ended december 31 , 2020 and 2019. the effective tax rate for the years ended december 31 , 2020 and 2019 differs from the statutory rate mainly due to permanent non-deductible goodwill amortization for bressner technology gmbh , income from the global intangible low-taxed income inclusion for 2019 only , deductions related to expenses of oss stock options , as 44 well as projecting federal , foreign and state tax liabilities for the year . the effective tax rate for 2020 is 98.9 % as compared to 35.7 % in the prior year . liquidity and capital resources given our recent operating losses , the company 's primary sources of liquidity have been provided by ( i ) the company 's february 2018 initial public offering ( net proceeds were approximately $ 16,100,000 ) ; ( ii ) march 2019 notes payable from members of the board of directors and others of $ 1,500,000 ; ( iii ) the july 2019 sale of 1,554,546 shares of the company 's common stock for net cash proceeds of $ 2,488,148 ; ( iv ) the april 24 , 2020 sale of $ 3,000,000 of senior secured convertible promissory notes issued at a 10 % original issue discount ; ( v ) receipt of approximately $ 1,500,000 on april 28 , 2020 of government loan proceeds under the paycheck protection program ; and ( vi ) a receipt of approximately $ 9,250,000 on march 3 , 2021 in a registered direct offering . as of december 31 , 2020 , the company 's cash and cash equivalents were $ 6,316,921 and working capital was $ 16,266,293. cash and cash equivalents held by bressner totaled $ 1,062,818 ( usd ) at december 31 , 2020 , and bressner 's debt covenants do not permit the use of those funds by its parent company . during the year ended december 31 , 2020 , the company experienced an operating loss of $ 424,281 , with cash used in operating activities of $ 250,173. during the year , our largest customer , engaged in the media and entertainment industry , was having significant financial hardships attributable to the covid-19 pandemic and as a result had been slow in paying their outstanding account receivables . story_separator_special_tag the company formulated a plan whereby extended payment terms were made available , and our customer is now current , having paid down their past-due outstanding account receivables and are presently honoring their credit terms . our sources of liquidity and cash flows are used to fund ongoing operations , research and development projects for new products and technologies , and provide ongoing support services for our customers . over the next two fiscal years , we anticipate that we will use our liquidity and cash flows from our operations to fund our growth . in addition , as part of our business strategy , we occasionally evaluate potential acquisitions of businesses and products and technologies . accordingly , a portion of our available cash may be used at any time for the acquisition of complementary products or businesses . such potential transactions may require substantial capital resources , which may require us to seek additional debt or equity financing . we can not assure you that we will be able to successfully identify suitable acquisition candidates , complete acquisitions , integrate acquired businesses into our current operations , or expand into new markets . furthermore , we can not provide assurances that additional financing will be available to us in any required time frame and on commercially reasonable terms , if at all . the company 's revenue growth during the year has slowed due to the effects of covid-19 . however , resulting from a reduction in force and strict cost containment , the company has been able to mitigate the effects , to some degree , of the reduced revenue . for a further description and risk factors associated with covid-19 , please see part 1a of this annual report on form 10-k. management 's plans are to continue its efforts towards responding to the changing economic landscape attributable to covid-19 , to restructure the company with the primary objectives of reducing costs , conserving cash , strengthening margins , and improving company-wide execution . specific actions already implemented by management include a reduction in force , a limited freeze on hiring , reduced work week , minimizing overtime , travel and entertainment , and contractor costs . on april 7 , 2020 , the company implemented a cost reduction plan which included the termination of certain employees and elimination of certain costs . while management expects these actions to result in prospective cost reductions , management is also committed to securing debt and or equity financing to ensure that liquidity will be sufficient to meet the company 's cash requirements through at least a period of the next twelve months . management believes potential sources of liquidity include at least the following : ▪ in may 2019 , the company filed a form s-3 prospectus with the securities and exchange commission which became effective on june 19 , 2019 , and allows the company to offer up to $ 100,000,000 aggregate dollar amount of shares of its common stock , preferred stock , debt securities , warrants to purchase its common stock , preferred stock or debt securities , subscription rights to purchase its common stock , preferred stock or debt securities and\or units consisting of some or all of these securities , in any combination , together or separately , in one or more offerings , in amounts , at prices and on the terms that the company will determine at the time of the offering and which will be set forth in a prospectus supplement and any related free writing prospectus . 45 ▪ on apri l 24 , 2020 , the company completed a $ 6.0 million debt financing on a non-interest bearing convertible note with a 10 % original issue discount . the first tranche of $ 3.0 million was received on april 27 , 2020 , with an additional $ 3.0 million available seve n months from the date of closing at the option of the company conditioned upon meeting certain requirements which have been satisfied . the note is repayable in twenty-two installments beginning three months after closing in cash or shares of the company ' s common stock . ▪ on march 1 , 2021 , the company entered into a definitive agreement with an institutional investor for the purchase and sale of 1,497,006 shares of common stock at a purchase price of $ 6.68 in a registered direct offering priced at-the-market under nasdaq rules . total estimated proceeds are $ 9,250,000 after commissions and offering costs . as a result of management 's cost reduction plans , the company 's potential sources of liquidity and management 's most recent cash flow forecasts , management believes that the company has sufficient liquidity to satisfy its anticipated working capital requirements for its ongoing operations and obligations for at least the next twelve months . however , there can be no assurance that management 's cost reduction efforts will be effective or the forecasted cash flows will be achieved . furthermore , the company shall continue to evaluate its capital expenditure needs based upon factors including but not limited to the company 's sales from operations , growth rate , the timing and extent of spending to support development efforts , the expansion of the company 's sales and marketing , the timing of new product introductions , and the continuing market acceptance of the company 's products and services . if cash generated from operations is insufficient to satisfy the company 's capital requirements , the company may open a revolving line of credit with a bank , or it may have to sell additional equity or debt securities or obtain expanded credit facilities to fund its operating expenses , pay its obligations , diversify its geographical reach , and grow the company . in the event such financing is needed in the future , there can be no assurance that such financing will be available to the company , or , if available , that it will be in amounts and on terms acceptable to the company .
| general and administrative - general and administrative expense consists primarily of employee compensation and related expenses for administrative functions including finance , legal , human resources and fees for third-party professional services , as well as allocated overhead . we expect our general and administrative expense to increase in absolute dollars as we continue to invest in growing the business . marketing and sales – marketing and sales expense consists primarily of employee compensation and related expenses , sales commissions , marketing programs , travel and entertainment expenses as well as allocated overhead . marketing programs consist of advertising , tradeshows , events , corporate communications and brand-building activities . we expect marketing and sales expenses to increase in absolute dollars as we expand our sales force , increase marketing resources , and further develop sales channels . research and development - research and development expense consists primarily of employee compensation and related expenses , prototype expenses , depreciation associated with assets acquired for research and development , third-party engineering and contractor support costs , as well as allocated overhead . we expect our research and development expenses to increase in absolute dollars as we continue to invest in new and existing products . other income ( expense ) , net other income consists of miscellaneous income and income received for activities outside of our core business . other expense includes expenses for activities outside of our core business . provision for income taxes provision for income taxes consists of estimated income taxes due to the united states and german governments as well as state tax authorities in jurisdictions in which we conduct business , along with the change in our deferred income tax assets and liabilities . 41 results of operations the following tables set forth our results of operations for the years ended december 31 , 2020 and 2019 respectively , presented in dollars and as a percentage of net revenue . replace_table_token_3_th 42 replace_table_token_4_th comparison of the years ended december 31 , 2020 and 2019 replace_table_token_5_th revenue for the year ended december 31 ,
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in the table below , we provide an overview of selected operating metrics . replace_table_token_5_th components of operating income revenues . we generate revenues by selling apparatus , instruments , devices and consumables through our catalogs , our distributors , our direct sales force and our websites . our websites and catalogs serve as the primary sales tools for our physiology and fluidics related product lines . these product lines include both proprietary manufactured products and complementary products from various suppliers . our reputation as a leading producer in many of our manufactured products creates traffic to our website , enables cross-selling and facilitates the introduction of new products . we have field sales teams in the u.s. , canada , the united kingdom , germany , france , spain and china . in those regions where we do not have a direct sales team , we use distributors . revenues from direct sales to end users represented approximately 58 % of our revenues for the year ended december 31 , 2014. for the years ended december 31 , 2013 and 2012 , revenues from direct sales to end users represented approximately 57 % of our revenues for each period . 28 products in our molecular and cell analysis product lines are generally sold by distributors , and are typically priced in the range of $ 5,000- $ 15,000. they are mainly scientific instruments like spectrophotometers and plate readers that analyze light to detect and quantify a wide range of molecular and cellular processes , or apparatus like gel electrophoresis units . we also use distributors for both our catalog products and our higher priced products , for sales in locations where we do not have subsidiaries or where we have existing distributors in place from acquired businesses . for the year ended december 31 , 2014 , approximately 42 % of our revenues were derived from sales to distributors . for the years ended december 31 , 2013 and 2012 , approximately 43 % of our revenues were derived from sales to distributors . for the years ended december 31 , 2014 , 2013 and 2012 , approximately 65 % , 64 % and 67 % of our revenues , respectively , were derived from products we manufacture , approximately 10 % , 11 % and 10 % , respectively , were derived from complementary products we distribute in order to provide the researcher with a single source for all equipment needed to conduct a particular experiment , and approximately 25 % , 25 % and 23 % , respectively , were derived from distributed products sold under our brand names . for the years ended december 31 , 2014 , 2013 and 2012 , approximately 41 % , 39 % and 41 % of our revenues , respectively , were derived from sales made by our non-u.s. operations . changes in the relative proportion of our revenue sources between catalog or website sales , direct sales and distribution sales are primarily the result of a different sales proportion of acquired companies . cost of product revenues . cost of product revenues includes material , labor and manufacturing overhead costs , obsolescence charges , packaging costs , warranty costs , shipping costs and royalties . our cost of product revenues may vary over time based on the mix of products sold . we sell products that we manufacture and products that we purchase from third parties . the products that we purchase from third parties have a higher cost of product revenues as a percent of revenues because the profit is effectively shared with the original manufacturer . we anticipate that our manufactured products will continue to have a lower cost of product revenues as a percentage of revenues as compared with the cost of non-manufactured products for the foreseeable future . additionally , our cost of product revenues as a percent of product revenues will vary based on mix of direct to end user sales and distributor sales , mix by product line and mix by geography . sales and marketing expenses . sales and marketing expense consists primarily of salaries and related expenses for personnel in sales , marketing and customer support functions . we also incur costs for travel , trade shows , demonstration equipment , public relations and marketing materials , consisting primarily of the printing and distribution of our catalogs , supplements and the maintenance of our websites . we may from time to time expand our marketing efforts by employing additional technical marketing specialists in an effort to increase sales of selected categories of products . we may also from time to time expand our direct sales organizations in an effort to concentrate on key accounts or promote certain product lines . general and administrative expenses . general and administrative expense consists primarily of salaries and other related costs for personnel in executive , finance , accounting , information technology and human resource functions . other costs include professional fees for legal and accounting services , facility costs , investor relations , insurance and provision for doubtful accounts . research and development expenses . research and development expense consists primarily of salaries and related expenses for personnel and spending to develop and enhance our products . other research and development expense includes fees for consultants and outside service providers , and material costs for prototype and test units . we expense research and development costs as incurred . we believe that investment in product development is a competitive necessity and plan to continue to make these investments in order to realize the potential of new technologies that we develop , license or acquire for existing markets . restructuring charges . restructuring charges consist of severance , other personnel-related charges and exit costs related to plans to create organizational efficiencies and reduce operating expenses . hart transaction costs . hart transaction costs consist of legal , accounting and other professional fees incurred to facilitate the separation and spin-off of hart . the costs have been included as a component of operating expenses on our consolidated statements of income . story_separator_special_tag stock-based compensation expenses . stock-based compensation expense for the years ended december 31 , 2014 , 2013 and 2012 was $ 2.2 million , $ 2.7 and $ 3.3 million , respectively . the stock-based compensation expense related to stock options , restricted stock units , and the employee stock purchase plan and was recorded as a component of cost of revenues , sales and marketing expenses , general and administrative expenses , research and development expenses and discontinued operations . currently , we intend to retain all of our earnings to finance the expansion and development of our business and do not anticipate paying any cash dividends to holders of our common stock in the near future . as a result , capital appreciation , if any , of our common stock will be a stockholder 's sole source of gain for the near future . 29 bookings and backlog we monitor bookings and backlog as these are indicators of future revenues and business activity levels . bookings were $ 109.9 million and $ 105.6 million for the years ended december 31 , 2014 and 2013 , respectively . excluding the effects of currency translation , our bookings increased $ 3.3 million , or 3.1 % from the previous year . bookings were $ 105.6 million and $ 110.5 million for the years ended december 31 , 2013 and 2012 , respectively . excluding the effects of currency translation , our bookings decreased $ 5.0 million , or 4.5 % from the previous year . our order backlog was approximately $ 7.2 million and $ 5.1 million as of december 31 , 2014 and 2013 , respectively . excluding the effects of currency translation , our backlog increased $ 2.4 million , or 46.5 % from the previous year . the increase in backlog was primarily the result of our fourth quarter acquisitions of mcs and tbsi and the timing of customer orders and shipments . our order backlog was approximately $ 5.1 million and $ 4.6 million as of december 31 , 2013 and 2012 , respectively . excluding the effects of currency translation , our backlog increased $ 0.5 million , or 10.0 % from the previous year . the increase in backlog was primarily the result of the timing of customer orders and shipments . we include in backlog only those orders for which we have received valid purchase orders . purchase orders may be cancelled at any time prior to shipment . our backlog as of any particular date may not be representative of actual sales for any succeeding period . story_separator_special_tag new roman ; font-size : 10pt '' > as part of the 2013 restructuring plan , we decided to close one of our facilities in the united kingdom . during the fourth quarter 2014 , the facility was sold . the gain of $ 0.8 million was recorded in a separate line in our statement of operations within operating expenses . other expense , net other expense , net , was $ 2.2 million and $ 1.1 million for the years ended december 31 , 2014 and 2013 , respectively . interest expense was $ 1.0 million for the year ended december 31 , 2014 , which was flat compared to interest expense for the year ended december 31 , 2013. the increase in other expense , net was due to $ 1.1 million in acquisition related costs incurred during the year ended december 31 , 2014 compared to $ 0 for the year ended december 31 , 2013. income taxes income tax expense ( benefit ) from continuing operations was approximately $ 2.1 million expense and $ 0.3 benefit for the years ended december 31 , 2014 and 2013 , respectively . the effective income tax rate from continuing operations was 46.7 % expense for the year ended december 31 , 2014 , compared with 66.2 % benefit for the same period in 2013. the difference between our effective tax rate year over year was primarily attributable an increase in valuation allowance related to foreign tax credits in 2014 versus certain non-deductible costs related to the hart spin-off partially offset by higher research and development tax credits and pension expense in 2013. discontinued operations in september 2008 , we completed the sale of assets of our union biometrica division including our german subsidiary , union biometrica gmbh , to ubio acquisition company . during 2013 , we received earn-out payments , including interest , from ubio acquisition company , of $ 1.8 million related to the 2008 acquisition . we received our final payment under the earn-out obligation from ubio acquisition company in october 2013. included in the loss from discontinued operations , net of taxes , is a gain on disposal related to the union biometrica earn-out of $ 0.3 million for the year ended december 31 , 2013. on november 1 , 2013 , the spin-off of hart and our rmd business was completed . through the spin-off date the historical operations of rmd were reported as continuing operations in our consolidated statements of operations . following the spin-off , the historical operations of rmd were restated and presented as discontinued operations in our consolidated statements of operations . discontinued operations include the results of the rmd business except for certain corporate overhead costs and other allocations , which remain in continuing operations . the costs we incurred to separate and spin-off the rmd business are included in our continuing operations and have been classified and reported as transaction costs , within operating expenses , on our consolidated statements of operations . loss from discontinued operations , net of taxes , related to rmd was $ 2.8 million for the year ended december 31 , 2013 . 31 year ended december 31 , 2013 compared to year ended december 31 , 2012 each reporting period , we face currency exposure that arises from translating the results of our worldwide operations to the u.s. dollar at exchange rates that fluctuate from the beginning of such period .
| % for both years ended december 31 , 2014 and 2013. contributing factors in the year over year increase were currency translation , costs from our fourth quarter acquisitions , as well as unpaid incentive bonus costs . sales and marketing expenses sales and marketing expenses increased $ 0.9 million , or 5.2 % , to $ 18.2 million for the year ended december 31 , 2014 compared with $ 17.3 million for the year ended december 31 , 2013. the increase was primarily due to unpaid incentive bonus costs , our fourth quarter acquisitions and unfavorable currency translation . general and administrative expenses general and administrative expenses decreased $ 1.1 million , or 5.9 % , to $ 16.8 million for the year ended december 31 , 2014 compared with $ 17.9 million for the year ended december 31 , 2013. the decrease was primarily due to lower payroll related costs and lower stock compensation expenses , partially offset by unpaid incentive bonus costs , our fourth quarter acquisitions and unfavorable currency translation . research and development expenses research and development expenses were $ 4.9 million for the year ended december 31 , 2014 , an increase of approximately $ 0.7 million , or 17.5 % , compared with $ 4.2 million the year ended december 31 , 2013. the increase was primarily due to higher payroll related costs , including unpaid incentive bonus costs , our fourth quarter acquisitions and unfavorable currency translation . 30 amortization of intangible assets amortization of intangible asset expenses was $ 2.6 million for the year ended december 31 , 2014 , which was unchanged from the year ended december 31 , 2013. restructuring restructuring charges were $ 1.0 million for year ended december 31 , 2014 compared with $ 2.2 for the year ended december 31 , 2013. the decrease was primarily due to charges recorded during the year ended december 31 , 2013 related to the company-wide restructuring plan we implemented during
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we expect this new structure to help unlock the value of our biscuit and snack brands and to provide a platform to extend these brands across both faster growing developing markets , as well as our existing developed markets . to support these four imperatives , we will continue to evaluate external development opportunities , ranging from acquisitions to strategic alliances such as joint ventures and other strategic partnerships . story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; padding-left:24px ; '' > in 2013 , we incurred pre-tax transaction costs of $ 10 million ( $ 7 million after tax , or $ .02 per share ) associated with the acquisition of bolthouse farms , which closed on august 6 , 2012. the costs were included in other expenses . 16 the items impacting comparability are summarized below : replace_table_token_6_th ( 1 ) the sum of the individual per share amounts may not add due to rounding . earnings from continuing operations were $ 737 million ( $ 2.33 per share ) in 2014 , compared to $ 689 million ( $ 2.17 per share ) in 2013. after adjusting for items impacting comparability , earnings increased primarily due to lower administrative expenses , the benefit of the additional week and lower marketing expenses , partly offset by a lower gross margin percentage , lower sales ( excluding the impact of acquisitions and the 53 rd week ) , and a higher effective tax rate . the additional week contributed approximately $ 25 million ( $ .08 per share ) to earnings from continuing operations in 2014. net earnings ( loss ) attributable to noncontrolling interests we own a 60 % controlling interest in a joint venture formed with swire pacific limited to support the development of our soup and broth business in china . the joint venture began operations on january 31 , 2011. in 2014 , together with our joint venture partner , we agreed to restructure manufacturing and streamline operations for our soup and broth business in china . the after-tax restructuring charge attributable to the noncontrolling interest was $ 5 million . we also own a 70 % controlling interest in a malaysian food products manufacturing company . the noncontrolling interests ' share in the net earnings ( loss ) was included in net earnings ( loss ) attributable to noncontrolling interests in the consolidated statements of earnings . discussion and analysis sales an analysis of net sales by reportable segment follows : replace_table_token_7_th 17 an analysis of percent change of net sales by reportable segment follows : replace_table_token_8_th replace_table_token_9_th ( 1 ) represents revenue reductions from trade promotion and consumer coupon redemption programs . ( 2 ) beginning in 2014 , revenue in mexico is presented on a net accounting basis in connection with a new business model under which the cost of certain services provided by our suppliers is netted against revenue . ( 3 ) sum of the individual amounts does not add due to rounding . in 2015 , u.s. simple meals sales were comparable to the year-ago period . u.s. soup sales declined 3 % , with 1 % due to the impact of the 53 rd week . further details of u.s. soup include : sales of campbell 's condensed soups decreased 3 % , with declines in both eating and cooking varieties . lower volumes were partially offset by higher selling prices and reduced promotional spending . sales of ready-to-serve soups decreased 5 % . broth sales increased 3 % due to gains in aseptically-packaged broth , partially offset by declines in canned broth . sales of other simple meals increased 5 % , primarily due to growth in prego pasta sauces , plum products and campbell 's dinner sauces , partially offset by lower sales in other simple meal products . in 2014 , u.s. simple meals sales increased 3 % . u.s. soup sales decreased 1 % . excluding the benefit of the 53 rd week , u.s. soup sales decreased 2 % . further details of u.s. soup , excluding the benefit of the 53 rd week , include : sales of campbell 's condensed soups decreased 3 % , with declines in eating varieties partially offset by gains in cooking varieties . lower volumes and increased promotional spending were partly offset by higher selling prices . sales of ready-to-serve soups decreased 6 % , primarily due to declines in canned and microwavable soup varieties . broth sales increased 8 % , primarily due to more effective marketing programs , innovation and distribution gains . sales of other simple meals increased 15 % , primarily due to the acquisition of plum in june 2013 , which contributed 9 points of growth . excluding the impact of the acquisition and the benefit of the 53 rd week , sales increased due to gains in prego pasta sauces , which benefited from the launch of alfredo sauces ; and campbell 's dinner sauces , which benefited from the introduction in 2014 of campbell 's slow cooker sauces ; partially offset by declines in campbell 's canned gravy products . 18 in 2015 , global baking and snacking sales decreased 3 % . in arnott 's , sales decreased due to the impact of currency translation . excluding the impact of currency translation , sales of arnott 's products increased due to volume gains and higher selling prices in australia and indonesia . pepperidge farm sales declined primarily due to the impact of the 53 rd week . excluding the impact of the 53 rd week , pepperidge farm sales increased due to gains in fresh bakery , and crackers and cookies , partially offset by declines in frozen products . in 2014 , global baking and snacking sales increased 7 % . the acquisition of kelsen contributed $ 193 million to sales , or 8 points of growth . excluding the impact of the acquisition and the benefit of the 53 rd week , sales decreased primarily due to the impact of currency translation . story_separator_special_tag excluding the benefit of the 53 rd week , pepperidge farm sales increased slightly with growth in fresh bakery and goldfish crackers , partially offset by declines in adult cracker varieties and frozen products . in fresh bakery , sales increased due to gains in sandwich bread and rolls . in arnott 's , sales decreased primarily due to the impact of currency translation and sales declines in australia in savory and chocolate varieties , partially offset by strong gains in indonesia and the benefit of the 53 rd week . in 2014 , we increased trade spending in arnott 's and pepperidge farm to remain competitive . in 2015 , international simple meals and beverages sales decreased 10 % . in canada , sales decreased due to the impact of currency translation and declines in beverages , partially offset by gains in baked snacks . in the asia pacific region , sales declined due to the impact of currency translation and the 53 rd week . in latin america , sales declined due in part to the impact of presenting revenue on a net basis and currency translation . in 2014 , international simple meals and beverages sales decreased 10 % . in canada , sales decreased due to the impact of currency translation and declines in beverages , partly offset by gains in snacks . in latin america , sales declined due to the impact of presenting revenue on a net basis and lower selling prices in mexico . in the asia pacific region , sales decreased primarily due to the impact of currency translation and declines in australia , primarily in soup , partially offset by gains in malaysia . in 2015 , u.s. beverages , sales decreased 5 % , primarily due to declines in v8 v-fusion beverages and v8 vegetable juice , partially offset by gains in v8 splash beverages . u.s. beverages continued to be under pressure from category weakness in shelf-stable juices , as well as from competition from specialty beverages and packaged fresh juices . in 2014 , u.s. beverages sales decreased 3 % , primarily from declines in v8 v-fusion multi-serve beverages and softness in single-serve beverages , due in part to the transition in 2014 to a new distribution network for the immediate consumption channel . u.s. beverages continued to be under pressure from category weakness in shelf-stable juices , as well as from competition from specialty beverages and packaged fresh juices . in 2015 , bolthouse and foodservice sales increased 1 % , primarily due to gains in bolthouse premium refrigerated beverages and salad dressings ; and the acquisition of garden fresh gourmet , which was acquired on june 29 , 2015 ; partially offset by declines in bolthouse carrots , juice concentrate and fiber . north america foodservice sales were comparable , as volume gains and higher selling prices were offset by the impact of currency translation and the 53 rd week . in 2014 , bolthouse and foodservice sales increased 5 % . the increase was due in part to the benefit of the 53 rd week and the additional week of bolthouse sales in 2014 as the business was acquired one week into 2013. excluding the additional week of bolthouse in 2014 and the benefit of the 53 rd week , segment sales increased as gains in bolthouse beverages and salad dressings were partially offset by declines in north america foodservice . the north america foodservice decline was due to volume declines in fresh soup sold at retail perimeter and the impact of currency translation . 19 gross profit gross profit , defined as net sales less cost of products sold , decreased by $ 93 million in 2015 from 2014 and decreased by $ 14 million in 2014 from 2013 . as a percent of sales , gross profit was 34.7 % in 2015 , 35.1 % in 2014 and 36.2 % in 2013 . the 0.4 and 1.1 percentage-point decreases in gross margin percentage in 2015 and 2014 , respectively , were due to the following factors : replace_table_token_10_th ( 1 ) see note 11 to the consolidated financial statements for additional information on the pension settlement charges . marketing and selling expenses marketing and selling expenses as a percent of sales were 10.9 % in 2015 , 11.3 % in 2014 and 11.8 % in 2013 . marketing and selling expenses decreased 6 % in 2015 from 2014 . the decrease was primarily due to the impact of currency translation ( approximately 2 percentage points ) ; lower advertising and consumer promotion expenses ( approximately 2 percentage points ) ; lower marketing overhead expenses ( approximately 1 percentage point ) ; and and lower selling expenses ( approximately 1 percentage point ) . the decline in advertising expenses was primarily in u.s. simple meals and u.s. beverages , partially offset by an increase in global baking and snacking . marketing and selling expenses decreased 1 % in 2014 from 2013 . the decrease was primarily due to lower advertising and consumer promotion expenses ( approximately 2 percentage points ) ; the impact of currency translation ( approximately 1 percentage point ) ; lower marketing overhead expenses ( approximately 1 percentage point ) ; and lower selling expenses ( approximately 1 percentage point ) , partially offset by the impact of acquisitions ( approximately 4 percentage points ) . administrative expenses administrative expenses as a percent of sales were 7.3 % in 2015 , 6.9 % in 2014 and 8.4 % in 2013 . administrative expenses increased 3 % in 2015 from 2014 . the increase was primarily due to costs of $ 22 million in 2015 related to the implementation of the new organizational structure and cost reduction initiatives ( approximately 4 percentage points ) and higher incentive compensation costs ( approximately 4 percentage points ) , partially offset by savings from cost reduction and restructuring initiatives ( approximately 3 percentage points ) and the impact of currency translation ( approximately 2 percentage points ) . administrative expenses decreased 15 % in 2014 from 2013 .
| we also incurred pre-tax charges of $ 22 million recorded in administrative expenses related to the implementation of the new organizational structure and cost reduction initiatives ( aggregate impact of $ 78 million after tax , or $ .25 per share ) . see note 8 to the consolidated financial statements and `` restructuring charges and cost savings initiatives '' for additional information ; in 2014 , we recognized pre-tax pension settlement charges in cost of products sold of $ 22 million ( $ 14 million after tax , or $ .04 per share ) associated with a u.s. pension plan . the settlements resulted from the level of lump sum distributions from the plan 's assets in 2014 , primarily due to the closure of the facility in sacramento , california ; 15 on october 28 , 2013 , we completed the sale of our simple meals business in europe . in 2014 , we recorded a loss of $ 9 million ( $ 6 million after tax , or $ .02 per share ) on foreign exchange forward contracts used to hedge the proceeds from the sale of our european simple meals business . the loss was included in other expenses . in addition , we recorded tax expense of $ 7 million ( $ .02 per share ) associated with the sale of the business ; in 2014 , we recorded a pre-tax restructuring charge of $ 54 million ( $ 33 million after tax , or $ .10 per share ) associated with initiatives to streamline our salaried workforce in north america and our workforce in the asia pacific region ; restructure manufacturing and streamline operations for our soup and broth business in china ; improve supply chain efficiency in australia ; and reduce overhead across the organization . see note 8 to the consolidated financial statements and `` restructuring charges and cost savings initiatives '' for additional information ; and in 2013 , we implemented several initiatives to improve our u.s. supply chain cost structure and increase asset utilization across our u.s. thermal plant network ; expand access to manufacturing and distribution capabilities in mexico ; improve our pepperidge farm bakery supply chain
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however , you should also review our summary of significant accounting policies beginning on page f-9 of the notes to our consolidated financial statements contained elsewhere in this annual report on form 10-k. revenue recognition teamstaff 's revenue is derived from professional , technical and other specialized service offerings to us government agencies through a variety of contracts , some of which are fixed-price in nature and or may be sourced through federal supply schedules administered by the general services administration ( `` gsa '' ) and the dva at fixed unit rates or hourly arrangements . we generally operate as a prime contractor , but have also entered into fixed price or fixed unit price contracts as a 30 subcontractor . the recognition of revenue from fixed rates is based upon objective criteria that generally do not require significant estimates that may change over time . other types of us government contracts may include fixed price or flexibly priced contracts requiring estimates based on percentage-of-completion methods of recognizing revenue and profit . these contracting vehicles do not , at this time , represent a significant portion of our revenue nor require estimating techniques that would materially impact our revenue reported herein . teamstaff recognizes and records revenue on dva contracts when it is realized , or realizable , and earned . teamstaff considers these requirements met when : ( a ) persuasive evidence of an arrangement exists ; ( b ) services have been delivered to the customer ; ( c ) the sales price is fixed or determinable and free of contingencies or significant uncertainties ; and ( d ) collectability is reasonably assured . revenues related to retroactive billings in 2008 ( see note 9 to the consolidated financial statements ) from an agency of the federal government were recognized when : ( 1 ) the company developed and calculated an amount for such prior period services and has a contractual right to bill for such amounts under its arrangements , ( 2 ) there were no remaining unfulfilled conditions for approval of such billings and ( 3 ) collectability is reasonably assured based on historical practices with the dva . the related direct costs , principally comprised of salaries and benefits , are recognized to match the recognized reimbursements from the federal agency ; upon approval , wages will be processed for payment to the employees . during the year ended september 30 , 2008 , teamstaff recognized revenues of $ 10.8 million and direct costs of $ 10.1 million related to these non-recurring arrangements . at september 30 , 2011 and 2010 , the amount of the remaining accounts receivable with the dva approximates $ 9.3 million and accrued liabilities for salaries to employees and related benefits totaled $ 8.7 million . the $ 9.3 million in accounts receivable was unbilled to the dva at september 30 , 2011. the company has been and continues to be in discussions with representatives of the dva regarding the matter and anticipates resolution during fiscal 2012. at present , the company expects to collect such amounts during the first half of fiscal 2012. goodwill in accordance with applicable accounting standards , teamstaff does not amortize goodwill . teamstaff continues to review its goodwill for possible impairment or loss of value at least annually or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit 's carrying amount is greater than its implied fair value . at september 30 , 2011 , we performed a goodwill impairment analysis . for the purposes of this analysis , our estimates of fair value are based on the income approach , which estimates the fair value of the dlh solutions unit based on the future discounted cash flows . based on the results of the work performed by an outside independent firm , the company has concluded that no impairment loss on goodwill was warranted at september 30 , 2011. major assumptions in the valuation study were the estimates of probability weighted future cash flows , the estimated terminal value of the company and the discount factor applied to the estimated future cash flows and terminal value . estimates of future cash flows were developed by management having regard to current expectations and potential future opportunities . a terminal value for the forecast period was estimated based upon data of public companies that management believes to be similar with respect to the company 's economics and markets . the discount factor used was a cost of capital estimate obtained from a leading third party data provider . the resulting estimated fair value of goodwill exceeded the carrying value at september 30 , 2011 by more than 100 % , resulting in no impairment charge being taken against goodwill . however , a non-renewal of a major contract ( see note 2liquidity and note 13 ) or other substantial changes in the assumptions used in the valuation study could have a material adverse effect on the valuation of goodwill in future periods and the resulting charge could be material to future periods ' results of operations . 31 if an impairment write off of all the goodwill became necessary , a charge of up to $ 8.6 million would be expensed in the consolidated statement of operations . all remaining goodwill is attributable to the dlh solutions reporting unit . teamstaff has concluded , at present , that there is not any required impairment write off of goodwill . intangible assets as required by applicable accounting standards , teamstaff did not amortize its tradenames , an indefinite life intangible asset . teamstaff continued to review its indefinite life intangible assets for possible impairment or loss of value at least annually or more frequently upon the occurrence of an event or when circumstances indicate that an asset 's carrying amount is greater than its fair value . story_separator_special_tag on september 15 , 2011 , the board of directors of teamstaff approved the change of the corporate name of teamstaff gs to dlh solutions and also approved a plan to change the corporate name of the company to dlh holdings corp. in connection with these actions , the company will cease further use of the teamstaff trademark and implement new marketing and branding initiatives associated with the new corporate identity being adopted by the company . as a result of the corporate name change and associated rebranding efforts being implemented by the company and its principal operating subsidiary , the company concluded that it is required to record a non-cash impairment charge with respect to the value of the `` teamstaff '' trademark of $ 2.6 million as a result of abandoning the use of the teamstaff name to fully write-off the value of this trademark . prepaid workers compensation as part of the company 's discontinued peo operations , teamstaff had a workers ' compensation program with zurich american insurance company ( `` zurich '' ) which covered the period from march 22 , 2002 through november 16 , 2003 , inclusive . payments for the policy were made to a trust monthly based on projected claims for the policy period . interest on all assets held in the trust is credited to teamstaff . payments for claims and claims expenses are made from the trust . from time-to-time , trust assets have been refunded to the company based on zurich 's and managers ' overall assessment of claims experience and historical and projected settlements . the final amount of trust funds that could be refunded to the company is subject to a number of uncertainties ( e.g . claim settlements and experience , health care costs , the extended statutory filing periods for such claims ) ; however , based on a third party 's study of claims experience , teamstaff estimates that at september 30 , 2011 , the remaining prepaid asset of $ 0.3 million will be received within the next twelve to thirty six months . the amount is reflected on teamstaff 's balance sheet as of september 30 , 2011 as a current asset , in addition to approximately $ 0.2 million related to other policy deposits . workers ' compensation insurance from november 17 , 2003 through april 14 , 2009 , inclusive , teamstaff 's workers ' compensation insurance program was provided by zurich . this program covered teamstaff 's temporary , contract and corporate employees . this program was a fully insured , guaranteed cost program that contained no deductible or retention feature . the premium for the program was paid monthly based upon actual payroll and was subject to a policy year-end audit . effective april 15 , 2009 , teamstaff entered into a partially self-funded workers ' compensation insurance program with a national insurance carrier for the premium year april 15 , 2009 through april 14 , 2010 which has been renewed through april 14 , 2012. the company pays a base premium plus actual losses incurred , not to exceed certain stop-loss limits . the company is insured for losses above these limits , both per occurrence and in the aggregate . as of september 30 , 2011 and 2010 the adequacy of the workers ' compensation reserves ( including those periods ' amounts that are offset against the trust fund balances in prepaid assets ) was determined , in management 's opinion , to be reasonable . in determining our reserves we rely in part upon information regarding loss data received from our workers ' compensation insurance carriers that 32 may include loss data for claims incurred during prior policy periods . in addition , these reserves are for claims that have not been sufficiently developed and such variables as timing of payments and investment returns thereon are uncertain or unknown , therefore actual results may vary from current estimates . teamstaff will continue to monitor the development of these reserves , the actual payments made against the claims incurred , the timing of these payments , the interest accumulated in teamstaff 's prepayments and adjust the related reserves as deemed appropriate . fair value teamstaff has financial instruments , principally accounts receivable , accounts payable , loan payable , notes payable and accrued expenses . teamstaff estimates that the fair value of these financial instruments at september 30 , 2011 and 2010 does not differ materially from the aggregate carrying values of these financial instruments recorded in the accompanying consolidated balance sheets . however , because the company presents certain common stock warrants and embedded conversion features ( associated with convertible debentures ) and accounts for such derivative financial instruments at fair value , such derivatives are materially impacted by the market value of the company 's stock and therefore subject to a high degree of volatility . the company 's future results may be materially impacted by changes in the company 's closing stock price as of the date it prepares future periodic financial statements . income taxes teamstaff accounts for income taxes in accordance with the `` liability '' method . under this method , deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities , using enacted tax rates in effect for the year in which the differences are expected to reverse . deferred tax assets are reflected on the balance sheet when it is determined that it is more likely than not that the asset will be realized . this guidance 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 deferred tax asset will not be realized .
| during the fiscal year ended september 30 , 2008 , teamstaff recognized nonrecurring revenues of $ 10.8 million and direct costs of $ 10.1 million , based on amounts that are contractually due under its arrangements with the federal agencies . at september 30 , 2011 and 2010 , the amount of the remaining accounts receivable with the dva approximates $ 9.3 million . the company has been and continues to be in discussions with representatives of the dva and the dol regarding the matter and currently anticipates resolution during the first half of fiscal 2012. the company is currently in the process of negotiating a final amount related to indirect costs and fees applied to these amounts . as such , there may be additional revenues recognized in future periods once the approval for such additional amounts is obtained . the ranges of additional indirect costs and fees are estimated to be between $ 0.4 million 37 and $ 0.6 million . at present , the company expects to collect such amounts during the first half of fiscal 2012 based on current discussions and collection efforts . because these amounts are subject to government review , no assurances can be given that we will receive any additional amounts from our government contracts or that if additional amounts are received , that the amount will be within the range specified above . direct expenses direct expenses are generally comprised of direct labor ( including benefits ) , direct material , subcontracts , other direct costs , and overhead . direct expenses from continuing operations for the fiscal years ended september 30 , 2011 and 2010 were $ 36.0 million and $ 36.1 million , respectively , which represent a decrease for fiscal 2011 of $ 0.1 million or 0.1 % over the prior fiscal year . this decrease is primarily a result of improved workplace safety measures resulting in lower expenses for workers ' compensation insurance offset by increased direct labor expenses . as a percentage of revenue from continuing operations , direct expenses were 85.9 % and 88.2 % , respectively , for
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in march , the unfolding events led to the worst month for stocks since 2008 and the worst first quarter since 1937. in the remainder of the year , as a result of unprecedented fiscal and monetary stimulus and the fast tracking of potential covid-19 vaccines , some of which have been approved and have begun to be distributed , the markets have rebounded strongly . the pandemic and resulting economic dislocations did not have a significant adverse impact on our aum . as a result of this pandemic , the majority of our employees ( “ teammates ” ) are working remotely . however , there has been no material impact of remote work arrangements on our operations , including our financial reporting systems , internal control over financial reporting , and disclosure controls and procedures , and there has been no material challenge in implementing our business continuity plan . the covid-19 pandemic has had no material impact on our operations , including our financial reporting systems , internal control over financial reporting , and disclosure controls and procedures . there has been no material challenge in implementing our business continuity plan . ac paid the premiums for all teammates enrolled in our healthcare plans during may and from july 1 to december 31 , 2020. financial highlights the following is a summary of the company 's financial performance for the quarters and years ended december 31 , 2020 and 2019 : ( $ 000s except per share data or as noted ) replace_table_token_3_th 14 index consolidated statements of income investment advisory and incentive fees , which are based on the amount and composition of aum in our funds and accounts , represent our largest source of revenues . growth in revenues depends on good investment performance , which influences the value of existing aum as well as contributes to higher investment and lower redemption rates and attracts additional investors while maintaining current fee levels . growth in aum is also dependent on being able to access various distribution channels , which is usually based on several factors , including performance and service . in light of the dynamics created by covid-19 and its impact on the global supply chain and banks , oil , travel and leisure , we could experience higher volatility in short term returns of our funds . incentive fees generally consist of an incentive allocation on the absolute gain in a portfolio generally equating to 20 % of the economic profit , as defined in the agreements governing the investment vehicle or account . we recognize such revenue only when the measurement period has been completed or at the time of an investor redemption . compensation includes variable and fixed compensation and related expenses paid to officers , portfolio managers , sales , trading , research and all other professional staff . variable compensation is paid to sales personnel and portfolio management and may represent up to 55 % of revenues . management fee expense is incentive-based equal to 10 % of adjusted aggregate pre-tax profits paid to the executive chairman or his designees for his services pursuant to an employment agreement . other operating expenses include general and administrative operating costs . other income and expense includes net gains and losses from investments ( which include both realized and unrealized gains and losses from securities and equity in earnings of investments in partnerships ) , interest and dividend income , and interest expense . net gains and losses from investments are derived from our proprietary investment portfolio consisting of various public and private investments and from consolidated investment funds . net income/ ( loss ) attributable to noncontrolling interests represents the share of net income attributable to third-party limited partners of certain partnerships and offshore funds we consolidate . please refer to notes a and e in our consolidated financial statements included elsewhere in this report . consolidated statements of financial condition we ended 2020 with approximately $ 911 million in cash and investments , net of securities sold , not yet purchased of $ 18 million . this includes $ 40 million of cash and cash equivalents ; $ 344 million of short-term u.s. treasury obligations ; $ 232 million of securities , net of securities sold , not yet purchased , including shares of gamco with a market value of $ 49 million ; and $ 295 million invested in affiliated and third-party funds and partnerships , including investments in affiliated closed end funds which have a value of $ 107 million and more limited liquidity . our financial resources provide flexibility to pursue strategic objectives that may include acquisitions , lift-outs , seeding new investment strategies , and co-investing , as well as shareholder compensation in the form of share repurchases and dividends . total shareholders ' equity was $ 899 million or $ 40.36 per share as of december 31 , 2020 , compared to $ 896 million or $ 39.89 per share as of the prior year-end . shareholders ' equity per share is calculated by dividing the total equity by the number of common shares outstanding . the increase in equity from the end of 2019 was largely attributable to investment income for the year . 15 index story_separator_special_tag the level of revenues we receive . our revenues , in turn , are highly correlated to the level of aum and to investment performance . we anticipate that our available liquid assets should be sufficient to meet our cash requirements as we build out our operating business . story_separator_special_tag at december 31 , 2020 , we had cash and cash equivalents of $ 39.5 million , investments in u.s. treasury bills of $ 344.4 and $ 527.0 million of investments net of securities sold , not yet purchased of $ 17.6 million . included in cash and cash equivalents are $ 7.2 million and $ 13.1 million as of december 31 , 2020 and 2019 , respectively , which were held by consolidated investment funds and may not be readily available for the company to access . net cash used in operating activities from continuing operations was $ 279.5 million in 2020 due to $ 295.8 million increases in trading securities , including $ 315.4 million of net purchases of u.s. treasury bills , $ 10.7 of net income adjusted for noncash items , primarily unrealized gains on securities and equity in net gains from partnerships , net distributions from investment partnerships of $ 31.0 million and increases in net receivables/payables of $ 4.0 million . net cash used in operating activities from continuing operations was $ 42.0 million in 2019. our net income adjusted for noncash items , primarily unrealized gains on securities and deferred income taxes was $ 5.4 million , net contributions to investment partnerships of $ 16.5 million along with a decrease in net receivables/payables of $ 14.6 million . this was more than offset by increases in investments in trading securities of $ 45.4 million . net cash used in investing activities from continuing operations was $ 174.1 million in 2020 due to the investment of cash in a trust account by the pmv spac of $ 175 million , the purchase of our building in london for $ 11.1 million and purchases of securities of $ 2.7 million partially offset by proceeds from sales of securities of $ 13.1 million and return of capital on securities of $ 1.6 million . 18 index net cash used in investing activities from continuing operations was $ 5.1 million in 2019 due to the purchase of our building in greenwich , ct for $ 6.5 million and purchases of securities of $ 5.0 million partially offset by proceeds from sales of securities of $ 4.9 million , return of capital on securities of $ 0.9 million , and cash received in acquisition of morgan group $ 0.6 million . net cash provided by financing activities from continuing operations was $ 150.9 million resulting from contributions from redeemable non-controlling interests of $ 162.6 million primarily related to contributions to pmv spac and nonredeemable non-controlling interests of $ 2.4 million reduced by dividends paid of $ 6.7 million and stock buyback payments of $ 7.4 million . cash provided by discontinued operations from the spin-off of morgan group was $ 0.1 million . net cash used in financing activities from continuing operations was $ 11.5 million in 2019 largely resulting from dividends paid of $ 4.5 million , share repurchases of $ 4.1 million and redemptions to consolidated funds of $ 2.9 million . cash used by discontinued operations from the spin-off of morgan group was $ 2.4 million . off-balance sheet arrangements we do not have any off-balance sheet arrangements . critical accounting policies in the ordinary course of business , we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) . we base our estimates on historical experience , when available , and on other various assumptions that are believed to be reasonable under the circumstances . actual results could differ significantly from those estimates under different assumptions and conditions . we believe that the following critical accounting policies require management to exercise significant judgment : major revenue-generating services and revenue recognition the company 's revenues are derived primarily from investment advisory and incentive fees . investment advisory and incentive fees are directly influenced by the level and mix of aum as fees are derived from a contractually-determined percentage of the balance of each account as well as a percentage of the investment performance of certain accounts . management fees from investment partnerships and offshore funds are computed either monthly or quarterly , and amounts receivable are included in investment advisory fees receivable on the consolidated statements of financial condition . these revenues vary depending upon the level of capital flows , financial market conditions , investment performance and the fee rates applicable to each account . incentive allocations or fees are generally recognized at the end of an annual measurement period and amounts receivable are included in investment advisory fees receivable on the consolidated statements of financial condition . see note c , revenue , in the consolidated financial statements for additional information . investments in securities investments in securities are a recorded at fair value in the statements of financial condition in accordance with u.s. gaap . securities transactions and any related gains and losses are recorded on a trade date basis . realized gains and losses from securities transactions are recorded on the specific identified cost basis and are included in gain/ ( loss ) from investments , net on the consolidated statements of income . management determines the appropriate classification of securities at the time of purchase . debt with maturities of greater than three months at the time of purchase are considered investments in debt securities . the company has investments in debt securities accounted for as trading and also investments in u.s treasury bills held in trust by pmv which are accounted for as held to maturity .
| other revenues : other revenues were $ 0.7 million for 2020 compared to $ 0.1 million for 2019 , an increase of $ 0.6 million due primarily to sublet income of owned properties . expenses compensation : compensation , which includes variable compensation , salaries , bonuses and benefits , was $ 19.4 million for the year ended december 31 , 2020 , a decrease of $ 4.4 million from $ 23.8 million for the year ended december 31 , 2019. fixed compensation expense , which includes salaries , bonuses and benefits , decreased to $ 9.5 million in 2020 from $ 10.5 million in 2019. the remainder of compensation expense represents variable compensation that fluctuates with management and incentive fee revenues as well as the investment results of certain proprietary accounts . variable payouts are also impacted by the mix of products upon which performance fees are earned and the extent to which they may exceed their allocated costs . for 2020 , these variable payouts ( based on the investment performance of the products with incentive fees ) were $ 9.9 million , a decrease of $ 3.4 million from $ 13.3 million in 2019. stock-based compensation , which primarily consists of awards accounted for as liabilities , was ( $ 0.2 ) million in 2020 , a decrease of $ 1.6 million from $ 1.4 million recorded in 2019 due to declines in the company 's share price . management fees : management fee expense is incentive-based and entirely variable compensation equal to 10 % of the aggregate adjusted pre-tax profits , which is paid to the executive chairman or his designees pursuant to his employment agreement with ac . in 2020 and 2019 , ac recorded management fee expense of $ 3.1 million and $ 5.7 million , respectively . other operating expenses : our other operating expenses were $ 8.9 million in 2020 compared to $ 5.9 million in 2019 , an increase of $ 3.0 million due to primarily higher professional fees of $ 1.0 million . investment and other non-operating income/ ( expense ) ,
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depreciation and amortization — depreciation and amortization expense increased by $ 12.8 million primarily due to the additional depreciation for the non-comparable properties . real estate taxes , personal property taxes and property insurance — real estate taxes , personal property taxes and insurance increased by $ 5.9 million primarily due to the non-comparable properties and an increase in real estate taxes throughout the portfolio . real estate taxes , personal property taxes and property insurance increased $ 1.2 million at the comparable properties . ground rent — ground rent expense increased by $ 4.9 million due to the acquisition of the hotel palomar san francisco on october 25 , 2012 , which we lease pursuant to a long-term hotel lease agreement . corporate general and administrative — corporate general and administrative expenses increased by $ 0.4 million primarily as a result of increases in non-cash share-based employee compensation costs , which was offset by a decrease of $ 1.1 million from the management contract termination expense incurred in 2012 for the doubletree by hilton bethesda-washington dc . corporate general and administrative expenses consist of employee compensation costs , legal and professional fees , insurance , state franchise taxes and other expenses . 35 hotel acquisition costs — hotel acquisition costs increased by $ 1.1 million due to the acquisition costs incurred in connection with the radisson fisherman 's wharf leasehold interest . typically , hotel property acquisition costs consist of legal fees , other professional fees , transfer taxes and other direct costs associated with our pursuit of hotel investments . as a result , these costs are generally higher when more properties are acquired or when we have significant ongoing acquisition activity . interest income — interest income increased by $ 2.4 million as a result of interest income earned on the special loan to the manhattan collection joint venture . the special loan was made to the joint venture in december 2012. interest expense — interest expense increased by $ 8.7 million as a result of higher debt balances from mortgage assumptions in connection with property acquisitions . equity in earnings ( losses ) of joint venture — equity in earnings of joint venture increased by $ 1.7 million due to lower interest expense at the joint venture resulting from less borrowings . income tax ( expense ) benefit — income tax expense decreased by $ 0.6 million as a result of a decrease in the taxable income of our trs . non-controlling interests — non-controlling interests represent the allocation of income or loss of our operating partnership to the common units held by the ltip unit holders . there were minimal changes to non-controlling interests during both periods . distributions to preferred shareholders — distributions to preferred shareholders increased $ 5.1 million as a result of the issuances of the series c preferred shares on march 18 , 2013 and april 12 , 2013. there were no series c preferred shares outstanding in 2012. comparison of the year ended december 31 , 2012 to the year ended december 31 , 2011 revenues — total hotel revenues increased by $ 92.7 million , of which $ 13.9 million was contributed by our comparable properties and the remaining $ 78.8 million was contributed by the non-comparable properties . the increase from our comparable properties resulted from increases in both occupancy and adr at the sir francis drake and intercontinental buckhead hotels and significant increases in occupancy at the sofitel philadelphia and the grand hotel minneapolis . hotel operating expenses — total hotel operating expenses increased by $ 60.2 million . the comparable properties contributed $ 4.4 million of the increase , which is a result of higher occupancy and inflation offset by cost reduction initiatives . the remaining $ 55.8 million of the increase was generated by the non-comparable properties . depreciation and amortization — depreciation and amortization expense increased by approximately $ 11.8 million , primarily due to the additional depreciation for the hotels acquired in 2012. real estate taxes , personal property taxes and property insurance — real estate taxes , personal property taxes and insurance increased by approximately $ 4.7 million , primarily due to the hotels acquired in 2012 and an increase in real estate taxes generally throughout the portfolio . ground rent — ground rent expense increased by $ 0.8 million due to the acquisition in 2012 of the hotel palomar san francisco , which is subject to a hotel lease , and increases in percentage rent in 2012 at both the hotel monaco washington dc and argonaut hotel as a result of increases in revenues at these hotels . corporate general and administrative — corporate general and administrative expenses increased by approximately $ 5.3 million , primarily as a result of increased legal fees , state and local franchise taxes , staffing and other costs related to growth in our portfolio and the $ 1.1 million management contract termination expense associated with the doubletree by hilton bethesda-washington dc hotel during 2012. share-based compensation expense also increased in 2012 as a result of the performance shares that were granted in 2012. corporate general and administrative expenses consist of employee compensation costs , legal and professional fees , insurance , state franchise taxes and other expenses . hotel acquisition costs — hotel acquisition costs decreased by approximately $ 1.2 million , primarily due to the acquisition costs incurred with the investment in the manhattan collection joint venture in 2011 that were not incurred in 2012. typically , hotel property acquisition costs consist of legal fees , other professional fees , transfer taxes and other direct costs associated with our pursuit of hotel investments . as a result , these costs vary with our level of ongoing acquisition activity . interest expense — interest expense increased by approximately $ 1.3 million as a result of higher debt balances offset by a decrease in unused fees on our revolving credit facility . story_separator_special_tag equity in earnings ( losses ) of joint venture — equity in earnings ( losses ) of joint venture increased by $ 3.6 million as a result of us owning the manhattan collection joint venture for all of 2012 as compared to five months of 2011 . 36 income tax ( expense ) benefit — income tax expense increased by approximately $ 1.3 million as a result of an increase in the net income of our trs . non-controlling interests — non-controlling interests represent the allocation of income or loss of our operating partnership to the common units held by the ltip unit holders . the increase to non-controlling interest from 2011 to 2012 were due to the increase in net income during these periods . distributions to preferred shareholders — distributions to preferred shareholders increased $ 7.4 million . the series b preferred shares were issued on september 14 , 2011 and dividends were paid for a partial year in 2011 , whereas dividends were paid for the entire year during 2012. hotel operating statistics the following table represents the key same-property hotel operating statistics for our wholly owned hotels for the years ended december 31 , 2013 and 2012 : replace_table_token_5_th this schedule of hotel results for the years ended december 31 , 2013 and 2012 includes information from all of the hotels we owned as of december 31 , 2013 , except for the hotel zetta ( formerly hotel milano ) for the first quarter , the redbury hotel for the first and second quarters , hotel modera for the first , second and third quarters of both 2013 and 2012 , radisson hotel fisherman 's wharf for the first , second , third and fourth quarters and our 49 % ownership interest in the manhattan collection for both 2013 and 2012. the hotel results for the respective periods include information reflecting operational performance prior to our ownership of the hotels . non-gaap financial measures non-gaap financial measures are measures of our historical or future financial performance that are different from measures calculated and presented in accordance with u.s. gaap . we report ffo and ebitda , which are non-gaap financial measures that we believe are useful to investors as key measures of our operating performance . we calculate ffo in accordance with standards established by the national association of real estate investment trusts ( nareit ) , which defines ffo as net income ( calculated in accordance with gaap ) , excluding real estate related depreciation and amortization , gains ( losses ) from sales of real estate , impairments of real estate assets , the cumulative effect of changes in accounting principles and adjustments for unconsolidated partnerships and joint ventures . historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time . since real estate values instead have historically risen or fallen with market conditions , most industry investors consider presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves . by excluding the effect of real estate related depreciation and amortization including our share of the joint venture depreciation and amortization and gains ( losses ) from sales of real estate , both of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance , we believe that ffo provides investors a useful financial measure to evaluate our operating performance . the following table reconciles net income ( loss ) to ffo and ffo available to common share and unit holders for the years ended december 31 , 2013 , 2012 and 2011 ( in thousands ) : 37 replace_table_token_6_th ebitda is defined as earnings before interest , income taxes , depreciation and amortization . we believe that ebitda provides investors a useful financial measure to evaluate our operating performance , excluding the impact of our capital structure ( primarily interest expense ) and our asset base ( primarily depreciation and amortization ) . the following table reconciles net income ( loss ) to ebitda for the years ended december 31 , 2013 , 2012 and 2011 ( in thousands ) : replace_table_token_7_th neither ffo nor ebitda represent cash generated from operating activities as determined by u.s. gaap and neither should be considered as an alternative to u.s. gaap net income ( loss ) , as an indication of our financial performance , or to u.s. gaap cash flow from operating activities , as a measure of liquidity . in addition , ffo and ebitda are not indicative of funds available to fund cash needs , including the ability to make cash distributions . critical accounting policies we consider these policies critical because they require estimates about matters that are inherently uncertain , involve various assumptions and require significant management judgment , and because they are important for understanding and evaluating our reported financial results . these judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods . applying different estimates or assumptions may result in materially different amounts reported in our financial statements . hotel properties investment in hotel properties estimation and judgment is required to allocate the purchase price to elements of our acquired hotel properties . upon acquisition , we allocate the purchase price based on the fair value of the acquired land , land improvements , building , furniture , fixtures and equipment , identifiable intangible assets or liabilities , other assets and assumed liabilities . identifiable intangible assets or liabilities typically arise from contractual arrangements assumed in connection with the transaction , including terms that are above or below market compared to an estimated market agreement at the acquisition date . we determine the acquisition-date fair values of all assets and assumed liabilities using methods similar to those used by independent appraisers ( e.g .
| we filed a prospectus supplement , dated september 28 , 2012 , to the prospectus , dated april 13 , 2011 , with the securities and exchange commission in connection with the offer and sale of the shares pursuant to our atm program . for the year ended december 31 , 2013 , we sold 171,893 shares under our atm program at an average price of $ 28.09 per share and raised $ 4.8 million , net of commissions . as of december 31 , 2013 , $ 165.2 million of common shares remained available for issuance under our atm program . 41 on november 6 , 2013 , we issued in an underwritten public offering 2,530,000 common shares at a price of $ 29.46 per share , raising proceeds of approximately $ 74.5 million , net of underwriting discount . on march 18 , 2013 , we issued in an underwritten public offering 3,600,000 series c preferred shares at a price of $ 25.00 per share . on april 12 , 2013 , we issued an additional 400,000 series c preferred shares at a price of $ 25.00 per share pursuant to the underwriters ' exercise of their overallotment option granted in connection with the march 2013 offering . these two issuances raised aggregate proceeds of approximately $ 96.7 million , net of underwriting discount and offering-related costs . we used the net proceeds of these issuances to repay debt outstanding on our senior unsecured revolving credit facility , to repay mortgage debt , to acquire hotel properties and for general corporate purposes . sources and uses of cash our principal sources of cash are cash from operations , borrowings under mortgage financings , draws on our credit facility and the proceeds from offerings of our equity securities . our principal uses of cash are asset acquisitions , debt service , capital investments , operating costs , corporate expenses and dividends . cash provided by operations . our cash provided by operating activities was $ 107.5 million for the year ended december 31 , 2013 . our cash from operations includes
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changing economic conditions caused by inflation , recession , unemployment or other factors beyond the company 's control have a direct correlation with asset quality , net charge-offs and ultimately the required provision for or recovery of loan losses . financial performance and condition for the year ended december 31 , 2015 , net income totaled $ 2.7 million , compared to $ 7.6 million in 2014. after the effective dividend on preferred stock , net income available to common shareholders was $ 1.5 million , or $ 0.31 per basic and diluted share compared to $ 6.5 million , or $ 1.32 per basic and diluted share , for the same period in 2014. return on average assets was 0.41 % and return on average equity was 4.58 % for the year ended december 31 , 2015 , compared to 1.45 % and 13.49 % , respectively , for the year ended december 31 , 2014. the decrease in earnings and profitability ratios for 2015 compared to 2014 was primarily a result of a $ 6.8 million increase in noninterest expenses in 2015 , primarily due to the acquisition , and the $ 3.8 million decrease in the recovery of loan losses . net interest income increased 11 % , or $ 2.1 million to $ 20.7 million for the year ended december 31 , 2015 , compared to $ 18.6 million for the prior year . the net interest margin was 3.52 % compared to 3.86 % for the same period in 2014. the lower net interest margin resulted primarily from the significant increase in lower-yielding interest-bearing deposits in banks and securities from cash received in the acquisition . although the net interest margin was lower , net interest income increased primarily from higher balances of earning assets , including loans and securities . net interest income also increased due to a reduction in interest expense that was driven by a lower cost to fund earning assets . noninterest income increased $ 898 thousand , or 12 % , to $ 8.3 million compared to $ 7.4 million for 2014. the increase in noninterest income was primarily attributable to increased revenue from service charges on deposit accounts and atm and check card fees resulting from an increase in the number of transaction-based deposit accounts assumed in the acquisition . noninterest expense increased 36 % , or $ 6.8 million to $ 25.6 million for the year ended december 31 , 2015 compared to $ 18.8 million for 2014. the increase in expenses was primarily attributable to higher salaries and employee benefit costs and increased operating costs that resulted from the recent acquisition and expansion into new markets , which also added a core deposit intangible . the expansion included hiring experienced commercial bankers in the second quarter of 2015. the new employees hired and the acquisition and operation of six additional banking offices increased salaries and employee benefits , occupancy , equipment , legal and professional fees , and core deposit intangible amortization expense . total integration expenses related to the acquisition totaled $ 908 thousand for the year ended december 31 , 2015. the bank recorded a recovery of loan losses of $ 100 thousand , compared to a recovery of loan losses of $ 3.9 million for the same period one year ago . the recovery of loan losses during 2015 was attributable to a decrease in the specific reserve component of the allowance for loan losses , which was partially offset by an increase in the general reserve component 24 primarily due to growth of the loan portfolio . for the year ended december 31 , 2014 , the recovery of loan losses resulted primarily from a decrease in the general reserve component of the allowance for loan losses due to a decline in historical charge-offs during the three year look back period consistently used by the bank . non-gaap financial measures this report refers to the efficiency ratio , which is computed by dividing noninterest expense , excluding oreo income/ ( expense ) and losses on disposal of premises and equipment , by the sum of net interest income on a tax-equivalent basis and noninterest income , excluding securities losses/ ( gains ) and bargain purchase gain . this is a non-gaap financial measure that the company believes provides investors with important information regarding operational efficiency . such information is not prepared in accordance with u.s. generally accepted accounting principles ( gaap ) and should not be construed as such . management believes , however , such financial information is meaningful to the reader in understanding operating performance , but cautions that such information not be viewed as a substitute for gaap . the company , in referring to its net income , is referring to income under gaap . the components of the efficiency ratio calculation are summarized in the following table ( dollars in thousands ) . replace_table_token_4_th this report also refers to net interest margin , which is calculated by dividing tax equivalent net interest income by total average earning assets . because a portion of interest income earned by the company is nontaxable , the tax equivalent net interest income is considered in the calculation of this ratio . tax equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income then subtracting total interest expense . the tax rate utilized in calculating the tax benefit for each of 2015 and 2014 is 34 % . the reconciliation of tax equivalent net interest income , which is not a measurement under gaap , to net interest income , is reflected in the table below ( in thousands ) . replace_table_token_5_th 25 critical accounting policies general the company 's consolidated financial statements and related notes are prepared in accordance with gaap . the financial information contained within the statements is , to a significant extent , financial information that is based on measures of the financial effects of transactions and events that have already occurred . story_separator_special_tag a variety of factors could affect the ultimate value that is obtained either when earning income , recognizing an expense , recovering an asset or relieving a liability . the bank uses historical loss factors as one factor in determining the inherent loss that may be present in the loan portfolio . actual losses could differ significantly from the historical factors used . in addition , gaap itself may change from one previously acceptable method to another . although the economics of transactions would be the same , the timing of events that would impact transactions could change . presented below is a discussion of those accounting policies that management believes are the most important ( critical accounting policies ) to the portrayal and understanding of the company 's financial condition and results of operations . the critical accounting policies require management 's most difficult , subjective and complex judgments about matters that are inherently uncertain . in the event that different assumptions or conditions were to prevail , and depending upon the severity of such changes , the possibility of materially different financial condition or results of operations is a reasonable likelihood . allowance for loan losses the allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings . loan losses are charged against the allowance when management determines that the loan balance is uncollectible . subsequent recoveries , if any , are credited to the allowance . for further information about the company 's loans and the allowance for loan losses , see notes 3 and 4 in this form 10-k. the allowance for loan losses is evaluated on a quarterly basis by management and is based upon management 's periodic review of the collectability of the loans in light of historical experience , the nature and volume of the loan portfolio , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral and prevailing economic conditions . this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available . the company performs regular credit reviews of the loan portfolio to review credit quality and adherence to underwriting standards . the credit reviews consist of reviews by its internal credit administration department and reviews performed by an independent third party . upon origination , each loan is assigned a risk rating ranging from one to nine , with loans closer to one having less risk . this risk rating scale is our primary credit quality indicator . the company has various committees that review and ensure that the allowance for loans losses methodology is in accordance with gaap and loss factors used appropriately reflect the risk characteristics of the loan portfolio . the allowance represents an amount that , in management 's judgment , will be adequate to absorb any losses on existing loans that may become uncollectible . management 's judgment in determining the level of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as trends in delinquencies and charge-offs , changes in the nature and volume of the loan portfolio , current economic conditions that may affect a borrower 's ability to repay and the value of the collateral , overall portfolio quality and review of specific potential losses . the evaluation also considers the following risk characteristics of each loan portfolio class : 1-4 family residential mortgage loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral . real estate construction and land development loans carry risks that the project may not be finished according to schedule , the project may not be finished according to budget and the value of the collateral may , at any point in time , be less than the principal amount of the loan . construction loans also bear the risk that the general contractor , who may or may not be a loan customer , may be unable to finish the construction project as planned because of financial pressure or other factors unrelated to the project . other real estate loans carry risks associated with the successful operation of a business or a real estate project , in addition to other risks associated with the ownership of real estate , because repayment of these loans may be dependent upon the profitability and cash flows of the business or project . commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business . in addition , there is risk associated with the value of collateral other than real estate which may depreciate over time and can not be appraised with as much reliability . 26 consumer and other loans carry risk associated with the continued creditworthiness of the borrower and the value of the collateral , i.e . rapidly depreciating assets such as automobiles , or lack thereof . consumer loans are likely to be immediately adversely affected by job loss , divorce , illness or personal bankruptcy , or other changes in circumstances . the allowance for loan losses consists of specific and general components . the specific component relates to loans that are classified as impaired , and is established when the discounted cash flows , fair value of collateral less estimated costs to sell or observable market price of the impaired loan is lower than the carrying value of that loan . for collateral dependent loans , an updated appraisal is ordered if a current one is not on file . appraisals are performed by independent third-party appraisers with relevant industry experience . adjustments to the appraised value may be made based on recent sales of like properties or general market conditions among other considerations . the general component covers loans that are not considered impaired and is based on historical loss experience adjusted for qualitative factors .
| the decrease resulted primarily from a 46 basis point decrease in the total earning asset yield , which was partially offset by a 12 basis point decrease in interest expense as a percentage of average earning assets . the decrease in the total earning asset yield was primarily a result of a change in the composition of average earning assets . average interest-bearing deposits in banks increased from 3 % of average earning assets in 2014 to 11 % in 2015 , while average loans decreased from 75 % to 67 % of average earning assets , when comparing the same periods . these changes were largely impacted by the receipt of $ 186.1 million in cash from the acquisition . the decrease in the yield on total earning assets for 2015 resulted primarily from the change in the earning asset composition ( or mix ) as the yield on interest-bearing deposits in banks of 0.31 % was significantly lower than the yield on loans of 4.82 % interest expense as a percentage of average earning assets decreased 12 basis points from 0.36 % in 2014 to 0.24 % in 2015. the decrease in expense was also primarily attributable to the acquisition as yields on deposits assumed decreased the total cost of funds for the year and had a positive impact on net interest income and the net interest margin . the net interest margin was 3.52 % in 2015 , 3.86 % in 2014 and 3.72 % in 2013. tax-equivalent interest income as a percent of average earning assets was 3.76 % in 2015 , 4.22 % in 2014 and 4.26 % in 2013. interest expense as a percent of average earning assets was 0.24 % in 2015 , 0.36 % in 2014 and 0.54 % in 2013. the interest rate spread was 3.43 % in 2015 , 3.73 % in 2014 and 3.57 % in 2013. the following table provides information on average interest-earning assets and interest-bearing liabilities for the years ended december 31 , 2015 , 2014 and 2013 , as well as amounts and rates of tax equivalent interest
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” all prior and subsequent written and oral forward looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the important factors described below that could cause actual results to differ materially from our expectations as set forth in any forward looking statement made by or on behalf of us . 29 overview 3pea international , inc. is a vertically integrated provider of innovative prepaid card programs and processing services for corporate , consumer and government applications . our payment solutions are utilized by our corporate customers as a means to increase customer loyalty , reduce administration costs and streamline operations . public sector organizations can utilize the solutions to disburse public benefits or for internal payments . we market our prepaid debit card solutions under our paysign brand . as we are a payment processor and debit card program manager , we derive our revenue from all stages of the debit card lifecycle . we provide a card processing platform consisting of proprietary systems and innovative software applications based on the unique needs of our programs . we have extended our processing business capabilities through our proprietary paysign platform . we design and process prepaid programs that run on the platform through which our customers can define the services they wish to offer cardholders . through the paysign platform , we provide a variety of services including transaction processing , cardholder enrollment , value loading , cardholder account management , reporting , and customer service . the paysign platform was built on modern cross-platform architecture and designed to be highly flexible , scalable and customizable . the platform has allowed 3pea to significantly expand its operational capabilities by facilitating our entry into new markets within the payments space through its flexibility and ease of customization . the paysign platform delivers cost benefits and revenue building opportunities to our partners . we have developed prepaid card programs for corporate and incentive rewards including , but not limited to healthcare reimbursement payments , pharmaceutical co-pay assistance , donor payments for source plasma and automobile dealership incentives . we are expanding our product offering to include additional corporate incentive products , payroll cards , general purpose re-loadable cards , travel cards , and expense reimbursement cards . our cards are offered to end users through our relationships with bank issuers . we are a vertically integrated payment processor and debit card program manager offering innovative payment solutions to corporations , government agencies , universities and other organizations . our payment solutions are utilized by our customers as a means to increase customer loyalty , reduce administration costs and streamline operations . we market our prepaid debit card solutions under our paysign brand . as we are a payment processor and debit card program manager , we derive our revenue from all stages of the debit card lifecycle . these revenues can include fees from program set-up ; customization and development ; data processing and report generation ; card production and fulfillment ; transaction fees derived from card usage ; inactivity fees ; card replacement fees and program administration fees . we provide an in-house customer service center which includes live bi-lingual phone operators staffed 24/7 , for incoming calls . we also provide in house interactive voice response ( ivr ) and two way sms messaging platforms . the company divides prepaid cards into two general categories : corporate and consumer reloadable , and non-reloadable cards . reloadable cards : these types of cards are generally incentive , payroll or considered general purpose reloadable ( “ gpr ” ) cards . payroll cards are issued to an employee by an employer to receive the direct deposit of their payroll . gpr cards can also be issued to a consumer at a retail location or mailed to a consumer after completing an on-line application . gpr cards can be reloaded multiple times with a consumer 's payroll , government benefit , a federal or state tax refund or through cash reload networks located at retail locations . reloadable cards are generally open loop cards as described below . non-reloadable cards : these are generally one-time use cards that are only active until the funds initially loaded to the card are spent . these types of cards are gift or incentive cards . these cards may be open loop or closed loop . normally these types of cards are used for purchase of goods or services at retail locations and can not be used to receive cash . 30 these prepaid cards may be open loop , closed loop or semi-closed loop . open loop cards can be used to receive cash at atm locations or purchase goods or services by pin or signature at retail locations . these cards can be used virtually anywhere that the network brand ( visa , mastercard , discover , etc . ) is accepted . closed loop cards can only be used at a specific merchant . semi-closed loop cards can be used at several merchants such as a shopping mall . the prepaid card market is one of the fastest growing segments of the payments industry in the u.s. this market has experienced significant growth in recent years due to consumers and merchants embracing improved technology , greater convenience , more product choices and greater flexibility . prepaid cards have also proven to be an attractive alternative to traditional bank accounts for certain segments of the population , particularly those without , or who could not qualify for , a checking or savings account . we have developed prepaid card programs for healthcare reimbursement payments , pharmaceutical assistance , plasma donor remuneration , corporate and incentive rewards and expense reimbursement cards . story_separator_special_tag we plan to expand our product offering to include payroll cards , general purpose re-loadable cards and travel cards . our cards are offered to end users through our relationships with bank issuers . our products and services are aimed at capitalizing on the growing demand for stored value and reloadable atm/prepaid card financial products in a variety of market niches . our proprietary platform is scalable and customizable , delivering cost benefits and revenue building opportunities to partners . we manage all aspects of the debit card lifecycle , from managing the card design and approval processes with banking partners and card associations , to production , packaging , distribution , and personalization . we also oversee inventory and security controls , renewals , lost and stolen card management and replacement . currently , we are focusing our marketing efforts on the healthcare reimbursement market , pharmaceutical marketing or drug sampling market , source plasma donation payments and the corporate incentive card market targeting automotive and other market niches . as part of our platform expansion development process , we evaluate current and emerging technologies for applicability to our existing and future software platform . to this end , we engage with various hardware and software vendors in evaluation of various infrastructure components . where appropriate , we use third-party technology components in the development of our software applications and service offerings . third-party software may be used for highly specialized business functions , which we may not be able to develop internally within time and budget constraints . our principal target markets for processing services include prepaid card issuers , retail and private-label issuers , small third-party processors , and small and mid-size financial institutions in the united states and in emerging international markets . the company has begun to devote more extensive resources to sales and marketing activities as we have added essential personnel to our marketing and sales department in late 2013. we sell our products directly to customers in the u.s. but may work with a small number of resellers and third parties in international markets to identify , sell and support targeted opportunities . we have also identified large scale opportunities in the european union and are aggressively pursuing those opportunities . in order to expand into new markets , we will need to invest additional funds in technology improvements , sales and marketing expenses , and regulatory compliance costs . we are considering raising capital to enable us to diversify into new market verticals . if we do not raise new capital , we believe that we will still be able to expand into new markets using internally generated funds , but our expansion will not be as rapid . 31 story_separator_special_tag sales and marketing team . selling , general and administrative expenses for the year ended december 31 , 2014 were $ 2,715,316 , an increase of $ 1,238,935 compared to the year ended december 31 , 2013 , when selling , general and administrative expenses were $ 1,476,381. during 2014 , we recognized approximately $ 600,000 in stock-based ( non-cash ) expenses primarily related to stock grants awarded in august 2012 which vest over a five year period . however , our management approved the acceleration of such vesting whereby all unvested portion would be fully vested as of december 31 , 2014 which resulted in an increase in stock based expense of $ 426,000 compared to year ended december 31 , 2013 which totaled $ 180,000. the remaining increase in selling , general and administrative expenses was due to increased staffing and technological expenses relating to launch of several new programs . we ramped up our investment in infrastructure and processes to be able to scale our business successfully . we also had begun to devote more resources to our internal sales and marketing team . in the fiscal year ended december 31 , 2014 , we recorded operating income of $ 2,751,555 , as compared to operating income of $ 669,818 in the fiscal year ended december 31 , 2013 , and improvement of $ 2,081,737. other income ( expense ) for the year ended december 31 , 2014 was $ ( 141,515 ) , an increase in net other income ( expense ) of $ 82,431 compared to the year ended december 31 , 2013 of other income ( expenses ) of $ ( 59,084 ) . the overall increase in net other income ( expense ) in 2014 is within our expectations for 2014. our net income for the year ended december 31 , 2014 was $ 2,610,484 , an increase of $ 1,998,800 compared to the year ended december 31 , 2013 , when we recorded net income of $ 611,684. the overall change in net income is attributable to the aforementioned factors . liquidity and capital resources the following table sets forth the major sources and uses of cash for our last two fiscal years ended december 31 , 2014 and 2013 : replace_table_token_1_th 33 comparison of fiscal 2014 and 2013 in fiscal 2014 and 2013 , we financed our operations primarily through internally generated funds . operating activities provided ( used ) $ 3,082,535 of cash in 2014 , as compared to $ ( 620,273 ) of cash provided in fiscal 2013. major non-cash items that affected our cash flow from operations in 2014 were non-cash stock based expenses of $ 600,641 and depreciation and amortization of $ 171,594. our operating assets and liabilities used $ ( 299,740 ) of cash , which resulted from a decrease in our payables and accrued liabilities of $ ( 604,586 ) and an increase in accounts receivable of $ 304,953. investing activities used $ ( 527,912 ) of cash in 2014 , as compared to $ ( 238,779 ) of cash used in 2013 , all of which related in both years to platform expansion and the purchase of equipment used in our business . financing activities
| fiscal years ended december 31 , 2014 and 2013 revenues for the year ended december 31 , 2014 were $ 10,293,180 , an increase of $ 3,985,289 compared to the year ended december 31 , 2013 , when revenues were $ 6,307,891. the increase in revenue was primarily due to an increase in our corporate incentive reward programs , specifically , our healthcare reimbursement payments , pharmaceutical co-pay assistance , and donor payments for source plasma . many of these new corporate incentive reward programs have been launched under the paysign® platform which we believe will provide much higher profit margins . along with our current programs we are servicing utilizing the paysign platform , we plan to diversify into other product lines in 2015 such as corporate incentive card payment programs made to consumers or potential consumers as an incentive to or reward for purchasing products , and payments made to an employee or agent of a company as an incentive bonus . 32 cost of revenues for the year ended december 31 , 2014 were $ 4,654,715 , an increase of $ 551,035 compared to the year ended december 31 , 2013 , when cost of revenues were $ 4,103,680. our costs of revenues have increased slightly primarily due to an increase in new corporate incentive reward programs being serviced . cost of revenues constituted approximately 45 % and 65 % of total revenues in 2014 and 2013 , respectively . cost of revenues is comprised of transaction processing fees , data connectivity and data center expenses , network fees , bank fees , card production costs , customer service and program management expenses , application integration setup , and sales and commission expense . gross profit for the year ended december 31 , 2014 was $ 5,638,465 , an increase of $ 3,434,254 compared to the year ended december 31 , 2013 , when gross profit was $ 2,204,211. our overall gross profit percentage approximated 55 % and 35 % during the fiscal years 2014 and 2013 which is consistent with our overall expectations . we believe
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an appropriate yield ; and our ability to collect accounts receivable . our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth in `` item 1a – risk factors , '' and elsewhere in this form 10-k. although we believe that the expectations reflected in our forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . you should not place undue reliance on these forward-looking statements . we disclaim any obligation to update the information contained in any forward-looking statement . introduction the following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document , as well as with other sections of this annual report on form 10-k , including `` item 1 – business ; '' `` item 6 – selected financial data ; '' and `` item 8 – financial statements and supplementary data . '' we begin our management 's discussion and analysis of financial condition and results of operations ( md & a ) with a summary of our overall business strategy to give the reader an overview of the goals of our business and the overall direction of our business and products . this is followed by a discussion of the critical accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results . in the next section , beginning at page 34 , we discuss our results of operations for fiscal 2015 compared to fiscal 2014 , and for fiscal 2014 compared to fiscal 2013. we then provide an analysis of changes in our balance sheet and cash flows , and discuss our financial commitments in the sections titled `` liquidity and capital resources , '' `` contractual obligations '' and `` off-balance sheet arrangements . '' strategy our goal is to be a worldwide leader in providing specialized semiconductor products for a wide variety of embedded control applications . our strategic focus is on the embedded control market , which includes microcontrollers , high-performance linear and mixed signal devices , power management and thermal management devices , connectivity devices , interface devices , serial eeproms , superflash memory products , our patented keeloq ® security devices and flash ip solutions . we provide highly cost-effective embedded control products that also offer the advantages of small size , high performance , low voltage/power operation and ease of development , enabling timely and cost-effective embedded control product integration by our customers . we license our superflash technology and other technologies to wafer foundries , integrated device manufacturers and design partners throughout the world for use in the manufacture of advanced microcontroller products . we sell our products to a broad base of domestic and international customers across a variety of industries . the principal markets that we serve include consumer , automotive , industrial , office automation and telecommunications . our business is subject to fluctuations based on economic conditions within these markets . 29 our manufacturing operations include wafer fabrication , wafer probe and assembly and test . the ownership of a substantial portion of our manufacturing resources is an important component of our business strategy , enabling us to maintain a high level of manufacturing control resulting in us being one of the lowest cost producers in the embedded control industry . by owning wafer fabrication facilities and our assembly and test operations , and by employing statistical process control techniques , we have been able to achieve and maintain high production yields . direct control over manufacturing resources allows us to shorten our design and production cycles . this control also allows us to capture a portion of the wafer manufacturing and the assembly and test profit margin . we do outsource a significant portion of our manufacturing requirements to third parties . we employ proprietary design and manufacturing processes in developing our embedded control products . we believe our processes afford us both cost-effective designs in existing and derivative products and greater functionality in new product designs . while many of our competitors develop and optimize separate processes for their logic and memory product lines , we use a common process technology for both microcontroller and non-volatile memory products . this allows us to more fully leverage our process research and development costs and to deliver new products to market more rapidly . our engineers utilize advanced computer-aided design ( cad ) tools and software to perform circuit design , simulation and layout , and our in-house photomask and wafer fabrication facilities enable us to rapidly verify design techniques by processing test wafers quickly and efficiently . we are committed to continuing our investment in new and enhanced products , including development systems , and in our design and manufacturing process technologies . we believe these investments are significant factors in maintaining our competitive position . our current research and development activities focus on the design of new microcontrollers , digital signal controllers , memory , analog and mixed-signal products , flash-ip systems , development systems , software and application-specific software libraries . we are also developing new design and process technologies to achieve further cost reductions and performance improvements in our products . we market and sell our products worldwide primarily through a network of direct sales personnel and distributors . our distributors focus primarily on servicing the product and technical support requirements of a broad base of diverse customers . we believe that our direct sales personnel combined with our distributors provide an effective means of reaching this broad and diverse customer base . our direct sales force focuses primarily on major strategic accounts in three geographical markets : the americas , europe and asia . we currently maintain sales and support centers in major metropolitan areas in north america , europe and asia . story_separator_special_tag we believe that a strong technical service presence is essential to the continued development of the embedded control market . many of our field sales engineers ( fses ) , field application engineers ( faes ) , and sales management personnel have technical degrees and have been previously employed in an engineering environment . we believe that the technical knowledge of our sales force is a key competitive advantage in the sale of our products . the primary mission of our fae team is to provide technical assistance to strategic accounts and to conduct periodic training sessions for fses and distributor sales teams . faes also frequently conduct technical seminars for our customers in major cities around the world , and work closely with our distributors to provide technical assistance and end-user support . see `` our operating results are impacted by both seasonality and the wide fluctuation of supply and demand in the semiconductor industry , '' on page 14 for discussion of the impact of seasonality on our business . critical accounting policies and estimates general our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. we review the accounting policies we use in reporting our financial results on a regular basis . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent liabilities . on an ongoing basis , we evaluate our estimates , including those related to revenue recognition , business combinations , share-based compensation , inventories , income taxes , senior and junior subordinated convertible debentures and contingencies . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . our results may differ from these 30 estimates due to actual outcomes being different from those on which we based our assumptions . we review these estimates and judgments on an ongoing basis . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . we also have other policies that we consider key accounting policies , such as our policy regarding revenue recognition to original equipment manufacturers ( oems ) ; however , we do not believe these policies require us to make estimates or judgments that are as difficult or subjective as our policies described below . revenue recognition – distributors our distributors worldwide generally have broad price protection and product return rights , so we defer revenue recognition until the distributor sells the product to their customer . revenue is recognized when the distributor sells the product to an end-user , at which time the sales price becomes fixed or determinable . revenue is not recognized upon shipment to our distributors since , due to discounts from list price as well as price protection rights , the sales price is not substantially fixed or determinable at that time . at the time of shipment to these distributors , we record a trade receivable for the selling price as there is a legally enforceable right to payment , relieve inventory for the carrying value of goods shipped since legal title has passed to the distributor , and record the gross margin in deferred income on shipments to distributors on our consolidated balance sheets . deferred income on shipments to distributors effectively represents the gross margin on the sale to the distributor ; however , the amount of gross margin that we recognize in future periods could be less than the deferred margin as a result of credits granted to distributors on specifically identified products and customers to allow the distributors to earn a competitive gross margin on the sale of our products to their end customers and price protection concessions related to market pricing conditions . we sell the majority of the items in our product catalog to our distributors worldwide at a uniform list price . however , distributors resell our products to end customers at a very broad range of individually negotiated price points . the majority of our distributors ' resales require a reduction from the original list price paid . often , under these circumstances , we remit back to the distributor a portion of their original purchase price after the resale transaction is completed in the form of a credit against the distributors ' outstanding accounts receivable balance . the credits are on a per unit basis and are not given to the distributor until they provide information to us regarding the sale to their end customer . the price reductions vary significantly based on the customer , product , quantity ordered , geographic location and other factors and discounts to a price less than our cost have historically been rare . the effect of granting these credits establishes the net selling price to our distributors for the product and results in the net revenue recognized by us when the product is sold by the distributors to their end customers . thus , a portion of the `` deferred income on shipments to distributors '' balance represents the amount of distributors ' original purchase price that will be credited back to the distributor in the future . the wide range and variability of negotiated price concessions granted to distributors does not allow us to accurately estimate the portion of the balance in the deferred income on shipments to distributors account that will be credited back to the distributors .
| the increase in net sales in fiscal 2014 over fiscal 2013 was also impacted by our acquisition of smsc on august 2 , 2012. average selling prices for our semiconductor products were up approximately 2 % in fiscal 2015 over fiscal 2014 and were up approximately 4 % in fiscal 2014 over fiscal 2013. the number of units of our semiconductor products sold was up approximately 11 % in fiscal 2015 over fiscal 2014 and up approximately 17 % in fiscal 2014 over fiscal 2013. the average selling prices and the unit volumes of our sales are impacted by the mix of our products sold and overall semiconductor market conditions . key factors impacting the amount of net sales during the last three fiscal years include : our acquisition of a controlling interest in issc on july 17 , 2014 ; our acquisition of supertex on april 1 , 2014 ; global economic conditions in the markets we serve ; semiconductor industry conditions ; our new product offerings that have increased our served available market ; customers ' increasing needs for the flexibility offered by our programmable solutions ; inventory holding patterns of our customers ; increasing semiconductor content in our customers ' products ; continued market share gains in the segments of the markets we address ; and our acquisition of smsc in the second quarter of fiscal 2013. net sales by product line for fiscal 2015 , 2014 and 2013 were as follows ( dollars in thousands ) : replace_table_token_9_th microcontrollers our microcontroller product line represents the largest component of our total net sales . microcontrollers and associated application development systems accounted for approximately 64.9 % of our net sales in fiscal 2015 , approximately 65.3 % of our net sales in fiscal 2014 and approximately 65.5 % of our net sales in fiscal 2013 . net sales of our microcontroller products increased approximately 10.5 % in fiscal 2015 compared to fiscal 2014 , and increased approximately 21.8 % in fiscal 2014 compared to fiscal 2013 . the increase in net sales in fiscal 2015 compared to fiscal 2014 resulted primarily from our acquisition of issc in the second quarter of fiscal 2015 , market share gains and improved general economic and semiconductor industry conditions in the end markets we serve including the consumer , automotive , industrial control , communications and computing markets . the increase in net sales in fiscal 2014 compared to fiscal 2013 resulted primarily from our acquisition of smsc in
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aircraft fuel expense includes the cost of aircraft fuel , fuel taxes , into plane fees and airport fuel flowage , storage or through-put fees . under the majority of our fixed fee contracts , our customer reimburses us for fuel costs . these amounts are netted against our fuel expense . salary and benefits expense includes wages , salaries , and employee bonuses , sales commissions for in-flight personnel , as well as expenses associated with employee benefit plans , stock compensation expense related to equity grants , and employer payroll taxes . station operations expense includes the fees charged by airports for the use or lease of airport facilities and fees charged by third party vendors for ground handling services , commissary expenses and other related services such as deicing of aircraft . maintenance and repairs expense includes all parts , materials and spares required to maintain our aircraft . also included are fees for repairs performed by third party vendors . sales and marketing expense includes all advertising , promotional expenses , travel agent commissions and debit and credit card processing fees associated with the sale of scheduled service and air-related charges . aircraft lease rentals expense consists of the cost of leasing aircraft under operating leases with third parties and costs for sub-service contracted out . depreciation and amortization expense includes the depreciation of all fixed assets , including aircraft that we own . other expense includes the cost of passenger liability insurance , aircraft hull insurance and all other insurance policies excluding employee welfare insurance . additionally , this expense includes loss on disposals of aircraft and other equipment disposals , travel and training expenses for crews and ground personnel , facility lease expenses , professional fees , personal property taxes and all other administrative and operational overhead expenses not included in other line items above . results of operations our results of operations for interim periods are not necessarily indicative of those for the entire year because our business is subject to seasonal fluctuations . we can be adversely impacted during periods with reduced leisure travel spending . traffic demand for our business historically has been weaker in the third quarter and stronger in the first quarter . 2014 compared to 2013 operating revenue scheduled service revenue . scheduled service revenue for 2014 increased by $ 80.7 million , or 12.4 percent , compared with 2013 . the increase was primarily driven by a 12.9 percent increase in the number of scheduled service passengers , despite a relatively flat average base fare year over year . passenger growth was possible due to a 12.5 percent 30 increase in the number of scheduled service departures , as we increased the number of aircraft in service by 9.4 percent from 2013. air-related revenue . ancillary air-related revenue for 2014 increased $ 43.8 million or 15.2 percent compared with 2013 , primarily due to a 12.9 percent increase in the number of scheduled service passengers and our optimization efforts related to certain ancillary products and fees . our efforts included a focus on seat assignment fees , priority boarding , and boarding pass printing fees , as well as certain policy initiatives such as trip cancellation and itinerary changes . third party revenue . third party ancillary revenue decreased by 1.2 percent in 2014 from 2013 due primarily to a decrease of 11.3 percent in hotel room nights sold , offset by an 8.5 percent increase in rental car days sold . the reduction in hotel room sales was driven by a decline in las vegas nights sold , primarily due to a 2013 change in our pre-purchase agreement for discounted room rates . the increase in rental car days sold was driven by an increase in scheduled service passengers to those markets where a higher percentage of rental car days are typically sold , such as florida and phoenix . the following table details ancillary revenue per scheduled service passenger from air-related charges and third party products : replace_table_token_10_th the following table details the calculation of ancillary revenue from third party products . third party products consist of revenue from the sale of hotel rooms , ground transportation ( rental cars and hotel shuttle products ) , attraction and show tickets , and fees we receive from other merchants selling products through our website : replace_table_token_11_th ( a ) includes payment expenses and travel agency commissions . fixed fee contract revenue . fixed fee contract revenue for 2014 remained relatively flat compared with 2013 as no significant changes were made to existing flying agreements . other revenue . other revenue for 2014 increased $ 16.9 million compared with 2013 , primarily from aircraft lease revenue related to the 12 airbus a320 series aircraft acquired in june 2014 , which are currently on lease to a european carrier . 31 operating expenses we primarily evaluate our expense management by comparing our costs per passenger and per asms across different periods , which enables us to assess trends in each expense category . the following table presents operating expense per passenger for the indicated periods . the table also presents operating expense per passenger , excluding fuel , a statistic which provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility . both the cost and availability of fuel are subject to many economic and political factors beyond our control . replace_table_token_12_th the following table presents unit costs , defined as operating expense per asm or ( `` casm '' ) for the indicated periods . the table also presents operating casm , excluding fuel . as on a per-passenger basis , excluding fuel on a per asm basis provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility . replace_table_token_13_th aircraft fuel expense . aircraft fuel expense for 2014 increased $ 2.7 million , or 0.7 percent , compared with 2013 . story_separator_special_tag we consumed 7.0 percent more in system fuel gallons , which was offset by a 5.9 percent decrease in average fuel cost per gallon . fuel efficiency was positively impacted by a 2.6 percent increase in total system asms per gallon , or approximately 70. salary and benefits expense . salary and benefits expense for 2014 increased $ 34.7 million , or 21.9 percent , compared with 2013 . the increase is primarily attributable to a 16.8 percent increase in the number of full-time equivalent employees , as crew training constraints negatively affected our productivity and as a result of overall growth , as well as a one-time expense of $ 8.5 million related to the departure of our former president and coo . 32 station operations expense . station operations expense for 2014 increased $ 6.4 million , or just 8.2 percent on a 12.5 percent increase in scheduled service departures . this trend is due to our continued east coast network growth , as florida departure costs during 2014 , on average , were 61.6 percent less than in las vegas . maintenance and repairs expense . maintenance and repairs expense for 2014 increased $ 14.0 million , or 19.2 percent compared with 2013 . the increase is partially due to a 9.4 percent increase in average number of operating aircraft in service . in addition , our heavy check expense increased by $ 5.5 million or 22.9 percent in 2014 from 2013 , resulting from an approximate 30 percent increase in shop visits , the majority of which were scheduled . sales and marketing expense . sales and marketing expense for 2014 increased $ 6.8 million , or 31.4 percent compared with 2013 . the increase is partially due to increased processing fees resulting from a shift from debit card to credit card usage , and a 12.7 percent increase in total passenger revenue . additionally , during 2014 , we paid $ 2.8 million for the production and distribution of the inflight syndicated game show , `` the gameplane , '' which was filmed on our flights as part of our national branding campaign . aircraft lease rentals expense . aircraft lease rental expense increased $ 6.7 million for 2014 compared with 2013 . throughout 2014 , we experienced continued crew training delays requiring sub-service flying to meet our scheduled service needs , which led to a $ 10.1 million expense increase year over year . this was offset by a $ 3.4 million decrease in aircraft operating lease rental payments . in the second quarter of 2014 , we purchased the two airbus a320 series aircraft under operating lease in 2013 and do not currently lease any aircraft in our operating fleet . depreciation and amortization expense . depreciation and amortization expense for 2014 increased $ 14.1 million , or 20.4 percent , compared with 2013 . the increase was primarily driven by a 9.4 percent increase in average number of aircraft in service . additionally , during the second quarter of 2014 , we began depreciating 12 airbus a320 series aircraft purchased in june 2014 , currently on lease to a european carrier , which are non-asm producing aircraft . other expense . other expense for 2014 increased by $ 9.6 million , or 20.8 percent , compared with 2013 . the increase was primarily attributable to training costs required to prepare for 2015 crew staffing of $ 3.5 million , as well as a $ 3.6 million increase related to information technology services to support our continuing growth . special charge . we incurred a $ 43.3 million non-cash impairment charge to our boeing 757-200 series aircraft , engines and related assets , triggered in the fourth quarter of 2014. other ( income ) expense other expense for 2014 increased by $ 12.2 million compared with 2013 due to higher interest expense on our outstanding debt , which more than doubled from december 31 , 2013 to december 31 , 2014. income tax expense our effective income tax rate was relatively flat at 37.1 percent for 2014 compared to 37.4 percent for 2013 . while we expect our tax rate to be fairly consistent in the near term , it will vary depending on recurring items such as the amount of income we earn in each state and the state tax rate applicable to such income . discrete items during interim periods may also affect our tax rates . 2013 compared to 2012 operating revenue our operating revenue increased 9.6 percent to $ 996.2 million in 2013 , up from $ 908.7 million in 2012 , primarily due to a 19.6 percent increase in ancillary revenue and an 11.1 percent increase in scheduled service revenue . scheduled service revenue and ancillary revenue increases were driven by a 7.8 percent increase in scheduled service passengers and a 5.6 percent increase in our total average fare to $ 137.43 in 2013 compared to $ 130.10 in 2012. scheduled service revenue . scheduled service revenue increased 11.1 percent to $ 651.3 million for 2013 , up from $ 586.0 million in 2012. the increase was driven by a 7.8 percent increase in the number of scheduled service passengers and a 3.1 percent increase in our scheduled service average base fare . passenger growth was attributable to a 5.0 percent increase in the average number of passengers per departure , associated with a 5.4 percent growth in scheduled service seats per departure , and a 3.0 percent increase in the number of scheduled service departures . we added 44 new routes in 2013 which increased the 33 number of passengers as our load factor remained relatively unchanged at 88.9 percent in 2013 compared to 89.4 percent in 2012. ancillary revenue . ancillary revenue increased 19.6 percent to $ 324.9 million for 2013 , up from $ 271.6 million in 2012 , driven by an 11.0 percent increase in ancillary revenue per scheduled passenger from $ 41.20 to $ 45.73 and a 7.8 percent increase in the number of scheduled service passengers .
| our fuel cost per asm declined 8.2 percent from 4.73¢ in 2013 to 4.34¢ in 2014 as a full year of a320 series aircraft in service has improved fuel efficiency and led to a 2.6 percent increase in total system asms per gallon to approximately 70. casm excluding fuel increased 18.0 percent from 2013 , due primarily to a non-cash impairment charge and other infrequent expenses experienced during 2014 , as well as overall operational growth . we took a $ 43.3 million non-cash impairment charge on our boeing 757 fleet , mentioned below , $ 8.5 million in compensation expense related to the departure of our former president and coo , as well as $ 14.8 million for sub-service aircraft needed as a result of crew availability and training delays . we had a 9.4 percent increase in average aircraft in service and a 16.8 percent increase in full-time equivalent employees , also driving the overall operating expense increase . as of december 31 , 2014 , we had $ 416.8 million in unrestricted cash and investment securities , up from $ 387.1 million as of december 31 , 2013 , an increase primarily driven by our $ 300.0 million unsecured debt offering and other secured debt issued in 2014 . as we have continued to generate increased amounts of operating cash flows , and were able to raise lower interest rate debt in 2014 , we prepaid the remaining $ 121.1 million balance of our senior secured term loan facility ( the `` term loan '' ) as well as the $ 8.5 million balance owed on debt secured by two boeing 757-200 aircraft . our liquidity position continues to provide us opportunities to invest in the growth of our fleet , with $ 279.4 million in cash capital expenditures during 2014 , the majority of which was related to the acquisition of a320 series aircraft . as of december 31 , 2014 , we have acquired 13 a320 series aircraft , eight
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a description of these groups ' operating results and factors affecting their businesses is provided below . same-unit revenue represents total revenue adjusted to reflect comparable periods of activity for acquisitions and divestitures . for example , for a business acquired on july 1 , 2016 , revenue for the period january 1 , 2017 through june 30 , 2017 would be reported as revenue from acquired businesses ; same-unit revenue would include revenue for the periods july 1 through december 31 of both years . divested operations represent operations that did not meet the criteria for treatment as discontinued operations . those businesses that have met the requirements to be treated as a discontinued operation are eliminated from continuing operations for all periods presented below . revenue the following table summarizes total revenue for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_6_th 20 a detailed discussion of same-unit revenue by practice group is included under “ operating practice groups. ” non-qualified deferred compensation plan we sponsor a non-qualified deferred compensation plan , under which a cbiz employee 's compensation deferral is held in a rabbi trust and invested accordingly as directed by the employee . income and expenses related to the non-qualified deferred compensation plan are included in “ operating expenses ” , “ gross margin ” and “ corporate general & administrative expenses ” and are directly offset by deferred compensation gains or losses in “ other income , net ” in the accompanying consolidated statements of comprehensive income . the non-qualified deferred compensation plan has no impact on “ income from continuing operations before income tax expense ” or diluted earnings per share from continuing operations . operating expenses the following table presents our operating expenses for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_7_th 2017 compared to 2016 the majority of our operating expenses relate to personnel costs , which includes ( i ) salaries and benefits , ( ii ) commissions paid to producers ( iii ) incentive compensation and ( iv ) share-based compensation . our operating expenses increased by $ 57.9 million , or 8.3 % , in 2017 compared to 2016 , and increased to 88.3 % of revenue from 87.2 % of revenue for the prior year . personnel costs increased $ 45.2 million , or 8.4 % , to support our growth in revenue , with acquisitions contributing approximately $ 22.3 million to personnel costs . personnel costs and other operating expenses are discussed in further detail under “ operating practice groups. ” the non-qualified deferred compensation plan added expense of $ 10.9 million and $ 4.6 million in 2017 and 2016 , respectively . excluding this item , operating expenses would have been $ 744.7 million , or 87.1 % of revenue , in 2017 compared to $ 693.2 million , or 86.7 % , in 2016 . 2016 compared to 2015 our operating expenses increased by $ 45.3 million , or 6.9 % , in 2016 compared to 2015 , and increased to 87.2 % of revenue from 86.9 % of revenue for the prior year . the increase in operating expenses was due to the same factors as discussed above in the “ 2017 compared to 2016 ” period . personnel costs increased $ 36.9 million , or 7.3 % , with acquisitions contributing approximately $ 17.9 million to personnel costs . the non-qualified deferred compensation plan added expense of $ 4.6 million in 2016 compared to income of $ 0.6 million in 2015. excluding these items , operating expenses would have been $ 693.2 million , or 86.7 % of revenue , in 2016 compared to $ 652.9 million , or 87 % , in 2015. corporate general & administrative ( “ g & a ” ) expenses the following table presents our g & a expenses for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_8_th 21 201 7 compared to 201 6 our g & a expenses decreased by approximately $ 3 million , or 8.3 % , in 2017 compared to 2016 , and decreased to 3.9 % of revenue from 4.6 % of revenue for the prior year . personnel costs decreased $ 2 million , or 9.8 % , mainly due to a decrease in incentive-based compensation . also contributing to the decrease in g & a expenses was a decrease of $ 0.7 million in professional fees related to legal fees incurred . the non-qualified deferred compensation plan added expense of $ 1.2 million and $ 0.7 million in 2017 and 2016 , respectively . excluding these items , g & a expenses would have been $ 32.1 million , or 3.8 % of revenue , in 2017 compared to $ 35.6 million , or 4.5 % of revenue , in 2016 . 2016 compared to 2015 our g & a expenses increased by $ 3.8 million , or 11.7 % , in 2016 compared to 2015 , and increased to 4.6 % of revenue from 4.4 % of revenue for the prior year . personnel costs increased $ 1.8 million , or 9.9 % , due to an increase in incentive-based compensation due to our performance in 2016. also contributing to the increase in g & a expenses was an increase of $ 0.9 million in professional fees related to legal fees incurred . story_separator_special_tag the non-qualified deferred compensation plan added expense of $ 0.7 million in 2016 compared to income of $ 0.1 million in 2015. excluding these items , g & a expenses would have been $ 35.6 million , or 4.5 % of revenue , in 2016 compared to $ 32.6 million , or 4.4 % of revenue , in 2015. other income ( expense ) , net the following table present our other income ( expense ) , net for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_9_th ( 1 ) other income , net includes net gains of $ 12.1 million and $ 5.3 million in the years 2017 and 2016 , respectively , compared to a net loss of $ 0.7 million in 2015 associated with the value of investments held in a rabbi trust related to the non-qualified deferred compensation plan . the adjustments to the investments held in a rabbi trust related to the non-qualified deferred compensation plan are offset by a corresponding increase or decrease to compensation expense , which is recorded as “ operating expenses ” and “ g & a expenses ” in the accompanying consolidated statements of comprehensive income . the non-qualified deferred compensation plan has no impact on “ income from continuing operations before income tax expense ” or diluted earnings per share from continuing operations . interest expense our primary financing arrangement is the $ 400 million credit facility . interest expense increased slightly by $ 0.1 million during 2017 compared to 2016. our average debt balance and interest rate was $ 205.3 million and 2.72 % , respectively , in 2017 compared to $ 234.5 million and 2.43 % , respectively , in 2016. interest expense decreased $ 2.3 million during 2016 compared to 2015. a previous financing arrangement , the 2010 notes , matured on october 1 , 2015 and had an interest rate of 7.50 % . we early retired a portion of the 2010 notes in the second quarter of 2015 with funds available under the credit facility at an average interest rate of 2.14 % . when the 2010 notes matured in the fourth quarter of 2015 we used cash of $ 71.8 million under the credit facility at an average interest rate of 2.02 % . including both the credit facility and the 2010 notes , our average blended debt balance and interest rate was $ 234.5 million and 2.43 % , respectively , in 2016 compared to $ 213.8 million and 3.50 % , respectively , in 2015. our debt is further discussed in note 8 , debt and financing arrangements , to the accompanying consolidated financial statements . 22 gain on sale of operations , net we sold a small book of business under the financial services practice group in 2017 for a net gain of less than $ 0.1 million and two small books of business under the benefits and insurance services practice group in 2016 for a net gain of $ 0.9 million . other income , net in addition to the impact of the non-qualified deferred compensation plan on “ other income , net ” discussed above in footnote 1 ( net gain of $ 12.1 million , a net gain of $ 5.3 million and a net loss of $ 0.7 million in the years 2017 , 2016 and 2015 ) , adjustments to the fair value of our contingent purchase price liability related to prior acquisitions resulted in other income , net of $ 1.5 million , $ 1.3 million and $ 2.9 million in 2017 , 2016 and 2015 , respectively . also included in “ other income , net ” is a non-operating charge of $ 0.8 million from the early retirement of $ 49.3 million face value of our 2010 notes that matured on october 1 , 2015. no such charge was incurred in 2016 and 2017. income tax expense the following table presents our income tax expense for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_10_th we recorded income tax expense from continuing operations of $ 23.3 million in 2017 , $ 26.4 million in 2016 and $ 22.8 million in 2015. our effective tax rate for those same periods was 31.3 % , 39.4 % and 39.5 % , respectively . we recognized an excess tax benefit of $ 3.8 million as a reduction to income tax expense from continuing operations in 2017 , due to the adoption of asu 2016-09. we also recognized an income tax benefit of $ 2.5 million in 2017 due to the revaluation of our deferred tax liabilities under the tax act . collectively , asu 2016-09 and the tax act reduced our 2017 effective tax rate by 8.5 % . refer to note 1 , basis of presentation and significant accounting policies to the accompanying consolidated financial statements for further discussion on new accounting pronouncement adoptions , as well note 7 , income taxes for additional information on our provision for income taxes . gaap reconciliation income from continuing operations to non-gaap financial measures ( 1 ) replace_table_token_11_th ( 1 ) we report our financial results in accordance with gaap . this table reconciles non-gaap financial measures to the nearest gaap financial measure , “ income from continuing operations. ” adjusted ebitda is not defined by gaap , is not based on any comprehensive set of accounting rules or principles , and should not be considered in isolation from , or regarded as an alternative or replacement to , any measurement of performance or cash flow under gaap . because of these limitations , adjusted ebitda should be considered alongside our financial results presented in accordance with gaap . adjusted ebitda is commonly used by us , our shareholders and debt holders to evaluate , assess and benchmark our operational results and to provide an additional measure with respect to our ability to meet future debt obligations . operating practice groups we deliver our integrated services through three practice groups : financial services , benefits and insurance services and national practices .
| in 2016 , net cash used in investing activities consisted primarily of $ 35.6 million related to the acquisitions of savitz , flex-pay and ed jacobs & associates , inc. ( “ ed jacobs ” ) , as well as net activity related to funds held for clients of $ 4.8 million and capital expenditures of $ 4.1 million . net cash used in investing activities in 2015 consisted primarily of $ 10.5 million related to the acquisitions of model , cottonwood and prg , as well as capital expenditures of $ 7.4 million , partially offset by net activity related to funds held for clients of $ 11.1 million . refer to note 1 , basis of presentation and significant accounting policies , and note 18 , acquisitions , to the accompanying consolidated financial statements , for further discussion on our acquisitions and a further description of funds held for clients and client fund obligations . financing activities net cash used in financing activities was $ 45.6 million in 2017 , $ 18.4 million in 2016 and $ 40.6 million in 2015. net cash used in financing activities in 2017 consisted primarily of $ 19.7 million in the repurchase of our common stock , as well as $ 12.9 million in net payments on our credit facility and $ 10.5 million in contingent consideration payments related to prior acquisitions . in 2016 , net cash used in financing activities consisted primarily of $ 14.4 million in net payments on our credit facility , as well as $ 9.1 million in the repurchase of our common stock . in 2015 , net cash used in financing activities consisted primarily of $ 89 million for the extinguishment of our 2010 notes , $ 36.5 million in the repurchase of our common stock , as well as a net decrease of $ 12.6 million in client fund obligations as a result of timing of cash receipts and related payments , partially offset by $ 98.4 million in net proceeds from the credit facility . capital resources the following table presents our capital structure ( in thousands ) . replace_table_token_18_th 27 credit facility our primary financing arrangement , the credit facility which matures in july 2019 ,
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the exercise price equals the market price of our common stock at the grant date . these options generally become exercisable ( vest ratably ) over five years beginning on the first anniversary from the date of grant and expire no later than ten years after the grant date . we measure compensation expense for stock options using a black-scholes option pricing model . we recognize this compensation expense ratably over the shorter of the vesting period of the stock options , typically five years , or the length of time until the grantee becomes retirement-eligible at age 65. pre-tax compensation expense for stock options was $ 15 million for 2012. we estimated the fair value of stock options at the grant date using a black-scholes option pricing model with the following assumptions for 2012 : risk-free interest rate 1.09 % , dividend yield 2.57 % , volatility factor 50.97 % and expected option life six years . for expense calculation purposes , the weighted average grant-date fair value of option shares granted in 2012 was $ 4.44 per option share . if we increased our assumptions for the risk-free interest rate and the volatility factor by 50 percent , the expense related to the fair value of stock options granted in 2012 would increase by 44 percent . if we lowered our assumptions for the risk-free interest rate and the volatility factor by 50 percent , the expense related to the fair value of stock options granted in 2012 would decrease by 55 percent . 22 employee retirement plans effective january 1 , 2010 , we froze all future benefit accruals under substantially all of our domestic qualified and non-qualified defined-benefit pension plans . as a result of this action , the liabilities for these plans were remeasured ; in addition , certain assumptions appropriate for on-going plans ( e.g. , turnover , mortality and compensation increases ) have been modified or eliminated for the remeasurement . accounting for defined-benefit pension plans involves estimating the cost of benefits to be provided in the future , based upon vested years of service , and attributing those costs over the time period each employee works . we develop our pension costs and obligations from actuarial valuations . inherent in these valuations are key assumptions regarding inflation , expected return on plan assets , mortality rates and discount rates for obligations and expenses . we consider current market conditions , including changes in interest rates , in selecting these assumptions . changes in assumptions used could result in changes to reported pension costs and obligations within our consolidated financial statements . in december 2012 , we decreased our discount rate for obligations to an average of 3.80 percent from 4.40 percent . the discount rate for obligations is based upon the expected duration of each defined-benefit pension plan 's liabilities matched to the december 31 , 2012 towers watson rate link curve . the discount rates we use for our defined-benefit pension plans ranged from 1.75 percent to 4.50 percent , with the most significant portion of the liabilities having a discount rate for obligations of 3.40 percent or higher . the assumed asset return was primarily 7.25 percent , reflecting the expected long-term return on plan assets . our net underfunded amount for our qualified defined-benefit pension plans , which is the difference between the projected benefit obligation and plan assets , increased to $ 462 million at december 31 , 2012 from $ 439 million at december 31 , 2011 , primarily due to lower rates of return in the bond market in 2012. in accordance with accounting guidance , the underfunded amount has been recognized on our consolidated balance sheets at december 31 , 2012 and 2011. qualified domestic pension plan assets in 2012 had a net gain of approximately 17 percent compared to average gains of 13 percent for the investor force defined benefit plan universe . our projected benefit obligation for our unfunded non-qualified defined-benefit pension plans was $ 181 million at december 31 , 2012 compared with $ 174 million at december 31 , 2011. in accordance with accounting guidance , this unfunded amount has been recognized on our consolidated balance sheets at december 31 , 2012 and 2011. at december 31 , 2012 , we reported a net liability of $ 643 million , of which $ 181 million was related to our non-qualified , supplemental retirement plans , which are not subject to the funding requirements of the pension protection act of 2006. in accordance with the pension protection act , the adjusted funding target attainment percentage ( aftap ) for the various defined-benefit pension plans ranges from 71 percent to 84 percent . we expect pension expense for our qualified defined-benefit pension plans to be $ 23 million in 2013 compared with $ 27 million in 2012. if we assumed that the future return on plan assets was one-half percent lower than the assumed asset return and the discount rate decreased by 50 basis points , the 2013 pension expense would increase by $ 4 million . we expect pension expense for our non-qualified defined-benefit pension plans to be $ 8 million in 2013 compared with $ 9 million in 2012. we anticipate that we will be required to contribute approximately $ 50 million to $ 60 million in 2013 to our qualified and non-qualified defined-benefit plans . 23 income taxes the accounting guidance for income taxes requires that the future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods . possible sources of taxable income include taxable income in carryback periods , the future reversal of existing taxable temporary differences recorded as a deferred tax liability , tax-planning strategies that generate future income or gains in excess of anticipated losses in the carryforward period and projected future taxable income . if , based upon all available evidence , both positive and story_separator_special_tag the exercise price equals the market price of our common stock at the grant date . these options generally become exercisable ( vest ratably ) over five years beginning on the first anniversary from the date of grant and expire no later than ten years after the grant date . we measure compensation expense for stock options using a black-scholes option pricing model . we recognize this compensation expense ratably over the shorter of the vesting period of the stock options , typically five years , or the length of time until the grantee becomes retirement-eligible at age 65. pre-tax compensation expense for stock options was $ 15 million for 2012. we estimated the fair value of stock options at the grant date using a black-scholes option pricing model with the following assumptions for 2012 : risk-free interest rate 1.09 % , dividend yield 2.57 % , volatility factor 50.97 % and expected option life six years . for expense calculation purposes , the weighted average grant-date fair value of option shares granted in 2012 was $ 4.44 per option share . if we increased our assumptions for the risk-free interest rate and the volatility factor by 50 percent , the expense related to the fair value of stock options granted in 2012 would increase by 44 percent . if we lowered our assumptions for the risk-free interest rate and the volatility factor by 50 percent , the expense related to the fair value of stock options granted in 2012 would decrease by 55 percent . 22 employee retirement plans effective january 1 , 2010 , we froze all future benefit accruals under substantially all of our domestic qualified and non-qualified defined-benefit pension plans . as a result of this action , the liabilities for these plans were remeasured ; in addition , certain assumptions appropriate for on-going plans ( e.g. , turnover , mortality and compensation increases ) have been modified or eliminated for the remeasurement . accounting for defined-benefit pension plans involves estimating the cost of benefits to be provided in the future , based upon vested years of service , and attributing those costs over the time period each employee works . we develop our pension costs and obligations from actuarial valuations . inherent in these valuations are key assumptions regarding inflation , expected return on plan assets , mortality rates and discount rates for obligations and expenses . we consider current market conditions , including changes in interest rates , in selecting these assumptions . changes in assumptions used could result in changes to reported pension costs and obligations within our consolidated financial statements . in december 2012 , we decreased our discount rate for obligations to an average of 3.80 percent from 4.40 percent . the discount rate for obligations is based upon the expected duration of each defined-benefit pension plan 's liabilities matched to the december 31 , 2012 towers watson rate link curve . the discount rates we use for our defined-benefit pension plans ranged from 1.75 percent to 4.50 percent , with the most significant portion of the liabilities having a discount rate for obligations of 3.40 percent or higher . the assumed asset return was primarily 7.25 percent , reflecting the expected long-term return on plan assets . our net underfunded amount for our qualified defined-benefit pension plans , which is the difference between the projected benefit obligation and plan assets , increased to $ 462 million at december 31 , 2012 from $ 439 million at december 31 , 2011 , primarily due to lower rates of return in the bond market in 2012. in accordance with accounting guidance , the underfunded amount has been recognized on our consolidated balance sheets at december 31 , 2012 and 2011. qualified domestic pension plan assets in 2012 had a net gain of approximately 17 percent compared to average gains of 13 percent for the investor force defined benefit plan universe . our projected benefit obligation for our unfunded non-qualified defined-benefit pension plans was $ 181 million at december 31 , 2012 compared with $ 174 million at december 31 , 2011. in accordance with accounting guidance , this unfunded amount has been recognized on our consolidated balance sheets at december 31 , 2012 and 2011. at december 31 , 2012 , we reported a net liability of $ 643 million , of which $ 181 million was related to our non-qualified , supplemental retirement plans , which are not subject to the funding requirements of the pension protection act of 2006. in accordance with the pension protection act , the adjusted funding target attainment percentage ( aftap ) for the various defined-benefit pension plans ranges from 71 percent to 84 percent . we expect pension expense for our qualified defined-benefit pension plans to be $ 23 million in 2013 compared with $ 27 million in 2012. if we assumed that the future return on plan assets was one-half percent lower than the assumed asset return and the discount rate decreased by 50 basis points , the 2013 pension expense would increase by $ 4 million . we expect pension expense for our non-qualified defined-benefit pension plans to be $ 8 million in 2013 compared with $ 9 million in 2012. we anticipate that we will be required to contribute approximately $ 50 million to $ 60 million in 2013 to our qualified and non-qualified defined-benefit plans . 23 income taxes the accounting guidance for income taxes requires that the future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods . possible sources of taxable income include taxable income in carryback periods , the future reversal of existing taxable temporary differences recorded as a deferred tax liability , tax-planning strategies that generate future income or gains in excess of anticipated losses in the carryforward period and projected future taxable income . if , based upon all available evidence , both positive and
| a weaker u.s. dollar increased sales by one percent compared to 2010. our gross profit margins were 25.2 percent , 23.9 percent and 24.5 percent in 2012 , 2011 and 2010 , respectively . the 2012 gross profit margin reflects a more favorable relationship between selling prices and commodity costs as well as increased sales volume . the decrease in the 2011 gross profit margin reflects lower sales volume and a less favorable relationship between selling prices and commodity costs . both 2012 and 2011 reflect the benefits associated with business rationalizations and other cost savings initiatives . selling , general and administrative expenses as a percent of sales were 20.2 percent in 2012 compared with 21.2 percent in 2011 and 21.3 percent in 2010. selling , general and administrative expenses as a percent of sales in 2012 reflect increased sales volume and lower business rationalization costs . selling , general and administrative expenses as a percent of sales in 2011 reflect increased expenses related to growth initiatives , offset by lower business rationalization expenses . both 2012 and 2011 reflect the benefits associated with our business rationalizations and other cost savings initiatives . operating profit ( loss ) in 2012 , 2011 and 2010 includes $ 78 million , $ 121 million and $ 208 million , respectively , of costs and charges related to business rationalizations and other cost savings initiatives . operating profit ( loss ) in 2012 , 2011 and 2010 includes $ 42 million , $ 494 million and $ 698 million , respectively , of impairment charges for goodwill and other intangible assets . operating profit ( loss ) in 2012 and 2011 includes $ 77 million and $ 9 million , respectively , of net charges for litigation settlements . operating profit ( loss ) in 2012 includes $ 8 million of net gains related to fixed asset sales . operating profit ( loss ) margins , as reported , were 3.5 percent , ( 4.0 ) percent and ( 6.2 )
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our performance will continue to depend on our ability to successfully execute our segment strategies and to implement our current and future initiatives . the key strategies include focusing on independent sales and performance brands , pursuing new customers for all three of our reportable segments , expansion of geographies , utilizing our infrastructure to gain further operating and purchasing efficiencies , and making strategic acquisitions . how we assess the performance of our business in assessing the performance of our business , we consider a variety of performance and financial measures . the key measures used by our management are discussed below . the percentages on the results presented below are calculated based on rounded numbers . net sales net sales is equal to gross sales , plus excise taxes , minus sales returns ; sales incentives that we offer to our customers , such as rebates and discounts that are offsets to gross sales ; and certain other adjustments . our net sales are driven by changes in case volumes , product inflation that is reflected in the pricing of our products , and mix of products sold . gross profit gross profit is equal to our net sales minus our cost of goods sold . cost of goods sold primarily includes inventory costs ( net of supplier consideration ) and inbound freight . cost of goods sold generally changes as we incur higher or lower costs from our suppliers and as our customer and product mix changes . ebitda and adjusted ebitda management measures operating performance based on our ebitda , defined as net income before interest expense , interest income , income taxes , and depreciation and amortization . ebitda is not defined under u.s. generally accepted accounting principles ( “ u.s . gaap ” ) and is not a measure of operating income , operating performance , or liquidity presented in accordance with u.s. gaap and is subject to important limitations . our definition of ebitda may not be the same as similarly titled measures used by other companies . we believe that the presentation of ebitda enhances an investor 's understanding of our performance . we use this measure to evaluate the performance of our segments and for business planning purposes . we present ebitda in order to provide supplemental information that we consider relevant for the readers of our consolidated financial statements included elsewhere in this report , and such information is not meant to replace or supersede u.s. gaap measures . in addition , our management uses adjusted ebitda , defined as net income before interest expense , interest income , income and franchise taxes , and depreciation and amortization , further adjusted to exclude certain items that we do not consider part of our core operating results . such adjustments include certain unusual , non-cash , non-recurring , cost reduction , and other adjustment items permitted in calculating covenant compliance under our credit agreement and indenture ( other than certain pro forma adjustments permitted under our credit agreement and indenture relating to the adjusted ebitda contribution of acquired entities or businesses prior to the acquisition date ) . under our credit agreement and indenture , our ability to engage in certain activities such as incurring certain additional indebtedness , making certain investments , and making restricted payments is tied to ratios based on adjusted ebitda ( as defined in the credit agreement and indenture ) . our definition of adjusted ebitda may not be the same as similarly titled measures used by other companies . 26 adjusted ebitda is not defined under u.s. gaap and is subject to important limitations . we believe that the presentation of adjusted ebitda is useful to investors because it is frequently used by securities analysts , investors , and other interested parties , including our lenders under the amended credit agreement and holders of our notes ( as defined below under “ — financing activities ” ) , in their evaluation of the operating performance of companies in industries similar to ours . in addition , targets based on adjusted ebitda are among the measures we use to evaluate our management 's performance for purposes of determining their compensation under our incentive plans . ebitda and adjusted ebitda have important limitations as analytical tools , and you should not consider them in isolation or as substitutes for analysis of our results as reported under u.s. gaap . for example , ebitda and adjusted ebitda : exclude certain tax payments that may represent a reduction in cash available to us ; do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future ; do not reflect changes in , or cash requirements for , our working capital needs ; and do not reflect the significant interest expense , or the cash requirements , necessary to service our debt . in calculating adjusted ebitda , we add back certain non-cash , non-recurring , and other items as permitted or required by our credit agreement and indenture . adjusted ebitda among other things : does not include non-cash stock-based employee compensation expense and certain other non-cash charges ; does not include cash and non-cash restructuring , severance , and relocation costs incurred to realize future cost savings and enhance our operations ; and does not reflect management fees paid to private equity holders , which ended in october 2017. we have included the calculations of ebitda and adjusted ebitda for the periods presented . results of operations , ebitda , and adjusted ebitda the following table sets forth a summary of our results of operations , ebitda , and adjusted ebitda for the periods indicated ( dollars in millions , except per share data ) : replace_table_token_4_th 27 we believe that the most directly comparable u.s. gaap measure to ebitda and adjusted ebitda is net income . story_separator_special_tag the following table reconciles ebitda and adjusted ebitda to net income for the periods presented : replace_table_token_5_th ( 1 ) includes adjustments for non-cash charges arising from stock-based compensation , interest rate swap hedge ineffectiveness , and gain/loss on disposal of assets . stock-based compensation cost was $ 15.7 million , $ 21.6 million and $ 17.3 million for fiscal 2019 , fiscal 2018 and fiscal 2017 , respectively . ( 2 ) includes professional fees and other costs related to completed and abandoned acquisitions , costs of integrating certain of our facilities , facility closing costs , advisory fees and offering fees . ( 3 ) consists primarily of professional fees and related expenses associated with productivity initiatives , amounts related to fuel collar derivatives , certain financing transactions , lease amendments , legal settlements and franchise tax expense , and other adjustments permitted by our credit agreement . fiscal 2018 includes $ 8.0 million of development costs related to certain productivity initiatives the company is no longer pursuing . story_separator_special_tag 2017 net sales net sales growth is primarily a function of case growth , pricing ( which is primarily based on product inflation/deflation ) , and a changing mix of customers , channels , and product categories sold . net sales increased $ 858.1 million , or 5.1 % , in fiscal 2018 compared to fiscal 2017. the increase in net sales was primarily attributable to sales growth in vistar , particularly in the theater and retail channels , case growth in foodservice , particularly in the independent channel , and recent acquisitions . case volume increased 3.0 % in fiscal 2018 compared to fiscal 2017. gross profit gross profit increased $ 168.0 million , or 7.9 % , for fiscal 2018 compared to fiscal 2017. gross profit as a percentage of net sales was 13.0 % for fiscal 2018 compared to 12.7 % for fiscal 2017. the increase in gross profit was the result of growth in cases sold and a higher gross profit per case , which in turn was the result of selling an improved mix of channels and products . within foodservice , case growth to independent customers positively affected gross profit per case . independent customers typically receive more services from us , cost more to serve , and pay a higher gross profit per case than other customers . also , in fiscal 2018 , foodservice grew our performance brand sales , which have higher gross profit per case compared to the other brands we sell . see “ —segment results—foodservice ” below for additional discussion . operating expenses operating expenses increased $ 125.5 million , or 6.6 % , for fiscal 2018 compared to fiscal 2017. the increase in operating expenses was primarily driven by the increase in acquired case volume and the resulting impact on variable operational and selling expenses , as well as investments in selling , warehouse , and delivery personnel . operating expenses also increased in fiscal 2018 as a result of increases in fuel expense of $ 15.7 million and stock-based compensation expense of $ 4.3 million , partially offset by a $ 2.6 million decrease in advisory fees and a $ 1.8 million decrease in professional fees . depreciation and amortization of intangible assets increased from $ 126.1 million in fiscal 2017 to $ 130.1 million in fiscal 2018 , an increase of 3.2 % . depreciation of fixed assets increased as a result of capital outlays to support our growth , as well as recent acquisitions . this increase was partially offset by decreases in amortization since certain intangibles are now fully amortized compared to the prior year . 29 net income net income increased by $ 102.4 million , or 106.3 % , to $ 198.7 million for fiscal 2018 compared to fiscal 2017. the increase in net income was attributable to the $ 42.5 million increase in operating profit and the $ 66.5 million decrease in income tax expense , partially offset by a $ 5.5 million increase in interest expense , and a $ 1.1 million decrease in other income . the increase in operating profit was a result of the increase in gross profit discussed above , partially offset by the increase in operating expenses . the increase in interest expense was primarily the result of an increase in the average interest rate and higher average borrowings during fiscal 2018 compared to fiscal 2017. the $ 1.1 million decrease in other income related primarily to derivative activity . the decrease in income tax expense was primarily a result of the impact of the act . our effective tax rate in fiscal 2018 was -2.6 % compared to 39.0 % in fiscal 2017. the act was signed into law on december 22 , 2017. among its numerous changes to the u.s. internal revenue code , the act reduces the u.s. federal corporate rate from 35 % to 21 % , which resulted in a blended u.s. federal statutory rate of approximately 28 % for fiscal 2018 for the company . as a result of the act , the company revalued its net deferred tax liability , resulting in a decrease to the net deferred tax liability of $ 38.5 million with a corresponding net benefit to income tax expense for fiscal 2018. as a result of a blended statutory rate for fiscal 2018 , the company recognized a tax benefit of $ 11.9 million for the rate differential related to temporary differences . additionally , in fiscal 2018 , performance vesting criteria for certain stock-based compensation awards was met resulting in an excess tax benefit of $ 15.4 million . segment results in the first quarter of fiscal 2019 , the company changed its operating segments to reflect the manner in which the business is managed . based on changes to the company 's organization structure and how the company 's management reviews operating results and makes decisions about resource allocation , the company has two reportable segments : foodservice and vistar .
| operating expenses operating expenses increased $ 190.4 million , or 9.3 % , for fiscal 2019 compared to fiscal 2018. the increase in operating expenses was primarily driven by the increase in case volume and the resulting impact on variable operational and selling expenses . operating expenses also increased in fiscal 2019 as a result of recent acquisitions , increases in personnel expenses , an increase in repairs and maintenance expenses of $ 14.5 million , an increase in fuel expense of $ 11.7 million , and an increase in insurance expense of $ 8.5 million . these increases were partially offset by a $ 5.9 million decrease in stock-based compensation expense , a $ 5.7 million decrease in professional fees , and a $ 3.0 million decrease in advisory fees . 28 depreciation and amortization of intangible assets increased from $ 130.1 million in fiscal 2018 to $ 155.0 million in fiscal 2019 , an increase of 19.1 % . depreciation of fixed assets increased as a result of capital outlays to support our growth . amort ization of intangible assets , primarily customer relationships , increased as a result of recent acquisitions . net income net income decreased by $ 31.9 million , or 16.1 % , to $ 166.8 million for fiscal 2019 compared to fiscal 2018 as a result of a $ 56.6 million increase in income tax expense and a $ 5.0 million increase in interest expense , partially offset by the $ 29.8 million increase in operating profit . the increase in operating profit was a result of the increase in gross profit discussed above , partially offset by the increase in operating expenses . the increase in interest expense was primarily the result of an increase in the average interest rate during fiscal 2019 compared to fiscal 2018. the increase in income tax expense was primarily a result of the prior year impact of the act and the prior year excess tax benefit associated with the vesting of stock-based compensation awards .
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as we made this change to our financial reporting prospectively , in this report we refer to both accounting in accordance with us generally accepted accounting principles , or gaap , applicable to bank holding companies , or bank holding company accounting , which applies commencing april 2 , 2018 , and to that applicable to investment companies under the 1940 act , or investment company accounting , which applies to prior periods . our wholly-owned subsidiary , medallion bank , or the bank , is a bank regulated by the fdic and the utah department of financial institutions which originates consumer loans , raises deposits , and conducts other banking activities . the bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit . to take advantage of this low cost of funds , historically we have referred a portion of our taxi medallion and commercial loans to the bank , which originated these loans , and have been serviced by medallion servicing corp. , or msc . however , at this time the bank is not originating any new medallion loans and is working with msc to service its existing portfolio . msc earns referral and servicing fees for these activities . covid-19 the ongoing coronavirus , or covid-19 , pandemic , its broad impact and preventive measures taken to contain or mitigate the outbreak have had , and are likely to continue to have , significant negative effects on the us and global economy , employment levels , employee productivity , and financial market conditions . this has had , and may continue to have increasingly negative effects on the ability of our borrowers to repay outstanding loans , the value of collateral securing loans , the demand for loans and other financial services products and consumer discretionary spending . as a result of these or other consequences , the outbreak has adversely and materially affected our business , results of operations and financial condition . the effects of the outbreak on us could be exacerbated given that our business model is largely consumer and small business directed , which are more severely affected by covid-19 and the preventative measures taken to contain or mitigate the outbreak , including its significant negative effects on consumer discretionary spending . the full extent to which the outbreak will continue to impact our operations will depend on future developments , which are highly uncertain and can not be predicted at this time , and include the duration , severity and scope of the continued outbreak , the actions taken to contain or mitigate the outbreak and how long , and to what extent the economic recovery from its effects will take . 37 we have taken steps to operate through this crisis . for example , in late june our employees returned to work in our new york city offices on a part-time basis in accordance with guidelines issued by new york , while our employees outside new york largely continue to work remotely . while there are elevated risks with our workforce working remotely , we have implemented additional mitigating controls to help reduce such risks . in addition , to better align our structure with profitability and reduce expenses , effective may 11 , 2020 , we had furloughed approximately 28 % of the employees at our parent company , medallion financial corp . as of december 31 , 2020 , 21 % of employees , all of whom were employees of our parent company , medallion financial corp. , and no employees of our consolidated subsidiaries remain on furlough . as part of our expense-cutting measures , eff ective march 2 , 2021 , we termin ated such medallion financial corp. employees on furlough . additionally , we closed our satellite offices in long island city , new york , chicago , illinois , and boston , massachusetts . the bank temporarily increased its cash levels by increasing its deposits , and in order to take advantage of the current lower interest rates . mci drew on its remaining unfunded commitments and received a commitment from the sba for $ 25,000,000 in debenture financing with a ten-year term upon a capital infusion from medallion financial . rpac received $ 747,000 under the paycheck protection program in the second quarter , and has not yet applied for forgiveness , but expects to do so . with our consumer business , in march 2020 , we adjusted our payment policies and procedures , and created a program to support our borrowers during the pandemic . we have been negotiating payment terms with our borrowers , and allowed them to defer payments up to 180 days . as of december 31 , 2020 , there were minimal consumer loans on deferral and the level of potential loans 90 days or more past due would have likely resulted in increased charge-offs on the consumer loan portfolios had they not been granted . for our consumer loan portfolios , although we believe that our deferral programs have been effective to date in mitigating the effect of covid-19 , the ultimate effects of covid-19 on the consumer portfolio remains to be seen . in addition , we increased our allowance for loan losses on consumer loans , and continued to monitor our loan portfolios as market conditions changed in both march and june of 2020. overall , the effects of the pandemic on us could be exacerbated given that our business model is largely consumer-directed and the pandemic , and preventative measures taken to contain or mitigate the pandemic , had and may increasingly have significant negative effects on consumer discretionary spending . with our medallion business , we also adjusted our payment policies and procedures and allowed borrowers to defer payments up to 180 days . story_separator_special_tag as of december 31 , 2020 , there were no medallion loans on deferral and we determined that anticipated payment activity on our medallion portfolio was impossible to quantify upon exit of the deferral moratorium , and therefore deemed all such loans as impaired . as a result , all medallion loans were placed on nonaccrual and written down to a net collateral value of $ 90,300 for new york city medallions along with write downs in most other markets during the 2020 third quarter and we wrote down the new york city collateral an additional $ 10,800 , to $ 79,500 net in the 2020 fourth quarter . these writedowns of the medallion assets led to an increase of provision of approximately $ 25,945,000 related to medallion loans and approximately an additional $ 20,142,000 related to collateral write down on other owned assets . substantially all our medallion loans and related assets are concentrated in new york city . as a result of the covid-19 pandemic , in march 2020 , the governor of new york state declared states of emergency for both the state and city of new york , and , since march 2020 , economic activity generally and taxi ridership in particular have decreased dramatically in new york city . despite new york city 's phased reopening plan , there has not been a substantial increase in ridership and gross meter fares . the extent to which the covid-19 pandemic will continue to adversely affect new york city taxi medallion owners and , by extension , our medallion loans and related assets will depend on future developments , which are highly uncertain and can not be predicted , including the scope and duration of the pandemic , actions taken by governmental authorities , and the direct and indirect impact of the pandemic on taxi medallion owners and the behaviors of people who have historically taken taxis . since march 31 , 2020 , payments on medallion loans have decreased significantly compared to the payments during the first quarter of 2020 and in prior periods . we are actively engaged with many borrowers about modifying their loan agreements , and as a result , we placed all medallion loans on tdr as we work with borrowers . we will continue to monitor our medallion loan portfolio and related assets , which may result in additional write-downs , charge-offs or impairments , the impact of which could be material to our results of operations and financial condition . in regards to our commercial business , many of our mezzanine portfolio companies were able to access the paycheck protection program , providing needed liquidity during a period of depressed market demands . for the mezzanine portfolio , performance is slowly recovering although lingering impacts of covid-19 continues to weigh on performance . refer to “ risk factors -- the ongoing covid-19 pandemic , and the related significant negative impact on the global economy and financial markets , have had and could further have a material adverse impact on our business , operating results , and financial condition . ” 38 critical accounting policies and estimates we follow financial accounting and reporting policies that are in accordance with gaap . some of these significant accounting policies require management to make difficult , subjective or complex judgments . the policies noted below , however , are deemed to be our “ critical accounting policies ” under the definition given to this term by the sec . according to the sec , “ critical accounting policies ” mean those policies that are most important to the presentation of a company 's financial condition and results of operations , and require management 's most difficult , subjective , or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . the judgments used by management in applying the critical accounting policies may be affected by deterioration in the economic environment , which may result in changes to future financial results . specifically , subsequent evaluations of the loan portfolio , in light of the factors then prevailing , may result in significant changes to the allowance for loan losses in future periods , and the inability to collect on outstanding loans could result in increased loan losses . allowance for loan losses in analyzing the adequacy of the allowance for loan losses , the company uses historical delinquency and actual loss rates with a three-year look-back period for medallion loans and a one-year look-back period for recreation and home improvement loans , and uses historical loss experience and other projections for commercial loans . the allowance is evaluated on a regular basis by management and is based upon management 's periodic review of the collectability of the loans in light of historical experience , the nature and size of the loan portfolio , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral , prevailing economic conditions , and excess concentration risks . this evaluation is inherently subjective , as it requires estimates that are susceptible to significant revision as more information becomes available . our methodology to calculate the general reserve portion of the allowance includes the use of quantitative and qualitative factors . we initially determine an allowance based on quantitative loss factors for loans evaluated collectively for impairment . the quantitative loss factors are based primarily on historical loss rates , after considering loan type , historical loss and delinquency experience . the quantitative loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels or other risks . qualitative loss factors are used to modify the reserve determined by the quantitative factors and are designed to account for losses that may not be included in the quantitative calculation according to management 's best judgment . performing loans are recorded at book value and the general reserve maintained to absorb expected losses consistent with gaap .
| the company had an allowance for loan losses as of december 31 , 2019 of $ 46,093,000 , which was attributable to medallion ( 55 % ) , recreation ( 39 % ) , and home improvement ( 6 % ) loans . loans increased $ 68,983,000 , or 6 % , from december 31 , 2019 to $ 1.2 billion as of december 31 , 2020 as a result of $ 497,221,000 of loan originations , partially offset by principal payments , net charge-offs ( mainly on medallion loans ) , and transfers to loan collateral in process of foreclosure . the provision for loan losses was $ 69,817,000 for the year ended december 31 , 2020 , compared to $ 47,386,000 for 2019. the increase was mainly due to all medallion loans being deemed impaired due to the continued uncertainty of the potential continued impact of the covid-19 pandemic on those borrowers . in addition , new york city and almost all other market net collateral values decreased , and the loans were written down , leading to an increase in provisions of approximately $ 25,945,000. additionally , this change reflected the increase of reserve percentages ranging from 25 to 100 basis points on the recreation subprime loan business , related to the uncertainty about the potential impact on the businesses as a result of covid-19 . the charge-off ratios on the loan portfolios increased to 5.00 % for the year ended december 31 , 2020 compared to 3.60 % for the prior year , mostly in the medallion segment . see note 4 for additional information on loans and the allowance for loan losses . interest expense was $ 34,151,000 for the year ended december 31 , 2020 , compared to $ 35,045,000 for the year ended december 31 , 2019. the average cost of borrowed funds was 2.71 % for 2020 , compared to 3.08 % for 2019 , mainly driven by the decline in market rates for deposits . average debt outstanding was $ 1,258,257,000 for 2020 , compared to $ 1,138,746,000 for 2019. this increase was driven by the issuance additional certificates of deposits to increase our liquidity and help fund the growing consumer segment along with the new issuance of privately placed notes . see page 41 for a table which shows average
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such holders will be entitled to demand registration rights and certain “ piggy-back ” registration rights with respect to the initial shares and the placement shares , commencing , in the case of the initial shares , one year after the consummation of our initial business transaction and , in the case of the placement shares , 30 days after the consummation of our initial business transaction . we will reimburse our initial stockholders , officers and directors for any reasonable out-of-pocket business expenses incurred by them in connection with certain activities on our behalf such as identifying and investigating possible target businesses and business transactions . reimbursable out-of-pocket expenses incurred by our initial stockholders , officers and directors will not be repaid out of proceeds held in the trust account until these proceeds are released to us upon the completion of a business transaction , provided there are sufficient funds available for reimbursement after such consummation . the financial interest of such persons could influence their motivation in selecting a target business and thus , there may be a conflict of interest when determining whether a particular business transaction is in our public stockholders ' best interest . 55 other than the reimbursable out-of-pocket expenses payable to our initial stockholders , officers and directors , no compensation , reimbursements , cash payments or fees of any kind , including finders , consulting fees or other similar compensation , will be paid to our initial stockholders , officers or directors , or to any of our or their respective affiliates prior to or with respect to a story_separator_special_tag overview the following discussion should be read in conjunction with our financial statements , together with the notes to those statements , included elsewhere in this report . our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events . we are a blank check company formed on january 24 , 2006 for the purpose of acquiring one or more operating businesses or assets through a merger , capital stock exchange , asset acquisition , stock purchase , reorganization , exchangeable share transaction or other similar business transaction . we intend to use cash from the proceeds of the offering , our capital stock , incurred debt , or a combination of cash , capital stock and debt , in effecting our initial business transaction . the issuance of additional shares of our capital stock : · may significantly reduce the equity interest of investors in the offering ; · may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded to the holders of our common stock ; · may likely cause a change in control if a substantial number of our shares of common stock are issued , which may affect , among other things , our ability to use our net operating loss carry forwards , if any , and most likely will also result in the resignation or removal of our present officers and directors ; and · may adversely affect prevailing market prices for our common stock and or warrants . similarly , if we incur substantial debt , it could result in : · default and foreclosure on our assets if our operating cash flow after a business transaction is insufficient to pay our debt obligations ; 39 · acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contains covenants that require the maintenance of certain financial ratios or reserves and any such covenant is breached without a waiver or renegotiation of that covenant ; · our immediate payment of all principal and accrued interest , if any , if the debt security is payable on demand ; · covenants that limit our ability to acquire capital assets or make additional acquisitions ; · our inability to obtain additional financing , if necessary , if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding ; · our inability to pay dividends on our common stock ; · using a substantial portion of our cash flow to pay principal and interest on our debt , which will reduce the funds available for dividends on our common stock if declared , expenses , capital expenditures , acquisitions and other general corporate purposes ; · limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate ; · increased vulnerability to adverse changes in general economic , industry and competitive conditions and adverse changes in government regulation ; and · limitations on our ability to borrow additional amounts for expenses , capital expenditures , acquisitions , debt service requirements , execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt . story_separator_special_tag bcm , and cooperation from our professional service providers will be sufficient to allow us to operate until july 24 , 2013 , which is the date that is 21 months after the effectiveness of the registration statement , assuming that a business combination is not consummated during that time . all the expenses relating to the offering were funded by proceeds from loans with bcm . prior to the consummation of our initial business transaction , in order to fund all expenses relating to investigating and selecting a target business , negotiating an acquisition agreement and consummating such acquisition and our other working capital requirements , bcm has agreed to loan us funds from time to time , or at any time , up to $ 800,000. all these loans will be due and payable upon the completion of our initial business transaction and will be on terms that waive any and all rights to the funds in the trust account . the story_separator_special_tag such holders will be entitled to demand registration rights and certain “ piggy-back ” registration rights with respect to the initial shares and the placement shares , commencing , in the case of the initial shares , one year after the consummation of our initial business transaction and , in the case of the placement shares , 30 days after the consummation of our initial business transaction . we will reimburse our initial stockholders , officers and directors for any reasonable out-of-pocket business expenses incurred by them in connection with certain activities on our behalf such as identifying and investigating possible target businesses and business transactions . reimbursable out-of-pocket expenses incurred by our initial stockholders , officers and directors will not be repaid out of proceeds held in the trust account until these proceeds are released to us upon the completion of a business transaction , provided there are sufficient funds available for reimbursement after such consummation . the financial interest of such persons could influence their motivation in selecting a target business and thus , there may be a conflict of interest when determining whether a particular business transaction is in our public stockholders ' best interest . 55 other than the reimbursable out-of-pocket expenses payable to our initial stockholders , officers and directors , no compensation , reimbursements , cash payments or fees of any kind , including finders , consulting fees or other similar compensation , will be paid to our initial stockholders , officers or directors , or to any of our or their respective affiliates prior to or with respect to a story_separator_special_tag overview the following discussion should be read in conjunction with our financial statements , together with the notes to those statements , included elsewhere in this report . our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events . we are a blank check company formed on january 24 , 2006 for the purpose of acquiring one or more operating businesses or assets through a merger , capital stock exchange , asset acquisition , stock purchase , reorganization , exchangeable share transaction or other similar business transaction . we intend to use cash from the proceeds of the offering , our capital stock , incurred debt , or a combination of cash , capital stock and debt , in effecting our initial business transaction . the issuance of additional shares of our capital stock : · may significantly reduce the equity interest of investors in the offering ; · may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded to the holders of our common stock ; · may likely cause a change in control if a substantial number of our shares of common stock are issued , which may affect , among other things , our ability to use our net operating loss carry forwards , if any , and most likely will also result in the resignation or removal of our present officers and directors ; and · may adversely affect prevailing market prices for our common stock and or warrants . similarly , if we incur substantial debt , it could result in : · default and foreclosure on our assets if our operating cash flow after a business transaction is insufficient to pay our debt obligations ; 39 · acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contains covenants that require the maintenance of certain financial ratios or reserves and any such covenant is breached without a waiver or renegotiation of that covenant ; · our immediate payment of all principal and accrued interest , if any , if the debt security is payable on demand ; · covenants that limit our ability to acquire capital assets or make additional acquisitions ; · our inability to obtain additional financing , if necessary , if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding ; · our inability to pay dividends on our common stock ; · using a substantial portion of our cash flow to pay principal and interest on our debt , which will reduce the funds available for dividends on our common stock if declared , expenses , capital expenditures , acquisitions and other general corporate purposes ; · limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate ; · increased vulnerability to adverse changes in general economic , industry and competitive conditions and adverse changes in government regulation ; and · limitations on our ability to borrow additional amounts for expenses , capital expenditures , acquisitions , debt service requirements , execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt . story_separator_special_tag bcm , and cooperation from our professional service providers will be sufficient to allow us to operate until july 24 , 2013 , which is the date that is 21 months after the effectiveness of the registration statement , assuming that a business combination is not consummated during that time . all the expenses relating to the offering were funded by proceeds from loans with bcm . prior to the consummation of our initial business transaction , in order to fund all expenses relating to investigating and selecting a target business , negotiating an acquisition agreement and consummating such acquisition and our other working capital requirements , bcm has agreed to loan us funds from time to time , or at any time , up to $ 800,000. all these loans will be due and payable upon the completion of our initial business transaction and will be on terms that waive any and all rights to the funds in the trust account . the
| on march 20 , 2012 , the funds in the trust account were transferred to an investment bank and invested in an institutional money market account that meets the conditions specified in rule 2a-7 under the investment company act of 1940. for the year ended december 31 , 2011 , we had a net loss of $ 293,000 , consisting of expense due to our activities in relation to the initial business transaction , expense due to the preparation and filing of our reports with the sec , approximately $ 85,000 in state franchise taxes and interest expense . this compares with a net loss of $ 30,000 for the year ended december 31 , 2010 , consisting of legal , accounting , audit and other professional service fees incurred in relation to the preparation and filing of our reports with the sec and interest expense . 40 for the cumulative period from january 24 , 2006 ( inception ) to december 31 , 2011 , we had a net loss of $ 403,000 , consisting of legal , accounting , audit and other professional service fees incurred in relation to our formation , the filing of our registration statement on form 10-sb in may 2007 , the filing of our periodic reports on form 10-q and form 10-k , state franchise taxes of approximately $ 85,000 , interest expense and our activities in relation to the initial business transaction . we will not generate any operating revenues until after the consummation of our initial business transaction , at the earliest . we will continue to generate non-operating income in the form of interest income on cash and cash equivalents . we expect to incur increased expenses in 2012 as a result of activities relating to our initial business transaction , including due diligence expenses . as we expect to continue to generate net losses , we do not anticipate incurring substantial income or other tax expense ( other than franchise taxes ) until the consummation of our initial business transaction , at the earliest . liquidity and capital resources as of december 31 , 2011 , we had assets equal to $ 28,772,000 , comprised solely of cash in the trust account and prepaid expenses . this compares with assets of $ 5,000 , comprised of cash and prepaid expenses as of december 31 , 2010. our current liabilities as of december 31 , 2011 totaled approximately $ 805,000 , comprised
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we continuously monitor collections from customers , and we maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues that we have identified . historically , we have not experienced significant losses related to our accounts receivable . collateral is not generally required . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances might be required . warranty and preventative maintenance costs we warranty our products against manufacturing defects under normal use and service during the warranty period . we obtain similar warranties from a majority of our suppliers . we evaluate the estimated future unrecoverable costs of warranty and preventative maintenance services for our installed base of renalguard consoles and single-use sets on a quarterly basis and adjust our warranty reserve accordingly . we consider all available evidence , including historical experience and information obtained from supplier audits . historically , we have not experienced significant costs related to warranty and preventative maintenance . valuation of convertible notes and warrant liabilities the valuation of our convertible notes and our warrant liabilities as derivative instruments utilizes certain estimates and judgments that affect the fair value of the instruments . fair values are estimated by utilizing valuation models that consider current and expected stock prices , volatility , dividends , forward yield curves and discount rates . such amounts and the recognition of such amounts are subject to significant estimates that may change in the future . revenue recognition we recognize revenue when the following basic revenue recognition criteria have been met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services rendered ; ( 3 ) the price to the buyer is fixed or determinable ; and ( 4 ) collectability is reasonably assured . determination of criteria ( 3 ) and ( 4 ) are based on management 's judgments regarding the fixed nature of the price to the buyer charged for products delivered or services rendered and collectability of the sales price . we assess credit worthiness of customers based upon prior history with the customer and assessment of financial condition . our shipping terms are customarily free on board ( fob ) shipping point . we generally record product revenue , including sales of renalguard consoles and single-use sets at the time of shipment , if all other revenue recognition criteria have been met . as of december 31 , 2012 and 2011 , we had deferred revenue balances of $ 317,000 and $ 277,000 , respectively , related to shipments to our distributor in italy , artech , because not all revenue recognition criteria were met . during the years ended december 31 , 2012 and 2011 , we recognized $ 381,000 and $ 0 , respectively , in revenue of previously deferred upon the receipt of cash . 11 story_separator_special_tag style= '' font-size:10.0pt ; '' > on november 5 , 2010 , we entered into an agreement to sell our tmr business to novadaq . this transaction was approved by our shareholders at a special meeting on january 31 , 2011 and the transaction closed on february 1 , 2011. as discussed in note 9 to our consolidated financial statements , the operating results of these operations , including those related to prior periods , have been reclassified from continuing operations to discontinued operations in our consolidated financial statements for 2011 . 13 liquidity and capital resources we compete in the highly regulated and competitive medical device market place where products can take significant time to develop , gain regulatory approval and then introduce to distributors and end users . we have incurred recurring quarterly operating losses over the past few years as we have worked to bring our renalguard system through development and initial commercialization efforts outside the united states . we expect such operating losses will continue until such time , if ever , that renalguard product sales increase sufficiently to generate profitable results . under the terms of the securities purchase agreement , we had the opportunity to raise up to an additional $ 2 million from the holders of the convertible notes in two separate $ 1 million tranches , based upon meeting certain operational milestones within certain periods of time . the deadline for achieving the operational milestones for the first $ 1 million tranche expired in february 2012 without our achieving such milestones ; however , the investors agreed to waive both the deadline and the achievement of these milestones as a condition for the investment of the first additional $ 1 million and invested such funds in july 2012. on july 2 , 2012 we entered into an amendment and waiver to securities purchase agreement to amend our securities purchase agreement to provide for the issuance of ( i ) an additional $ 1,000,000 of 5 % senior secured convertible debentures maturing on july 2 , 2015 , ( ii ) warrants exercisable for a period of five years to purchase up to 10,000,000 shares of common stock at an exercise price of $ 0.15 per share and ( iii ) warrants exercisable for a period of five years to purchase up to 10,000,000 shares of common stock at an exercise price of $ 0.25 per share . see note 10 to our consolidated financial statements for additional disclosure surrounding this amendment . story_separator_special_tag on january 16 , 2013 we entered into an amendment and waiver to securities purchase agreement to amend our securities purchase agreement to provide for the issuance of ( i ) an additional $ 250,000 of 5 % senior secured convertible debentures maturing on january 16 , 2016 ( ii ) warrants exercisable for a period of five years to purchase up to 2,500,000 shares of common stock at an exercise price of $ 0.15 per share and ( iii ) warrants exercisable for a period of five years to purchase up to 10,000,000 shares of common stock at an exercise price of $ 0.25 per share . on february 22 , 2013 , we entered into a securities purchase agreement with a number of accredited investors , whereby we sold an aggregate of 26,733,333 shares of common stock and warrants to purchase an additional 26,733,333 shares of common stock ( the warrants ) with gross proceeds of $ 4,010,000 to these accredited investors . we intend to utilize the proceeds of the private placement for general working capital purposes , to pay for investor relations services , for payment of fees to palladium capital , llc , the exclusive placement agent , and for legal , blue sky and related expenses . after payment of the placement agent fees and these other expenses , we anticipate net proceeds of approximately $ 3.5 million . cash and cash equivalents totaled $ 258,000 as of december 31 , 2012 , a decrease of $ 2,327,000 from $ 2,585,000 as of december 31 , 2011. we have historically funded our working capital requirements through cash received from public and private offerings of our common stock and to a lesser extent , through our sales of products and services . in february 2011 , we sold our tmr business for $ 1 million in cash plus the relief of approximately $ 614,000 in service contract obligations , and we issued $ 4 million in senior secured convertible notes to an institutional investor pursuant to a securities purchase agreement . we believe that our existing resources , based on our currently projected financial results , are sufficient to fund operations through the third quarter of 2013. based upon current and anticipated revenue projections from foreign sales of our renalguard product , and the anticipated costs of our u.s. clinical trial , we expect that we will need to raise additional capital during the remainder of 2013. our plan is to seek additional capital through the sale of equity and or debt securities to fund operations . however , there can be no assurance that such capital will be available at all , or if available , that the terms of such financing will not be dilutive to our existing stockholders . the holders of the convertible notes have a right to participate in up to 50 % of any subsequent financing . if we raise , additional funds through the issuance of equity or convertible debt securities , the percentage ownership of the company by our stockholders would be diluted . in addition , any debt securities would have rights , preferences and privileges senior to our common stock and we may sell equity or other convertible debt financing securities which would have rights , preferences and privileges senior to our common stock . if we are unable to generate adequate cash flows or obtain sufficient additional funding when needed , we may have to take certain actions including , but not limited to , cutting back our operations , selling some or all of our assets , licensing potentially valuable technologies to third parties , and or ceasing some or all of our operations . cash flows used in operating activities in the twelve months ended december 31 , 2012 were $ 3,157,000 due to our net loss , partially offset by non-cash activity including 1 ) the change in fair value of convertible notes and warrant liabilities 2 ) non-cash interest expense ; 3 ) depreciation expense ; 4 ) stock-based compensation expense ; and 5 ) financing costs associated with convertible notes . cash flows from financing activities in the twelve months ended december 31 , 2012 14 were $ 920,000 from the issuance of $ 1 million in second tranche senior secured convertible notes to an institutional investor , net of financing costs . the effect of exchange rate changes was a $ 16,000 decrease in cash . forward-looking statements this annual report on form 10-k contains forward-looking statements within the meaning of section 27a of the securities act and section 21e of the exchange act . statements containing terms such as believes , plans , expects , anticipates , intends , estimates and similar expressions contain uncertainty and are forward-looking statements . forward-looking statements are based on current plans and expectations and involve known and unknown important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements . such important factors and uncertainties include , but are not limited to : · we expect to incur significant net losses in future quarters ; · we have received a going concern ' opinion in our consolidated financial statements indicating that our cash balance as of december 31 , 2012 , combined with recurring net losses and negative cash flows from operations , raises substantial doubt about our ability to continue as a going concern for the next 12 months . as noted above , we are investigating ways to raise additional capital to continue our operations ; · our quarterly operating results have varied in the past and will continue to vary significantly in the future , causing volatility in our stock price ; · with the sale of our tmr business in february 2011 , our future prospects are solely dependent upon the successful commercialization of renalguard .
| research and development expenses research and development expenditures increased 68 % in 2012 as compared to 2011 due to renalguard u.s. clinical trial costs . as we continue our u.s clinical trial for our renalguard program , we expect our research and development expenses to significantly increase in 2013. gain on sale of assets we recorded a gain on the sale of assets of $ 0 in 2012 and $ 40,000 in 2011 related to the sale of our oem surgical tube business . other income ( expense ) in february 2011 , the company entered into a securities purchase agreement and a 5 % senior secured convertible debenture agreement as described in note 10 of the consolidated financial statements . in july 2012 , the company entered into an amendment to the securities purchase agreement and 5 % senior secured convertible debenture agreement as described in note 10 of the consolidated financial statements . as a result of these two transactions , interest expense on the convertible notes and second tranche convertible notes of $ 555,000 in the year ended december 31 , 2012 , and $ 396,000 in the year ended december 31 , 2011 , was recorded . in addition , financing costs associated with second tranche convertible notes of $ 85,000 was recorded in the year ended december 31 , 2012 and financing costs associated with the convertible note of $ 530,000 was recorded in the year ended december 31 , 2011. the company recorded other expense of $ 1,617,000 in the year ended december 31 , 2012 as compared to $ 808,000 in the year ended december 31 , 2011 , as a result of a fair value adjustment related to the warrant liabilities as well as the additional expense for the fair value adjustment for the 2012 warrants entered into in july 2012. the company recorded other expense of $ 2,024,000 in the year ended december 31 , 2012 as compared to other expense
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the net proceeds from the offering , after deducting the underwriting discount , were approximately $ 394.2 million and were partially used to repay our $ 100.0 million term loan due february 14 , 2022. during 2020 , we assumed total debt of $ 63.2 million as part of the consideration for the acquisition of 11 properties during 2020. the $ 63.2 million is comprised of 11 secured fixed-rate mortgage loans with interest rates ranging from 3.70 % to 5.24 % and with maturities ranging from 3.0 years to 8.3 years from the date assumed . in october 2020 , we received investment grade ratings of baa3 from moody 's investors services ( “ moody 's ) and bbb from standard and poor 's ratings services ( “ s & p ” ) , complementing our current bbb rating received from fitch ratings ( “ fitch ” ) . as a result of obtaining these ratings , we elected to convert the pricing structure under our unsecured revolving credit facility and unsecured term loan facilities to be based on such ratings , resulting in an overall reduction in our interest rate spreads . factors that may influence future results of operations covid-19 update the outbreak of covid-19and the related responses by public health and governmental authorities to contain its outbreak and spread has significantly impacted the global and national economies , our industry and the industries in which our tenants operate . in southern california , where all of our industrial properties are located , local government authorities reacted to the covid-19 pandemic early on by instituting quarantines , restrictions on travel , “ shelter in place ” rules , restrictions on types of businesses that may continue to operate , and or restrictions on the types of construction projects that may continue . since the onset of the pandemic , state and local government restrictions have gone through a cycle of easing and tightening in response to resurgences in covid-19 cases , causing some businesses to close and resume operations in tandem with changes in restrictions . the state of california is currently under a risk-based four-tier system which is used to determine on a county-by-county basis which types of businesses are allowed to reopen or required to restrict activities . we can not predict when restrictions currently in place will expire or if additional restrictions will be added . most municipalities in southern california , including many municipalities in which we own properties , have mandated a moratorium on all commercial evictions and have given tenants impacted by covid-19 the unilateral right to defer rent while the emergency orders are in effect , with repayment generally within six to twelve months after the end of the local emergency . only a small number of municipalities have allowed their local orders to expire or modified the orders to exclude some tenants ( based on the tenant 's number of employees , being a publicly traded company or multinational company , or other characteristics ) , and in many of the local municipalities in which we operate , the eviction restrictions and rent deferment rights are set to expire by march 31 , 2021 , while in other municipalities the restrictions expire when the local emergency is lifted . we can not currently predict whether or not these restrictions may be extended or for how long . some of the orders have been extended multiple times . a number of our tenants have taken advantage of the relief provided by the local government mandates authorizing deferral of rent , irrespective of such tenants ' actual ability to pay such rent , and we are currently unable to predict the ultimate impact that the covid-19 pandemic will have on our tenants or the number of tenants that will take advantage of the relief provided by the local government mandates authorizing the deferral of rent . while we are currently unable to completely estimate the impact that the covid-19 pandemic and efforts to contain its spread , as well as the california emergency orders authorizing tenant deferral of rent , will have on our business and our tenants during 2021 , as of february 16 , 2021 we have taken the following steps and seen the following impact on our portfolio ( using tenant counts and in-place annualized base rent ( defined below ) as of december 31 , 2020 ) : we had 1,533 leases representing in-place annualized base rent ( “ abr ” ) of $ 310.4 million . abr is defined/calculated as the monthly contractual base rent per the leases , excluding any rent abatements , as of december 31 , 2020 , multiplied by 12. during 2020 , we executed rent relief agreements ( which comprise application of security deposits , acceleration of concessions and deferral of base rent ) with 270 tenants , including 120 tenants that received deferred base rent of $ 4.6 million or 1.5 % of abr . see the table below for a summary of rent relief provided to tenants applicable to the second , 51 third and fourth quarters of 2020 and january 2021. we have executed rent relief agreements with two of our top ten tenants as of december 31 , 2020 , including one that received a deferral of contractual base rent for approximately three months . as of december 31 , 2020 , all of our top ten tenants were current on their rent payments . we can not be certain of the number of tenants not paying or deferring rent out of need versus those merely taking advantage of their local california government-mandated right to unilaterally defer rent without an agreement . we may in the future amend or enter into additional rent relief agreements . story_separator_special_tag the following table sets forth the following information regarding contractual rent for the second , third and fourth quarters of 2020 and january 2021 ( dollars in thousands ) : ( i ) amount billed , ( ii ) percentage collected ( as of february 16 , 2021 ) prior to the impact of consummated rent relief agreements , ( iii ) the amount of rent relief provided to tenants by the ( a ) application of security deposits to contractual base rent , ( b ) acceleration of future existing contractual rent concessions to cover contractual base rent and ( c ) deferral of contractual base rent and ( iv ) percentage collected ( as of february 16 , 2021 ) after adjusting for rent relief provided by rent relief agreements . replace_table_token_19_th ( 1 ) contractual billings include contractual base rent and tenant reimbursements ( including prior year recoverable expense reconciliation adjustments ) charged to in-place tenants before the impact of consummated covid-19 related rent relief agreements , as well as covid-19 deferral billings ( see footnote ( 7 ) below for details ) . ( 2 ) represents the cash collection percentage of contractual billings . ( 3 ) reflects collections through february 16 , 2021 , for all periods presented . ( 4 ) the typical deferral period has been approximately one to two months with repayment generally beginning in the third or fourth quarter of 2020 . ( 5 ) represents the cash collection percentage of contractual billings after adjusting for rent relief provided by rent relief agreements . ( 6 ) during the second quarter of 2020 , $ 96,000 of rent relief was provided to a tenant in the form of a base rent deferral with repayment scheduled to begin in the fourth quarter of 2020. during the third quarter of 2020 , this base rent deferral was waived in connection with the execution of an early renewal lease . ( 7 ) the following table provides a breakdown of third and fourth quarter 2020 and january 2021 contractual billings between regular billings and covid-19 deferral billings and percentage collected through february 16 , 2021 ( dollars in thousands ) : 52 replace_table_token_20_th while the volume of rent relief requests and rent relief agreements executed has significantly decreased and tapered off from its peak in april 2020 , for any rent relief requests we might receive in the future , we will continue to perform an evaluation of each tenant 's individual circumstances prior to executing such rent relief agreements . not all tenant rent relief requests will ultimately result in rent relief agreements , nor are we forgoing our contractual rights under any of our lease agreements . rent collections and rent relief requests received to-date may not be indicative of collections or requests in any future period . the long-term impacts of the ongoing covid-19 pandemic and efforts to contain its spread , as well as the actions of many california municipalities enabling tenants impacted by covid-19 to unilaterally defer their rent , on our operations is uncertain . a continuing outbreak could have a material adverse impact on our financial results and business operations , including our timing and ability to collect rents , including rents that have been deferred pursuant to consummated rent relief agreements . further , the impacts of a potential worsening of global economic conditions and the continued disruptions to , and volatility in , the credit and financial markets , consumer spending as well as other unanticipated consequences remain unknown . the situation surrounding the covid-19 pandemic remains fluid , and we are actively managing our ongoing response in collaboration with tenants and government officials and assessing potential impacts to our financial position and operating results , as well as potential adverse developments in our business . for further information regarding the impact of covid-19 on the company , see part ii , item 1a titled “ risk factors. ” market and portfolio fundamentals our operating results depend upon the infill southern california industrial real estate market . the infill southern california industrial real estate sector has continued to exhibit strong fundamentals , even amidst the ongoing covid-19 pandemic . these high-barrier infill markets are characterized by a relative scarcity of available product , generally operating at approximately 98 % occupancy , coupled with the limited ability to introduce new supply due to high land and development costs and a dearth of developable land in markets experiencing a net reduction in supply as over time more industrial property is converted to non-industrial uses than can be delivered . consequently , available industrial supply has continued to decrease in many of our target infill submarkets and construction deliveries have fallen short of demand . meanwhile , underlying tenant demand within our infill target markets continues to demonstrate growth , illustrated or driven by strong re-leasing spreads and renewal activity over the last several years , inclusive of 2020 , an expanding regional economy , substantial growth in ecommerce transaction and delivery volumes , as well as further compression of delivery time-frames to consumers and to businesses , increasing the significance of last-mile facilities for timely fulfillment . although we continue to observe a number of positive trends within our target infill markets , the covid-19 pandemic , the ongoing government-led cycle of easing and tightening business restrictions and the actions taken by many california municipalities enabling some tenants impacted by covid-19 to unilaterally defer their rent are unprecedented events and the long-term impact on the global economy and our infill southern california markets can not be determined at present . despite the above-mentioned challenges , tenant demand remains strong within our portfolio , which is strategically located within prime infill southern california industrial markets .
| for the years ended december 31 , 2020 and 2019 , our stabilized same properties portfolio weighted average occupancy was approximately 98.3 % and 98.0 % , respectively . 63 replace_table_token_26_th rental income on january 1 , 2019 , we adopted accounting standards codification topic 842 , leases ( “ asc 842 ” ) using the modified retrospective approach and elected the “ non-separation practical expedient ” in asc 842 that alleviates the requirement to separately present lease and non-lease components of lease contracts if certain criteria are met . as a result , we account for and present all rental income earned pursuant to tenant leases , including tenant reimbursements , as a single component in one line , “ rental income , ” in our consolidated statements of operations . prior to the adoption asc 842 , we presented rental revenue , tenant reimbursements and other income related to leases separately in our consolidated statements of operations . the following table reports the breakdown of 2020 and 2019 rental income , as reported prior to the adoption of asc 842 ( dollars in thousands ) . we believe that the below presentation of rental income is not , and is not intended to be , a presentation in accordance with gaap . we are presenting this information because we believe it is frequently used by management , investors , securities analysts and other interested parties to evaluate the company 's performance . replace_table_token_27_th 64 our stabilized same properties portfolio and total portfolio rental income increased by $ 8.5 million , or 3.8 % , and $ 65.1 million , or 24.6 % , respectively , during the year ended december 31 , 2020 , compared to the year ended december 31 , 2019 , for the reasons described below : ( 1 ) rental revenue our stabilized same properties portfolio and total portfolio rental revenue increased by $ 8.2 million , or 4.4 % , and $ 54.2 million , or 24.3 % , respectively , for the year ended december 31 , 2020 , compared to the year ended december 31 , 2019. the increase in our stabilized same
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the increase in average selling price per wheel , was driven by a higher aluminum pricing , which we generally pass through to our customers . european segment sales between germany and poland was approximately 39.9 percent and 60.1 percent , respectively , during 2018 , which compares to 41.3 percent and 58.7 percent for 2017. european segment income from operations for the year ended 2018 increased consistent with increasing sales , as well as a reduction in integration related expenses from $ 14.8 million in 2017 to $ 2.4 million in 2018 . 27 2017 versus 2016 net sales net sales for 2017 increased $ 375.4 million over 2016 due to the inclusion of seven months of sales of our european operations . overall unit shipments increased in the current year to 17.0 million from 12.3 million , an increase of 38.2 percent , which was driven by the addition of seven months ' unit sales for our newly acquired european operations . net sales were also favorably impacted by an increase in the value of the aluminum component of sales , which we generally pass through to our customers . the north american average selling price per wheel increased by 6.8 percent during 2017 in comparison to 2016 due mainly to favorable mix with a higher percentage of larger diameter wheels and the increase in aluminum prices . cost of sales cost of sales increased significantly in 2017 due to the inclusion of seven months of costs of our newly acquired european operations . in addition , an increase in aluminum costs resulted in higher cost of sales in our north american operations , which is typically passed through to the customer . selling , general and administrative expenses selling , general and administrative expenses also increased significantly in 2017 in comparison to 2016 due to the inclusion of seven months of our european operations and $ 32.1 million of acquisition and integration expenses related to the acquisition of uniwheels . net interest expense net interest expense for 2017 was $ 40.0 million , while the company recognized $ 0.2 million of net interest income in 2016. interest expense increased in 2017 due to the new debt issued to finance the acquisition of uniwheels . net other income net other income was $ 13.2 million in 2017 compared with net other expense of $ 0.1 million in 2016. the significant increase was due in part to foreign exchange gains of $ 12.9 million in 2017 ( including an acquisition-related foreign exchange gain of $ 8.2 million ) , as compared to foreign exchange losses of $ 0.4 million in 2016. we also recognized a $ 0.5 million gain on sale of our minority interest in synergies casting limited , a private aluminum wheel manufacturer based in visakhapatnam , india . change in fair value of embedded derivative liability during 2017 , we recognized a $ 6.2 million change in the fair value of our redeemable preferred stock embedded derivative liability . the beginning fair value of the embedded derivative liability was measured as of the date of issuance , may 22 , 2017. during the third and fourth quarter , the fair value of the embedded derivative liability decreased , primarily due to the decline in our stock price . income tax provision the income tax provision for 2017 was $ 6.9 million on a pre-tax income of $ 0.9 million due primarily to the split of jurisdictional pre-tax income or loss , certain non-deductible acquisition costs related to the uniwheels ' acquisition , and provisional estimates recorded for the transition tax on offshore earnings and a deferred tax expense . the deferred tax expense resulted from the reduction of our deferred tax assets due to the change in the statutory federal income tax rate from 35 % to 21 % for years subsequent to 2017 , based on the newly enacted u.s. tax cuts and jobs act ( the act ) . the income tax provision for 2016 was $ 13.3 million , representing an effective income tax rate of 24.4 percent . the effective tax rate for 2016 was lower than the statutory rate due to earnings in countries with tax rates lower than the u.s. statutory rate . 28 net income attributable to superior net loss attributable to superior in 2017 was $ 6.2 million , or a loss of $ 1.01 per diluted share , compared to net income in 2016 of $ 41.4 million , or $ 1.62 per diluted share . the decrease in 2017 diluted per share was mainly driven by the acquisition costs , integration costs , interest expense , accretion on preferred equity , and the dividends that were issued to the preferred equity holder . segment sales and income from operations replace_table_token_6_th north america due to the acquisition of our european operations on may 30 , 2017 , we will provide geographical segment analysis for the 2017 and 2016 results of operations discussion and analysis rather than the geographical discussion that was provided in 2016. in 2017 , net sales of our north america segment remained at a consistent level despite a 6.4 percent decrease in volume due to a 6.8 percent increase in average unit selling price . unit shipments declined from 12.3 million in 2016 to 11.5 million in 2017 resulting in a $ 47.0 million reduction in revenue which was fully offset by the increase in average selling price . the decline in volume resulted from lower unit sales with ford , gm and fca , partially offset by increased sales at nissan and subaru . the increase in average selling price was driven by an increase in the value of the aluminum component of sales , which we generally pass through to our customers , and our value added sales . story_separator_special_tag the split between u.s. and mexico sales were approximately 17.0 percent and 83.0 percent , respectively during 2017 , which compares to 16.4 percent and 83.6 percent for 2016. the north america segment income from operations decreased in 2017 due to nonrecurring costs and production inefficiencies . during 2017 , the company incurred $ 29.5 million of additional costs relating to the acquisition and integration of the european operations . we continued to invest in our machinery through higher levels of maintenance than in past years to alleviate the production issues that we have experienced since the second quarter of 2016. europe we acquired the uniwheels business on may 30 , 2017 , which comprises our european operations . as a result , we have included seven months of our european operations in our consolidated statement of operations for 2017. the european operations sales increased over the same seven-month period last year by 18.6 percent . income from operations for this period included purchase accounting adjustments of $ 14.8 million related to inventory , and other expenses related to the acquisition and integration of the business . 29 financial condition , liquidity and capital resources our sources of liquidity primarily include cash , cash equivalents and short-term investments , net cash provided by operating activities , our senior notes and borrowings under available debt facilities and , factoring arrangements for trade receivables and , from time to time , other external sources of funds . working capital ( current assets minus current liabilities ) and our current ratio ( current assets divided by current liabilities ) were $ 192.0 million and 2.1:1 , respectively , at december 31 , 2018 , versus $ 222.3 million and 2.1:1 at december 31 , 2017. as of december 31 , 2018 , our cash , cash equivalents and short-term investments totaled $ 48.2 million compared to $ 47.1 million at december 31 , 2017. our working capital requirements , investing activities and cash dividend payments have historically been funded from internally generated funds , debt facilities , cash equivalents and short-term investments , and we believe these sources will continue to meet our capital requirements in the foreseeable future . in connection with the acquisition of our european business , we entered into several debt and equity financing arrangements during 2017. on march 22 , 2017 , we entered into a senior secured credit agreement ( the credit agreement ) consisting of a $ 400.0 million senior secured term loan facility ( the term loan facility ) and a $ 160.0 million revolving credit facility . on may 22 , 2017 , we issued 150,000 shares of redeemable preferred stock to tpg superior and tpg growth iii sidewall , l.p. ( tpg ) for an aggregate purchase price of $ 150.0 million . on june 15 , 2017 , we issued 250.0 million aggregate principal amount of 6.00 % senior notes ( the notes ) due june 15 , 2025. in addition , as a part of our european business acquisition , we assumed $ 70.7 million of outstanding debt . at december 31 , 2018 , balances outstanding under the term loan facility , notes , and an equipment loan were $ 382.8 million , $ 286.1 million , $ 16.0 million , respectively . there was no balance outstanding under the revolving credit facility at december 31 , 2018 and unused commitments were $ 156.6 million . in addition , there was 30 million euro available under our european business line of credit as of december 31 , 2018. the following table summarizes the cash flows from operating , investing and financing activities as reflected in the consolidated statements of cash flows . replace_table_token_7_th 2018 versus 2017 operating activities net cash provided by operating activities was $ 156.1 million in 2018 and $ 63.7 million in 2017. the increase in cash flow provided by operating activities was mainly due to the inclusion of a full year of our european operations in 2018 as compared to 7 months in 2017 , improved working capital management and the introduction of receivables factoring program in north america , which generated $ 30.1 million of operating cash flows in the year . investing activities net cash used in investing activities was $ 77.1 million in 2018 compared to $ 777.6 million in 2017. net cash used in investing activities was higher in 2017 due to our european business acquisition in 2017 . 30 financing activities net cash used in financing activities was $ 76.3 million compared to net cash provided by financing activities of $ 701.1 million in 2017. net cash provided by financing activities was higher in 2017 due to the issuance of debt to finance the european business acquisition . 2017 versus 2016 operating activities net cash provided by operating activities was $ 63.7 million in 2017 , compared to net cash provided by operating activities of $ 78.5 million for 2016. the decrease in cash flow provided by operating activities was mainly due to lower net income primarily due to the acquisition of uniwheels and integration related fees , and an increase in inventory partially offset by increases in trade payables . investing activities net cash used in investing activities was $ 777.6 million in 2017 compared to $ 35.0 million in 2016. net cash used in investing activities was higher in 2017 primarily due to the uniwheels acquisition . financing activities net cash provided by financing activities was $ 701.1 million in 2017 compared to net cash used in financing activities of $ 37.3 million in 2017. net cash provided by financing activities was higher in 2017 due to debt issued to finance the uniwheels acquisition .
| additionally , cost of sales increased due to higher aluminum prices and increased manufacturing costs associated with larger diameter wheels , energy rates in mexico and launch costs in north america . selling , general and administrative expenses selling , general and administrative expenses for 2018 were $ 77.7 million , or 5.2 percent of net sales , compared to $ 81.4 million , or 7.3 percent of net sales in 2017. the decrease as a percentage of sales is primarily due to $ 22.4 million of reduced acquisition and integration expenses . net interest expense net interest expense for 2018 was $ 50.1 million and $ 40.0 million for 2017. the increase is due to the full year of interest on the acquisition debt in 2018 , partially offset by a non-recurring interest cost related to the bridge loan financing for the european business acquisition incurred in 2017. net other ( expense ) income net other expense was $ ( 6.9 ) million in 2018 compared with net other income of $ 13.2 million in 2017. the change was primarily due to foreign exchange losses of $ ( 1.0 ) million in 2018 compared to gains of $ 12.9 million in 2017 and $ 2.2 million to year-over-year changes in derivative contracts . the remaining items were of an individually insignificant nature . change in fair value of embedded derivative liability during 2018 and 2017 , we recognized a $ 3.5 million and $ 6.2 million change in the fair value of our redeemable preferred stock embedded derivative liability , respectively , primarily due to the declines in our stock price experienced in the respective years . income tax provision the income tax provision for 2018 was $ 6.3 million on a pre-tax income of $ 32.3 million primarily due to the favorable split of jurisdictional pre-tax income or loss and finalizing 2017 provisional amounts recorded for the 26 enactment-date-effects of the tax cuts and jobs act ( the act ) . the income tax provision for 2017 was $ 6.9
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in addition , adults undergoing chemotherapy for several common malignancies , including ovarian cancer , testicular cancer , and particularly head and neck cancer and brain cancer , often receive intensive platinum-based therapy and may experience severe , irreversible hearing loss , particularly in the high frequencies . investigators at ohsu have conducted phase i and phase ii studies which have shown that sts reduces the hearing loss associated with platinum-based chemotherapy . in one study at ohsu , the need for hearing aids to correct high frequency hearing loss was reduced from about 50 % of patients being administered platinum-based chemotherapy to less than 5 % of patients being administered platinum-based chemotherapy with sts . sts has been studied by cooperative groups in two phase iii clinical studies of survival and reduction of ototoxicity , the cog protocol accl0431 and siopel 6. the cog accl0431 protocol enrolled one of five childhood cancers typically treated with intensive cisplatin therapy for localized and disseminated disease , including newly diagnosed hepatoblastoma , germ cell tumor , osteosarcoma , neuroblastoma , and medulloblastoma . siopel 6 enrolled only hepatoblastoma patients with localized tumors . sts has been studied by cooperative groups in two phase iii clinical studies of survival and reduction of ototoxicity , the cog protocol accl0431 and siopel 6. the cog accl0431 protocol enrolled one of five childhood cancers typically treated with intensive cisplatin therapy for localized and disseminated disease , including newly diagnosed hepatoblastoma , germ cell tumor , osteosarcoma , neuroblastoma , and medulloblastoma . siopel 6 enrolled only hepatoblastoma patients with localized tumors . in 2018 , fennec plans to pursue regulatory approval for pedmark tm based on the data from siopel 6 study along with the proof of principle data from cog accl0431 . sts has received orphan drug designation in the us in this setting and plans to pursue european market exclusivity for pediatric use upon approval . we have not received and do not expect to have significant revenues from our product candidate until we are either able to sell our product candidate after obtaining applicable regulatory approvals or we establish collaborations that provide us with up-front payments , licensing fees , milestone payments , royalties or other revenue . the company generated a net loss of $ 7.0 million for the year ended december 31 , 2017 and had a non-cash loss on derivative liabilities of $ 0.13 million . we generated a net loss of approximately $ 2.8 million for the year ended december 31 , 2016 ( there was a non-cash gain on the change in derivative liability of $ 0.05 million ) . as of december 31 , 2017 , our accumulated deficit was approximately $ 121.4 million . 24 our projections of our capital requirements are subject to substantial uncertainty . more capital than we anticipated may be required thereafter . to finance our continuing operations , we may need to raise substantial additional funds through either the sale of additional equity , the issuance of debt , the establishment of collaborations that provide us with funding , the out-license or sale of certain aspects of our intellectual property portfolio or from other sources . given current economic conditions , we might not be able to raise the necessary capital or such funding may not be available on financially acceptable terms if at all . if we can not obtain adequate funding in the future , we might be required to further delay , scale back or eliminate certain research and development studies , consider business combinations or even shut down some , or all , of our operations . our operating expenses will depend on many factors , including the progress of our drug development efforts and efficiency of our operations and current resources . our research and development expenses , which include expenses associated with our clinical trials , drug manufacturing to support clinical programs , salaries for research and development personnel , stock-based compensation , consulting fees , sponsored research costs , toxicology studies , license fees , milestone payments , and other fees and costs related to the development of our product candidate , will depend on the availability of financial resources , the results of our clinical trials and any directives from regulatory agencies , which are difficult to predict . our general and administration expenses include expenses associated with the compensation of employees , stock-based compensation , professional fees , consulting fees , insurance and other administrative matters associated in support of our drug development programs . on december 12 , 2017 , the company announced the completion of a underwritten public offering of 2,352,950 common shares at a public offering price of $ 8.50 per share . in addition , fennec issued an additional 135,670 common shares in connection with the partial exercise of the underwriters ' over-allotment option . the approximate total gross proceeds from the offering was $ 21.2 million . on june 8 , 2017 , the company completed the closing of a non-brokered private placement ( the “ offering ” ) of 1,900,000 common shares for gross proceeds of $ 7.6 million . each common share was issued at a price of $ 4.00. story_separator_special_tag td style= '' width : 100 % ; text-align : center '' > 26 replace_table_token_5_th the net cash flow used in operating activities for the year ended december 31 , 2017 was approximately $ 3.6 million as compared to $ 2.1 million in 2016. this increase relates to the commercial development of pedmark tm . we continue to pursue various strategic alternatives including collaborations with other pharmaceutical and biotechnology companies . our projections of further capital requirements are subject to substantial uncertainty . story_separator_special_tag our working capital requirements may fluctuate in future periods depending upon numerous factors , including : our ability to obtain additional financial resources ; our ability to enter into collaborations that provide us with up-front payments , milestones or other payments ; results of our research and development activities ; progress or lack of progress in our preclinical studies or clinical trials ; unfavorable toxicology in our clinical programs , our drug substance requirements to support clinical programs ; change in the focus , direction , or costs of our research and development programs ; headcount expense ; the costs involved in preparing , filing , prosecuting , maintaining , defending and enforcing our patent claims ; competitive and technological advances ; the potential need to develop , acquire or license new technologies and products ; our business development activities ; new regulatory requirements implemented by regulatory authorities ; the timing and outcome of any regulatory review process ; and commercialization activities , if any . we had cash and cash equivalents of approximately $ 28.3 million as of december 31 , 2017. financial instruments we invest excess cash and cash equivalents in high credit quality investments held by financial institutions in accordance with our investment policy designed to protect the principal investment . at december 31 , 2017 , we had approximately $ 0.28 million in our cash accounts and $ 27.98 million in our money market accounts . we have not experienced any loss or write down of our money market investments since the inception of the company . our investment policy is to manage investments to achieve , in the order of importance , the financial objectives of preservation of principal , liquidity and return on investment . investments may be made in u.s. or canadian obligations and bank securities , commercial paper of u.s. or canadian industrial companies , utilities , financial institutions and consumer loan companies , and securities of foreign banks provided the obligations are guaranteed or carry ratings appropriate to the policy . securities must have a minimum dun & bradstreet rating of a for bonds or r1 low for commercial paper . the policy also provides for investment limits on concentrations of securities by issuer and maximum-weighted average time to maturity of twelve months . this policy applies to all of our financial resources . the policy risks are primarily the opportunity cost of the conservative nature of the allowable investments . as our main purpose is research and development , we have chosen to avoid investments of a trading or speculative nature . we classify investments with original maturities at the date of purchase greater than three months which mature at or less than twelve months as current . we carry investments at their fair value with unrealized gains and losses included in other comprehensive income ( loss ) ; however we have not held any instruments that were classified as short term investments during the periods presented in this annual report . off-balance sheet arrangements since our inception , we have not had any material off-balance sheet arrangements . contractual obligations and commitments none . critical accounting policies and estimates the preparation of financial statements in conformity with u.s. gaap requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period . these estimates are based on assumptions and judgments that may be affected by commercial , economic and other factors . actual results could differ from these estimates . an accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , and if different estimates reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact the financial statements . the following description of critical accounting policies , judgments and estimates should be read in conjunction with our december 31 , 2017 consolidated financial statements . 27 stock-based compensation the calculation of the fair values of our stock-based compensation plans requires estimates that require management 's judgments . under asc 718 , the fair value of each stock option is estimated on the grant date using the black-scholes option-pricing model . the valuation models require assumptions and estimates to determine expected volatility , expected life , expected dividends and expected risk-free interest rates . the expected volatility was determined using historical volatility of our stock based on the contractual life of the award . the risk-free interest rate assumption was based on the yield on zero-coupon u.s. treasury strips at the award grant date . we also used historical data to estimate forfeiture experience . in valuing options granted in the year ended december 31 , 2017 and fiscal year ended december 31 , 2016 we used the following weighted average assumptions : replace_table_token_6_th common shares and warrants common shares are recorded as the net proceeds received on issuance after deducting all share issuance costs and the relative fair value of investor warrants . warrants are recorded at relative fair value and are deducted from the proceeds of common shares and recorded on the consolidated statements of stockholders ' equity as additional paid-in capital . derivative instruments the company applies asc topic 815-40 , `` derivatives and hedging '' ( asc 815-40 ) . one of the conclusions reached under asc 815-40 was that an equity-linked financial instrument would not be considered indexed to the entity 's own stock if the strike price is denominated in a currency other than the issuer 's functional currency . the conclusion reached under asc 815-40 clarified the accounting treatment for these and certain other financial instruments .
| replace_table_token_2_th quarter ended december 31 , 2017 versus 2016 replace_table_token_3_th the company reported a net loss from operations of $ 2.3 million ( which excludes a non-cash gain on derivatives of $ 0.2 million ) for the three months ended december 31 , 2017 , compared to a net loss from operations of $ 1.1 million ( excluding an immaterial non-cash gain on derivative valuation ) in 2016. research and development expenses totaled $ 1.0 million for the three months ended december 31 , 2017 , as compared to a $ 0.2 million in the same period in 2016 as the company increased drug manufacturing expense related to the production of registration batches . general and administrative expenses increased by $ 0.7 million in the three months ended december 31 , 2017 , as compared to the same period in 2016. the increase relates to compensation in the form of cash , and non-cash equity-based compensation for employees and certain key contract employees . replace_table_token_4_th liquidity and capital resources · the $ 24.3 million increase in cash and cash equivalents between december 31 , 2017 and december 31 , 2016 is due to the $ 7.6 and $ 21.2 million ( gross proceeds ) equity financing completed in june and december , respectively , of 2017 , and the $ 0.6 million cash proceeds from the exercise of 21 warrants and 359 options during 2017. these cash inflows were offset by clinical trial expenses related to our phase iii study of sts , the increase in regulatory and manufacturing activities for sts and our general and administrative expenses . · the increase in other current assets between december 31 , 2017 and december 31 , 2016 relates to an increase in pre-paid director 's and officer 's insurance over the prior year and an increase in prepaid expenses to ohsu for research . · current liabilities increased primarily due to manufacturing activities associated with production of pedmark tm and related regulatory expenses . the company also had payables balances for legal and other professional services related to the december financing . · working capital increased between december 31 , 2017 and december 31 , 2016 by $ 23.3 million . the increase was a result of the two financings in
| 10,730 |
- 46 - topspin medical , inc. ( a development stage company ) notes to consolidated financial statements nis in thousands note 9 : shareholders ' equity ( cont . ) b. share capital ( cont . ) 7 . ( cont . ) story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and notes and the other financial information included elsewhere in this annual report on form 10-k for the fiscal year ending december 31 , 2008. in addition to historical information , this discussion and analysis contains forward-looking statements based on current expectations that involve risks , uncertainties and assumptions , such as our plans , objectives , expectations and intentions . our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements as a result of various factors . overview until suspension of our business activities due to financial considerations in october 2008 , we , through our subsidiary , topspin israel , were engaged in the design , research , development and manufacturing of imaging devices that utilize mri technology by means of miniature probes that image various body organs . in 1999 , we began researching and developing this technology for use in the diagnosis and therapy guidance of heart disease and more specifically of heart attacks . during 2006 , we started to develop a product that combines our mri technology with an endorectal ultrasound for imaging prostate cancer . - 14 - until 2008 , our main product was an intravascular mri , or ivmri , catheter system for imaging and characterizing the tissue composition of coronary plaque during a conventional cardiac catheterization procedure . we have completed the development of a first generation ivmri catheter and an advanced generation ivmri catheter , which represents a further technological advancement in the miniaturization of the imaging probe and also integrates a number of probes in the catheter , enabling the imaging of longer vessel segments simultaneously . as previously disclosed in current reports on form 8-k filed on september 25 , 2008 , september 29 , 2008 and october 16 , 2008 , we executed a supplemental indenture with wilmington trust company ( in its capacity as trustee for our series a debentures ) and the ziv haft trust company ltd. ( in its capacity as co-trustee of our series a debentures ) which supplemented the original indenture governing the series a debentures and provided for the conversion of each nis 1.00 of principal amount of series a debentures held by eligible bondholders into nine ( 9 ) shares of our common stock and nis 0.25 in cash . as contemplated by the supplemental indenture and the settlement agreement , dated july 13 , 2008 , between the company and the co-trustee , on october 12 , 2008 , all of the outstanding nis 50,000,000of the series a debentures were converted into 450,000,000 shares of our common stock . upon the completion of this conversion , all of our outstanding series a debentures were removed from trading on the tase . we issued the cash payment contemplated by the settlement agreement on october 26 , 2008 in the amount of nis 12,513,000 ( approximately $ 3,291,162 ) . this payment significantly reduced our cash resources , and , together with the delay in receipt of grants from the ocs , materially and adversely affected our business and the cash we have available to maintain research and development , marketing , and other activities conducted in the ordinary course of our business . our reduced cash position caused us to suspend our activities as of october 27 , 2008. we were forced to terminate all of our employees except three employees in our finance department and three employees who were on maternity leave at the time ( each of whose employment will be terminated no later than march 31 , 2009 ) , and we have incurred termination fees in connection with the early termination of our property and motor vehicle lease . critical accounting policies the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with 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 and expenses and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates based on historical experience and various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . until december 31 , 2005 we elected to follow accounting principles board opinion no . 25 , accounting for stock issued to employees ( apb no . 25 ) and the fasb interpretation no . 44 , accounting for certain transactions involving stock compensation in accounting for our employee stock based compensation . according to apb no . 25 , compensation expense is measured under the intrinsic value method , whereby compensation expense is equal to the excess , if any , of the quoted market price of the share at the date of grant of the award over the exercise price . on january 1 , 2006 , we adopted statement of financial accounting standards no . story_separator_special_tag 123 ( revised 2004 ) , share-based payment ( sfas 123 ( r ) ) which requires the measurement and recognition of compensation expenses based on the estimated fair values for all share-based payment awards made to employees and directors . sfas 123 ( r ) supersedes apb no . 25 for periods beginning in fiscal 2006. in march 2005 , the securities and exchange commission issued staff accounting bulletin no . 107 ( sab 107 ) relating to sfas 123 ( r ) . we have applied the provisions of sab 107 in our adoption of sfas 123 ( r ) . sfas 123 ( r ) requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model . the value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in our consolidated statements of operations . we adopted sfas 123 ( r ) using the modified prospective transition method , which requires the application of the accounting standard starting from january 1 , 2006. according to sfas 123 ( r ) , an option indexed to a factor which is not a market , performance , or service condition , shall be classified as a liability . - 15 - our shares are traded in israel in nis . our options granted to employees , directors and consultants are exercisable in u.s. dollars . our functional currency and the currency in which our employees are paid is nis . accordingly , until december 31 , 2005 , we considered all option plans as variable plans and thus the intrinsic value of all vested options is remeasured at each reporting date until the date of settlement . as of january 1 , 2006 , the fair value of the vested portion of the options was classified as a liability and remeasured at each reporting date until the date of settlement . in addition , an expense of nis 238 ( approximately $ 63 ) was recorded on january 1 , 2006 as a cumulative effect of a change in accounting principle . compensation cost for each period until settlement shall be based on the change in the fair value of the options for each reporting period based on the binomial method . we recognize compensation expenses of the value of our options based on the accelerated method over the requisite service period of each of the options . we apply sfas no . 123 and emerging issues task force no . 96-18 accounting for equity instruments that are issued to other than employees for acquiring , or in conjunction with selling , goods or services , with respect to options issued to non-employees . sfas no . 123 requires the use of option valuation models to measure the fair value of the options and warrants . until december 31 , 2005 , the fair value of these options was estimated using black-scholes option-pricing model . since january 1 , 2006 , the fair value of these options was estimated according to the principles determined in sfas 123 ( r ) based on the binomial option pricing model . in accordance with eitf 00-19 accounting for derivative financial instruments indexed to , and potentially settled in a company 's own stock ( eitf 00-19 ) , we recorded the consideration paid for the convertible bonds and series 2 warrants as a liability . the series 2 warrants were recorded as a liability based on their fair value . according to eitf 05-2 , the meaning of conventional convertible debt instrument in issue no . 00-19 the convertible bonds are considered as non conventional convertible debentures . as such , the bifurcation of the conversion feature was required . in addition , we considered the commission of 2 % to be paid to the placement agent of the convertible bonds and series 2 warrants placement in november 2006 upon the conversion of the convertible bonds as an embedded derivative . the fair value of the embedded derivative was recorded as a liability . we estimated the fair value of the abovementioned liabilities using a binomial model , except that following the listing of our series 2 warrants on the tase , we estimated this liability based upon its market value . the binomial model requires the use of several assumptions made by us , which affect the estimated fair value of the liabilities . an assumption that we used in determining the fair value of the abovementioned liabilities is the expected volatility , which is an estimation that is based on the historical volatility of the per share market price of the publicly traded capital stock of similar companies and on the historical volatility of the per share market price of our common stock on the tase . in february 2007 , the fasb issued sfas no . 159 , the fair value option for financial assets and financial liabilities ( sfas 159 ) . sfas 159 permits entities to choose to measure many financial instruments and certain other items at fair value to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions . sfas 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities . sfas 159 is effective for financial statements issued for fiscal periods beginning after november 15 , 2007. sfas 159 was effective for us beginning january 1 , 2008 , and as a result we recorded an increase in retained earnings in the amount of nis 5,379 as the embedded conversion feature in convertible debentures , embedded derivative related to issuance expenses and convertible debentures , net of deferred issuance expenses , was remeasured at a
| as a result of the settlement with our bondholders , it is possible that we will have income for tax purposes and we have recorded a reserve in the amount of nis 1,344,000 ( approximately $ 353,498 ) for this purpose . net loss . our net loss for 2008 was nis 20,150,000 ( approximately $ 5,299,842 ) compared to a net loss of nis 24,168,000 ( approximately $ 6,356,654 ) in 2007 , a decrease of approximately 17 % which is attributable to a reduction in almost all our expenses due to cost saving efforts . liquidity and capital resources we have not had any revenues from operations since our inception in september 1999. we have financed our operations principally through private and public sales of equity securities , convertible notes and through grants from the office of the chief scientist of the israeli ministry of industry , trade and labor , an israeli governmental agency . in november 2006 , we raised net proceeds of nis 40,635,000 ( approximately $ 10,687,796 ) through the sale of series a debenturesand series 2 warrants in a private placement . in june 2007 , we raised net proceeds of nis 18,336,000 ( approximately $ 4,822,725 ) through the sale of common stock and series 3 warrants . in february 2009 , we raised net proceeds of nis 900,000 ( approximately $ 236,717 ) through the sale of 120,000,000 shares of our common stock and options to purchase up to an additional 58,064,516 shares of our common stock of the company with an exercise price of nis 0.01 per share and will be exercisable from the date of issuance until four years following the date of issuance . - 17 - as of december 31 , 2008 , our assets were approximately nis 4,391,000 ( approximately $ 1,154,918 ) , of which cash and cash equivalents were approximately nis 3,385,000 ( approximately $ 890,321 ) . as of december 31 , 2008 , our liabilities were approximately nis 5,188,000 ( approximately $ 1,364,545 ) . we believe that our cash resources are sufficient for our operations
| 10,731 |
if a customer is delinquent in making a scheduled monthly payment ( grace periods are provided ) , the account begins accruing interest based on the contract rate from the date of the last payment made . we regularly extend or `` re-age '' a portion of our delinquent customer accounts as a part of our normal collection procedures to protect our investment . generally , extensions are granted to customers who have experienced a financial difficulty ( such as the temporary loss of employment ) , which was subsequently resolved and the customer indicates a willingness and ability to resume making monthly payments . re-ages are not granted to debtors who demonstrate a lack of intent or ability to service the obligation or have reached our limits for account re-aging . these re-ages involve modifying the payment terms to defer a portion of the cash payments currently required of the debtor to help the debtor improve his or her financial condition and eventually be able to pay us . our re-aging of customer accounts does not change the interest rate or the total amount due from the customer and typically does not reduce the monthly contractual payments . we may also charge the customer an extension fee , which approximates the interest owed for the time period the contract was past due . to a much lesser extent , we may provide the customer the ability to re-age their obligation by refinancing the account , which does not change the interest rate or the total amount due from the customer but does reduce the monthly contractual payments . under these options , as with extensions , the customer must resolve the reason for delinquency and show a willingness and ability to resume making contractual monthly payments . the following tables present , for comparison purposes , information about our managed portfolio ( information reflects on a combined basis the securitized receivables transferred to the vie and receivables not transferred to the vie ) : replace_table_token_24_th replace_table_token_25_th ( 1 ) credit scores exclude non-scored accounts . ( 2 ) accounts that become delinquent after being re-aged are included in both the delinquency and re-aged amounts . our customer portfolio balance and related allowance for uncollectible accounts are segregated between customer accounts receivable and restructured accounts . customer accounts receivable include all accounts for which payment term has not been cumulatively extended over 90 days or refinanced . restructured accounts includes all accounts for which payment term has been re-aged in excess of three months or refinanced . for customer accounts receivable ( excluding restructured accounts ) , the allowance for uncollectible accounts as a percentage of the outstanding portfolio balance rose from 9.3 % as of january 31 , 2015 to 10.2 % as of january 31 , 2016 . the percentage of non-restructured accounts greater than 60 days past due decreased 10 basis points over the prior year to 8.7 % as of january 31 , 2016 . 39 we expect delinquency levels and charge-offs to remain elevated over the short-term . the increase in delinquency and changes in expectations for customer performance and cash recoveries on charged-off accounts are reflected in our projection models , resulting in an increase in the level of losses we expect to realize over the next twelve months . for restructured accounts , the allowance for uncollectible accounts as a percentage of the portfolio balance was 31.8 % as of january 31 , 2015 as compared to 35.5 % as of january 31 , 2016 . this 370 basis point increase reflects the impact of higher delinquency rates and charge-offs from a year ago . the percent of bad debt charge-offs , net of recoveries , to average portfolio balance was 10.1 % for fiscal year 2015 compared to 12.4 % for fiscal year 2016 . the increase was primarily due to the higher level of delinquency experienced over the past twelve months . as of january 31 , 2016 and 2015 , balances under no-interest finance programs were $ 589.1 million and $ 448.3 million , respectively . amounts financed under these programs increased to 37.1 % of the total portfolio balance as of january 31 , 2016 from 32.8 % as of january 31 , 2015 due to the addition of the 18- and 24-month programs in october 2014. if the proportion of accounts financed under no-interest programs increases , the overall yield recognized on the average customer receivable balance will decline . conversely , a decline in the proportion of accounts financed under no-interest programs will generally result in an increase in the overall yield recognized . the allowance for no-interest programs represents the portion of the accrued interest reported within customer accounts receivable at the end of each period which is not expected to be realized due to customers satisfying the requirements of the interest-free programs and is based on historical experience . liquidity and capital resources we require liquidity and capital resources to finance our operations and future growth as we add new stores and markets to our operations , which in turn requires additional working capital for increased customer receivables and inventory . we generally finance our operations primarily through a combination of cash flow generated from operations , the use of our revolving credit facility , and through periodic securitizations of originated customer receivables . in september 2015 , we securitized $ 1.4 billion of customer accounts receivables by transferring the receivables to a bankruptcy-remote variable-interest entity ( the `` vie '' ) . the vie issued asset-backed notes at a face amount of $ 1.12 billion secured by the transferred customer accounts receivables , which resulted in net proceeds to us of approximately $ 1.08 billion , net of transaction costs and restricted cash held by the vie . the net proceeds were used to pay down the entire balance on our previous revolving credit facility , to repurchase shares of the company 's common story_separator_special_tag if a customer is delinquent in making a scheduled monthly payment ( grace periods are provided ) , the account begins accruing interest based on the contract rate from the date of the last payment made . we regularly extend or `` re-age '' a portion of our delinquent customer accounts as a part of our normal collection procedures to protect our investment . generally , extensions are granted to customers who have experienced a financial difficulty ( such as the temporary loss of employment ) , which was subsequently resolved and the customer indicates a willingness and ability to resume making monthly payments . re-ages are not granted to debtors who demonstrate a lack of intent or ability to service the obligation or have reached our limits for account re-aging . these re-ages involve modifying the payment terms to defer a portion of the cash payments currently required of the debtor to help the debtor improve his or her financial condition and eventually be able to pay us . our re-aging of customer accounts does not change the interest rate or the total amount due from the customer and typically does not reduce the monthly contractual payments . we may also charge the customer an extension fee , which approximates the interest owed for the time period the contract was past due . to a much lesser extent , we may provide the customer the ability to re-age their obligation by refinancing the account , which does not change the interest rate or the total amount due from the customer but does reduce the monthly contractual payments . under these options , as with extensions , the customer must resolve the reason for delinquency and show a willingness and ability to resume making contractual monthly payments . the following tables present , for comparison purposes , information about our managed portfolio ( information reflects on a combined basis the securitized receivables transferred to the vie and receivables not transferred to the vie ) : replace_table_token_24_th replace_table_token_25_th ( 1 ) credit scores exclude non-scored accounts . ( 2 ) accounts that become delinquent after being re-aged are included in both the delinquency and re-aged amounts . our customer portfolio balance and related allowance for uncollectible accounts are segregated between customer accounts receivable and restructured accounts . customer accounts receivable include all accounts for which payment term has not been cumulatively extended over 90 days or refinanced . restructured accounts includes all accounts for which payment term has been re-aged in excess of three months or refinanced . for customer accounts receivable ( excluding restructured accounts ) , the allowance for uncollectible accounts as a percentage of the outstanding portfolio balance rose from 9.3 % as of january 31 , 2015 to 10.2 % as of january 31 , 2016 . the percentage of non-restructured accounts greater than 60 days past due decreased 10 basis points over the prior year to 8.7 % as of january 31 , 2016 . 39 we expect delinquency levels and charge-offs to remain elevated over the short-term . the increase in delinquency and changes in expectations for customer performance and cash recoveries on charged-off accounts are reflected in our projection models , resulting in an increase in the level of losses we expect to realize over the next twelve months . for restructured accounts , the allowance for uncollectible accounts as a percentage of the portfolio balance was 31.8 % as of january 31 , 2015 as compared to 35.5 % as of january 31 , 2016 . this 370 basis point increase reflects the impact of higher delinquency rates and charge-offs from a year ago . the percent of bad debt charge-offs , net of recoveries , to average portfolio balance was 10.1 % for fiscal year 2015 compared to 12.4 % for fiscal year 2016 . the increase was primarily due to the higher level of delinquency experienced over the past twelve months . as of january 31 , 2016 and 2015 , balances under no-interest finance programs were $ 589.1 million and $ 448.3 million , respectively . amounts financed under these programs increased to 37.1 % of the total portfolio balance as of january 31 , 2016 from 32.8 % as of january 31 , 2015 due to the addition of the 18- and 24-month programs in october 2014. if the proportion of accounts financed under no-interest programs increases , the overall yield recognized on the average customer receivable balance will decline . conversely , a decline in the proportion of accounts financed under no-interest programs will generally result in an increase in the overall yield recognized . the allowance for no-interest programs represents the portion of the accrued interest reported within customer accounts receivable at the end of each period which is not expected to be realized due to customers satisfying the requirements of the interest-free programs and is based on historical experience . liquidity and capital resources we require liquidity and capital resources to finance our operations and future growth as we add new stores and markets to our operations , which in turn requires additional working capital for increased customer receivables and inventory . we generally finance our operations primarily through a combination of cash flow generated from operations , the use of our revolving credit facility , and through periodic securitizations of originated customer receivables . in september 2015 , we securitized $ 1.4 billion of customer accounts receivables by transferring the receivables to a bankruptcy-remote variable-interest entity ( the `` vie '' ) . the vie issued asset-backed notes at a face amount of $ 1.12 billion secured by the transferred customer accounts receivables , which resulted in net proceeds to us of approximately $ 1.08 billion , net of transaction costs and restricted cash held by the vie . the net proceeds were used to pay down the entire balance on our previous revolving credit facility , to repurchase shares of the company 's common
| % decrease in average selling price . total sales for laundry increased 6.1 % , refrigeration increased 8.4 % , and cooking increased 11.6 % ; consumer electronic unit volume decreased 11.0 % , partially offset by an 11.0 % increase in average selling price . television sales increased 7.8 % as average selling price increased 8.7 % with unit volume down 0.8 % . excluding the impact from exiting video game products and digital cameras , consumer electronics same store sales were flat ; home office unit volume decreased 17.5 % , partially offset by a 13.5 % increase in average selling price . excluding the impact from exiting certain tablets , home office same store sales decreased by 1.5 % ; and 32 the increase in repair service agreement commissions was driven by improved program performance resulting in higher retrospective commissions and increased retail sales . the following table provides the change of the components of finance charges and other revenues : replace_table_token_9_th interest income and fees of the credit segment increased over the prior year level primarily driven by a 22.2 % increase in the average balance of the portfolio . portfolio interest and fee yield declined 140 basis points year-over-year primarily as a result of the introduction of 18- and 24-month equal-payment , no-interest finance programs beginning in october 2014 to certain higher credit quality borrowers , which we discount to present value upon origination , resulting in a reduction in sales and customer receivables . the discount amount is amortized into finance charges and other revenues over the term of the contract at a lower rate than the average yield on the rest of the portfolio . portfolio interest income and fee yield was also negatively impacted by higher provision for uncollectible interest and our discontinuation of charging customers certain payment fees . the following table provides key portfolio performance information : replace_table_token_10_th cost of goods and retail gross margin replace_table_token_11_th the increase in retail gross margin was driven by
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if our estimate of total contract costs or our determination of whether the customer agrees that a milestone is achieved is incorrect , our revenue could be overstated and profits would be negatively impacted . bad debt we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . this estimate is based on an analysis of specific customer creditworthiness and historical bad debts experience . if the financial condition of our customers were to deteriorate , resulting in their inability to make future payments , additional allowances may be required . inventory we provide a reserve for estimated obsolete or unmarketable inventory based on assumptions about future demand and market conditions and our production plans . inventories that are obsolete or slow moving are generally fully reserved ( representing the estimated net realizable value ) as such information becomes available . our display products are manufactured based upon production plans whose critical assumptions include non-binding demand forecasts provided by our customers , lead times for raw materials , lead times for wafer foundries to perform circuit processing and yields . if a customer were to cancel an order or actual demand were lower than forecasted demand , we may not be able to sell the excess display inventory and additional reserves would be required . if we were unable to sell the excess inventory , we would establish reserves to reduce the inventory to its estimated realizable value ( generally zero ) . investment valuation we periodically make equity investments in private companies , accounted for on the cost or equity method , whose values are difficult to determine . when assessing investments in private companies for an other-than-temporary decline in value , we consider such factors as , among other things , the share price from the investee 's latest financing round , the performance of the investee in relation to its own operating targets and its business plan , the investee 's revenue and cost trends , the liquidity and cash position , including its cash burn rate and market acceptance of the investee 's products and services . because these are private companies which we do not control we may not be able to obtain all of the information we would want in order to make a complete assessment of the investment on a timely basis . accordingly , our estimates may be revised if other information becomes available at a later date . in addition to the above we make investments in government and agency-backed securities and corporate debt securities . for all of our investments we provide for an impairment valuation if we believe a decline in the value of an investment is other-than-temporary , which may have an adverse impact on our results of operations . the determination of whether a decline in value is other-than-temporary requires that we estimate the cash flows we expect to receive from the security . we use publicly available information such as credit ratings and financial information of the entity that issued the security in the development of our expectation of the cash flows to be received . historically , we have periodically recorded other than temporary impairment losses . product warranty we generally sell products with a limited warranty of product quality and a limited indemnification of customers against intellectual property infringement claims related to our products . we accrue for known warranty and indemnification issues if a loss is probable and can be reasonably estimated . as of december 28 , 2013 , we had a warranty reserve of $ 0.7 million , which represents the estimated liabilities for warranty claims in process , potential warranty issues customers have notified us about and an estimate based on historical failure rates . for the fiscal years 2013 , 2012 and 2011 , our warranty claims and reversals were approximately $ 0.8 million , $ 2.2 million and $ 1.4 million , respectively . if our estimates for warranty claims are incorrect , our profits would be impacted . income taxes we have historically incurred domestic operating losses from both a financial reporting and tax return standpoint . we establish valuation allowances if it appears more likely than not that our deferred tax assets will not be realized . these judgments are based on our projections of taxable income and the amount and timing of our tax operating loss carryforwards and other deferred tax assets . given our federal operating tax loss carryforwards , we do not expect to pay domestic federal 27 taxes in the near term . it is possible that we could pay domestic alternative minimum taxes and state income taxes . we are also subject to foreign taxes from our korean and u.k. subsidiary operations . our income tax provision is based on calculations and assumptions that will be subject to examination by tax authorities . despite our history of operating losses there can be exposures for state taxes , federal alternative minimum taxes or foreign tax that may be due . we regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes . should the actual results differ from our estimates , we would have to adjust the income tax provision in the period in which the facts that give rise to the revision become known . such adjustment could have a material impact on our results of operations . we have historically established valuation allowances against all of our net deferred tax assets because of our history of generating operating losses and restrictions on the use of certain items . our evaluation of the recoverability of deferred tax assets has also included analysis of the expiration dates of net operating loss carryforwards . in forming our conclusions as to whether the deferred tax assets are more likely than not to be realized we consider the sources of our income and the projected stability of those sources and product life cycles . story_separator_special_tag over the last three fiscal years a significant component of our income has been derived from sales of higher margin military products to the u.s. government . if , as expected , the u.s. government significantly reduces funding for these programs our results of operations will be adversely affected . in assessing our ability to realize our domestic deferred tax assets in the future , we consider the potential impact of the u.s. government 's federal budget deficit on the u.s. military programs in which we currently participate and those programs in which we anticipate participating in the future . a similar analysis is performed with respect to our foreign subsidiaries . stock compensation there were no stock options granted in fiscal years 2013 , 2012 or 2011. the fair value of nonvested restricted common stock awards is generally the market value of the company 's equity shares on the date of grant . the nonvested common stock awards require the employee to fulfill certain obligations , including remaining employed by the company for certain periods of time ( the vesting period ) and in certain cases meeting performance or market criteria . the performance or market criteria may consist of the achievement of the company 's annual incentive plan goals , technology development or the company 's stock attaining a certain price for a period of time . for nonvested restricted common stock awards which solely require the recipient to remain employed with the company , the stock compensation expense is amortized over the anticipated service period . for nonvested restricted common stock awards which require the achievement of performance criteria , the company reviews the probability of achieving the performance goals on a periodic basis . if the company determines that it is probable that the performance criteria will be achieved , the amount of compensation cost derived for the performance goal is amortized over the service period . if the performance criteria are not met , no compensation cost is recognized and any previously recognized compensation cost is reversed . the company recognizes compensation costs on a straight-line basis over the requisite service period for time vested awards . for awards that vest upon our stock price achieving a certain price for a period of time the compensation expense associated with this award is recognized over the derived service period . story_separator_special_tag operations are subject to exchange rate fluctuation in transactional and functional currency . we have not taken any protective measures against exchange rate fluctuations , such as purchasing hedging instruments with respect to such fluctuations , because of the historically stable exchange rate between the japanese yen , korean won and the u.s. dollar . cost of product revenues . replace_table_token_9_th cost of product revenues , which is comprised of materials , labor and manufacturing overhead related to the production of our products increased as a percentage of revenues in 2013 as compared to 2012 due to a decrease in the sale of our display products for military applications , normal price declines and lower unit sales of our display products . military products 30 historically have higher gross margins than commercial products . the reduced volume of sales resulted in an increase in fixed cost per display which reduced the gross margin per display sale . research and development . research and development ( r & d ) expenses are incurred in support of internal display development programs or programs funded by agencies or prime contractors of the u.s. government and commercial partners . in fiscal year 2014 our r & d expenditures will be related to our display products , over lay weapon sights and kopin wearable technologies . r & d revenues associated with funded programs are presented separately in revenue in the statement of operations . research and development costs include staffing , purchases of materials and laboratory supplies , circuit design costs , fabrication and packaging of display products , and overhead . for fiscal years 2013 and 2012 r & d expense was as follows ( in millions ) : replace_table_token_10_th r & d expense increased in 2013 as compared to the prior year primarily because of investments made to develop wearable reference designs , including display development and software costs , partially offset by a decrease in government funded product development . selling , general and administrative . selling , general and administrative ( s , g & a ) expenses consist of the expenses incurred by our sales and marketing personnel and related expenses , and administrative and general corporate expenses . replace_table_token_11_th the increase in s , g & a expenses in 2013 as compared to 2012 is primarily attributable to additional stock compensation expense . impairment . in 2013 , we performed an impairment analysis of our finite-lived intangible assets related to fdd and ikanos . we performed our analysis of our finite-lived intangible assets based on the income approach . as a result we recorded a non-cash charge of $ 1.5 million to write down the finite-lived intangible assets . in 2012 , we performed an impairment analysis of our finite-lived intangible assets and goodwill balance related to fdd , as fdd 's actual results were less than originally forecast . we performed our analysis of our finite-lived intangible assets based on a comparison of the undiscounted cash flows to the recorded carrying value of the intangible assets . as a result , there was no change in the carrying values of the finite-lived intangible assets , however , we recorded a non-cash charge of $ 1.7 million to write down the remaining carrying value of the goodwill to zero . replace_table_token_12_th other income and expense . 31 replace_table_token_13_th other income and expense , net , as shown above , is composed of interest income , foreign currency transactions and remeasurement gains and losses incurred by our korean and united kingdom subsidiaries , other-than-temporary impairment on marketable debt securities , gains on sales of investments and license fees and the impairment of cost based investments .
| we use our proprietary semiconductor material technology to design , manufacture and market our display products for use in highly demanding high-resolution portable military , industrial and consumer electronic applications , training and simulation equipment and 3d metrology equipment . our products enable our customers to develop and market an improved generation of products for these target applications . we have two principal sources of revenues : product revenues and research and development revenues . research and development revenues consist primarily of development contracts with agencies or prime contractors of the u.s. government . research and development revenues were $ 2.3 million , or 10.0 % of total 2013 revenues , $ 3.3 million , or 9.6 % of total 2012 revenues and $ 5.1 million , or 7.9 % of total 2011 revenues . we manufacture transmissive microdisplays and reflective displays . in fiscal year 2012 the initial manufacturing steps for our commercial transmissive display were performed in our westborough , massachusetts , u.s.a. facility and then the back end packaging steps for our commercial transmissive display products were performed at our korean subsidiary , kowon . if the transmissive display was for a u.s. military application the entire display manufacturing process was performed in our westborough , massachusetts facility . commencing in 2013 both commercial and military transmissive display production is being performed entirely in our westborough , massachusetts facility . forth dimension displays ( fdd ) , our wholly-owned subsidiary , manufactures our reflective microdisplays in its facility located in scotland and it is a reportable segment . because our fiscal year ends on the last saturday of december every seven years we have a fiscal year with 53 weeks . our fiscal years 2013 and 2012 were 52 week years as compared to fiscal years 2011 which was a 53 weeks year . fiscal year 2013 compared to fiscal year 2012 revenues . our revenues , which include product sales and amounts earned from research and development contracts , for fiscal years 2013 and 2012 , by category , were as follows : replace_table_token_8_th sales of our products for military applications declined in 2013 because of reduced demand from the u.s. government .
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we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . we expect our expenses will increase in connection with our ongoing activities , as we : ● continue commercialization which began in the fourth quarter of 2019 , with the first commercial placements of our pure-vu system as part of our initial u.s. market launch targeting early adopter hospitals ; ● scale manufacturing with our contracted partners for both the workstation and disposable portions of the pure-vu system ; ● develop future generations of the pure-vu system to improve user interface , optimize handling and reduce the cost structure ; ● raise sufficient funds to effectuate our business plan , including commercialization activities related to our pure-vu system and our research and development activities , including clinical and regulatory development and the continued development and enhancement of our pure-vu system ; and ● operate as a public company . critical accounting policies and significant judgement and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states . the preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , costs and expenses , and the disclosure of contingent assets and liabilities in our financial statements . we base our estimates on historical experience , known trends and events and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in note 3 to our consolidated financial statements , we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we generate revenue from the sale or lease of our pure-vu system workstation ( “ workstation ” ) and from the sale of our single-use disposable sleeves ( “ disposables ” ) , and related services , which are primarily support and maintenance services on our workstations . see note 3 for further discussion of revenue recognition . sales of our workstation and disposables are accounted for in accordance with asc topic 606 - revenue from contracts with customers to depict the transfer of control to our customers in an amount reflecting the consideration to which we expect to be entitled to . revenue from the sale of a workstation is recognized after a customer commits to purchase the workstation and the workstation is delivered , which is when title is transferred . disposables are identified as a separate performance obligation , and therefore , revenue from the sale of disposables is recognized when the disposables are delivered to the customer and title is transferred . for contracts outside the scope of asc 606 , we determine income for proposed supply arrangements with an embedded lease in accordance with asc 842 and certain components of sales within the proposed supply arrangement in accordance with asc 606. we allocate the transaction price to the performance obligations within the proposed supply arrangements using the total estimated purchases method for both ( i ) arrangements that contain minimum purchase commitments and ( ii ) those arrangements that do not contain a minimum purchase commitment , but instead offer a volume discount for purchases that exceed a specified tier . 49 inventory inventory is accounted for at lower of cost and net realizable value using the weighted average cost method and is evaluated at least annually for impairment . write-downs for potentially obsolete or excess inventory are made based on management 's analysis of inventory levels , historical obsolescence and future sales forecasts . share-based compensation our share-based compensation programs grant awards that have included stock options , warrants , and restricted stock units . grants are awarded to employees and non-employees , including directors . we account for our stock-based compensation awards in accordance with asc topic 718 , compensation—stock compensation , or asc 718. asc 718 requires all stock-based payments to employees and non-employee directors , including grants of employee stock options and restricted stock units and modifications to existing stock options , to be recognized in the consolidated statements of operations and comprehensive loss based on their fair values . we account for forfeitures as they occur instead of estimating forfeitures at the time of grant and revising those estimates in subsequent periods if actual forfeitures differ from its estimates . share-based compensation expense recognized in the financial statements is based on awards for which performance or service conditions are expected to be satisfied . prior to the adoption of asu no . 2018-07 , compensation - stock compensation ( topic 718 ) : improvements to nonemployee share-based payment accounting , or asu 2018-07 , on july 1 , 2018 , the measurement date for non-employee awards was generally the date the services were completed , resulting in financial reporting period adjustments to stock-based compensation during the vesting terms for changes in the fair value of the awards . after adoption of asu 2018-07 , the measurement date for non-employee awards is the date of grant without changes in the fair value of the award . our share-based awards are subject to service or performance-based vesting conditions . compensation expense related to awards to employees , directors and non-employees with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award , which is generally the vesting term . we expense restricted stock unit awards to employees based on the fair value of the award on a straight-line basis over the associated service period of the award . story_separator_special_tag we estimate the fair value of our option awards to employees , directors and non-employees using the black-scholes option pricing model , which requires the input of subjective assumptions , including ( i ) the expected stock price volatility , ( ii ) the calculation of expected term of the award , ( iii ) the risk-free interest rate and ( iv ) expected dividends . due to the lack of complete company-specific historical and implied volatility data for the full expected term of the stock-based awards , we base our estimate of expected volatility on a representative group of publicly traded companies in addition to our own volatility data . for these analyses , we selected companies with comparable characteristics to our own , including enterprise value , risk profiles , position within the industry and with historical share price information sufficient to meet the expected life of the stock-based awards . we compute historical volatility data using the daily closing prices for the selected companies ' shares during the equivalent period of the calculated expected term of the stock-based awards . we will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available . we have estimated the expected term of our employee stock options using the “ simplified ” method , whereby , the expected term equals the arithmetic average of the vesting term and the original contractual term of the option due to its lack of sufficient historical data . the risk-free interest rates for periods within the expected term of the option are based on the u.s. treasury securities with a maturity date commensurate with the expected term of the associated award . we have never paid , and do not expect to pay , dividends in the foreseeable future . contingent royalty obligation we estimate and record a contingent royalty obligation in relation to our royalty obligation , which is payable over the life of certain patents after certain conditions are met . forecasted revenue over an expected life of the product is the largest driver of the estimated obligation , with other factors being growth rate , patent expiration assessments , and the discount rate . all these drivers are subject to a high degree of uncertainty which we determine at present based on a very limited-commercialized product . emerging growth company status under section 107 ( b ) of the jobs act , emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies . we have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and , therefore , we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . 50 recent accounting pronouncements refer to note 3 , “ significant accounting policies and basis of presentation ” , in the accompanying notes to the consolidated financial statements for a discussion of recent accounting pronouncements . story_separator_special_tag purchase an aggregate of 5,533,625 shares of common stock ( the “ pre-funded warrants ” ) . the offering price was $ 1.145 for each share of common stock and $ 1.144 for each pre-funded warrant . the pre-funded warrants were immediately exercisable at a price of $ 0.001 per share of common stock . pursuant to the securities purchase agreement , in a concurrent private placement , we also agreed to issue to the holder warrants to purchase up to 8,733,625 shares of common stock ( the “ private placement warrants ” ) . these warrants were immediately exercisable at an exercise price of $ 1.30 per share and expire on the fifth anniversary of the date of issuance . in connection with the closing of the offering , we received gross proceeds of $ 10.0 million before deducting placement agent fees and other offering expenses of $ 0.8 million , from the issuance of the common stock , the pre-funded warrants and the private placement warrants . on january 27 , 2021 , we entered into a warrant exercise agreement ( the “ exercise agreement ” ) with the holder , at which time 8,000,000 of the private placement warrants remained outstanding , due to the prior exercise of 733,625 of the private placement warrants on january 22 , 2021. pursuant to the exercise agreement , in order to induce the holder to exercise all of its remaining outstanding 8,000,000 private placement warrants for cash , we agreed to issue to the holder , new warrants ( the “ new warrants ” ) to purchase 0.75 shares of common stock for each share of common stock issued upon such exercise of the remaining 8,000,000 private placement warrants pursuant to the exercise agreement , or an aggregate of 6,000,000 new warrants . the terms of the new warrants are substantially similar to those of the private placement warrants , except that the new warrants will have an exercise price of $ 2.12 , will be immediately exercisable and will expire five years from the date of the exercise agreement . in addition , the holder paid a cash payment of $ 0.10 for each new warrant issued to the holder , for an aggregate of $ 600,000 to the company . we received aggregate gross proceeds before expenses of approximately $ 11.0 million from the exercise of all of the remaining 8,000,000 outstanding private placement warrants held by the holder and the payment of the purchase price for the new warrants . in connection with the exercise agreement , we entered into a financial advisory agreement ( the “ letter agreement ” ) with a.g.p./alliance global partners ( “ a.g.p. ” ) , pursuant to which a.g.p . acted as exclusive financial advisor to us in this transaction and received a cash fee of $ 300,000 upon full cash exercise of the private placement warrants . as additional compensation , a.g.p .
| research and development expenses for the year ended december 31 , 2020 totaled $ 5.6 million , compared to $ 9.0 million for the year ended december 31 , 2019. the decrease of $ 3.4 million was primarily attributable to decreases of $ 2.1 million in salaries and other personnel related costs , $ 0.9 million in material costs and clinical costs , $ 0.3 million in travel , and $ 0.1 million in share-based compensation as we shifted our focus to expanding our commercialization efforts for the pure-vu system . sales and marketing sales and marketing expenses consist of costs primarily related to our sales and marketing personnel and infrastructure supporting the commercialization of the second generation pure-vu system . sales and marketing expenses for the year ended december 31 , 2020 totaled $ 3.5 million , compared to $ 4.9 million for the year ended december 31 , 2019. the decrease of $ 1.4 million was primarily attributable to decreases of $ 1.0 million in salaries and other personnel related cost and professional services and $ 0.2 million in travel , and $ 0.2 million in promotional items as we implemented our 2020 cost reduction strategy . general and administrative general and administrative expenses consist primarily of costs associated with our overall operations and being a public company . these costs include personnel , legal and financial professional services , insurance , investor relations , compliance related fees , and expenses associated with obtaining and maintaining patents . general and administrative expenses for the year ended december 31 , 2020 totaled $ 9.6 million , compared to $ 9.5 million for the year ended december 31 , 2019 . 51 other income and expenses other expense , net for the year ended december 31 , 2020 totaled $ 0.2 million compared to other income , net of $ 0.4 million for the year ended december 31 , 2019. the change of $ 0.6 million in other income and expenses , net was primarily attributable to a change of $ 0.7 million from finance income to finance expense offset by an increase of $ 0.1 million from the gain on the change
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a good or service promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity 's promise to transfer the good or service to the customer is separately identifiable from other promises in the contract . we have identified two performance obligations in the chiesi agreements as follows : ( 1 ) the license and research and development services and ( 2 ) contingent performance obligation regarding future manufacturing . we determined that the license together with the research and development services should be combined into single performance obligation since chiesi can not benefit from the license without the research and development services . the research and development services are highly specialized and are dependent on the supply of the drug . the future manufacturing is contingent on regulatory approvals of the drug and we deem these services to be separately identifiable from other performance obligations in the contract . manufacturing services post-regulatory approval are not interdependent or interrelated with the license and research and development services . the transaction price was comprised of fixed consideration and variable consideration ( capped research and development reimbursements ) . under asc 606 , the consideration to which we would be entitled upon the achievement of contractual milestones , which are contingent upon the occurrence of future events , are a form of variable consideration . we estimate variable consideration using the most likely method . amounts included in the transaction price are recognized only when it is probable that a significant reversal of cumulative revenues will not occur . prior to recognizing revenue from variable consideration , we use significant judgment to determine the probability of a significant reversal of such revenue . since the customer benefits from the research and development services as the entity performs the service , revenue from granting the license and the research and development services is recognized over time using the cost-to-cost method . we used significant judgment when we determined the costs expected to be incurred upon satisfying the identified performance obligation . 59 revenue from additional research and development services ordered by chiesi is recognized over time using the cost-to-cost method . we accounted for the chiesi us agreement as a modification of the chiesi ex-us agreement . as such , we recorded revenue through a cumulative catch-up adjustment . our revenue recognition accounting policy prior to january 1 , 2019 , was materially the same . research and development expense we expect our research and development expense to remain our primary expense in the near future as we continue to develop our product candidates . research and development expense consists of : · internal costs associated with research and development activities ; · payments made to third party contract research organizations , investigative/clinical sites and consultants ; · manufacturing development costs ; · personnel-related expenses , including salaries , benefits , travel , and related costs for the personnel involved in research and development ; · activities relating to the advancement of product candidates through preclinical studies and clinical trials ; and · facilities and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , as well as laboratory and other supplies . the following table identifies our current major research and development projects : project status expected near term milestones prx-102 – pegunigalsidase alfa phase iii clinical trials fully-enrolled and ongoing bla submission under accelerated approval pathway , disclosure of final results of bridge and bright studies oprx-106 – oral anti-tnf phase iia completed evaluate potential partnership for next-step clinical development prx-110 – alidornase alfa phase iia completed evaluate potential partnership prx-115 – uricase preclinical we anticipate incurring increasing costs in connection with the continued development of all of the product candidates in our pipeline . our internal resources , employees and infrastructure are not tied to any individual research project and are typically deployed across all of our projects . we currently do not record and maintain research and development costs per project . the costs and expenses of our projects are partially funded by grants we have received from nati . each grant is deducted from the related research and development expenses as the costs are incurred . for additional information regarding the grant process , see “ business—israeli government programs— encouragement of industrial research , development and technology innovation , 1984 ” in item 1 of this annual report . there can be no assurance that we will continue to receive grants from nati in amounts sufficient for our operations , if at all . in addition , under the two chiesi agreements , protalix ltd. is entitled to payments of up to $ 45.0 million in the aggregate to cover development costs for pegunigalsidase alfa , capped at $ 17.5 million per year . as of december 31 , 2019 , we have received , or are entitled to receive , reimbursements equal to $ 40.1 million from chiesi and additional payments equal to approximately $ 9.1 million in connection with the performance of extension studies . 60 at this time , due to the inherently unpredictable nature of preclinical and clinical development processes and given the early stage of our preclinical product development programs , we are unable to estimate with any certainty the costs we will incur in the continued development of the product candidates in our pipeline for potential commercialization . clinical development timelines , the probability of success and development costs can differ materially from expectations . the current focus of our product development efforts are on pegunigalsidase alfa . our future research and development expenses for pegunigalsidase alfa and the other product candidates will depend on the clinical success of each product candidate , as well as ongoing assessments of each product candidate 's commercial potential . story_separator_special_tag in addition , we can not forecast with any degree of certainty which product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . see “ risk factors—if we are unable to develop and commercialize our product candidates , our business will be adversely affected ” and “ —we may not obtain the necessary u.s. , ema or other worldwide regulatory approvals to commercialize our drug candidates in a timely manner , if at all , which would have a material adverse effect on our business , results of operations and financial condition. ” we expect our research and development expenses to continue to be our primary expense in the future as we continue the advancement of our clinical trials and preclinical product development programs for our product candidates , particularly with respect to the development of pegunigalsidase alfa . the lengthy process of completing clinical trials and seeking regulatory approvals for our product candidates requires expenditure of substantial resources . any failure or delay in completing clinical trials , or in obtaining regulatory approvals , could cause a delay in generating product revenue and cause our research and development expense to increase and , in turn , have a material adverse effect on our operations . due to the factors set forth above , we are not able to estimate with any certainty when we would recognize any net cash inflows from our projects . see “ risk factors—clinical trials are very expensive , time-consuming and difficult to design and implement and may result in unforeseen costs which may have a material adverse effect on our business , results of operations and financial condition. ” share-based compensation the discussion below relates to our share-based compensation . in accordance with the guidance , we record the benefit of any grant to a non-employee and remeasure the benefit in any future vesting period for the unvested portion of the grants , as applicable . in addition , we use the straight-line accounting method for recording the benefit of the entire grant , unlike the accelerated method we use to record grants made to employees . we measure share-based compensation cost for all share-based awards at the fair value on the grant date and recognition of share-based compensation over the service period for awards that we expect will vest . the fair value of stock options is determined based on the number of shares granted and the price of our ordinary shares , and calculated based on the black-scholes valuation model . we recognize such value as expense over the service period using the accelerated method . the guidance requires companies to estimate the expected term of the option rather than simply using the contractual term of an option . because of lack of sufficient data on past option exercises by employees , the expected term of the options could not be based on historic exercise patterns . accordingly , we adopted the simplified method , according to which companies may calculate the expected term as the average between the vesting date and the expiration date , assuming the option was granted as a “ plain vanilla ” option . in performing the valuation , we assumed an expected 0 % dividend yield in the previous years and in the next years . we do not have a dividend policy and given the lack of profitability , dividends are not expected in the foreseeable future , if at all . the guidance stipulates a number of factors that should be considered when estimating the expected volatility , including the implied volatility of traded options , historical volatility and the period that the shares of the company are being publicly traded . the risk-free interest rate used in the valuation of the options is based on the implied yield of u.s. federal reserve zero–coupon government bonds . the remaining term of the bonds used for each valuation was equal to the expected term of the grant . this methodology has been applied to all grants valued by us . the guidance requires the use of a risk–free interest rate based on the implied yield currently available on zero–coupon government issues of the country in whose currency the exercise price is expressed , with a remaining term equal to the expected life of the option being valued . this requirement has been applied for all grants valued as part of this report . convertible notes all outstanding convertible notes are accounted for using the guidance set forth in the financial accounting standards board , or fasb , accounting standards codification ( asc ) 815 requiring that we determine whether the embedded conversion option must be separated and accounted for separately . asc 470-20 regarding debt with conversion and other options requires the issuer of a convertible debt instrument that may be settled in cash upon conversion to separately account for the liability ( debt ) and equity ( conversion option ) components of the instrument in a manner that reflects the issuer 's nonconvertible debt borrowing rate . we accounted for the 4.5 % convertible notes , which we refer to as the 2018 notes , as liability , on an aggregated basis , in their entirety . 61 our 2021 notes were accounted for partially as liability and equity components of the instrument and partially as a debt host contract with an embedded derivative resulting from the conversion feature . during the year ended december 31 , 2017 , the embedded derivative was reclassified to additional paid in capital . issuance costs regarding the issuance of the 2021 notes are amortized using the effective interest rate . during the year ended december 31 , 2018 , note holders converted $ 1.15 million aggregate principal amount of the 2021 notes into a total of 153,742 shares of common stock and cash payments of approximately $ 15,887 , in the aggregate .
| our prx-102 phase iii clinical program of prx-102 for the treatment of fabry disease includes three separate studies : the balance , bridge and bright studies . the studies are designed to evaluate the potential superiority of prx - 102 over current therapies , demonstrate the potential for improved efficacy and better quality of life for patients with fabry disease and demonstrate the safety of our drug/therapy . we are also evaluating the potential of a once-monthly treatment regimen with a higher dose of prx-102 . enrollment has been completed in each of the balance , bridge and bright clinical studies . on february 5 , 2019 , we announced preliminary pharmacokinetic ( pk ) data from our phase iii bright study . data showed prx-102 to be well-tolerated ; and infusion of 2 mg/kg prx-102 administered every 4 weeks resulted in the presence of continuous active enzyme throughout the entire infusion interval . on october 17 , 2019 , we announced positive 12-month interim data from our bridge study . data from the first 16 of the 22 adult patients ( 9 males and 7 females ) demonstrated a mean improvement in kidney function in both male and female patients when switched from agalsidase alfa ( replagal ) to prx-102 . we anticipate that , in coordination with chiesi , a bla will be filed with the fda under an accelerated approval pathway based on the completed phase i/ii clinical trials of prx - 102 , and the safety and efficacy data from the ongoing bridge study . in october 2019 , we met , together with chiesi , with the fda to discuss key information on prx - 102 to be included in the proposed bla filing and reached alignment with the fda on the accelerated approval pathway for prx - 102. on october 19 , 2017 , protalix ltd. , our wholly-owned subsidiary , and chiesi entered into the chiesi ex-us agreement pursuant to which chiesi was granted an exclusive license for all markets outside of
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however , given the sensitivity of the company 's consolidated financial statements to these critical policies , the use of other judgments , estimates and assumptions could result in material differences in the company 's results of operations or financial condition . market risk and asset and liability management general . market risk is the risk of loss from adverse changes in market prices and rates . the bank 's market risk arises primarily from interest rate risk inherent in its lending , investment , deposit and borrowing activities . the bank , like other financial institutions , is subject to interest rate risk to the extent that its interest-earning assets reprice differently than its interest-bearing liabilities . management actively monitors and manages its interest rate risk exposure . although the bank manages other risks , such as credit quality and liquidity risk , in the normal course of business management considers interest rate risk to be its most significant market risk that could potentially have the largest material effect on the bank 's financial condition and results of operations . the bank does not maintain a trading account for any class of financial instruments nor does it engage in hedging activities . furthermore , the bank is not subject to foreign currency exchange rate risk or commodity price risk . qualitative aspects of market risk . the bank 's principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates . the bank has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the difference between asset and liability maturities and interest rates . the principal element in achieving this objective is to increase the interest rate sensitivity of the bank 's interest-earning assets by retaining in its portfolio , short-term loans and loans with interest rates subject to periodic adjustments . the bank relies on retail deposits as its primary source of funds . as part of its interest rate risk management strategy , the bank promotes transaction accounts and certificates of deposit with terms of up to five years . the bank has adopted a strategy that is designed to substantially match the interest rate sensitivity of assets relative to its liabilities . the primary elements of this strategy involve originating arm loans for its portfolio , maintaining residential construction loans as a portion of total net loans receivable because of their generally shorter terms and higher yields than other one- to four-family residential mortgage loans , matching asset and liability maturities , investing in short-term securities , and originating fixed-rate loans for retention or sale in the secondary market while retaining the related msrs . sharp increases or decreases in interest rates may adversely affect the bank 's earnings . management of the bank monitors the bank 's interest rate sensitivity through the use of a model provided by fimac solutions , llc ( “ fimac ” ) , a company that specializes in providing interest rate risk and balance sheet management services to the financial services industry . based on a rate shock analysis prepared by fimac based on data at september 30 , 2018 , an immediate increase in interest rates of 100 basis points would increase the bank 's projected net interest income by approximately 4.2 % , primarily because a larger portion of the bank 's interest rate sensitive assets than interest rate sensitive liabilities would reprice within a one year period . conversely , an immediate decrease in interest rates of 100 basis points would decrease the bank 's projected net interest income by approximately 7.7 % . see “ quantitative aspects of market risk ” below for additional information . management has sought to sustain the match between asset and liability maturities and rates , while maintaining an acceptable interest rate spread . pursuant to this strategy , the bank actively originates adjustable-rate loans for retention in its loan portfolio . fixed-rate mortgage loans with maturities greater than seven years generally are originated for the immediate or future resale in the secondary mortgage market . although the bank 54 has sought to originate arm loans , the ability to originate such loans depends to a great extent on market interest rates and borrowers ' preferences . in lower interest rate environments , borrowers often prefer fixed-rate loans . consumer , commercial business and construction loans typically have shorter terms and higher yields than permanent residential mortgage loans , and accordingly reduce the bank 's exposure to fluctuations in interest rates . at september 30 , 2018 , the consumer , commercial business and construction portfolios amounted to $ 40.86 million , $ 43.05 million and $ 188.36 million , or 5.0 % , 5.2 % and 22.9 % of total loans receivable , respectively . quantitative aspects of market risk . the model provided for the bank by fimac estimates the changes in net portfolio value ( `` npv '' ) and net interest income in response to a range of assumed changes in market interest rates . the model first estimates the level of the bank 's npv ( market value of assets , less market value of liabilities , plus or minus the market value of any off-balance sheet items ) under the current rate environment . in general , market values are estimated by discounting the estimated cash flows of each instrument by appropriate discount rates . the model then recalculates the bank 's npv under different interest rate scenarios . the change in npv under the different interest rate scenarios provides a measure of the bank 's exposure to interest rate risk . the following table is provided by fimac based on data at september 30 , 2018 : replace_table_token_25_th _ ( 1 ) does not include loan fees . ( 2 ) includes boli income , which is included in non-interest income in the consolidated financial statements . ( 3 ) no rates in the model are allowed to go below zero . story_separator_special_tag given the relatively low level of market interest rates , a calculation for a decrease of greater than 300 basis points has not been prepared . computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions , including relative levels of market interest rates , loan repayments and deposit decay , and should not be relied upon as indicative of actual results . furthermore , the computations do not reflect any actions management may undertake in response to changes in interest rates . in the event of a 100 basis point decrease in interest rates , the bank would be expected to experience an 8.5 % decrease in npv and a 7.7 % decrease in net interest income . in the event of a 100 basis point increase in interest rates , a 5.2 % increase in npv and a 4.2 % increase in net interest income would be expected . based upon the modeling described above , the bank 's asset and liability structure generally results in increases in net interest income and npv in a rising interest rate scenario and decreases in net interest income and npv in a declining interest rate scenario . as with any method of measuring interest rate risk , certain shortcomings are inherent in the method of analysis presented in the foregoing table . for example , although certain assets and liabilities may have similar maturities or periods to repricing , they may react in different degrees to changes in market interest rates . also , the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates , while interest rates on other types may lag behind changes in market rates . additionally , certain assets have features which restrict changes in interest rates on a short-term basis and over the life of the asset . further , in the event of a change in interest rates , expected rates of prepayments on loans and early withdrawals from certificates of deposit could possibly deviate significantly from those assumed in calculating the table . 55 comparison of financial condition at september 30 , 2018 and september 30 , 2017 the company 's total assets increased by $ 66.27 million , or 7.0 % , to $ 1.02 billion at september 30 , 2018 from $ 952.02 million at september 30 , 2017 . the increase in total assets was primarily attributable to increases in net loans receivable , certificates of deposit ( `` cds '' ) held for investment and investments securities . total assets at september 30 , 2018 also included a $ 6.90 million escrow deposit related to the south sound merger , which was completed on october 1 , 2018. the increase in total assets was funded primarily by an increase in total deposits . net loans receivable increased by $ 35.03 million , or 5.1 % , to $ 725.39 million at september 30 , 2018 from $ 690.36 million at september 30 , 2017 , primarily as a result of increases in commercial real estate loans and net construction related loans . total deposits increased by $ 51.61 million , or 6.2 % , to $ 889.51 million at september 30 , 2018 from $ 837.90 million at september 30 , 2017 , primarily as a result of increases in non-interest bearing , savings , money market , and now checking account balances . shareholders ' equity increased by $ 13.66 million , or 12.3 % , to $ 124.66 million at september 30 , 2018 from $ 111.00 million at september 30 , 2017 . the increase was primarily due to net income for the year ended september 30 , 2018 of $ 16.72 million which was partially offset by dividends paid to shareholders of $ 4.43 million . a more detailed explanation of the changes in significant balance sheet categories follows : cash and cash equivalents and cds held for investment : cash and cash equivalents and cds held for investment increased by $ 20.93 million , or 10.9 % , to $ 212.15 million at september 30 , 2018 from $ 191.22 million at september 30 , 2017 . the increase was due to a $ 20.26 million increase in cds held for investment . the company continued to maintain high levels of liquidity primarily for asset-liability management purposes . investment securities : investment securities increased by $ 5.58 million , or 66.6 % , to $ 13.96 million at september 30 , 2018 from $ 8.38 million at september 30 , 2017 . the increase was primarily due to the purchase of $ 6.07 million in u.s. treasury and u.s. government agency securities during the year ended september 30 , 2018 , which was partially offset by scheduled amortization and prepayments . for additional details on investment securities , see `` item 1. business - investment activities '' and note 3 to the consolidated financial statements contained in `` item 8. financial statements and supplementary data . '' fhlb stock : fhlb stock increased by $ 83,000 , or 7.5 % , to $ 1.19 million at september 30 , 2018 from $ 1.11 million at september 30 , 2017 , due to required stock purchases by the fhlb . the required investment in fhlb stock increased primarily due to the increase in total assets . other investments : other investments remained unchanged at $ 3.00 million at september 30 , 2018 from september 30 , 2017. this investment in the solomon hess sba loan fund llc is utilized to help satisfy compliance with the company 's community reinvestment act ( `` cra '' ) investment test requirements . loans held for sale : loans held for sale decreased to $ 1.79 million at september 30 , 2018 from $ 3.60 million at september 30 , 2017. the company sells longer-term fixed-rate residential loans and the guaranteed portion of sba commercial business loans for asset-liability management purposes and to generate non-interest income .
| as a result of the south sound merger , south sound bank shareholders received 904,826 shares of timberland bancorp common stock and $ 6.90 million in cash for total consideration paid of $ 35.17 million . the financial condition data and operating results of the company at and for the year ended september 30 , 2018 , do not include the acquired assets and assumed liabilities from south sound bank or the operating results produced by the acquired assets and assumed liabilities as the south sound merger did not close until october 1 , 2018. for additional details see note 21 of the notes to consolidated financial statements contained in `` item 8. financial statements and supplementary data . '' the bank is a community-oriented bank which has traditionally offered a variety of savings products to its retail customers while concentrating its lending activities on real estate mortgage loans . lending activities have been focused primarily on the origination of loans secured by real estate , including residential construction loans , one- to four-family residential loans , multi-family loans and commercial real estate loans . the bank originates adjustable-rate residential mortgage loans that do not qualify for sale in the secondary market . the bank also originates commercial business loans and other consumer loans . the profitability of the company 's operations depends primarily on its net interest income after provision for ( recapture of ) loan losses . net interest income is the difference between interest income , which is the income that the company earns on interest-earning assets , which are primarily loans and investments , and interest expense , the amount the company pays on its interest-bearing liabilities , which are primarily deposits and borrowings ( as needed ) . net interest income is affected by changes in the volume and mix of interest-earning assets , interest earned on those assets , the volume and mix of interest-bearing liabilities and interest paid on those interest-bearing liabilities . management attempts to match the re-pricing characteristics of the interest-earning assets and interest-bearing liabilities to protect net interest income from changes in market interest rates and
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· geography – nave 's operations were located on the east coast in baltimore , which we believe negatively impacted our ability to be competitive in the western us due to inventory shipment delivery times . subsequent to the move to palco , our inventory fulfillment operation will now be in alabama , which will significantly improve delivery times across the us , which will allow nave to increase its customer base across more geographic areas of the us . · repair – today , nave can not repair telecommunications products internally and generally does not offer repair services as a product line to its customers . with the move to palco and our investment in test equipment , nave plans to begin offering customers repair services in late 2019. we believe that this product offering will generate increased top-line revenue and profitability for nave . in summary , we believe that this operational move of our warehousing and inventory fulfillment operations to palco should provide many efficiencies in our inventory processes and operating cost savings as well as provide better quality products to our customers . this strategic move should also allow nave to expand its us customer base to the western us as well as offer additional product lines . all of these factors should not only increase nave 's top-line revenue , but also its bottom line profitability . 11 triton datacom as a result of an internal operational review , we determined that our current facility was hindering our ability to perform efficiently as well as not allowing us to grow this business . in addition , we identified product lines that we needed to stock in order to increase revenues and reach a broader customer base . therefore , in fiscal year 2019 , we are planning to move our operation to a new location in a similar area . once this strategic move is completed , it will provide us the following benefits : · operational efficiencies – the new facility will allow us to refurbish more customer premise units per person and will also allow us to expand our models that we refurbish . currently , we primarily focus on the refurbishment of cisco ip desk phones , but we will now plan to add additional assembly lines to focus on additional manufacturers that our customers are requesting . · investment in additional new and refurbished inventory ‒ increasing the footprint of our warehouse and adding additional storage height will allow us the opportunity to invest in additional inventory . this will include the addition of new manufactures as well as increased quantities of current inventory to fulfill customer demand . · wholesale broker-to-broker sales expansion – as a result of the investment in additional new and refurbished inventory , we plan to expand our brokerage service team and to expand our broker sales platforms . · carrier customers – the new facility will provide the footprint space required to expand our focus into the telephone carrier market , which we do not currently support . therefore , as we expand our product line offerings discussed above , we plan to begin marketing to the telephone carrier market in late 2019. in summary , we believe that the move of our facility in 2019 and investing in additional inventory product lines across multiple manufacturers should provide the platform for us to grow triton 's top-line revenues and improve its overall bottom-line results . cable tv segment despite our efforts to grow the top-line revenue of the cable tv segment over the last several years , the overall top-line revenue has continued to decline and therefore has failed to produce the necessary results to meet the goals of our board of directors and management . therefore , we made the decision to pursue selling the cable tv segment in order to help fund our growth strategy further into the telecommunication market , provide funding to pay off the debt under a forbearance agreement with our primary lender and provide overall liquidity for the remaining business . in order to meet these funding objectives , prior to selling the cable tv segment , in october 2018 , we announced that we had entered into an agreement to sell our broken arrow , oklahoma facility , which contains the operations of one of our cable tv segment subsidiaries , tulsat , llc ( “ tulsat ” ) , and the company 's headquarters to a company controlled by david chymiak , who is our chief technology officer , director , and substantial shareholder of the company . the sale closed in november 2018 for $ 5.0 million in cash . this sale resulted in a pretax gain of approximately $ 1.4 million . in connection with the sale , tulsat entered into a ten-year lease with the purchaser for a monthly rent of $ 44,000 , or $ 528,000 per year . tulsat , as tenant , will be responsible for most ongoing expenses related to the facility , including property tax , insurance and maintenance . as a result of the leaseback , the pretax gain of $ 1.4 million will be deferred over the lease period . in december 2018 , we entered into an agreement with a company controlled by david chymiak to sell the cable tv segment business for $ 10.3 million . this sale is subject to shareholder approval , which we anticipate occurring in our third fiscal quarter of 2019. the purchase price will consist of $ 3.9 million of cash and a $ 6.4 million promissory note to be paid in semi-annual installments over five years with an interest rate of 6 % . if the sale receives shareholder approval and closes , we estimate that this sale will result in a pretax loss of approximately $ 2.8 million . story_separator_special_tag banking arrangement in the first fiscal quarter of 2019 , we used internal funds and cash provided by the sale of the broken arrow , oklahoma facility to pay off our outstanding term loans and line of credit with our primary financial lender totaling $ 2.6 million . therefore , we are no longer under our forbearance agreement . in december 2018 , we entered into another credit agreement with a different financial lender . this credit agreement contains a $ 2.5 million revolving line of credit and matures on december 17 , 2019 . 12 purchase of net assets of fulton technologies , inc. and mill city communications , inc . on december 17 , 2018 , we announced plans to launch a services business focused on providing wireless infrastructure services to the telecommunications market as part of our overall growth strategy within the telecommunications industry . on december 27 , 2018 , we entered into a purchase agreement to acquire substantially all of the net assets of fulton technologies , inc. ( “ fulton ” ) and mill city communications , inc. ( “ mill city ” ) . the transaction is expected to close in early january 2019. these companies provide turn-key wireless infrastructure services for the four major u.s. wireless carriers , national integrators , and original equipment manufacturers that support these wireless carriers . these services primarily consist of the installation and upgrade of technology on cell sites and the construction of new small cells for 5g . pursuing an acquisition strategy rather than organically building this service offering eliminates the need to invest a significant amount of time launching the business and provides the additional benefit of established and experienced operational teams , as well as pre-existing revenue streams from the major customers in the industry . we anticipate that the purchase price plus integration costs of fulton and mill city would be similar to those we would have incurred to launch this services platform organically . this acquisition is part of the overall growth strategy that will further diversify the company into the broader telecommunications industry by providing wireless infrastructure services to the wireless telecommunications market . the purchase price for the net assets of fulton and mill city will be $ 1.7 million in cash , subject to a working capital adjustment . a deposit of $ 500,000 was paid on december 27 , 2018 in connection with signing the purchase agreement . story_separator_special_tag to $ 7.4 million for the year ended september 30 , 2018 compared to $ 7.1 million for the same period last year . gross margin was 27 % for both 2018 and 2017. operating , selling , general and administrative expenses increased $ 0.3 million , or 5 % , to $ 9.1 million for the year ended september 30 , 2018 from $ 8.8 million for the same period last year . this increase was due primarily to increased personnel expenses . the telco segment incurred a restructuring charge of $ 0.9 million for the year ended september 30 , 2018 ( see note 11 – restructuring charge in the notes to the consolidated financial statements ) . 14 non-gaap financial measure adjusted ebitda is a supplemental , non-gaap financial measure . ebitda is defined as earnings before interest expense , income taxes , depreciation and amortization . adjusted ebitda as presented also excludes restructuring and impairment charges , other income , interest income and income from equity method investment . adjusted ebitda is presented below because this metric is used by the financial community as a method of measuring our financial performance and of evaluating the market value of companies considered to be in similar businesses . since adjusted ebitda is not a measure of performance calculated in accordance with gaap , it should not be considered in isolation of , or as a substitute for , net earnings as an indicator of operating performance . adjusted ebitda may not be comparable to similarly titled measures employed by other companies . in addition , adjusted ebitda is not necessarily a measure of our ability to fund our cash needs . a reconciliation by segment of income ( loss ) from operations to adjusted ebitda follows : replace_table_token_4_th ( a ) the telco segment includes earn-out expenses of $ 0.2 million for the year ended september 30 , 2017 , related to the acquisition of triton miami . year ended september 30 , 2017 , compared to year ended september 30 , 2016 consolidated consolidated sales increased $ 10.0 million before the impact of intersegment sales , or 26 % , to $ 48.7 million for 2017 from $ 38.7 million for 2016. the increase in sales was due to an increase in the telco segment of $ 10.2 million , partially offset by a decrease in the cable tv segment of $ 0.2 million . consolidated gross profit increased $ 2.4 million , or 19 % , to $ 14.8 million for 2017 from $ 12.4 million for 2016. the increase in gross profit was due to an increase in the telco segment of $ 2.4 million . operating , selling , general and administrative expenses include all personnel costs , which include fringe benefits , insurance and business taxes , as well as occupancy , communication and professional services , among other less significant cost categories . operating , selling , general and administrative expenses increased $ 2.6 million , or 21 % , to $ 14.7 million for 2017 compared to $ 12.1 million for 2016. this increase was primarily due to increased expenses of the telco segment of $ 3.0 million , partially offset by a decrease in cable tv segment expenses of $ 0.4 million . other income and expense consists of activity related to our investment in yktg solutions , including other income , interest income and equity earnings ( losses ) , and interest expense related to our notes payable .
| other income and expense primarily consists of activity related to our investment in yktg solutions , including equity earnings ( losses ) . equity losses for the year ended september 30 , 2018 were $ 0.3 million and zero for the year ended september 30 , 2017. the equity losses for year ended september 30 , 2018 consisted primarily of a legal settlement with a subcontractor on the yktg solutions wireless cell tower decommissioning project and the associated legal expenses . interest expense decreased $ 0.2 million to $ 0.2 million for 2018 from $ 0.4 million for the same period last year primarily related to the impact of paying off one of our term loans in december 2017. the provision for income taxes from continuing operations was $ 1.6 million for 2018 from a benefit of $ 0.1 million , or an effective rate of 60 % , for the same period last year . the effective rate for the year ended september 30 , 2018 13 was higher due primarily to a valuation allowance . the company has concluded , based on its recent cumulative losses that it will not be able to realize the full effect of the deferred tax assets and a valuation allowance of $ 2.6 million is needed . in addition , the effective tax rate was higher due to the tax cuts and jobs act enacted in december 2017. one of the provisions of this legislation was to reduce the corporate income tax rates effective beginning january 1 , 2018. as a result of the reduced corporate income tax rate , the company remeasured its deferred tax balances at the reduced corporate income tax rate , which resulted in income tax expense of $ 0.4 million . the effective tax rate for the year ended september 30 , 2018 was also increased by net operating losses in states with higher tax rates due primarily to the loss from yktg solutions and from a loss on
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residential construction and development lending , while not as common as other options like one-to-four-family loans , will continue to be an important element in our total loan portfolio , and we will continue to take a disciplined approach by concentrating our efforts on loans to builders and developers in our market areas known to us . these short-term loans typically mature in six to twelve months . in addition , the funding is usually not fully disbursed at origination , thereby reducing our net loans receivable in the short-term . the company is significantly affected by prevailing economic conditions , as well as government policies and regulations concerning , among other things , monetary and fiscal affairs . deposit flows are influenced by a number of factors , including interest rates paid on time deposits , other investments , account maturities , and the overall level of personal income and savings . lending activities are influenced by the demand for funds , the number and quality of lenders , and regional economic cycles . sources of funds for lending activities include primarily deposits , including brokered deposits , borrowings , payments on loans , and income provided from operations . the company 's earnings are primarily dependent upon net interest income , the difference between interest income and interest expense . interest income is a function of the balances of loans and investments outstanding during a given period and the yield earned on these loans and investments . interest expense is a function of the amount of deposits and borrowings outstanding during the same period and interest rates paid on these deposits and borrowings . the significant 150 basis point reduction in the targeted federal funds rate during the quarter ended march 31 , 2020 , resulted in a larger impact to our interest-earning assets than to our interest-bearing liabilities , thereby decreasing our net interest margin to 4.02 % for the year ended december 31 , 2020 , as compared to 4.53 % for the year ended december 31 , 2019. in addition , our net interest margin was adversely impacted by the low loan yields from the ppp loan portfolio . the continuing low 69 interest rate environment is expected to continue to put downward pressure on loan yields and the yields on other floating rate interest earning assets as well . further because the length of the covid-19 pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences are unknown , including the 150 basis point reductions in the targeted federal funds rate in march 2020 , until the pandemic subsides the company expects its net interest income and net interest margin will be adversely affected in 2021 and possibly longer . another significant influence on the company 's earnings is fee income from mortgage banking activities . the company 's earnings are also affected by the provision for loan losses , service charges and fees , gains from sales of assets , operating expenses and income taxes . the company recorded a provision of $ 13.0 million for the year ended december 31 , 2020 , compared to $ 2.9 million for the same period one year ago , due primarily to the incurred but not yet experienced probable loan losses reflecting credit deterioration due to the adverse impact of the covid-19 pandemic , the increase in the loan portfolio due to organic growth , and net loan charge-offs . highlights in response to the covid-19 pandemic due to the current global situation surrounding the covid-19 pandemic , the company is offering a variety of relief options designed to support our customers and the communities we serve . paycheck protection program ( `` ppp '' ) participation . in response to the covid-19 pandemic , the bank is committed to providing assistance to its customers . under the cares act , as a qualified sba lender , the company was automatically authorized to originate ppp loans upon commencement of the program in april 2020. the ppp program initially concluded on august 8 , 2020. at december 31 , 2020 , the company had 423 ppp loans totaling $ 62.1 million for customers who are small- to mid-size businesses as well as independent contractors , sole proprietors and partnerships as allowed under the ppp guidance issued in april 2020. the caa 2021 renewed and extended the ppp until march 31 , 2021 by authorizing an additional $ 284.5 billion for the program . as a result , in january 2021 , the bank began accepting and processing loan applications under this second ppp program . the sba has recently released a simplified forgiveness process for ppp loans of $ 150,000 or less . at december 31 , 2020 , the bank held 352 of ppp loans of $ 150,000 or less with a combined balance of $ 16.6 million . we will also continue working with our customers to assist them with accessing other borrowing options , including sba and other government sponsored lending programs , as appropriate . we have utilized the federal reserve 's ppplf , pursuant to which the company has pledged its ppp loans as collateral at face value to obtain federal reserve bank of san francisco ( “ frb ” ) non-recourse loans . for additional information regarding the ppplf , see the discussion included in “ note 9 - debt ” to the notes to consolidated financial statements included in part ii . item 8 of this report . allowance for loan losses and loan modifications the company recorded a provision of $ 1.6 million and $ 13.0 million for the quarter and year ended december 31 , 2020 , respectively , compared to $ 647,000 and $ 2.9 million for the quarter and year ended december 31 , 2019 , respectively , due primarily to probable loan losses reflecting the adverse impact of the covid-19 pandemic on the economy . story_separator_special_tag according to the cares act and related banking agency guidance , banks are not required to designate as tdrs the modification of loans as a result of the covid-19 pandemic , made on a good faith basis to borrowers who were current , as defined under the cares act prior to any relief . this includes short-term ( e.g . less than six months ) modifications such as payment deferrals , fee waivers , extensions of repayment terms , or other delays in payment that are insignificant . borrowers are considered current under the cares act and related banking agency guidance if they are not more than 30 days past due on their contractual payments as of december 31 , 2019 , or prior to any relief , respectively , and have experienced financial difficulty as a result of covid-19 . as of december 31 , 2020 , the amount of portfolio loans remaining under payment/relief agreements includes commercial real estate loans of $ 31.2 million , commercial business loans of $ 12.8 million , a portfolio one-to-four-family loan of $ 308,000 , and consumer loans of $ 392,000. the primary method of relief is to allow the borrower up to 90-days of interest only payments and or loan payment deferments , and , on a more limited basis , waived interest , late fees , or interest only loan payments and suspended foreclosure proceedings . these modifications were not classified as tdrs at december 31 , 2020 in accordance with the guidance of the cares act and related banking agency guidance . all loans modified due to covid-19 are separately monitored and any request for continuation of relief beyond the initial modification will be reassessed at that time to determine if a further modification 70 should be granted and if a downgrade in risk rating is appropriate . loan modifications in accordance with the cares act and related banking agency guidance are still subject to an evaluation in regard to determining whether or not a loan is deemed to be impaired . branch operations and additional client support we have taken various steps to ensure the safety of our customers and our personnel . the majority of our employees are working remotely or have flexible work schedules , and we have established protective measures within our offices to help ensure the safety of those employees who must work on-site . the families first coronavirus response act also provides additional flexibility to our employees to help navigate their individual challenges with paid sick leave or expanded family and medical leave for specified reasons related to covid-19 . all of our branches are currently open . overdraft and fee reversals are waived on a case-by-case basis . we are cautious when paying overdrafts beyond the client 's total deposit relationship , overdraft protection options or their overdraft coverage limits . critical accounting policies and estimates certain of the company 's accounting policies are important to the portrayal of the company 's financial condition and result of operations , since they require management to make difficult , complex or subjective judgments , some of which may relate to matters that are inherently uncertain . estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances . facts and circumstances which could affect these judgments include , but are not limited to , changes in interest rates , changes in the performance of the economy , and changes in the financial condition of borrowers . management believes that its critical accounting policies and estimates include the following : allowance for loan and lease losses ( “ alll ” ) . the alll is the amount estimated by management as necessary to cover probable losses inherent in the loan portfolio at the balance sheet date . the alll is established through the provision for loan losses , which is charged to income . a high degree of judgment is necessary when determining the amount of the alll . among the material estimates required to establish the alll are : loss exposure at default ; the amount and timing of future cash flows on impacted loans ; value of collateral ; and determination of loss factors to be applied to the various elements of the portfolio . all of these estimates are susceptible to significant change . management reviews the level of the alll at least quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio , past loss experience , current economic conditions , and other factors related to the collectability of the loan portfolio . although the company believes that the best information available currently is used to establish the alll , future adjustments to the alll may be necessary if economic or other conditions change . as the company adds new products to the loan portfolio and expands the company 's market area , management intends to enhance and adapt the methodology to keep pace with the size and complexity of the loan portfolio . changes in any of the above factors could have a significant effect on the calculation of the alll in any given period . management believes that its systematic methodology continues to be appropriate . servicing rights . servicing assets are recognized as separate assets when rights are acquired through the purchase or through the sale of financial assets . generally , purchased servicing rights are capitalized at the cost to acquire the rights . for sales of mortgage loans , the value of servicing is capitalized during the month of sale . fair value is based on market prices for comparable mortgage contracts , when available , or alternatively , is based on a valuation model that calculates the present value of estimated future net servicing income .
| interest income for the year ended december 31 , 2020 , decreased $ 788,000 , to $ 88.8 million , from $ 89.6 million for the year ended december 31 , 2019. the decrease during the year was primarily attributable to a 95 basis point decrease in the average yield on interest-earning assets to 4.82 % for the year ended december 31 , 2020 , compared to 5.77 % for the year ended december 31 , 2019. the decrease in average yield on interest-earning assets compared to the same period a year earlier primarily reflects the reduction of higher interest rate and fee income loans , particularly construction and development loans , the impact of refinances of one-to-four-family loans and the origination of low yielding ppp loans . the impact of ppp loans on loan yields will change during any period based on the volume of prepayments or amounts forgiven by the sba as certain criteria are met but is expected to cease completely after the maturity of the loans . for the year ended december 31 , 2020 , the company recognized $ 646,000 in net deferred fees on ppp loans in interest income . the following table compares average earning asset balances , associated yields , and resulting changes in interest income for the years ended december 31 , 2020 and 2019 : replace_table_token_28_th _ ( 1 ) the average loans receivable , net balances include nonaccruing loans . interest expense . interest expense decreased $ 4.6 million , to $ 14.7 million for the year ended december 31 , 2020 , from $ 19.3 million for the prior year , primarily due to decreased interest expense on deposits of $ 4.2 million , and interest expense on borrowings of $ 515,000. the average cost of funds for total interest-bearing liabilities decreased 57 basis points to 1.07 % for the year ended december 31 , 2020 , compared to 1.64 % for the year ended december 31 , 2019. the decrease was predominantly due to lowered borrowing
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because of the nature of the judgments and assumptions we have made , actual results may differ from these judgments and estimates and could have a material impact on the carrying values of assets and liabilities and the results of our operations . 28 the accounting policies that we deem most critical to us and involve the most difficult , subjective or complex judgments are as follows : revenue recognition we recognize revenue from a home sale when title passes to the homeowner , the homeowner 's initial and continuing investment is adequate to demonstrate a commitment to pay for the home , the receivable , if any , from the homeowner is not subject to future subordination and we do not have a substantial continuing involvement with the sold home . these conditions are typically achieved when a home closes . revenue from land sales is recognized when a significant down payment is received , the earnings process is relatively complete , title passes and collectability of the receivable is reasonably assured . although there is limited subjectivity in this accounting policy , we have designated revenue recognition as a critical accounting policy due to the significance of this balance in our statements of operations . real estate real estate is stated at cost unless the community or land is determined to be impaired , at which point the inventory is written down to fair value as required by financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 360-10 , property , plant and equipment . inventory includes the costs of land acquisition , land development and home construction , capitalized interest , real estate taxes , direct overhead costs incurred during development and home construction that benefit the entire community , less impairments , if any . land and development costs are typically allocated and transferred to homes under construction when home construction begins . home construction costs are accumulated on a per-home basis . cost of home closings includes the specific construction costs of the home and all related allocated land acquisition , land development and other common costs ( both incurred and estimated to be incurred ) based upon the total number of homes expected to be closed in each community or phase . any changes to the estimated total development costs of a community or phase are allocated to the remaining homes in the community or phase . when a home closes , we may have incurred costs for goods and services that have not yet been paid . therefore , an accrual to capture such obligations is recorded in connection with the home closing and charged directly to cost of sales . typically , an entitled community 's life cycle ranges from three to five years , commencing with the acquisition of the land , continuing through the land development phase and concluding with the sale , construction and closing of the homes . actual community lives will vary based on the size of the community , the absorption rates and whether the land purchased was raw land or finished lots . master-planned communities encompassing several phases and super-block land parcels may have significantly longer lives and projects involving smaller finished lot purchases may be significantly shorter . all of our land inventory and related real estate assets are reviewed for recoverability at least quarterly , or more frequently if impairment indicators are present , as our inventory is considered “ long-lived ” in accordance with gaap . our determination of fair value is based on projections and estimates . changes in these expectations may lead to a change in the outcome of our impairment analysis and actual results may also differ from our assumptions . our analysis is completed at a community level with each community or land parcel evaluated individually . we pay particular attention to communities experiencing a larger-than-anticipated reduction in their absorption rates or sales prices or where gross margins are trending lower than anticipated . for those assets deemed to be impaired , the impairment to be recognized is measured as the amount by which the assets ' carrying balance exceeds their fair value . the impairment of a community is allocated to each lot on a straight-line basis . existing and continuing communities . when projections for the remaining income expected to be earned from an existing community are no longer positive , the underlying real estate assets are not deemed fully recoverable , and further analysis is performed to determine the required impairment . the fair value of the community 's assets is determined using either a discounted cash flow model for projects we intend to build out or a market-based approach for projects to be sold and the impairments are charged to cost of home closings in the period during which it is determined that the fair value is less than the assets ' carrying amount . if a market-based approach is used , we determine fair value based on recent comparable sales activity in the local market , adjusted for known variances as determined by our knowledge of the region and general real estate expertise . if a discounted cash flow approach is used , we compute fair value based on a proprietary model . our key estimates in deriving fair value under our cash flow model are ( i ) home selling prices in the community adjusted for current and expected sales discounts and incentives , ( ii ) costs related to the community — both land development and home construction — including costs spent to date and budgeted remaining costs to spend , ( iii ) projected sales absorption rates , reflecting any product mix change strategies implemented , or to be implemented , to stimulate the sales pace and expected cancellation rates , ( iv ) alternative land uses including disposition of all or a portion of the land owned and ( v ) our discount rate , which is currently 14-16 % and varies based on our perceived risk inherent in the story_separator_special_tag community 's other cash flow assumptions . these assumptions 29 vary widely across different communities and geographies and are largely dependent on local market conditions . community-level factors that may impact our key estimates include : the presence and significance of local competitors , including their offered product type and competitive actions ; economic and related demographic conditions for the population of the surrounding areas ; desirability of the particular community , including unique amenities or other favorable or unfavorable attributes ; and existing home inventory supplies , including foreclosures and short sales . these local circumstances may significantly impact our assumptions and the resulting computation of fair value , and are , therefore , closely evaluated by our division personnel in their creation of the discounted cash flow models . the models are also evaluated by regional and corporate personnel for consistency and integration , as decisions that affect pricing or absorption at one community may have resulting consequences for neighboring communities . we typically do not project market improvements in our discounted cash flow models , but may do so in limited circumstances in the latter years of a long-lived community . mothball communities . in certain cases , we may elect to stop development ( mothball ) of an existing community if we believe the economic performance of the community would be maximized by deferring development for a period of time to allow market conditions to improve . when a community is initially placed into mothball status , it is management 's belief that the community is affected by local market conditions that are expected to improve within the next 1 - 5 years . therefore , a temporary postponement of construction and development work is expected to yield better overall future returns . the decision may be based on financial and or operational metrics . if we decide to mothball a community , we will impair it to its fair value as discussed above and then cease future development activity until such a time when management believes that market conditions have improved and economic performance will be maximized . no interest or other costs are capitalized to communities that are designated as mothballed . in addition to our quarterly impairment analysis , which is conducted to determine if any current impairments exist , we also conduct a thorough quarterly review of our mothballed communities to determine if they are at risk of future impairment . the financial and operational status and expectations of these communities are analyzed as well as any unique attributes that could be viewed as indicators for future impairments . adjustments are made accordingly and incremental impairments , if any , are recorded at each re-evaluation . based on the facts and circumstances available as of december 31 , 2013 , we do not believe that any of our underperforming or mothballed communities will incur material impairments in the future . changes in market and or economic conditions could materially impact the conclusions of this analysis , and there can be no assurances that future impairments will not occur . inventory assessments on inactive assets . for our mothballed communities as well as our land held for future development , our inventory assessments typically include highly subjective estimates for future performance , including the timing of development , the product to be offered , sales rates and selling prices of the product when the community is anticipated to open for sales , and the projected costs to develop and construct the community . we evaluate various factors to develop our forecasts , including the availability of and demand for homes and finished lots within the marketplace , historical , current and future sales trends , and third-party data , if available . based on these factors , we reach conclusions for future performance based on our judgment . option deposits and pre-acquisition costs : we also evaluate assets associated with future communities for impairments on a quarterly basis . using similar techniques described in the existing and continuing communities section above , we determine if the income to be generated by our future communities is acceptable to us . if the projections indicate that a community is still meeting our internal investment guidelines and is generating a profit , those assets are determined to be fully recoverable and no impairments are required . in cases where we decide to abandon the project , we will fully impair all assets related to such project and will expense and accrue any additional costs that we are contractually obligated to incur . in certain circumstances , we may also elect to continue with a project because it is expected to generate positive future cash flows , even though it may not be generating an accounting profit , or because of other strategic factors . in such cases , we will impair our pre-acquisition costs and deposits , as necessary , to record an impairment to bring the book value to fair value . due to the complexity and subjectivity of these fair value computations , as well as the significance of associated impairments to our financial statements in recent years , we have concluded that the valuation of our real-estate and associated assets is a critical accounting policy . 30 during 2013 , we recorded $ 1.0 million of such impairment charges related to our home and land inventories and corresponding deposits . refer to notes 2 and 6 of these consolidated financial statements in this annual report on form 10-k for further discussion regarding these impairments and the associated remaining fair values of impaired communities . the impairment charges we record are based on our fair value calculations , which are affected by current market conditions , assumptions and expectations , all of which are highly subjective and may differ significantly from actual results if market conditions change .
| increased community count and higher average sales prices in 2013 are largely responsible for the increase in ending backlog over 2012. our average sales price for homes in backlog increased to $ 370,600 , up 13.8 % from $ 325,600 at december 31 , 2012 , and up 36.3 % from $ 272,000 at december 31 , 2011 primarily due to our pricing power in many communities and mix of homes shifting to higher-priced markets and states . our cancellation rate on sales orders as a percentage of gross sales decreased in 2013 to 12.8 % down from 13.2 % and 17.0 % , respectively , for the years ended december 31 , 2012 and 2011 , reflecting a high quality backlog and greater confidence among buyers , supported by increasing prices and expectations of further home value appreciation . we believe these positive trends will result in continued positive operating results in 2014. company actions and positioning as the homebuilding market stabilizes and recovers , we remain focused on our main goals of growing our orders and revenue , generating profit and maintaining a strong balance sheet . to help meet these goals we continued to execute on the following initiatives in 2013 : strengthening our balance sheet - completed two new senior note issuances , and extending our earliest debt maturities until 2018 ; generating additional working capital and improving liquidity - increased the capacity of our revolving credit facility and completed an equity offering in january 2014 ; eliminated our cash secured letter of credit facilities and transferred all outstanding letters of credit to be supported by our increased unsecured revolving credit facility ; increased the percentage of controlled lots through optioned contracts in order to minimize initial cash outlays for land purchases ; continuing to actively acquire and develop lots in markets we deem key to our success in order to maintain and grow our lot supply and active community count ; increasing controlled lots by 23.3 % ; 27 utilizing our enhanced market research to capitalize on the knowledge of our buyers ' demands in each community , tailoring our pricing , product and amenities offered ; continuing to innovate and promote the meritage green energy efficiency program , where every new home we construct , at a minimum , meets energy star® standards , certified by the u.s. environmental protection agency , for indoor air
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assuming successful completion of our sakura phase 3 program in the second half of 2018 , we plan to file marketing applications first in the united states followed by the european union , canada , and certain latin american and asian countries . if approved , we believe rt002 injectable has the potential to address significant unmet needs in these markets . in october 2015 , we reported results from belmont , a phase 2 active comparator , placebo-controlled clinical trial for the treatment of glabellar lines against the market leader botox® cosmetic . the 24-week data , which we reported in october 2015 , showed that rt002 injectable achieved its primary efficacy measurement at four weeks for all doses of rt002 injectable and that such efficacy was highly statistically significant as compared to placebo . in addition , the 40 unit dose of rt002 injectable demonstrated a 23.6-week median duration versus botox® cosmetic with an 18.8-week median duration . across all cohorts , rt002 injectable appeared to be generally safe and well-tolerated . cervical dystonia we have also been developing rt002 for the treatment of cervical dystonia , a muscle movement disorder . muscle movement disorders , such as cervical dystonia , are neurological conditions that affect a person 's ability to control muscle activity in one or more areas of the body . in 2015 , we initiated a phase 2 dose-escalating , open-label clinical study of rt002 injectable for the treatment of cervical dystonia . the phase 2 study evaluated the safety , preliminary efficacy , and duration of effect of rt002 injectable in subjects with moderate to severe isolated cervical dystonia . the trial enrolled 37 subjects and followed three sequential treatment cohorts for up to a total of 24 weeks after treatment for each cohort . the trial 's first cohort of 12 subjects received a single dose of up to 200 units of rt002 injectable , the second cohort of 12 subjects received between 200 and 300 units , and the third cohort of 13 subjects received from 300 to 450 units . in may 2017 , we announced positive 24 week topline results in all three cohorts from the phase 2 trial . the topline data demonstrated a median duration of at least 24 weeks for each of all three cohorts . duration of effect was defined as the number of weeks from treatment until the return of signs and symptoms that warrant retreatment , based on subjects reaching their target toronto western spasmodic torticollis rating scale ( twstrs ) score . the topline data also displayed clinically significant impact on cervical dystonia signs and symptoms . at week 4 , rt002 injectable showed a clinically significant mean reduction of 38 % from baseline across all three cohorts . this reduction continued to increase to 50 % at week 6 for all subjects , was 42 % at week 12 and was maintained at or above 30 % through week 24. the topline data also showed that rt002 injectable appeared to be generally safe and well-tolerated through week 24 in all three cohorts . there were no serious adverse events and no dose-dependent increase in adverse events . the treatment-related adverse events were generally transient and mild to moderate in severity , with one case of neck pain reported as severe . the most common adverse events were dysphagia , or difficulty in swallowing ( 14 % ) , of which all cases were mild in severity , injection site redness ( 8 % ) , injection site bruising ( 5 % ) , injection site pain ( 5 % ) , muscle tightness ( 5 % ) and muscle weakness ( 5 % ) . in november 2017 , we completed our end-of-phase 2 meeting with the fda and received scientific advice from the ema regarding rt002 for the treatment of cervical dystonia . based on the phase 2 safety and efficacy results and guidance from the fda and ema , we plan to initiate our phase 3 program for cervical dystonia in the second quarter of 2018. in november 2017 , the fda also granted orphan drug status to daxibotulinumtoxina for injection for the treatment of cervical dystonia in adults . 57 plantar fasciitis we are also developing rt002 for the treatment of plantar fasciitis . plantar fasciitis is a painful affliction caused by inflammation of the ligament running along the bottom of the foot and is the most common cause of heel pain for patients who visit podiatrists and orthopedic foot and ankle surgeons . in 2016 , we initiated a phase 2 prospective , randomized , double-blinded , placebo-controlled trial of rt002 injectable in the therapeutic indication of plantar fasciitis . this study is evaluating the safety and efficacy of a single administration of rt002 injectable in reducing the signs and symptoms of plantar fasciitis . in april 2017 , we expanded our plantar fasciitis phase 2 program from a single-site study to a multi-center study with protocol updates . the primary efficacy endpoint is the reduction in the visual analog scale ( vas ) for pain in the foot at eight weeks and subjects will be followed for 16 weeks following treatment . in october 2017 , we completed patient enrollment . in january 2018 , we announced the interim 8-week phase 2a results for the plantar fasciitis trial . the trial 's primary endpoint , the reduction in the patient-reported visual analog scale ( vas ) for pain at week 8 , showed a robust impact on pain , with a greater than 50 % reduction for patients treated with rt002 . in the intent-to-treat population , a mean reduction in the vas score of 54.2 % from baseline was achieved with rt002 , compared with a 42.6 % reduction in the placebo group , which upon further subgroup analysis , was driven primarily by a strong placebo response in the control group at three of the five study sites . story_separator_special_tag while the results are not statistically significant ( p=0.39 ) , rt002 provided patients with considerable pain relief . similar numeric trends were seen in the secondary and exploratory endpoints . rt002 appeared to be generally safe and well-tolerated through week 8. the majority of adverse events in both treatment groups were mild in severity . there were no treatment-related serious adverse events . the most common treatment-related adverse events for rt002 and placebo were injection site pain ( 10.0 percent and 10.3 percent ) and muscle weakness ( 3.3 percent and 3.4 percent ) , both respectively , all of which were classified as mild in severity . the company plans to complete the 16-week trial and then expects to conduct another phase 2 trial with a modified design to demonstrate the ability of rt002 to treat plantar fasciitis in the second half of 2018. daxibotulinumtoxina topical our topical product candidate presents several advantages , including painless topical administration , no bruising , ease of use and limited dependence on administration technique by physicians and medical staff . we believe these potential advantages may improve the experience of patients undergoing botulinum toxin procedures and could make our topical product candidate suitable for multiple indications in the future . we discontinued clinical development of our topical product candidate in 2016 and are planning to conduct additional preclinical work for topical in therapeutic and aesthetic applications where botulinum toxin has shown efficacy and are particularly well suited for needle-free treatments . since commencing operations in 2002 , we have devoted substantially all our efforts to identifying and developing our product candidates for the aesthetic and therapeutic markets , recruiting personnel , raising capital , and preclinical and clinical development of , and manufacturing capabilities for , rt002 injectable and our topical product candidate . we have retained all worldwide rights to develop and commercialize rt002 injectable and our topical product candidate . we have not filed for approval with the fda for the commercialization of rt002 injectable or our topical product candidate to treat any indication , and we have not generated any revenue from product sales for rt002 injectable or our topical product candidate . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2015 , costs associated with our manufacturing and quality efforts for both rt002 injectable and topical development totaled $ 21.5 million , or 27 % , $ 20.0 million , or 40 % , and $ 18.5 million , or 39 % of research and development expenses in 2017 , 2016 , and 2015 , respectively . manufacturing and quality efforts for the year ended december 31 , 2017 increased by 8 % , compared to the same period in 2016 , primarily due to increased costs related to hiring additional personnel as well as an increase in outside services and consulting for compliance requirements . manufacturing and quality efforts for the year ended december 31 , 2016 increased by 8 % , compared to the same period in 2015 , primarily due to increased costs related to consulting and outside services offset by a decrease in personnel costs . we expect our manufacturing and quality efforts to continue to increase as the company approaches commercialization . research costs research costs include expenses for personnel and occupancy , contract research organizations , consultants , raw materials , and lab supplies used to conduct preclinical research and development of rt002 injectable and our topical product candidate . for the years end december 31 , 2017 , 2016 , and 2015 , costs associated with our preclinical development totaled , $ 8.5 million , 60 or 11 % , $ 7.1 million , or 14 % , $ 7.6 million , or 16 % of research and development expenses in 2017 , 2016 , and 2015 , respectively . research expenses for the year ended december 31 , 2017 increased by 21 % , compared to the same period in 2016 , primarily due to increased costs related to personnel and consulting on research projects . research expenses for the year ended december 31 , 2016 decreased by 7 % , compared to the same period in 2015 , primarily due decreased costs related to preclinical personnel involved with our topical phase 2 study for the treatment of hyperhidrosis . we expect our preclinical costs to continue to increase as the company expands into other indications . stock-based compensation stock-based compensation for research and development for the year ended december 31 , 2017 increased by $ 0.3 million , compared to the same period in 2016 , primarily due to an increase in employee headcount and an increase in stock price . stock-based compensation for research and development for the year ended december 31 , 2016 decreased by $ 1.0 million , compared to the same period in 2015 , primarily due to equity award modifications and offset by an increase in employee headcount . other research and development expenses other research and development expenses for the years ended december 31 , 2017 and 2016 includes license fees for biosentinel , inc. 's technology and expertise for research and development and manufacturing purposes and , in 2016 , a milestone of $ 2.0 million to botulinum toxin research associates , inc. ( `` btrx '' ) to acquired a portfolio of patents . for the years ended december 31 , 2017 and 2016 , other research and development expenses represented $ 0.5 million , or 1 % , and $ 2.7 million , or 5 % , of research and development expenses in 2017 and 2016 , respectively . there were no expenses classified as other research and development expenses for the year ended december 31 , 2015. general and administrative expenses we expect that our general and administrative expenses will increase with the continued development of , and if approved , the commercialization of rt002 injectable .
| the company does not have any current plans for future developments of relastin® and its focus is primarily on the development of rt002 injectable . operating expenses our operating expenses consist of research and development expenses and general and administrative expenses . the largest component of our operating expenses is our personnel costs including stock-based compensation . we expect our expenses to increase in the near term as we initiate and complete additional clinical trials and associated programs related to rt002 injectable for the treatment of glabellar lines and indications in muscle movement and other disorders , such as cervical dystonia and plantar fasciitis . research and development expenses we recognize research and development expenses as they are incurred . since our inception , we have focused on our clinical development programs and the related research and development . we have been developing rt002 injectable and our topical product candidates since 2002 and we have typically shared our employees , consultants and infrastructure resources across both programs . our research and development expenses consist primarily of : salaries and related expenses for personnel in research and development functions , including stock-based compensation ; expenses related to the initiation and completion of clinical trials for rt002 injectable and our topical product candidate , including expenses related to production of clinical supplies ; fees paid to clinical consultants , clinical trial sites , clinical research organizations ( cros ) and other vendors , including all related fees for investigator grants , patient screening fees , laboratory work and statistical compilation and analysis ; other consulting fees paid to third parties ; expenses related to establishment and maintenance of our own manufacturing facilities ; expenses related to the manufacture of drug substance and drug product supplies for ongoing and future preclinical and clinical trials ; expenses to support our product development and establish manufacturing capabilities to support potential future commercialization of any products for which we may obtain regulatory approval ; expenses related to license fees and milestone payments under in-licensing agreements ; expenses related to compliance with drug
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in september 2017 , we entered into an exclusive , worldwide licensing agreement with fred hutch , effective july 3 , 2017 , for the use of a car t therapy related to autologous t cells engineered to express a cd20-specific chimeric antigen receptor ( “ cd20 technology ” or “ cd 20 ” ) . the car t was developed in the laboratory of oliver press , m.d. , ph.d. , and brian till , m.d. , in fred hutch 's clinical research division . as part of the transaction , we also entered into an investigator-initiated clinical trial agreement to provide partial funding for a phase 1/2 clinical trial at fred hutch evaluating the safety and efficacy of the cd20 technology in patients with relapsed or refractory b-cell non-hodgkin lymphomas . this trial began in the first quarter of 2018 , and it is led by principal investigator mazyar shadman , m.d. , assistant member of fred hutch 's clinical research division . on august 22 , 2017 , we commenced trading on the nasdaq global market under the symbol mbio . 46 on may 31 , 2017 , we entered into exclusive , worldwide licensing agreements with coh for the use of three novel car t therapies in the development of cancer treatments . the car t therapies covered under the agreements include : human epidermal growth factor receptor 2 ( “ her2 ” ) car t technology ( “ her2 technology ” ) , which will initially be applied in the treatment of glioblastoma multiforme ; cs1-specific car t technology ( “ cs1 technology ” ) to be directed against multiple myeloma ; and prostate stem cell antigen ( “ psca ” ) car t technology ( “ psca technology ” ) to be used in the treatment of prostate cancer and pancreatic cancer . all three technologies were developed in the laboratory of stephen j. forman , m.d. , director of coh 's t cell immunotherapy research laboratory , and are still in preclinical development . currently , we have two candidates undergoing phase 1 studies at coh : il13rα2 car t technology ( “ il13rα2 technology ” ) for glioblastoma and cd123 car t technology ( “ cd123 technology ” ) for acute myeloid leukemia ( “ aml ” ) and blastic plasmacytoid dendritic cell neoplasm ( “ bpdcn ” ) . in april 2017 , we appointed manuel litchman , m.d. , as president and chief executive officer . dr. litchman also joined our board of directors . michael s. weiss , who oversaw mustang 's corporate operations on an interim basis , will continue to serve as chairman of the board of directors . in 2017 , we closed on gross proceeds of approximately $ 56.0 million , before expenses , in private placements of shares and warrants . in connection with our private placement we paid a subsidiary of national holdings corporation ( “ national or nsc ” ) , of which fortress is a majority shareholding owning 56.6 % and as such a related party to us , $ 5.6 million in placement agent fees . critical accounting policies and use of estimates see note 2 to our financial statements . story_separator_special_tag 27.5pt '' > · support of our expanded research and development activities ; · stock compensation granted to key employees and non-employees ; · support of business development activities ; and · increased professional fees and other costs associated with the regulatory requirements and increased compliance associated with being a public reporting company . other income ( expense ) other income ( expense ) consists primarily of interest expense , interest income and the change in fair value of derivative warrant liabilities . for the year ended december 31 , 2017 and 2016 , total other income ( expense ) were approximately $ 0.5 million and ( $ 1.3 ) million , respectively . the increase of $ 1.8 million relates to a decrease in interest expense of $ 1.1 million on the nsc note and fortress note , which were fully paid down before december 31 , 2016 , offset by interest income of $ 0.5 million earned on the short-term investments . change in fair value of derivative warrants was nil and approximately $ 0.2 million for the year ended december 31 , 2017 and 2016 , respectively . 48 comparison of the year ended december 31 , 2016 and from march 13 , 2015 ( inception ) to december 31 , 2015 replace_table_token_6_th research and development expenses for the year ended december 31 , 2016 and for the period from march 13 , 2015 ( inception ) to december 31 , 2015 , research and development expenses were approximately $ 2.5 million and $ 1.7 million , respectively . for the year ended december 31 , 2016 , $ 2.0 million relates to the quarterly expense related to our sponsored research agreement with coh and $ 0.3 million of expense is related to our management services agreement ( “ msa ” ) with fortress . for the period march 13 , 2015 ( inception ) through december 31 , 2015 , $ 1.5 million related to our sponsored research arrangement with the coh for the development of car t and approximately $ 0.2 million of expenses in connection with the msa with fortress . for the year ended december 31 , 2016 and for the period from march 13 , 2015 ( inception ) to december 31 , 2015 , research and development expenses - licenses acquired were approximately $ 6.1 million and $ 2.3 million , respectively . story_separator_special_tag for the year ended december 31 , 2016 , approximately $ 1.7 million relates to 293,588 shares of our common stock issuable to the coh in connection with our original license agreement , which provided for coh maintaining a 10 % ownership position up to a third party raise equal to net proceeds of $ 10.0 million and $ 4.4 million relates to the stock dividend to fortress , in connection with their ownership of our class a preferred stock , of 767,264 shares of our common stock representing 2.5 % of the our fully diluted outstanding shares on the anniversary date of our formation . for the period march 13 , 2015 ( inception ) through december 31 , 2015 , $ 2.0 million relates to an upfront fee in the acquisition of the exclusive license with coh , to acquire car t , approximately $ 0.1 million relates to the issuance of 1.0 million class a shares of our common stock valued at $ 0.147 per share ( also to coh ) , and approximately $ 0.2 million of expenses in connection with the stock dividend to fortress . we expect our research and development activities to increase as we develop our existing product candidates and potentially acquire new product candidates , reflecting increasing costs associated with the following : · employee-related expenses , which include salaries and benefits , and rent expense ; · license fees and milestone payments related to in-licensed products and technology ; · expenses incurred under agreements with contract research organizations , investigative sites and consultants that conduct our clinical trials and our preclinical activities ; · the cost of acquiring and manufacturing clinical trial materials ; and · costs associated with non-clinical activities , and regulatory approvals . 49 general and administrative expenses for the year ended december 31 , 2016 and for the period from march 13 , 2015 ( inception ) to december 31 , 2015 , general and administrative expenses were approximately $ 2.8 million and $ 0.3 million , respectively . for the year ended december 31 , 2016 , these fees consist of $ 1.3 million of legal fees , $ 0.9 million related to the issuance of founder shares , $ 0.3 million of professional fees and $ 0.3 million of expense in connection with the msa with fortress . for the period march 13 , 2015 ( inception ) through december 31 , 2015 , general and administrative expenses were primarily related to $ 0.2 million of expense in connection with the msa with fortress and approximately $ 0.1 million for professional fees , primarily in connection with the acquisition and maintenance of our license . we anticipate general and administrative expenses will increase in future periods , reflecting continued and increasing costs associated with : · support of our expanded research and development activities ; · stock compensation granted to key employees and non-employees ; · support of business development activities ; and · increased professional fees and other costs associated with the regulatory requirements and increased compliance associated with being a public reporting company . other income ( expenses ) other income ( expenses ) consists primarily of interest expenses , interest income and the change in fair value of derivative warrant liabilities . interest expense - related party was approximately $ 0.3 million and $ 0.2 million for the year ended december 31 , 2016 and for the period from march 13 , 2015 ( inception ) to december 31 , 2015 , respectively . interest expense , which represents interest on the nsc note , which was fully paid down before the year ended december 31 , 2016 , was approximately $ 0.9 million and nil for the year ended december 31 , 2016 and for the period from march 13 , 2015 ( inception ) to december 31 , 2015 , respectively . change in fair value of derivative warrants was an expense of approximately $ 0.2 million and nil for the year ended december 31 , 2016 and for the period from march 13 , 2015 ( inception ) to december 31 , 2015 , respectively . liquidity and capital resources we have incurred substantial operating losses since our inception and expect to continue to incur significant operating losses for the foreseeable future and may never become profitable . as of december 31 , 2017 , we had an accumulated deficit of $ 48.4 million . from september 30 , 2016 through december 31 , 2017 , we received net proceeds of $ 85.3 million in eight separate private placement closings . the financing involved the sale of units , each consisting of 10,000 shares of common stock and a warrant exercisable for 2,500 shares of common stock at an exercise price of $ 8.50 per share , for a purchase price of $ 65,000 per unit . we expect to use the net proceeds from the above financing primarily for general corporate purposes , which may include financing our growth , developing new or existing product candidates , and funding capital expenditures , acquisitions and investments . we currently anticipate that our cash and short-term investment balances at december 31 , 2017 are sufficient to fund our anticipated operating cash requirements for at least the next 15 months . cash flows for the years ended december 31 , 2017 and 2016 , and for the period from march 13 , 2015 ( inception ) to december 31 , 2015 replace_table_token_7_th 50 operating activities net cash used in operating activities was $ 12.9 million for the year ended december 31 , 2017 , compared to $ 4.1 million for the year ended december 31 , 2016. net cash used in operating activities during the year ended december 31 , 2017 was primarily due to approximately $ 31.3 million in net loss , partially offset by $ 9.6 million of common shares issuable for founder shares , $ 2.9 million
| the increase of $ 6.4 million is attributed to a $ 5.2 million increase to the stock dividend to fortress , $ 0.3 million relates to an upfront fee for our coh psca license , $ 0.6 million relates to an upfront fee for our her2 license , $ 0.6 million related to an upfront fee for our cs1 license , $ 0.1 million upfront payment relates to the acquisition of our iv-icv license and $ 0.5 million in connection with the achievement of milestones pursuant to our il13rα2 license , $ 0.2 million related to the acquisition of our psca license from ucla , $ 0.3 million related to the acquisition of our license from fred hutch for cd20 , $ 0.3 million to the acquisition of our license from harvard . this increase was offset by approximately $ 1.7 million related to 293,588 shares of our common stock issuable to the coh in connection with our original license agreement for the year ended december 31 , 2016. we expect our research and development activities to increase as we develop our existing product candidates and potentially acquire new product candidates , reflecting increasing costs associated with the following : · employee-related expenses , which include salaries and benefits , and rent expense ; · license fees and milestone payments related to in-licensed products and technology ; · expenses incurred under agreements with contract research organizations , investigative sites and consultants that conduct our clinical trials and our preclinical activities ; · the cost of acquiring and manufacturing clinical trial materials ; and · costs associated with non-clinical activities , and regulatory approvals . general and administrative expenses general and administrative expenses consist primarily of salaries and related expenses , including stock-based compensation , for executives and other administrative personnel , recruitment expenses , professional fees and other corporate expenses , including investor relations , legal activities including patent fees , and facilities-related expenses . ffor the year ended december 31 , 2017 and 2016 , general and administrative expenses were approximately $ 11.4 million and $ 2.8 million , respectively . the increase of $ 8.6 million relates to $ 1.7 million in stock compensation expense , of which $ 0.4 million is related to the fee received by fortress on third party financings pursuant to our founders agreement with fortress and $ 1.3 million is related to expense for the equity award to our ceo , $ 2.9 million for legal fees , $ 0.6
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providing choice and flexibility to our customers as to when and how they deploy our applications , platform and infrastructure technologies is an important element of our corporate strategy . in recent periods , customer demand has increased for our oracle cloud services . to address customer demand and enable customer choice , we have introduced certain programs for customers to pivot their applications , platform and infrastructure licenses and license support to the oracle cloud for new deployments and to migrate to and expand with the oracle cloud for their existing workloads . we expect these trends to continue . our cloud services revenues growth and our cloud license and on-premise license revenues growth are affected by the strength of general economic and business conditions , governmental budgetary constraints , the strategy for and competitive position of our offerings , our acquisitions , our ability to deliver and renew our cloud services contracts with our existing customers and foreign currency rate fluctuations . our license support revenues growth is primarily influenced by three factors : ( 1 ) the continuity of substantially all of our license support customer contract base renewing their license support contracts and substantially all customers continuing to purchase license support contracts in connection with their purchase of a new license ; ( 2 ) the pricing of license support contracts sold in connection with the sale of new licenses ; and ( 3 ) the pricing of new licenses sold . customers do so in order to benefit from oracle 's research and development investments that are utilized as a part of unspecified periodic license updates that may be released and that customers with current license support contracts are entitled to . on a constant currency basis , we expect that our total cloud and license revenues generally will continue to increase due to : expected growth in our cloud services and license support offerings , including the high percentage of customers that purchase and renew their license support contracts ; continued demand for our cloud license and on-premise license offerings ; and contributions from our acquisitions . we believe all of these factors should contribute to future growth in our cloud and license revenues , which should enable us to continue to make investments in research and development to develop and improve our cloud and license products and services . our cloud and license business ' margin has historically trended upward over the course of the four quarters within a particular fiscal year due to the historical upward trend of our cloud license and on-premise license revenues over those quarterly periods and because the majority of our costs for this business are generally fixed in the short term . hardware business our hardware business , which represented 10 % , 11 % and 13 % of our total revenues in fiscal 2018 , 2017 and 2016 , respectively , provides a broad selection of hardware products and hardware-related software products including oracle engineered systems , servers , storage , industry-specific hardware , operating systems , virtualization , management and other hardware related software , and related hardware support . hardware transactions are generally recognized as revenues upon delivery to the customer provided all other revenue recognition criteria are met . our hardware business also offers related hardware support . we expect to make investments in research and development to improve existing hardware products and services and to develop new hardware products and services . the majority of our hardware products are sold through indirect channels , 36 index to financial statements including independent distributors and value-added resellers . our hardware support offerings provide customers with unspecified software updates for software components that are essential to the functionality of our hardware products and associated software products such as oracle solaris . our hardware support offerings can also include product repairs , maintenance services and technical support services . hardware support contracts are entered into at the option of the customer , are generally priced as a percentage of the net hardware products fees and are generally recognized as revenues ratably as the hardware support services are delivered over the contractual terms . we generally expect our hardware business to have lower operating margins as a percentage of revenues than our cloud and license business due to the incremental costs we incur to produce and distribute these products and to provide support services , including direct materials and labor costs . our quarterly hardware revenues are difficult to predict . our hardware revenues , cost of hardware and hardware operating margins that we report are affected by , among others : our ability to timely manufacture or deliver a few large hardware transactions ; our strategy for and the position of our hardware products relative to competitor offerings ; customer demand for competing offerings such as paas and iaas ; the strength of general economic and business conditions ; governmental budgetary constraints ; whether customers decide to purchase hardware support contracts at or in close proximity to the time of hardware product sale ; the percentage of our hardware support contract customer base that renews its support contracts and the close association between hardware products , which have a finite life , and customer demand for related hardware support as hardware products age ; customer decisions to either maintain or upgrade their existing hardware infrastructure to newly developed technologies that are available ; certain of our acquisitions ; and foreign currency rate fluctuations . services business our services business helps customers and partners maximize the performance of their investments in oracle applications , platform and infrastructure technologies . we believe that our services are differentiated based on our focus on oracle technologies , extensive experience and broad sets of intellectual property and best practices . story_separator_special_tag our services offerings include consulting services , advanced support services and education services and represented 8 % of our total revenues in fiscal 2018 and 9 % of our total revenues in each of fiscal 2017 and 2016. our services business has lower margins than our cloud and license and hardware businesses . our services revenues are impacted by , among others : our strategy for , and the competitive position of , our services ; customer demand for our cloud and license and hardware offerings and the associated services for these offerings ; our strategic emphasis on growing our cloud revenues ; certain of our acquisitions ; general economic conditions ; governmental budgetary constraints ; personnel reductions in our customers ' it departments ; and tighter controls over discretionary spending . acquisitions our selective and active acquisition program is another important element of our corporate strategy . in recent years , we have invested billions of dollars to acquire a number of complementary companies , products , services and technologies , including netsuite in fiscal 2017. we expect to continue to acquire companies , products , services and technologies in furtherance of our corporate strategy . note 2 of notes to consolidated financial statements included elsewhere in this annual report provides additional information related to our recent acquisitions . we believe that we can fund our future acquisitions with our internally available cash , cash equivalents and marketable securities , cash generated from operations , additional borrowings or from the issuance of additional securities . we estimate the financial impact of any potential acquisition with regard to earnings , operating margin , cash flow and return on invested capital targets before deciding to move forward with an acquisition . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles ( gaap ) as set forth in the financial accounting standards board 's ( fasb ) accounting standards 37 index to financial statements codification ( asc ) , and we consider the various staff accounting bulletins and other applicable guidance issued by the u.s. securities and exchange commission ( sec ) . gaap , as set forth within the asc , requires us to make certain estimates , judgments and assumptions . we believe that the estimates , judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates , judgments and assumptions are made . these estimates , judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented . to the extent that there are differences between these estimates , judgments or assumptions and actual results , our financial statements will be affected . the accounting policies that reflect our more significant estimates , judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include : revenue recognition ; business combinations ; goodwill and intangible assetsimpairment assessments ; accounting for income taxes ; and legal and other contingencies . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap and does not require management 's judgment in its application . there are also areas in which management 's judgment in selecting among available alternatives would not produce a materially different result . our senior management has reviewed our critical accounting policies and related disclosures with the finance and audit committee of the board of directors . revenue recognition our sources of revenues include : cloud and license revenues , which include the sale of : cloud services and license support ; and cloud license and on-premise licenses , which represent licenses purchased by customers for use in both cloud and on-premise deployments ; hardware revenues , which include the sale of hardware products including oracle engineered systems , servers , storage , industry-specific hardware ; and hardware support revenues ; and services revenues , which are earned from providing cloud- , license- and hardware-related services including consulting , advanced customer support and education services . revenue recognition for cloud services offerings , hardware products , hardware support and related services ( non-software elements ) our revenue recognition policy for non-software deliverables including our cloud services offerings , hardware products , hardware support and related services is based upon the accounting guidance contained in asc 605-25 , revenue recognition , multiple-element arrangements , and we exercise judgment and use estimates in connection with the determination of the amount of cloud services revenues , hardware products revenues , hardware support and related services revenues to be recognized in each accounting period . revenues from the sales of our non-software elements are recognized when : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) we deliver the products or services ; ( 3 ) the sale price is fixed or determinable ; and ( 4 ) collection is reasonably assured . revenues that are not recognized at the time of sale because the foregoing conditions are not met are recognized when those conditions are subsequently met . revenues for our cloud services offerings sold on a subscription basis are generally recognized ratably over the contract term commencing with the date the service is made available to customers . revenues for cloud services offerings sold on a usage basis are generally recognized as the customer consumes the service , provided all other revenue recognition criteria have been satisfied . 38 index to financial statements revenues from the sale of hardware products are generally recognized upon delivery of the hardware product to the customer provided all other revenue recognition criteria are satisfied . hardware support contracts are entered into at the customer 's option and are recognized ratably over the contractual term of the arrangements , which is typically one year , provided all other revenue recognition criteria have been satisfied .
| 118 ( sab 118 ) , related to the application of the one-time transition tax to certain foreign subsidiary earnings that were generated prior to december 31 , 2017 and for which such expense was substantially recorded to non-current income taxes payable in our consolidated balance sheet and corresponds to the amount we currently expect to periodically settle over an eight year period as provided by the tax act ; partially offset by : $ 820 million of income tax benefit , which we refined by a $ 76 million increase as of may 31 , 2018 from our initial estimate made in our third quarter of fiscal 2018 in accordance with sab 118 , related to the remeasurement of our net deferred tax liabilities based on the rates at which they are expected to reverse in the future ; and the net favorable impacts of the tax act on our tax profile and effective tax rate beginning on january 1 , 2018 , which we generally expect will continue into future periods . the net expense related to the enactment of the tax act has been accounted for during fiscal 2018 based on provisional estimates pursuant to sab 118. subsequent adjustments , if any , will be accounted for in the period such adjustments are identified . the provisional estimates incorporate , among other factors , assumptions made based on interpretations of the tax act and existing tax laws and a range of historical financial and tax-specific facts and information , including among other items , the amount of cash and other specified assets and liabilities of the company and its foreign subsidiaries on relevant dates and estimates of deferred tax balances pending finalization of those balances . we expect the enactment of the tax act to generally provide greater flexibility for us to access and utilize our cash , cash equivalent and marketable securities balances held by certain of our foreign subsidiaries as of january 1 , 2018 , as
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( 7 ) on january 2 , 2018 , mr. buchler was granted options to purchase 277,778 shares of common exercisable at $ 0.18/share , vesting story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and supplementary data referred to in item 7 of this form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . such statements , which include statements concerning future revenue sources and concentration , selling , general and administrative expenses , research and development expenses , capital resources , additional financings and additional losses , are subject to risks and uncertainties , including , but not limited to , those discussed above in item 1 and elsewhere in this form 10-k , particularly in “ risk factors , ” that could cause actual results to differ materially from those projected . unless otherwise expressly indicated , the information set forth in this form 10-k is as of december 31 , 2018 , and we undertake no duty to update this information . 22 overview in the second quarter of 2014 , we reached a major milestone in the company 's evolution , generating revenues from our aot technology for the first time since our inception in february 1998. we continue to devote the bulk of our efforts to the promotion , design , testing and the commercial manufacturing and operations of our crude oil pipeline products in the upstream and midstream energy sector . we anticipate that these efforts will continue during 2019. our expenses to date have been funded primarily through the sale of shares of common stock and convertible debt , as well as proceeds from the exercise of stock purchase warrants and options . we raised capital in 2018 and also need to raise substantial additional capital in 2019 , and possibly beyond , to fund our sales and marketing efforts , continuing research and development , and certain other expenses , until our revenue base grows sufficiently . story_separator_special_tag cellspacing= '' 0 '' style= '' font : 10pt times new roman , times , serif ; width : 100 % ; border-collapse : collapse '' > ( 1 ) consists of license maintenance fees to temple university in the amount of $ 187,500 paid annually through the life of the underlying patents or until otherwise terminated by either party . ( 2 ) consists of base salary and certain contractually-provided benefits , to i ) a former executive officer , pursuant to an severance in the amount of $ 580,000 that will be paid through march 31 , 2019 pursuant to a separation agreement effective april 1 , 2017 as amended by letter agreements effective august 16 , 2018 and march 31 , 2019 , modifying the payment schedule to a payment of $ 10,000 per month , continue paying his health insurance premium , and extending the term on a month-to-month basis until paid in full or otherwise terminated . as of december 31 , 2018 , $ 370,000 was payable under this agreement and was included as part of accounts payable and accrued expenses in the accompanying consolidated balance sheet . ; ii ) an executive officer , pursuant to a two-year employment agreement effective april 1 , 2017 at a base annual salary of $ 150,000 per year ; and iii ) an executive officer , pursuant to a two-year agreement effective april 1 , 2017 at a base annual salary of $ 158,400 per year . 24 licensing fees to temple university for details of the licensing agreements with temple university , see financial statements attached hereto , note 6. critical accounting policies and estimates 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 of america . the preparation of these consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , expenses , and related disclosure of contingent assets and liabilities . we evaluate , on an on-going basis , our estimates and judgments , including those related to the useful life of the assets . we base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . the methods , estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results that we report in our consolidated financial statements . the sec considers an entity 's most critical accounting policies to be those policies that are both most important to the portrayal of a company 's financial condition and results of operations and those that require management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about matters that are inherently uncertain at the time of estimation . for a more detailed discussion of the accounting policies of the company , see note 2 of the notes to the consolidated financial statements , “ summary of significant accounting policies ” . we believe the following critical accounting policies , among others , require significant judgments and estimates used in the preparation of our consolidated financial statements . estimates the preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . certain significant estimates were made in story_separator_special_tag ( 7 ) on january 2 , 2018 , mr. buchler was granted options to purchase 277,778 shares of common exercisable at $ 0.18/share , vesting story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and supplementary data referred to in item 7 of this form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . such statements , which include statements concerning future revenue sources and concentration , selling , general and administrative expenses , research and development expenses , capital resources , additional financings and additional losses , are subject to risks and uncertainties , including , but not limited to , those discussed above in item 1 and elsewhere in this form 10-k , particularly in “ risk factors , ” that could cause actual results to differ materially from those projected . unless otherwise expressly indicated , the information set forth in this form 10-k is as of december 31 , 2018 , and we undertake no duty to update this information . 22 overview in the second quarter of 2014 , we reached a major milestone in the company 's evolution , generating revenues from our aot technology for the first time since our inception in february 1998. we continue to devote the bulk of our efforts to the promotion , design , testing and the commercial manufacturing and operations of our crude oil pipeline products in the upstream and midstream energy sector . we anticipate that these efforts will continue during 2019. our expenses to date have been funded primarily through the sale of shares of common stock and convertible debt , as well as proceeds from the exercise of stock purchase warrants and options . we raised capital in 2018 and also need to raise substantial additional capital in 2019 , and possibly beyond , to fund our sales and marketing efforts , continuing research and development , and certain other expenses , until our revenue base grows sufficiently . story_separator_special_tag cellspacing= '' 0 '' style= '' font : 10pt times new roman , times , serif ; width : 100 % ; border-collapse : collapse '' > ( 1 ) consists of license maintenance fees to temple university in the amount of $ 187,500 paid annually through the life of the underlying patents or until otherwise terminated by either party . ( 2 ) consists of base salary and certain contractually-provided benefits , to i ) a former executive officer , pursuant to an severance in the amount of $ 580,000 that will be paid through march 31 , 2019 pursuant to a separation agreement effective april 1 , 2017 as amended by letter agreements effective august 16 , 2018 and march 31 , 2019 , modifying the payment schedule to a payment of $ 10,000 per month , continue paying his health insurance premium , and extending the term on a month-to-month basis until paid in full or otherwise terminated . as of december 31 , 2018 , $ 370,000 was payable under this agreement and was included as part of accounts payable and accrued expenses in the accompanying consolidated balance sheet . ; ii ) an executive officer , pursuant to a two-year employment agreement effective april 1 , 2017 at a base annual salary of $ 150,000 per year ; and iii ) an executive officer , pursuant to a two-year agreement effective april 1 , 2017 at a base annual salary of $ 158,400 per year . 24 licensing fees to temple university for details of the licensing agreements with temple university , see financial statements attached hereto , note 6. critical accounting policies and estimates 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 of america . the preparation of these consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , expenses , and related disclosure of contingent assets and liabilities . we evaluate , on an on-going basis , our estimates and judgments , including those related to the useful life of the assets . we base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . the methods , estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results that we report in our consolidated financial statements . the sec considers an entity 's most critical accounting policies to be those policies that are both most important to the portrayal of a company 's financial condition and results of operations and those that require management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about matters that are inherently uncertain at the time of estimation . for a more detailed discussion of the accounting policies of the company , see note 2 of the notes to the consolidated financial statements , “ summary of significant accounting policies ” . we believe the following critical accounting policies , among others , require significant judgments and estimates used in the preparation of our consolidated financial statements . estimates the preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . certain significant estimates were made in
| , compared to $ 1,704,000 for the fiscal year ended december 31 , 2017 , a decrease of $ 706,000. this decrease is attributable to a decrease in interest and financing expense of $ 758,000 to account the fair value of the warrants issued with our convertible notes and the notes ' beneficial conversion feature , offset by an increase in other non-cash interest expenses of $ 52,000. we had a net loss of $ 3,059,000 or $ 0.01 loss per share for the fiscal year ended december 31 , 2018 compared to a net loss of $ 4,835,000 or $ 0.02 loss per share for the fiscal year ended december 31 , 2017. liquidity and capital resources general we have incurred negative cash flow from operations since our inception in 1998. as of december 31 , 2018 , we had cash of $ 1,153,000 and a stockholders ' deficit of $ 1,482,000. our operating cash flow in 2018 was funded primarily through cash reserves , the exercise of stock purchase warrants and options for cash , and the issuance of convertible notes for cash , and the private sale of restricted common stock . 23 the accompanying consolidated financial statements have been prepared on a going concern basis , which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business . as reflected in the accompanying consolidated financial statements , the company had a net loss of $ 3,059,000 and used cash in operations of $ 1,476,000 for the year ended december 31 , 2018. these factors raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued . our ability to continue as a going concern is dependent upon our ability to raise additional funds and implement our business plan . the consolidated financial statements do not include any adjustments that might
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the information below provides the operating results for each reportable operating segment for the years ended december 31 , 2015 , 2014 , and 2013 ( dollars in millions ) . ( a ) revenue includes intersegment revenue earned by lgs as a result of servicing loans for agm . ( b ) total revenue includes `` net interest income after provision for loan losses '' and `` total other income '' from the company 's segment statements of income , excluding the impact from changes in fair values of derivatives and foreign currency transaction adjustments . net income excludes changes in fair values of derivatives and foreign currency transaction adjustments , net of tax . for additional information regarding these non-gaap measures , see `` asset generation and management operating segment - results of operations - summary and comparison of operating results '' below . ( c ) computed as income before income taxes divided by total revenue . 36 the company 's current outlook for 2016-2018 operating results is that the company believes that net income for those years will be at decreased levels compared to 2015 , due to the continued amortization of the company 's ffelp loan portfolio and anticipated increases in interest rates . the company currently believes that in the short-term it will most likely not be able to invest the excess cash generated from the ffelp loan portfolio into assets that immediately generate the rates of return historically realized from that portfolio . a summary of the results and financial highlights for each reportable operating segment and a summary of the company 's liquidity and capital resources follows . see `` results of operations '' for each reportable operating segment and `` liquidity and capital resources '' under this item 7 for additional detail . student loan and guaranty servicing as of december 31 , 2015 , the company was servicing $ 176.4 billion in ffelp , private , and government owned student loans , as compared with $ 161.6 billion and $ 138.2 billion of loans as of december 31 , 2014 and 2013 , respectively . the year over year increase was due to an increase in government servicing volume . revenue decreased in 2015 compared to 2014 due to federal budget provisions that became effective july 1 , 2014 that have reduced payments by the department to guaranty agencies for assisting student loan borrowers with the rehabilitation of defaulted loans under ffelp , and as a result , rehabilitation revenue has been negatively affected . this decrease in revenue was partially offset by increases in revenue from the department servicing contract and private loan servicing revenue . revenue decreased in 2014 compared to 2013 due to decreases in rehabilitation collection revenue , traditional ffelp and guaranty servicing revenue , and software services revenue , which were partially offset by growth in servicing volume under the company 's contract with the department . a significant amount of the company 's guaranty servicing revenue came from a single guaranty servicing client . the contract with this client expired on october 31 , 2015. ffelp guaranty servicing and ffelp guaranty collection revenue recognized by the company from this client for the years ended december 31 , 2015 , 2014 , and 2013 was $ 37.3 million , $ 48.5 million , and $ 64.3 million , respectively . in addition , the company 's second largest guaranty servicing client has notified its servicer partners that it intends to exit the ffelp guaranty business at the end of their contract term on june 30 , 2016. ffelp guaranty servicing and ffelp guaranty collection revenue recognized by the company from this client for the years ended december 31 , 2015 , 2014 , and 2013 was $ 19.5 million , $ 17.9 million , and $ 21.3 million , respectively . after this customer 's exit from the ffelp guaranty business effective june 30 , 2016 , the company will have one guaranty servicing customer . the company provides software and data center services to this customer , and recognized $ 4.0 million of revenue from this customer in 2015. before tax operating margin was 14.8 % , 21.2 % , and 26.7 % for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . the year over year decrease is a result of the implementation of federal budget reductions for guaranty agencies ' revenue . in addition , as the volume of loans serviced under the department servicing contract continues to grow and loans serviced under the legacy commercial programs continue to run off , the company expects operating margins to tighten accordingly . the company also anticipates that margins will tighten as a result of the loss of the ffelp guaranty servicing and ffelp guaranty collection clients as discussed above tuition payment processing and campus commerce revenue increased in 2015 and 2014 , compared to 2014 and 2013 , respectively , due to increases in the number of managed tuition payment plans , campus commerce customer transaction volume , and new school customers . in addition , the company purchased renweb on june 3 , 2014 , which increased revenue in 2014 and 2015. before tax operating margin excluding amortization of intangibles was 28.3 % , 27.6 % , and 30.7 % for 2015 , 2014 , and 2013 , respectively . the decrease in margin in 2014 compared to 2013 was primarily due to a change in the mix of products and services provided as a result of integration efforts with the acquisition of renweb referred to above . 37 asset generation and management the company acquired $ 4.0 billion of ffelp and private education student loans during 2015 , compared to $ 6.1 billion in 2014 and $ 4.1 billion in 2013. the average loan portfolio balance for 2015 , 2014 , and 2013 was $ 28.6 billion , $ 28.0 billion , and $ 25.0 billion , respectively . story_separator_special_tag core student loan spread decreased to 1.43 % for 2015 , compared to 1.48 % for 2014. this decrease was a result of earning a lower yield on the student loans included in securitizations of which residual interests have recently been acquired , relative to the yield earned on the rest of the student loan portfolio . due to historically low interest rates , the company continues to earn significant fixed rate floor income . during 2015 , 2014 , and 2013 , the company earned $ 184.7 million , $ 179.9 million , and $ 148.4 million , respectively , of fixed rate floor income ( net of $ 23.0 million , $ 24.4 million , and $ 31.0 million of derivative settlements , respectively , used to hedge such loans ) . corporate and other activities whitetail rock capital management , llc , the company 's sec-registered investment advisory subsidiary , recognized investment advisory revenue of $ 4.3 million , $ 17.7 million , and $ 17.4 million for 2015 , 2014 , and 2013 , respectively . these amounts include performance fees earned from the sale of managed securities or managed securities being called prior to the full contractual maturity . due to improvements in the capital markets , the opportunities to earn performance fees on the sale of student loan asset-backed securities were more limited in 2015 as compared to previous years . liquidity and capital resources as of december 31 , 2015 , the company had cash and cash equivalents of $ 63.5 million . in addition , the company had a portfolio of available-for-sale and trading investments , consisting primarily of student loan asset-backed securities , with a fair value of $ 155.4 million as of december 31 , 2015 . for the year ended december 31 , 2015 , the company generated $ 391.4 million in net cash provided by operating activities , including $ 65.5 million from the termination of certain derivative financial instruments . forecasted undiscounted future cash flows from the company 's ffelp student loan portfolio financed in asset-backed securitization transactions are estimated to be approximately $ 2.31 billion as of december 31 , 2015 . as of december 31 , 2015 , $ 100.0 million was outstanding on the company 's unsecured line of credit and $ 250.0 million was available for future use . the unsecured line of credit has a maturity date of october 30 , 2020. during 2015 , the company repurchased a total of 2,449,159 shares of class a common stock for $ 96.2 million ( $ 39.27 per share ) . during 2015 , the company paid cash dividends of $ 19.0 million ( $ 0.42 per share ) . the company intends to use its liquidity position to capitalize on market opportunities , including ffelp and private education loan acquisitions ; strategic acquisitions and investments ; expansion of allo 's telecommunications network ; and capital management initiatives , including stock repurchases , debt repurchases , and dividend distributions . dependent upon the timing and size of the opportunities , the company 's cash and investment balances may increase from their current levels . subsequent events during the period from january 1 , 2016 through february 25 , 2016 , the company repurchased a total of 1,430,720 shares of class a common stock for $ 45.9 million ( $ 32.06 per share ) . during the period from january 1 , 2016 through february 25 , 2016 , the company entered into $ 4.25 billion notional amount of interest rate swaps to hedge student loans earning fixed rate floor income . as of february 25 , 2016 , the company had a total of $ 9.55 billion notional amount of interest rate swaps hedging student loans earning fixed rate floor income in which the company is paying an average fixed rate of 0.90 percent . these derivatives have various maturity dates ranging from 2016 through 2025 . 38 story_separator_special_tag student loan portfolio as of december 31 , 2015 , the company had a $ 28.3 billion student loan portfolio that will amortize over the next approximately 25 years . for a summary of the company 's student loan portfolio as of december 31 , 2015 and 2014 , see note 3 of the notes to consolidated financial statements included in this report . loan activity the following table sets forth the activity of loans : replace_table_token_16_th allowance for loan losses and loan delinquencies the company maintains an allowance appropriate to absorb losses , net of recoveries , inherent in the portfolio of student loans , which results in periodic expense provisions for loan losses . delinquencies have the potential to adversely impact the company 's earnings through increased servicing and collection costs and account charge-offs . for a summary of the activity in the allowance for loan losses for 2015 , 2014 , and 2013 , and a summary of the company 's student loan delinquency amounts as of december 31 , 2015 , 2014 , and 2013 , see note 3 of the notes to consolidated financial statements included in this report . the company 's provision for loan losses and charge-offs of federally insured loans decreased in 2015 compared to 2014 and in 2014 compared to 2013. the company 's primary driver for loan growth has been acquiring student loan portfolios . the company records loans acquired net of any credit exposure through a credit discount , separate from the allowance for loan losses . this credit discount is non-accretable to interest income . the company continues to evaluate credit losses associated with purchased loans based on current information and changes in expectations to determine the need for any additional allowance for loan losses . the recent purchases of large loan portfolios have resulted in an increase in the non-accretable discount balance , but no additional allowance for loan losses associated with these recent loan portfolios has been necessary .
| 41 the following table summarizes the components of `` other income , net . '' replace_table_token_11_th ( a ) the company provides investment advisory services under various arrangements and earns annual fees of 25 basis points on the outstanding balance of investments and up to 50 percent of the gains from the sale of securities for which it provides advisory services . due to improvements in the capital markets , the opportunities to earn performance fees on the sale of student loan asset-backed securities were more limited in 2015 as compared to previous years . as of december 31 , 2015 , the outstanding balance of investments subject to these arrangements was $ 863.6 million . ( b ) during 2014 , the company recognized income related to the modification of certain servicing agreements in which the company 's loan repurchase obligation was reduced . 42 student loan and guaranty servicing operating segment – results of operations student loan servicing volumes ( dollars in millions ) replace_table_token_12_th 43 summary and comparison of operating results replace_table_token_13_th 44 loan and guaranty servicing revenue replace_table_token_14_th ffelp guaranty servicing and ffelp guaranty collection revenue a significant amount of the company 's guaranty servicing revenue came from a single guaranty servicing client . the contract with this client expired on october 31 , 2015 , and was not renewed . ffelp guaranty servicing and ffelp guaranty collection revenue recognized by the company from this client for the years ended december 31 , 2015 , 2014 , and 2013 was $ 37.3 million , $ 48.5 million , and $ 64.3 million , respectively . the company incurred collection costs that were directly related to guaranty collection revenue earned on this contract . in addition , the company 's second largest guaranty servicing client has notified its servicer partners that it intends to exit the ffelp guaranty business at the end of their contract term on june 30 , 2016. ffelp guaranty servicing and ffelp guaranty collection revenue recognized by the company from this client for the years ended december 31 ,
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the table below shows the number of our customers generating niw within each of the last seven completed fiscal quarters and during the year ended december 31 , 2014 . new insurance written , insurance in force and risk in force primary insurance may be written on a flow basis , in which loans are insured in individual , loan-by-loan transactions , or may be written on a non-flow basis , in which mortgage insurance coverage is placed on more than one loan , typically after the loans have been originated . mi may also be written in a pool policy , where a group of loans ( or pool ) are insured under a single contract . pool insurance may have a stated aggregate loss limit for a pool of loans and may also have a deductible under which no losses are paid by the insurer until losses on the pool of loans exceed the deductible . during the quarter ended december 31 , 2014 , we had primary niw of $ 1.7 billion , compared to primary niw of $ 974.9 million during the quarter ended september 30 , 2014 . we had primary niw of $ 3.5 billion for the year ended december 31 , 2014 compared to $ 162.2 million for the year ended december 31 , 2013 . we did not write any new pool insurance in 2014. our total niw for the year ended december 31 , 2013 consisted almost entirely of pool insurance written under our fannie mae pool agreement , which comprised $ 5.2 billion of the total niw of $ 5.3 billion . as of december 31 , 2014 , nmic had primary iif of $ 3.4 billion and pool iif of $ 4.7 billion and total rif of $ 894.4 million , consisting of $ 801.4 million of primary rif , representing insurance on 14,603 loans , and pool rif of $ 93.1 million , representing insurance on approximately 21,000 loans . as of december 31 , 2013 , nmic had primary iif of $ 161.7 million and pool iif of $ 5.1 billion and total rif of $ 129.6 million , consisting of primary rif of $ 36.5 million and pool rif of $ 93.1 million . we expect nmic 's primary iif and rif to significantly increase over the coming year . 48 fannie mae pool transaction effective september 1 , 2013 , nmic entered into an agreement with fannie mae , pursuant to which nmic initially insured approximately 22,000 loans with iif of $ 5.2 billion ( as of september 1 , 2013 ) . we receive monthly premiums from fannie mae for this transaction , which are recorded as written and earned in the month received . the agreement has a term of ten years from september 1 , 2013 , the coverage effective date . the rif to nmic is $ 93.1 million , which represents the difference between a deductible payable by fannie mae on initial losses and a stop loss above which losses are borne by fannie mae . nmic provides this same level of risk coverage over the term of the agreement . we are bound to counter-party requirements contained in the agreement that specify the amount of capital nmic will need to maintain to support the agreement until the new pmiers are effective , discussed below in `` -proposed pmiers . '' the capital we are required to maintain under the pool agreement is specified as the greater of the following : a. the amount of capital required in our january 2013 approval letter from fannie mae ( $ 150 million ) ; or b. the sum of : i . 5.6 % of net primary rif , plus ; ii . for pool insurance , the lesser of 1 . 5.6 % of the rif under the pool transaction , based upon loan level coverage , before application of the aggregate stop loss and deductible , or ; 2. the aggregate stop loss amount , net of any deductible , for the pool transaction . although our gse approval letters require that nmic hold at least $ 150 million of capital in total to support both pool and primary risk , the capital we are required to maintain under this pool agreement just to support the pool risk ( under b.ii . ) will decline over the ten year term of the agreement as the loans in the pool amortize or as loans pay off . the amount calculated under ii.2 . is equivalent to $ 93.1 million and remains the same over the term of the transaction . the current loan level rif of the pool , as of december 31 , 2014 , is $ 1.62 billion , which , when multiplied by 5.6 % per the calculation under b.ii.1 , produces a capital requirement of $ 90.6 million . we expect that as the loans in the pool amortize or as loans pay off , the capital required in b.ii.1 will continue to decline below the $ 93.1 million , which is constant and set at the effective date of the transaction , and as a result the amount of capital required under b.ii . will continue to decline . if the draft pmiers ( discussed below ) were put into place today , we expect that the amount of capital we would have to hold to support this particular pool transaction would be $ 44.1 million , a significant reduction from the current capital requirement of $ 90.6 million under b.ii above . insurance portfolio we currently underwrite every loan we insure , including loans submitted through our delegated channel . until recently , we believe the prevailing standard of other companies in the mi industry has been to conduct partial quality assurance testing of delegated underwritten loans . our pricing policies also help mitigate credit risk in the form of higher premium rates for loan features or borrower characteristics associated with historically higher default rates . story_separator_special_tag we utilize certain risk principles that form the basis of how we underwrite and originate primary niw . first , we manage our portfolio credit risk by using several loan eligibility matrices which prescribe the maximum ltv ratio , minimum borrower credit score , maximum loan size , property type and occupancy status of loans that we will insure . our loan eligibility matrices , as well as all of our detailed underwriting guidelines , are contained in our underwriting guideline manual that is publicly available on our website . our eligibility criteria and underwriting guidelines are designed to mitigate the layered risk inherent in a single insurance policy . `` layered risk '' refers to the accumulation of borrower , loan risk and property risk . for example , we have higher credit score and lower maximum allowed ltv requirements for riskier property types , such as investor properties , compared to owner-occupied properties . we monitor the concentrations of the various risk attributes in our insurance portfolio . our primary iif and rif , as of december 31 , 2014 , were made up of approximately 63 % and 62 % , respectively , of credit scores at or above 740. generally , insuring loans made to borrowers with higher credit scores tends to result in a lower frequency of claims . additionally , as of december 31 , 2014 , we believe our insurance portfolio is comprised of loans that are full documentation loans , and less than 1 % of our rif is above 95 % ltv . as we continue to increase our insurance writings , we expect to continue to seek out and insure high credit quality mortgages . since we recently began writing mi in april 2013 , our portfolio does not yet reflect our expected distribution of ltvs , borrower credit scores , loan sizes , property types and occupancy statuses of loans that we expect to insure , as well as the concentrations within states and metropolitan statistical areas . we believe we will move toward our expected distribution of these risk attributes in our insurance portfolio as we continue to write more business . 49 overview of niw , iif and rif a significant portion of our niw in 2014 was comprised of single premium policies . while our single premium policies currently represent the majority of our niw and iif , we expect the mix of our policy types could change meaningfully in future quarters . lender-paid single premiums are non-refundable and fully earned upon cancellation . the table below shows niw , iif , rif , policies in force , the weighted average coverage and loans in default , by quarter , for the last five quarters , for our primary book . replace_table_token_4_th ( 1 ) reported as of the end of the period . ( 2 ) end of period rif divided by iif . the table below shows primary and pool iif , niw and premiums written and earned . replace_table_token_5_th approximately 59 % of our iif and niw in 2014 was from single premium business . the tables below show the weighted average fico and the weighted average ltv , by policy type , for the quarter in which the policy was originated . replace_table_token_6_th replace_table_token_7_th 50 the table below reflects our total iif and rif by fico as of december 31 , 2014 . replace_table_token_8_th the table below reflects our primary niw , iif and rif by fico for the 2014 and 2013 books as of december 31 , 2014 . replace_table_token_9_th replace_table_token_10_th the table below reflects our pool niw , iif and rif by fico for the 2013 book as of december 31 , 2014 . replace_table_token_11_th ( 1 ) represents total niw for the year ended december 31 , 2013 . 51 the tables below reflect our average primary loan size by fico and the percentage of our rif by loan type . replace_table_token_12_th percentage of rif by loan type primary pool as of december 31 , 2014 fixed 95.5 % 100.0 % adjustable rate mortgages : less than five years 0.1 — five years and longer 4.4 — total 100.0 % 100.0 % the following table reflects our rif by ltv ratio . we calculate the ltv ratio of a loan as a percentage of the original loan amount to the original value of the property securing the loan . in general , the lower the ltv ratio the lower the likelihood of a default , and for loans that default , a lower ltv ratio generally results in a lower severity for any claim , as the borrower has more equity in the property . replace_table_token_13_th geographic dispersion we intend to build a geographically diverse portfolio without geographic concentrations that might expose us to undue risk . risk will be managed by establishing targets and limits for new origination mix and or portfolio limits . therefore , aside from the impact of market restrictions , we expect that our insurance origination mix by region will be consistent with the overall distribution of mortgage originations in the u.s. that require mortgage insurance . we currently have no geographic market restrictions in place . on an ongoing and recurring basis , we evaluate changing market conditions to determine if it is appropriate to establish , tighten , loosen or eliminate lending restrictions established by geographic area . the evaluation is expected to include factors such as historical performance and the historical performance of other market participants , forward-looking projections for key risk drivers , estimated impact on loss performance and existing portfolio concentrations . consistent with our governance processes , the geographic concentrations will be monitored on an ongoing basis and changes to market restrictions will be reviewed and approved . 52 the following tables show the distribution by state of our iif and rif , for both primary and pool insurance . as of december 31 , 2014 , our iif and rif is more heavily concentrated in california , primarily as a result of the acquisition of new customers .
| for the quarter ended december 31 , 2014 , we had net monthly premiums written and earned of $ 1.8 million compared to $ 883 thousand for the third quarter of 2014 . monthly niw increased by approximately 75 % quarter over quarter from september 30 , 2014 to december 31 , 2014 . we had net single premiums written and earned of $ 11.0 million and $ 2.4 million , respectively , for the fourth quarter of 2014 , compared to net single premiums written and earned of $ 7.4 million and 1.7 million , respectively , for the third quarter of 2014 . net single premiums earned increased as a result of an increase in single premiums written during the quarter ended december 31 , 2014 , as well as from cancellations on lender-paid singles , where single premiums received by us are non-refundable and fully earned upon cancellation . net pool premiums written and earned of $ 1.3 million was down slightly quarter over quarter due to the pay off of approximately 320 loans in the pool from september 30 , 2014 . we have not written significant annual premiums through december 31 , 2014 . 58 as of december 31 , 2014 , we had 14,603 primary certificates in force and approximately 21,000 pool certificates in force , compared to 2,072 primary certificates in force and approximately 22,000 pool certificates in force as of december 31 , 2013 . we have incurred significant net operating losses since our inception . our net losses were $ 48.9 million , $ 55.2 million , and $ 27.5 million for the each of the years in the three-year period ended december 31 , 2014 , respectively . our net loss increased for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 , primarily as a result of the increase in our head count , the development of our
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producers ' willingness to engage in new drilling is determined by a number of factors , the most important of which are the prevailing and projected prices of oil , natural gas , and ngls , the cost to drill and operate a well , the availability and cost of capital , and environmental and governmental regulations . we generally expect the level of drilling to positively correlate with long-term trends in prices of oil , natural gas , and ngls . revenues in this segment are recognized when the service is performed and collectability of fees is reasonably assured . we also generate revenue for managing one salt water disposal facility . in addition , for minimal marginal cost , we generate revenue by selling residual oil we recover from the flowback and produced water . our ability to recover residual oil is dependent upon the residual oil content in the salt water we treat , which is , among other things , a function of water type , chemistry , source , and temperature . generally , where outside temperatures are lower , there is less residual oil content and separation is more difficult . thus , our residual oil recovery during the winter season is usually lower than our recovery during the summer season in north dakota . additionally , residual oil content will decrease if , among other things , producers begin recovering higher levels of residual oil in salt water prior to delivering such salt water to us for treatment . for more information on our revenue by country , see “ note 2 – basis of presentation and significant accounting policies ” in the audited financial statements included in “ item 8 – financial statements and supplementary data. ” how we evaluate our operations our management uses a variety of financial and operating metrics to analyze our performance . we view these metrics as significant factors in assessing our operating results and profitability and intend to review these measurements frequently for consistency and trend analysis . these metrics include : ● inspector headcount in pipeline inspection ; ● field personnel headcount and utilization in integrity services ; ● salt water disposal and residual oil volumes in water services ; ● operating expenses ; ● segment gross margin ; ● safety metrics ; ● adjusted ebitda ; ● maintenance and expansion capital expenditures ; and ● distributable cash flow . inspector headcount the amount of revenue we generate in pipeline inspection depends primarily on the number of inspectors that perform services for our customers . the number of inspectors engaged on projects is driven by the type of project , prevailing market rates , the age and condition of customers ' midstream pipelines , gathering systems , miscellaneous infrastructure , distribution systems , and the legal and regulatory requirements relating to the inspection and maintenance of those assets . field personnel headcount and utilization the amount of revenue we generate in integrity services depends primarily on the number of field personnel that perform services for our customers and the fees that we charge for those services , which depend on the type and number of field personnel used on a particular project , the type of equipment used and the fees charged for the utilization of that equipment , and the nature and the duration of the project . the number of field personnel engaged on projects is driven by the type of project , the size and length of the pipeline being inspected , the complexity of services provided , and the utilization of our work force and equipment . salt water disposal and residual oil volumes the amount of revenue we generate in the water segment depends primarily on the volume of produced water and flowback water that we dispose for our customers pursuant to published or negotiated rates , as well as the volume of residual oil that we sell pursuant to rates that are determined based on the quality of the oil sold and prevailing oil prices . our revenues from produced water , flowback water , and residual oil sales are generated pursuant to contracts that are short-term in nature . revenues in this segment are recognized when the service is performed and collectability of fee is reasonably assured . the volumes of salt water disposed at our salt water disposal facilities are driven by water volumes generated from existing oil and natural gas wells during their useful lives and development drilling and production volumes from the wells located near our facilities . producers ' willingness to engage in new drilling is determined by a number of factors , the most important of which are the prevailing and projected prices of oil , natural gas , and ngls , the cost to drill and operate a well , the availability and cost of capital and environmental and governmental regulations . we generally expect the level of drilling to positively correlate with long-term trends in prices of oil , natural gas , and ngls . 54 approximately 7 % , 6 % , and 8 % of our water services segment revenue for the years ended december 31 , 2017 , 2016 and 2015 , respectively , was derived from sales of residual oil recovered during the salt water treatment process . our ability to recover residual oil is dependent upon the oil content in the salt water we treat , which is , among other things , a function of water type , chemistry , source , and temperature . generally , where outside temperatures are lower , oil separation is more difficult . thus , our residual oil recovery during the winter season is lower than our recovery during the summer season in north dakota . additionally , residual oil content will decrease if , among other things , producers begin recovering higher levels of residual oil in salt water prior to delivering such salt water to us for treatment . story_separator_special_tag operating expenses the primary components of our operating expenses that we evaluate include costs of services , general and administrative , and depreciation and amortization . costs of services . employee-or-contractor-related costs and per diem expenses are the primary costs of services components in pipeline inspection and integrity services . these expenses fluctuate from period to period based on the number , type , and location of projects on which we are engaged at any given time . we seek to maximize the profitability of our operations in part by minimizing , to the extent appropriate , expenses directly tied to operating and maintaining our assets . repair and maintenance costs , employee-related costs , residual oil disposal costs , lease expenses , and utility expenses are the primary cost of services components in water services . these expenses generally remain relatively stable across broad ranges of salt water disposal volumes but can fluctuate from period to period depending on the mix of activities performed during that period and the timing of these expenses . general and administrative . general and administrative expenses include management and overhead payroll , general office expenses , management fees , legal fees , and other expenses . under our amended and restated omnibus agreement , holdings charges us an annual administrative fee of $ 4.0 million ( payable in equal quarterly installments ) for the provision of certain administrative services . this fee is subject to an increase by an annual amount equal to ppi plus one percent or , with the concurrence of the conflicts committee , in the event of an expansion of our operations , including through acquisitions or internal growth . to the extent that holdings incurs overhead expenses in excess of our annual administrative fee that are attributable to the operations of the partnership , these expenses are reported in our consolidated statements of operations within general and administrative expense and as an equity contribution attributable to our general partner in our consolidated statement of owners ' equity . included in this administrative fee are general and administrative expenses attributable to operating as a publicly traded partnership , such as expenses associated with annual and quarterly sec reporting ; tax return and schedule k-1 preparation and distribution expenses ; sarbanes-oxley compliance ; listing on the new york stock exchange ; independent registered public accounting firm fees ; certain legal fees ; investor relations , registrar , and transfer agent fees ; director and officer liability insurance costs ; and director compensation . our partnership agreement provides that holdings will determine and allocate expenses related to our operations and may provide us other services for which we will be charged fees as determined in good faith . payments to holdings and its affiliates following the termination of our amended and restated omnibus agreement could be substantial and will reduce the amount of cash we have available to distribute to unitholders . during the years ended december 31 , 2017 and 2016 , holdings provided sponsor support to the partnership by waiving certain payments of the quarterly administrative fee ( in 2017 , holdings waived the fee for two of the quarters ; in 2016 , holdings waived the fee for all four quarters ) . we reported the amount of the waived fees within general and administrative expense in our consolidated statement of operations and as an equity contribution in our consolidated statement of owners ' equity . depreciation , amortization and accretion . depreciation , amortization and accretion expense primarily consists of our estimate of the decrease in value of our capitalized tangible and intangible assets as a result of using the assets over time . depreciation and amortization are recorded on a straight-line basis . we estimate that our assets have useful lives ranging from 3 to 39 years . the facilities , wells , and equipment of our water services segment constituted approximately 44 % and 60 % of the net book value of our fixed assets as of december 31 , 2017 and 2016 , respectively , and generally have useful lives of 5 to 15 years . 55 segment gross margin , adjusted ebitda and distributable cash flow we view segment gross margin as one of our primary management tools , and we track this item on a regular basis , both as an absolute amount and as a percentage of revenues compared to prior periods . we also track adjusted ebitda , defined as net income ( loss ) plus interest expense , depreciation and amortization expense , income tax expense , impairments , non-cash allocated expenses , and equity-based compensation ( less certain other unusual or non-recurring items ) . we use distributable cash flow , defined as adjusted ebitda less net cash interest paid , cash taxes paid , and maintenance capital expenditures , as an additional measure to analyze our performance . distributable cash flow does not reflect changes in working capital balances , which could be significant , as headcounts of pipeline inspection vary from period to period . adjusted ebitda and distributable cash flow are non-gaap , supplemental financial measures used by management and by external users of our financial statements , such as investors , lenders , and analysts , to assess : ● our operating performance as compared to those of other providers of similar services , without regard to financing methods , historical cost basis , or capital structure ; ● the ability of our assets to generate sufficient cash flow to support our indebtedness and make distributions to our partners ; ● the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities ; ● our ability to incur and service debt and fund capital expenditures ; and ● the viability of acquisitions and other capital expenditure projects and the rates of return on various investment opportunities . adjusted ebitda and distributable cash flow are not financial measures presented in accordance with gaap .
| fluctuations in the average revenue per inspector per year are expected , given that we charge different rates for different type of inspectors and different types of inspection services . competition remains intense in the industry , which continued to exert downward pressure on rates . costs of services . costs of services decreased approximately $ 5.3 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , consistent with lower revenues . gross margin . gross margin decreased approximately $ 1.2 million during the year ended december 31 , 2017 , due primarily to lower revenues . the gross margin percentage during the year ended december 31 , 2017 was similar to that of the year ended december 31 , 2016 , as declines in margin percentage resulting from competitive pressures were partially offset by increased revenues in our higher-margin business lines , such as the nondestructive examination service line . general and administrative . general and administrative expenses increased approximately $ 1.5 million in the year ended december 31 , 2017 , compared to the year ended december 31 , 2016. the increase was primarily due to the fact that holdings charged the pipeline inspection segment $ 1.4 million during the year ended december 31 , 2017 for administrative services , as allowed for under our omnibus agreement with holdings . during the year ended december 31 , 2016 , holdings waived the full amount of this administrative fee . depreciation and amortization . depreciation and amortization expense for the year ended december 31 , 2017 was similar to depreciation and amortization expense for the year ended december 31 , 2016. impairments . during the year ended december 31 , 2017 , we recorded an impairment of $ 1.3 million to the carrying values of certain intangible assets associated with our canadian subsidiary , which was due to the loss during the second quarter of 2017 of the largest customer of this subsidiary . the intangible assets included customer relationships with a book value of $ 1.1 million and trade names with a
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we also have an additional drug candidate , kb001-a , a recombinant , pegylated , anti‑pseudomonas pcrv high‑affinity fab ' antibody that we are no longer developing , but which is being considered for partnering or out-licensing . lenzilumab , ifabotuzumab and kb001-a were each developed with our proprietary , patent-protected humaneered® technology , which consists of methods for converting antibodies ( typically murine ) into engineered , high-affinity antibodies designed for human therapeutic use , typically for chronic conditions . our strategy also involves identifying , acquiring , developing and supporting the commercialization of additional treatments for neglected and rare diseases . we believe the treatment of neglected and rare diseases represents an opportunity to enter underserved patient populations . we also believe our focus on neglected and rare diseases provides us the opportunity to benefit from various regulatory incentives referenced above . the potential opportunities afforded by these regulatory programs provide an important incentive to support our efforts to develop medicines for patients with neglected and rare diseases and to apply our responsible pricing model for any of our approved products . our company has undergone a significant transformation in the last year . as a result of challenges facing us at the time , on december 29 , 2015 , we filed a voluntary petition for bankruptcy protection under chapter 11 of title 11 of the u.s. bankruptcy code . on june 30 , 2016 , our second amended plan of reorganization , dated may 9 , 2016 , as amended , or the plan , became effective and we emerged from our chapter 11 bankruptcy proceedings . for further information on our bankruptcy and emergence from bankruptcy , see part i , item 1 , “ business—bankruptcy ” and notes 2 and 16 to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k. we have incurred significant losses and had an accumulated deficit of $ 213.6 million as of december 31 , 2015. we expect to continue to incur net losses as we develop our drug candidates , expand clinical trials for our drug candidates currently in clinical development , expand our development activities and seek regulatory approvals . significant capital is required to continue to develop and to launch a product and many expenses are incurred before revenue is received , if any . we are unable to predict the extent of any future losses or when we will receive revenue or become profitable , if at all . we will require substantial additional capital to support our business efforts , including obtaining regulatory approvals for benznidazole or other product candidates , clinical trials and other studies , and , if approved , the commercialization of our product candidates . we anticipate that in the future we will seek additional financing from a number of sources , including , but not limited to , the sale of equity or debt securities , strategic collaborations , and licensing of our product candidates . additional funding may not be available to us on a timely basis or at acceptable terms , if at all . our ability to access capital when needed is not assured and , if not achieved on a timely basis , would materially harm our business , financial condition and results of operations . if adequate funds are not available , we may be required to delay , reduce the scope of , or eliminate one or more of our development programs . we may also be required to sell or license to others our technologies , product candidates , or development programs that we would have preferred to develop and commercialize ourselves and on less than favorable terms , if at all . if management is unsuccessful in efforts to raise additional capital , based on our current levels of operating expenses , our current capital is not expected to be sufficient to fund our operations for the next twelve months . these conditions raise substantial doubt about our ability to continue as a going concern . the report of independent registered public accounting firm at the beginning of the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k includes an explanatory paragraph about our ability to continue as a going concern . 58 t he consolidated financial statements for the year ended december 31 , 2015 were prepared on the basis of a going concern , which contemplates that we will be able to realize our assets and discharge liabilities in the normal course of business . our ability to meet our liabilities and to continue as a going concern is dependent upon the availability of future funding . the financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . on january 13 , 2016 , our common stock was suspended from the nasdaq global market and began trading on the over-the-counter market under the kbioq symbol . on january 26 , 2016 , nasdaq filed a form 25 with the securities and exchange commission to complete the delisting of our common stock , and the delisting was effective on february 5 , 2016. critical accounting policies and use of estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or gaap . the preparation of our financial statements in conformity with gaap requires our management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes . actual results could differ materially from those estimates . our management believes judgment is involved in determining revenue recognition , valuation of financing derivative , the fair value‑based measurement of stock‑based compensation , accruals and warrant valuations . story_separator_special_tag our management evaluates estimates and assumptions as facts and circumstances dictate . as future events and their effects can not be determined with precision , actual results could differ from these estimates and assumptions , and those differences could be material to the consolidated financial statements . if our assumptions change , we may need to revise our estimates , or take other corrective actions , either of which may also have a material adverse effect on our statements of operations , liquidity and financial condition . we are an emerging growth company under the jobs act . emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies . we have elected to avail ourselves of this exemption from new or revised accounting standards and , therefore , we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . while our significant accounting policies are described in more detail in note 3 to our consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k , we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing contracts and purchase orders , reviewing the terms of our license agreements , communicating with our applicable personnel to identify services that have been performed on our behalf , and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost . the majority of our service providers invoice us monthly in arrears for services performed . we make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time . examples of estimated accrued research and development expenses include fees to : · contract research organizations and other service providers in connection with clinical studies ; · contract manufacturers in connection with the production of clinical trial materials ; and · vendors in connection with preclinical development activities . 59 we base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical studies on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract , and may result in uneven payment flows and expense recognition . payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in accruing these costs , we estimate the time period over which services will be performed for which we have not been invoiced and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual accordingly . our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period . stock‑based compensation our stock‑based compensation expense for stock options is estimated at the grant date based on the award 's fair value as calculated by the black‑scholes option pricing model and is recognized as expense over the requisite service period . the black‑scholes option pricing model requires various highly judgmental assumptions including expected volatility and expected term . the expected volatility is based on the historical stock volatilities of several of our publicly listed peers over a period equal to the expected terms of the options as we do not have a sufficient trading history to use the volatility of our own common stock . to estimate the expected term , we have opted to use the simplified method , which is the use of the midpoint of the vesting term and the contractual term . if any of the assumptions used in the black‑scholes option pricing model changes significantly , stock‑based compensation expense may differ materially in the future from that recorded in the current period . in addition , we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest . we estimate the forfeiture rate based on historical experience and our expectations regarding future pre‑vesting termination behavior of employees . to the extent our actual forfeiture rate is different from our estimate , stock‑based compensation expense is adjusted accordingly . revenue recognition our contract revenue to date has been generated primarily through license agreements and research and development collaboration agreements . contract revenue may include nonrefundable , non‑creditable upfront fees , funding for research and development efforts , and milestone or other contingent payments for achievements with regards to our licensed products . we did not materially modify any previous material collaboration agreements or enter into any new such agreements from 2011 through the end of 2015. all collaboration agreements have been accounted for in accordance with the accounting guidance applicable to such arrangements prior to our adoption of accounting standards update , or asu , 2009‑13 , multiple‑deliverable revenue arrangements , and asu 2010‑17 , revenue recognition—milestone method , each of which we adopted on a prospective basis on january 1 , 2011. we recognize revenue when persuasive evidence of an arrangement exists , transfer of technology has been completed , services have been performed or products have been delivered , the fee is fixed and determinable , and collection is reasonably assured .
| other research and development costs consist primarily of internal research and development costs such as salaries and related fringe benefit costs for our employees ( such as workers compensation and health insurance premiums ) , stock‑based compensation charges , travel costs , lab supplies , overhead expenses such as rent and utilities , and external costs not allocated to one of our clinical programs . internal research and development costs generally benefit multiple projects and are not separately tracked per project . the following table shows our total research and development expenses for the years ended december 31 , 2015 and 2014 : replace_table_token_3_th we expect to continue to incur substantial expenses related to our research and development activities for the foreseeable future as we continue product development including working to obtain fda approval for benznidazole for the treatment of chagas disease , continuing the phase 1clinical trial of lenzilumab in patients with cmml , and evaluating whether to conduct further studies of ifabotuzumab . historically , we have also incurred significant costs related to kb001-a , our former respiratory program for lenzilumab and the development of ifabotuzumab for other oncology indications than those for which we are currently considering development . depending on the results of our development efforts for lenzilumab in cmml and if we decide to move forward with conducting further studies of ifabotuzumab , we expect to incur substantial costs to prepare for potential clinical trials and activities for lenzilumab in jmml and for ifabotuzumab . general and administrative expenses general and administrative expenses consist principally of personnel‑related costs , professional fees for legal , consulting , audit and tax services , rent and other general operating expenses not otherwise included in research and development . for the years ended december 31 , 2015 and 2014 , general and administrative expenses were $ 14.3 million and $ 10.1 million , respectively . 62 comparison of years ended december 31 , 2015 and 2014 replace_table_token_4_th research and development expenses decreased $ 9.9 million in 2015 compared to 2014. the decrease is
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the company and the bank agreed to reduce the maximum available balance for the line-of-credit to $ 2 million . the outstanding balance under the line of credit accrues interest at a variable rate based on the bank 's prime rate plus 1 % ( 3.75 % at december 31 , 2020 ) but at no time less than 4.0 % . monthly interest payments are required , with any outstanding principal due on july 10 , 2021. the line of credit is collateralized by all assets of the company . as described in our ipo prospectus , we have reduced our bank debt by $ 4.0 million , used $ 2.0 million of our cash to serve as collateral for our remaining $ 2.0 million of bank debt that replaces collateral provided by a related party , paid down a significant percentage of our accounts payable as of december 31 , 2020 , and eliminated all deferred compensation owed to a related party . cash flow analysis our cash flows from operating activities have historically been significantly impacted by revenues received , our investment in sales and marketing to drive growth , and research and development expenses . our ability to meet future liquidity needs will be driven by our operating performance and the extent of continued investment in our operations . failure to generate sufficient revenues and related cash flows could have a material adverse effect on our ability to meet our liquidity needs and achieve our business objectives . 28 the following table summarizes the statements of cash flows for the years ended december 31 , 2020 and 2019 : replace_table_token_4_th operating activities cash provided by operating activities for the year ended december 31 , 2020 primarily consisted of payments received from our clients . cash used in operating activities primarily consisted of personnel-related expenditures , payments included costs of operations , and other sales efforts , research and development and administrative costs . investing activities cash flows used in investing activities for the year ended december 31 , 2020 consisted primarily of capitalization of software development expenses of $ 867,578. financing activities cash flows from financing activities for the year ended december 31 , 2020 decreased from the prior year period primarily due to reduced fund raising from the issuance of common and preferred stock and related third party debt . contractual obligations the following table summarizes our contractual obligations not on our balance sheet as of december 31 , 2020 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods : replace_table_token_5_th ( 1 ) represents minimum payments due for the lease of office space off-balance sheet arrangements we did not have during the periods presented , and we do not currently have , any off-balance sheet arrangements , as defined in the rules and regulations of the sec . 29 critical accounting policies and estimates our financial statements and accompanying notes have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets , liabilities , revenues , costs and expenses , and related disclosures . on an ongoing basis , we continually evaluate our estimates and assumptions believed to be reasonable under current facts and circumstances . actual amounts and results may materially differ from these estimates made by management under different assumptions and conditions . certain accounting policies that require significant management estimates , and are deemed critical to our results of operations or financial position , are described below . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . revenue recognition the company derives its revenues from two sources : ( 1 ) platform fee revenues , which are comprised of subscription fees from customers accessing the company 's cloud-based computing services and occasionally from customers paying a development fee ; and ( 2 ) advertising revenues based on impressions delivered via the company 's platform . revenues are recognized when a contract with a customer exists , and the control of the promised services are transferred to our customers , in an amount that reflects the consideration we expect to receive in exchange for those services . substantially all of our revenues are generated from contracts with customers in the united states . we adopted asc topic 606 , effective january 1 , 2019 , utilizing the modified retrospective method . this approach was applied to contracts that were not completed as of january 1 , 2019 , and the corresponding incremental costs of obtaining those contracts , which resulted an immaterial cumulative effect adjustment to the opening balance of accumulated deficit at date of adoption . the adoption of this asu primarily impacted our disclosures pertaining to revenue from our contracts with customers . reported results for fiscal year 2019 and the period ended december 31 , 2020 reflect the application of asc topic 606 , while the reported results for the fiscal year ended december 31 , 2018 was not adjusted and continue to be reported under asc topic 605. software development costs the company accounts for costs incurred in the development of computer software as software research and development costs until the preliminary project stage is completed , management has committed to funding the project , and completion and use of the software for its intended purpose is probable . the company ceases capitalization of development costs once the software has been substantially completed and is available for its intended use . software development costs are amortized over a useful life estimated by the company 's management of five years . costs associated with significant upgrades and enhancements that result in additional functionality are capitalized . capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues story_separator_special_tag the company and the bank agreed to reduce the maximum available balance for the line-of-credit to $ 2 million . the outstanding balance under the line of credit accrues interest at a variable rate based on the bank 's prime rate plus 1 % ( 3.75 % at december 31 , 2020 ) but at no time less than 4.0 % . monthly interest payments are required , with any outstanding principal due on july 10 , 2021. the line of credit is collateralized by all assets of the company . as described in our ipo prospectus , we have reduced our bank debt by $ 4.0 million , used $ 2.0 million of our cash to serve as collateral for our remaining $ 2.0 million of bank debt that replaces collateral provided by a related party , paid down a significant percentage of our accounts payable as of december 31 , 2020 , and eliminated all deferred compensation owed to a related party . cash flow analysis our cash flows from operating activities have historically been significantly impacted by revenues received , our investment in sales and marketing to drive growth , and research and development expenses . our ability to meet future liquidity needs will be driven by our operating performance and the extent of continued investment in our operations . failure to generate sufficient revenues and related cash flows could have a material adverse effect on our ability to meet our liquidity needs and achieve our business objectives . 28 the following table summarizes the statements of cash flows for the years ended december 31 , 2020 and 2019 : replace_table_token_4_th operating activities cash provided by operating activities for the year ended december 31 , 2020 primarily consisted of payments received from our clients . cash used in operating activities primarily consisted of personnel-related expenditures , payments included costs of operations , and other sales efforts , research and development and administrative costs . investing activities cash flows used in investing activities for the year ended december 31 , 2020 consisted primarily of capitalization of software development expenses of $ 867,578. financing activities cash flows from financing activities for the year ended december 31 , 2020 decreased from the prior year period primarily due to reduced fund raising from the issuance of common and preferred stock and related third party debt . contractual obligations the following table summarizes our contractual obligations not on our balance sheet as of december 31 , 2020 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods : replace_table_token_5_th ( 1 ) represents minimum payments due for the lease of office space off-balance sheet arrangements we did not have during the periods presented , and we do not currently have , any off-balance sheet arrangements , as defined in the rules and regulations of the sec . 29 critical accounting policies and estimates our financial statements and accompanying notes have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets , liabilities , revenues , costs and expenses , and related disclosures . on an ongoing basis , we continually evaluate our estimates and assumptions believed to be reasonable under current facts and circumstances . actual amounts and results may materially differ from these estimates made by management under different assumptions and conditions . certain accounting policies that require significant management estimates , and are deemed critical to our results of operations or financial position , are described below . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . revenue recognition the company derives its revenues from two sources : ( 1 ) platform fee revenues , which are comprised of subscription fees from customers accessing the company 's cloud-based computing services and occasionally from customers paying a development fee ; and ( 2 ) advertising revenues based on impressions delivered via the company 's platform . revenues are recognized when a contract with a customer exists , and the control of the promised services are transferred to our customers , in an amount that reflects the consideration we expect to receive in exchange for those services . substantially all of our revenues are generated from contracts with customers in the united states . we adopted asc topic 606 , effective january 1 , 2019 , utilizing the modified retrospective method . this approach was applied to contracts that were not completed as of january 1 , 2019 , and the corresponding incremental costs of obtaining those contracts , which resulted an immaterial cumulative effect adjustment to the opening balance of accumulated deficit at date of adoption . the adoption of this asu primarily impacted our disclosures pertaining to revenue from our contracts with customers . reported results for fiscal year 2019 and the period ended december 31 , 2020 reflect the application of asc topic 606 , while the reported results for the fiscal year ended december 31 , 2018 was not adjusted and continue to be reported under asc topic 605. software development costs the company accounts for costs incurred in the development of computer software as software research and development costs until the preliminary project stage is completed , management has committed to funding the project , and completion and use of the software for its intended purpose is probable . the company ceases capitalization of development costs once the software has been substantially completed and is available for its intended use . software development costs are amortized over a useful life estimated by the company 's management of five years . costs associated with significant upgrades and enhancements that result in additional functionality are capitalized . capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues
| research and development expenses decreased by $ 207,215 or 66.3 % , from $ 312,614 for the twelve months ended december 31 , 2019 compared to $ 105,399 for the twelve months ended december 31 , 2020. during 2020 , the majority of the research and development efforts were spent on our new apps , vodacast and auddia , which had not been commercially released , therefore $ 867,578 of research and development expenses were capitalized in the year ended december 31 , 2020 compared to $ 704,167 capitalized in the year ended december 31 , 2019. sales and marketing . sales and marketing expenses decreased by $ 53,649 or 40.5 % , from $ 132,460 for the twelve months ended december 31 , 2019 compared to $ 78,811 for the twelve months ended december 31 , 2020 as the company reduced marketing expenses tied to the legacy software platform . general and administrative . general and administrative expenses decreased by $ 1,140,825 or 40.7 % , from $ 2,804,815 for the twelve months ended december 31 , 2019 compared to $ 1,663,990 for the year ended december 31 , 2020. the decrease resulted primarily from decreased consulting and financial advisory fees and decreased amortization of stock option compensation expense . 27 interest expense/other expense , net . total interest expense/other expense increased by $ 240,590 , or 16.8 % , from $ 1,427,781 for the twelve months ended december 31 , 2019 compared to $ 1,668,371 for the twelve months ended december 31 , 2020. the increase was due almost entirely to an increased debt levels , specifically the convertible debt as well as notes payable , debt to related parties , as well as interest payments on the company 's collateral agreement . net income ( loss ) . we had a net loss of $ 4,051,221 for the twelve months ended december 31,2020 compared to a net loss of $ 5,230,245 for the twelve months ended december 31 , 2019. the decreased loss resulted from the combination of the decrease in revenues and the decreased operating expenses as discussed above . income taxes since our inception in 2012 , until the corporate conversion in february 2021 , we were organized as a colorado limited liability company for federal and state income tax purposes and treated as a partnership for u.s. income tax purposes . as such , we were not viewed as a taxpaying entity in any jurisdiction and do not require a provision for income taxes . each member of our company was responsible for the tax liability , if
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to remediate such weaknesses , we hope to implement the following changes during our fiscal year ending august 31 , 2019 : ( i ) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management ; and ( ii ) adopt sufficient written policies and procedures for accounting and financial reporting . the remediation efforts set out in ( i ) and ( ii ) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required . if we are unsuccessful in securing such funds , remediation efforts may be adversely affected in a material manner . this annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in section 989g of the dodd-frank wall street reform and consumer protection act . remediation of material weakness we are unable to remedy our controls related to the inadequate segregation of duties and ineffective risk management until we receive financing to hire additional employees . 17 changes in internal control over financial reporting there were no changes in the company 's internal control over financial reporting during the quarter ended august 31 , 2018 that have materially affected , or are reasonably likely to materially affect , our internal control over financial reporting . limitations on the effectiveness of internal controls our management , including our chief executive officer and our chief financial officer , does not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors or all fraud . any control system , no matter how well designed and operated , can provide only reasonable , not absolute , assurance that the control system 's objectives will be met . the design of a control system must reflect the fact that there are resource constraints , and the benefits of controls must be considered relative to their costs . further , because of the inherent limitations in all control systems , no evaluation of controls can provide absolute assurance that misstatements , due to error or fraud will not occur or that all control issues and instances of fraud , if any , within the company have been detected . these inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns may occur because of simple error or mistake . controls can also be circumvented by the individual acts of some persons , by collusion of two or more people , or by management override of controls . the design of any system of controls is based in part on certain assumptions about the likelihood of future events , and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions . projections of any evaluation of controls effectiveness to future periods are subject to risk . item 9b . other information on december 9 , 2018 , we appointed chiyuan deng as our chief executive officer . the employment history for mr. deng is set forth under item 10 of this annual report on form 10-k and incorporated herein by reference . we refer you to item 13 of this annual report on form 10-k for disclosures concerning transactions with the company in which mr. deng has a material direct or indirect interest . mr. deng is the father of our secretary and treasurer , jianli deng . part iii item 10. directors , executive officers and corporate governance our current executive officer and director is as story_separator_special_tag forward-looking statements certain statements , other than purely historical information , including estimates , projections , statements relating to our business plans , objectives , and expected operating results , and the assumptions upon which those statements are based , are “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995 , section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. these forward-looking statements generally are identified by the words “ believes , ” “ project , ” “ expects , ” “ anticipates , ” “ estimates , ” “ intends , ” “ strategy , ” “ plan , ” “ may , ” “ will , ” “ would , ” “ will be , ” “ will continue , ” “ will likely result , ” and similar expressions . we intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the private securities litigation reform act of 1995 , and are including this statement for purposes of complying with those safe-harbor provisions . forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements . our ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include , but are not limited to : changes in economic conditions , legislative/regulatory changes , availability of capital , interest rates , competition , and generally accepted accounting principles . these risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . we undertake no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise . further information concerning our business , including additional factors that could materially affect our financial results , is included herein and in our other filings with the sec . 13 results of operations for story_separator_special_tag to remediate such weaknesses , we hope to implement the following changes during our fiscal year ending august 31 , 2019 : ( i ) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management ; and ( ii ) adopt sufficient written policies and procedures for accounting and financial reporting . the remediation efforts set out in ( i ) and ( ii ) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required . if we are unsuccessful in securing such funds , remediation efforts may be adversely affected in a material manner . this annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in section 989g of the dodd-frank wall street reform and consumer protection act . remediation of material weakness we are unable to remedy our controls related to the inadequate segregation of duties and ineffective risk management until we receive financing to hire additional employees . 17 changes in internal control over financial reporting there were no changes in the company 's internal control over financial reporting during the quarter ended august 31 , 2018 that have materially affected , or are reasonably likely to materially affect , our internal control over financial reporting . limitations on the effectiveness of internal controls our management , including our chief executive officer and our chief financial officer , does not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors or all fraud . any control system , no matter how well designed and operated , can provide only reasonable , not absolute , assurance that the control system 's objectives will be met . the design of a control system must reflect the fact that there are resource constraints , and the benefits of controls must be considered relative to their costs . further , because of the inherent limitations in all control systems , no evaluation of controls can provide absolute assurance that misstatements , due to error or fraud will not occur or that all control issues and instances of fraud , if any , within the company have been detected . these inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns may occur because of simple error or mistake . controls can also be circumvented by the individual acts of some persons , by collusion of two or more people , or by management override of controls . the design of any system of controls is based in part on certain assumptions about the likelihood of future events , and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions . projections of any evaluation of controls effectiveness to future periods are subject to risk . item 9b . other information on december 9 , 2018 , we appointed chiyuan deng as our chief executive officer . the employment history for mr. deng is set forth under item 10 of this annual report on form 10-k and incorporated herein by reference . we refer you to item 13 of this annual report on form 10-k for disclosures concerning transactions with the company in which mr. deng has a material direct or indirect interest . mr. deng is the father of our secretary and treasurer , jianli deng . part iii item 10. directors , executive officers and corporate governance our current executive officer and director is as story_separator_special_tag forward-looking statements certain statements , other than purely historical information , including estimates , projections , statements relating to our business plans , objectives , and expected operating results , and the assumptions upon which those statements are based , are “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995 , section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. these forward-looking statements generally are identified by the words “ believes , ” “ project , ” “ expects , ” “ anticipates , ” “ estimates , ” “ intends , ” “ strategy , ” “ plan , ” “ may , ” “ will , ” “ would , ” “ will be , ” “ will continue , ” “ will likely result , ” and similar expressions . we intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the private securities litigation reform act of 1995 , and are including this statement for purposes of complying with those safe-harbor provisions . forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements . our ability to predict results or the actual effect of future plans or strategies is inherently uncertain . factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include , but are not limited to : changes in economic conditions , legislative/regulatory changes , availability of capital , interest rates , competition , and generally accepted accounting principles . these risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements . we undertake no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise . further information concerning our business , including additional factors that could materially affect our financial results , is included herein and in our other filings with the sec . 13 results of operations for
| income from discontinued operations on november 16 , 2017 , we sold the copyright and all other rights in a film named “ gong fu nv pai ” copyright and the mobile application ( amoney ) assets to an unrelated party for $ 253,000 cash . the company recorded gain on sales of assets of $ 7,280 as discontinued operations during the year ended august 31 , 2018. the following table shows the results of operations of mobile application and copyright for the year ended august 31 , 2018 and 2017 which are included in the gain from discontinued operations : replace_table_token_3_th net ( loss ) income we incurred a net loss in the amount of $ 1,111,950 for the year ended august 31 , 2018 , as compared with net income of $ 141,432 for the year ended august 31 , 2017 . 14 liquidity and capital resources as of august 31 , 2018 , we had $ 553,669 in current assets consisting of cash , accounts receivable , and prepaid expenses . our total current liabilities as of august 31 , 2018 were $ 145,961. as a result , we have working capital of $ 407,707 as of august 31 , 2018. operating activities used $ 866,887 in cash for the year ended august 31 , 2018 , as compared with $ 166,522 in cash provided for the year ended august 31 , 2017. our negative operating cash flow in 2018 was mainly the result of our net loss of $ 1,157,238 from continuing operations , offset mainly by consulting fees paid in stock in the amount of $ 196,250 and amortization of intangible assets of $ 106,000. our positive operating cash flow in 2017 was mainly the result of our net income from discontinued operations of $ 325,826 , offset mainly by our net loss from continuing operations of $ 184,394. investing activities used $ 227,000 in cash for the year ended august 31 , 2018 , as compared with $ 500,000 used for the year ended august 31 , 2017. our negative investing cash flow for the year ended august 31 , 2018 is the result of our purchase of intangible
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according to data collected by the u.s. energy information administration ( “ eia ” ) , completions in the seven most prolific areas in the lower 48 states decreased 43.0 % in 2016 compared to 2015 and 38.1 % from 2014 to 2015 . outlook for 2017 after a continuous decline in north american drilling rig activity beginning in mid-2014 , the market began to gradually recover in the second quarter of 2016. although a continuing recovery appears to be underway , the level of drilling and completion activity is still depressed compared to historical levels . assuming the price for crude oil remains relatively stable and regulatory impediments are reduced , the company expects north american oilfield activity to improve modestly throughout 2017. during 2016 , the company continued to successfully promote the efficacy of its cnf ® chemistries resulting in a 14.7 % increase in cnf ® sales volumes compared to 2015 , despite a 45.4 % decline in north american general oilfield activity . although quarter to quarter performance may vary , the company expects its energy chemistry technologies sales to outperform market activity metrics over time by continuing to demonstrate the efficacy of its cnf ® chemistries through comparative analysis of wells with and without cnf ® chemistries , field validation results conducted by e & p companies , and the continuation of its direct-to-operator sales program known as the flotek store . whether operators purchase directly from flotek or continue to purchase from oilfield distribution and service companies , e & p operators are benefiting from increased price transparency and a more direct relationship with flotek 's technical expertise and supply chain . in july 2016 , the company acquired 100 % of the stock and interests in international polymerics , inc. ( “ ipi ” ) and related entities , a u.s. based manufacturer of high viscosity guar gum and guar slurry . the ipi business is being integrated into the company 's energy chemistry technologies segment as an important part of the company 's expanding line of polymer based chemistries . the company 's success in promoting its patented and proprietary chemistries is supported through its industry leading research and innovation staff who provide customer responsive product innovation , as well as development of new products which are expected to expand the company 's future product lines . during the third quarter of 2016 , the company completed its new global research & innovation center in houston . this state-of-the-art facility allows for the development of next-generation innovative energy chemistries , as well as expanded collaboration between clients , leaders from academia , and company scientists . these collaborative opportunities are an important and distinguishing capability within the industry . 22 the outlook for the company 's consumer and industrial chemistries will be driven by the availability and demand for citrus oils , industrial solvents , and flavor and fragrance ingredients . although current inventory and crop expectations are sufficient to meet the company 's needs to supply its flavor and fragrance business , as well as both internal and external industrial markets , the market supply of citrus oils has declined in recent years due to the reduction in citrus crops caused by the citrus greening disease . this reduced supply has resulted in higher citrus oil prices and increased price volatility . the company expects terpene prices to remain elevated for the foreseeable future . however , the company expects its strong market position to enable it to maintain a stable supply of citrus oils for internal use and external sales . the company expects to manage the impact of increasing terpene costs through the development of new product formulations and pricing strategies . during the fourth quarter 2016 , the company implemented a strategic restructuring of its business to enable a greater focus on its core businesses in energy chemistry and consumer and industrial chemistry . the company initiated a process to market for sale its drilling technologies and production technologies segments and has identified potential buyers . marketing efforts are ongoing to ensure the completion of these sales during 2017. capital expenditures for continuing operations , exclusive of acquisitions , totaled $ 14.0 million in 2016 , inclusive of $ 6.3 million for the completion of its global research & innovation center . the company expects capital spending to be between $ 15 million and $ 20 million in 2017 . the company will remain nimble in its core capital expenditure plans , adjusting as market conditions warrant . changes to geopolitical , global economic , and industry trends could have an impact , either positive or negative , on the company 's business . in the event of significant adverse changes to the demand for oil and gas production and or the market price for oil and gas , the market conditions affecting the company could change rapidly and materially . should such adverse changes to market conditions occur , management believes the company has access to adequate liquidity to withstand the impact of such changes while continuing to make strategic capital investments and acquisitions , if opportunities arise . in addition , management believes the company is well-positioned to take advantage of significant increases in demand for its products should market conditions improve dramatically in the near term . results of continuing operations ( in thousands ) : replace_table_token_5_th 23 results for 2016 compared to 2015 —consolidated consolidated revenue for the year ended december 31 , 2016 , decreased $ 7.1 million , or 2.6 % , from 2015 . the decrease in revenue was due to an 11.9 % decline in energy chemistry technologies revenue driven by reduced oilfield market activity . this was partially offset by a 32.3 % increase in consumer and industrial chemistry technologies revenue primarily related to increased citrus terpene prices . consolidated gross profit for the year ended december 31 , 2016 , decreased $ 5.6 million , or 5.8 % , from 2015 . story_separator_special_tag gross margin as a percentage of revenue decreased to 34.5 % for the year ended december 31 , 2016 , from 35.7 % in 2015 , primarily attributable to increased inventory cost and direct costs associated with manufacturing in the consumer and industrial chemistry technologies segment , partially offset by higher volumes of all cnf ® products sold in energy chemistry technologies . selling , general and administrative ( “ sg & a ” ) expenses are not directly attributable to products sold or services provided . sg & a costs as a percentage of revenue rose from 26.0 % to 30.5 % for the year ended december 31 , 2016 , compared to 2015 , as sg & a costs grew while revenues declined . sg & a costs increased $ 9.9 million , or 14.1 % , for the year ended december 31 , 2016 , from 2015 , primarily due to higher professional and legal fees and increased head count in the energy chemistry technologies sales and support staff for new business lines . depreciation and amortization expense not included in gross profit for the year ended december 31 , 2016 , increased by $ 1.4 million , or 20.0 % , from 2015 . this increase was primarily attributable to the completion and equipping of the global research & innovation center in august 2016 , along with other improvements to manufacturing facilities . research and innovation ( “ r & i ” ) expense for the year ended december 31 , 2016 , increased $ 2.7 million , or 40.0 % , from 2015 . the increase in r & i is primarily attributable to flotek 's commitment to remaining responsive to customer needs , increased demand , continued growth of our existing product lines , and the development of new chemistries which are expected to expand the company 's intellectual property portfolio . in december 2016 , the company recognized a gain of $ 12.7 million from a legal settlement related to disgorgement of potential short-swing trading profits from a stockholder . interest and other expense increased $ 0.6 million for the year ended december 31 , 2016 , compared to 2015 , primarily due to the interest rate increases on the term loan and revolving credit facility effective march 31 , 2016 , and september 30 , 2016 , associated with the credit facility amendments . the company recorded an income tax provision of $ 1.2 million , yielding an effective tax provision rate of 39.3 % , for the year ended december 31 , 2016 , compared to an income tax provision of $ 3.5 million , yielding an effective tax provision rate of 32.7 % , in 2015 . the company implemented a strategic restructuring of its business to enable a greater focus on its core businesses in energy chemistry and consumer and industrial chemistry . the company initiated a process to market for sale the drilling technologies and production technologies segments and has identified potential buyers . marketing efforts are ongoing to ensure the completion of these sales during 2017. the company recorded a net loss from discontinued operations of $ 51.0 million in 2016 for the classification of the drilling technologies and production technologies segments as held for sale . results for 2015 compared to 2014 —consolidated consolidated revenue for the year ended december 31 , 2015 , decreased $ 49.9 million , or 15.6 % , from 2014. the decrease in revenue was primarily due to the drop in oilfield market activity as indicated by the 47.8 % decrease in the average north american active rig count from 2014 to 2015. this resulted in the energy chemistry technologies segment experiencing a decline in revenues due to the development of lower price point products and pricing related to strategic customer relationships for cnf ® sales and reduced customer demand for non-cnf products . this was partially offset by increased revenue in the consumer and industrial chemistry technologies segment due to increased citrus pricing . consolidated gross profit for the year ended december 31 , 2015 , decreased $ 34.5 million , or 26.4 % , from 2014. gross margin as a percentage of revenue decreased to 35.7 % for the year ended december 31 , 2015 , from 40.9 % in 2014 , primarily attributable to incentive pricing structures in energy chemistry technologies . selling , general and administrative ( “ sg & a ” ) expenses are not directly attributable to products sold or services provided . sg & a costs as a percentage of revenue rose from 19.1 % to 26.0 % for the year ended december 31 , 2015 , compared to 2014 , as sg & a costs grew while revenues declined . sg & a costs increased $ 9.0 million , or 14.8 % , for the year ended december 31 , 2015 , from 2014 , primarily due to higher stock compensation expense and professional fees , increased head count in the energy chemistry technologies sales staff , increased bad debt expense , and a civil penalty related to an environmental matter assessed in the first quarter of 2015 , partially offset by cost reduction actions taken throughout 2015. depreciation and amortization expense not included in gross profit for the year ended december 31 , 2015 , increased by $ 1.0 million , or 15.7 % , from 2014. this increase was primarily attributable to the depreciation of improvements to facilities and equipment that were added during the later portion of 2014. research and innovation ( “ r & i ” ) expense for the year ended december 31 , 2015 , increased $ 1.9 million , or 39.1 % , from 24 2014. the increase in r & i is primarily attributable to flotek 's commitment to remaining responsive to customer needs , increased demand and continued growth of our existing chemistry product lines and the new houston r & i facility .
| 27 replace_table_token_9_th results for 2016 compared to 2015 —production technologies revenue for the production technologies segment for the year ended december 31 , 2016 , decreased by $ 4.0 million , or 32.5 % , from 2015 , primarily due to decreased sales of rod pump equipment and older technology esp equipment . sequentially , revenue increased by 5.3 % in the fourth quarter 2016 , compared to third quarter 2016. production technologies gross profit decreased by $ 1.7 million for the year ended december 31 , 2016 , compared to 2015 . gross margin as a percentage of revenue decreased to 5.0 % for the year ended december 31 , 2016 , compared to 17.1 % in 2015 , primarily due to declining sales volumes and product pricing pressure throughout 2016. sequentially , quarterly gross margins are improving , increasing 4.4 % on increased revenue and improved pricing . as a result of the introduction of newer and proprietary technology , as well as lower demand for older technologies , the company evaluated its production technologies inventory for impairment leading to the recording of an impairment charge of $ 3.9 million for inventory in the first quarter of 2016. loss from operations increased by $ 4.7 million for the year ended december 31 , 2016 , from 2015 . loss from operations , excluding the impairment , increased by $ 1.6 million for the year ended december 31 , 2016 , from 2015 . these increased losses are primarily due to lower revenue volume and lower margins due to pricing pressure . sg & a costs have decreased by 8.8 % year over year due to reduced employment costs and decreased travel costs , partially offsetting the impact of the decreased revenue . results for 2015 compared to 2014 —production technologies revenue for the production technologies segment for the year ended december 31 , 2015 , decreased by $ 3.7 million , or 23.3 % , from 2014 , as sales of international petrovalve ® tools and domestic lifting units decreased by $ 4.8 million , or 96.4 % , in 2015 offset by a slight increase of $ 0.9 million , or 8.2 % , increase in rod pump equipment sales . production technologies gross profit decreased by $ 4.4
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the installed base of da vinci surgical systems grew 13 % to approximately 4,409 at december 31 , 2017 ; 9 % to approximately 3,919 at december 31 , 2016 ; and 10 % to approximately 3,597 at december 31 , 2015 . service revenue grew 13 % to $ 581.8 million in 2017 ; 11 % to $ 517.0 million in 2016 ; and 8 % to $ 464.8 million in 2015. operating lease revenue has grown as a larger proportion of systems shipped are under operating lease arrangements . in the years ended december 31 , 2017 , 2016 , and 2015 , a total of 108 , 62 , and 43 of system placements were classified as operating leases , respectively . revenue from operating lease arrangements is generally recognized on a straight-line basis over the lease term . operating lease revenue for the years ended december 31 , 2017 , 2016 , and 2015 , was $ 25.9 million , $ 16.6 million and $ 7.0 million , respectively . as of december 31 , 2017 , a total of 164 da vinci surgical systems were installed at customers under operating lease arrangements . intuitive surgical da vinci system leasing since 2013 , we have entered into sales-type and operating lease arrangements directly with certain qualified customers as a way to offer customers flexibility in how they acquire da vinci surgical systems and expand da vinci surgery availability while leveraging our balance sheet . the leases generally have commercially competitive terms as compared with other third party entities that offer equipment leasing . we include both operating and sales-type leases in our system shipment and installed base disclosures . we exclude operating leases from our system average selling prices computations . in the years ended december 31 , 2017 , 2016 , and 2015 , we shipped 139 , 95 , and 63 systems under lease arrangements , respectively , of which 108 , 62 , and 43 were classified as operating leases , respectively . generally , the operating lease arrangements provide our customers with the right to purchase the leased system at some point during and or at the end of the lease term . revenue generated from customer purchases of systems under operating lease arrangements ( “ lease buyouts ” ) was $ 39.5 million , $ 38.2 million , and $ 9.4 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . we expect that revenue recognized from customer exercises of the buyout options will fluctuate based on the timing of when , and if , customers choose to exercise their buyout options . we believe our leasing program has been effective and well-received , and we are willing to expand it based on customer demand , including offering more flexible options such as variable lease payments . systems revenue system placements are driven by procedure growth in most markets . in geographies where da vinci procedure adoption is in an early stage , system sales will precede procedure growth . system placements also vary due to seasonality . system revenue grew 15 % to $ 910.2 million in 2017 ; 10 % to $ 791.6 million in 2016 ; and 14 % to $ 721.9 million in 2015. system revenue is also affected by the proportion of systems placed that are under operating lease arrangements , recurring operating lease revenue , operating lease buyouts , product mix , asps , and trade-in activities . procedure mix / products our procedure business is primarily comprised of : ( 1 ) cancer and other highly complex procedures and ( 2 ) less complex procedures for benign conditions . cancer and other highly complex procedures tend to be reimbursed at higher rates than less complex procedures for benign conditions . thus , hospitals are more sensitive to the costs associated with treating less complex benign conditions . our strategy is to provide hospitals with attractive clinical and economic solutions in each of these procedure categories . our fully featured da vinci xi surgical system with advanced instruments including the endowrist vessel sealer , endowrist stapler products , and our table motion product target the more complex procedure segment . lower priced products , including the three-arm da vinci si-e surgical system , refurbished da vinci si surgical system , and single-site instruments , are targeted towards less complex procedures . our da vinci x surgical system is priced between the da vinci si and xi surgical systems and offers customers access to many of the da vinci xi features , including da vinci xi advanced instrumentation and imaging systems , at a lower price point . procedure seasonality more than half of da vinci procedures performed are for benign conditions , most notably benign hysterectomies , hernia repairs , and cholecystectomies . hysterectomies for benign conditions , hernia repairs , cholecystectomies , and other short-term elective procedures tend to be more seasonal than cancer operations and surgeries for other life threatening conditions . seasonality in the u.s. for these procedures for benign conditions typically results in higher fourth quarter procedure volume when more patients have met annual deductibles and lower first quarter procedure volume when deductibles are reset . seasonality outside the u.s. varies and is more pronounced around local holidays and vacation periods . distribution channels we provide our products through direct sales organizations in the u.s. , japan , south korea , and europe , excluding spain , portugal , italy , greece , and eastern european countries . in the remainder of our ous markets , we provide our products through distributors . 39 regulatory activities clearances and approvals we have obtained the clearances required to market our multi-port products associated with all of our da vinci surgical systems ( standard , s , si , xi , and x systems ) for our targeted surgical specialties within the u.s. , south korea , and the european markets in which we operate . story_separator_special_tag in april 2017 , we received ce mark clearance for our da vinci x surgical system in europe . following the ce mark , in may 2017 , we received u.s. food and drug administration ( “ fda ” ) clearance to market our da vinci x surgical system in the u.s. we received regulatory clearance for the da vinci x surgical system in south korea in september 2017 ( see the description of the da vinci x surgical system in the new product introductions section below ) . regulatory clearances for da vinci x surgical system may be received in other markets over time . in january 2016 , we received fda clearance for our integrated table motion product . in march 2016 , we received fda 510 ( k ) clearances in the u.s. and ce mark clearances in europe for single-site instruments and the 30mm endowrist stapler products for the da vinci xi surgical system ( see the description of the endowrist stapler 30 in the new product introductions section below ) . in april 2014 , we received fda clearance to market our da vinci single port surgical system in the u.s. for single-port urologic surgeries . at the time , we decided not to market that version of the da vinci single port surgical system . we instead elected to pursue the necessary modifications to integrate it into our fourth generation da vinci xi/x product family as a dedicated single port patient console compatible with the existing da vinci xi/x surgeon console , vision cart , and other equipment . we have since completed these modifications and executed clinical evaluations of the product . in december 2017 , we submitted our form 510 ( k ) for this da vinci single port surgical system for certain urology procedures . in the future , we intend to file additional form 510 ( k ) s for procedures in which a single small entry point to the body and parallel delivery of instruments is important . such surgeries could include those performed through a natural orifice like the mouth for head and neck procedures or those performed through a single skin incision . we obtained approval from the japanese ministry of health , labor , and welfare ( “ mhlw ” ) for our da vinci xi surgical system in march 2015. national reimbursement status was received for dvp procedures in japan effective april 2012 and for da vinci partial nephrectomy procedures in april 2016. with our support , japanese university hospitals and surgical societies are seeking reimbursement for additional procedures through the mhlw 's senshin iryo ( advanced medical care ) processes as well as alternative reimbursement processes . there are multiple pathways to obtain reimbursement for procedures including those that require in-country clinical data/economic data . reimbursements are considered in april of even numbered years . in january 2018 , a committee of the mhlw recommended 12 additional procedures for reimbursement . the reimbursement levels for each procedure is uncertain and may be inadequate for broad adoption . there can be no assurance that we will gain additional reimbursements for the procedures or at the times we have targeted . if we are not successful in obtaining additional regulatory clearances , and adequate procedure reimbursements for future products and procedures , then the demand for our products in japan could be limited . recalls and corrections medical device companies have regulatory obligations to correct or remove medical devices in the field that could pose a risk to health . the definition of “ recalls and corrections ” is expansive and includes repair , replacement , inspections , relabeling , and issuance of new or additional instructions for use or reinforcement of existing instructions for use and training when such actions are taken for specific reasons of safety or compliance . these field actions require stringent documentation , reporting , and monitoring worldwide . there are other actions a medical device manufacturer may take in the field without reporting , including , but not limited to , routine servicing and stock rotations . as we determine whether a field action is reportable in any regulatory jurisdiction , we prepare and submit notifications to the appropriate regulatory agency for the particular jurisdiction . regulators can require the expansion , reclassification , or change in scope and language of the field action . in general , upon submitting required notifications to regulators regarding a field action which is a recall or correction , we will notify customers regarding the field action , provide any additional documentation required in their national language , and arrange , as required , return or replacement of the affected product or a field service visit to perform the correction . field actions as well as certain outcomes from regulatory activities can result in adverse effects on our business , including damage to our reputation , delays by customers of purchase decisions , reduction or stoppage of the use of installed systems , and reduced revenue as well as increased expenses . 40 procedures we model patient value as equal to procedure efficacy / invasiveness . in this equation procedure efficacy is defined as a measure of the success of the surgery in resolving the underlying disease and invasiveness is defined as a measure of patient pain and disruption of regular activities . when the patient value of a da vinci procedure is greater than that of alternative treatment options , patients may benefit from seeking out surgeons and hospitals that offer da vinci surgery , which could potentially result in a local market share shift . da vinci procedure adoption occurs procedure by procedure , market by market , and is driven by the relative patient value and total treatment costs of da vinci procedures as compared to alternative treatment options for the same disease state or condition . worldwide procedures da vinci systems and instruments are regulated independently in various countries and regions of the world .
| operating income included $ 209.9 million and $ 178.0 million of share-based compensation expense related to employee stock plans for the years ended december 31 , 2017 , and 2016 , respectively . operating income for the year ended december 31 , 2017 , and 2016 , also included pre-tax litigation charges of $ 25.3 million and $ 12.1 million , respectively . as of december 31 , 2017 , we had $ 3.8 billion in cash , cash equivalents , and investments . cash , cash equivalents , and investments decreased by $ 1.0 billion compared with december 31 , 2016 , primarily as a result of the $ 2.3 billion accelerated share buyback executed and settled during 2017 , partially offset by cash generated from operating activities and employee stock option exercises . results of operations the following table sets forth , for the years indicated , certain consolidated statements of income information ( in millions , except percentages ) : replace_table_token_4_th 44 total revenue total revenue increased by 16 % to $ 3.1 billion for the year ended december 31 , 2017 , compared with $ 2.7 billion for the year ended december 31 , 2016 . total revenue for the year ended december 31 , 2016 , increased by 13 % compared with $ 2.4 billion for the year ended december 31 , 2015 . the increase in total revenue for the year ended december 31 , 2017 , reflects 17 % higher instrument and accessory revenue driven by approximately 16 % higher procedure volume , 15 % higher systems revenue , and 13 % higher service revenue . the increase in total revenue for the year ended december 31 , 2016 , reflects 17 % higher instrument and accessory revenue driven by approximately 15 % higher procedure volume , 10 % higher systems revenue , and 11 % higher service revenue . revenue denominated in foreign currencies was approximately 17 % , 19 % , and 19 % of total revenue for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . we sell our products
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as of december 31 , 2020 , we continued to see a positive trend in the copper price , which closed at $ 3.51 per pound ( lme ) after it registered a drop to $ 2.18 per pound at the end of the first quarter of 2020. considering the market outlook previously described , we have a positive view for 2021 and for the long-term evolution of the copper market . 70 the company maintains a solid financial position and performance level . we believe this has allowed and will continue to allow us to deal with the effects of the pandemic in a way that prevents adverse material effects on our operations and financial results . the table below compares some of our financial information as of and for the years ended december 31 , 2020 and 2019 : replace_table_token_30_th ( 1 ) represents net sales divided by accounts receivable . ( 2 ) represents total debt divided by total assets . ( 3 ) represents net income divided by net sales , as a percentage . governmental authorities in mexico and peru have declared that essential economic activities must continue during the covid-19 health emergency . these activities include industrial mining and or any other activity necessary to ensure the provision of essential services such as electricity ; provide elements to install medical and hospital infrastructure ; and manufacture health-related supplies and technological equipment . we believe that industrial mining stands as the most efficient and timely supplier of inputs that are critical to the productive chain to fight the pandemic . given the nature of mining operations , which are highly automated , conducted in remote locations and with mandatory use of personal safety equipment at all the mines , it is easier to implement and comply with covid-19 protective measures , such as physical isolation and control of access to facilities . industrial mining uses advanced and reliable machinery and does not require high physical concentration of employees . in many cases , workers fulfill their duties maintaining distances of more than 100 meters from their closest coworkers . at the present time , our operations are in compliance with all sanitary and government regulations and maintain proper environmental safeguards . our covid-19 emergency protocol has reinforced preventive measures such as disinfecting , clinical monitoring before work , cleaning and sanitizing of work areas and respect for social distancing . we have also restricted the access of contractors , suppliers and personnel to our facilities if visits are not indispensable and enforced multiple actions to limit workforce exposure to covid-19 by imposing travel restrictions , prohibiting face-to-face meetings and urging frequent hand washing , as well as adhering to all other health , safety and social distancing measures required by governmental authorities . at december 31 , 2020 , approximately 92 % of the workforce in mexico was working on site or at home under strict safety measures ; the remaining 8 % of the workforce was not working , including all individuals at high risk due to age and or preexisting medical conditions . at our peruvian operations , approximately 63 % of the workforce was working onsite or at home under strict safety measures , while the remaining 37 % was not working , including all individuals at high risk due to age and or preexisting medical conditions . through december 31 , 2020 , scc incurred approximately $ 27.6 million in covid-19 related production costs that include protective equipment and labor costs . these costs have been expensed to cost of sales in the company´s consolidated statement of earnings . 71 key matters below , we discuss several matters that we believe are important to understand our results of operations and financial condition . these matters include ( i ) earnings , ( ii ) production , ( iii ) “ operating cash costs ” as a measure of our performance , ( iv ) metal prices , ( v ) business segments , ( vi ) the effect of inflation and other local currency issues and ( vii ) our capital investment and exploration program . earnings : the table below highlights key financial and operational data of our company for the three years ended december 31 , 2020 ( in millions , except copper price and per share amounts ) : replace_table_token_31_th net sales in 2020 of $ 8.0 billion were the highest in our history and exceeded those recorded in 2019 by $ 699.3 million . this increase was mainly the result of higher copper ( +6.1 % ) , molybdenum ( +12.7 % ) and silver ( +8.8 % ) sales volumes , as well as higher copper ( +2.9 % ) and silver ( +27.6 % ) prices ; this effect was partially offset by lower molybdenum ( -24.0 % ) prices . net sales in 2019 of $ 7.3 billion were higher than in 2018 by $ 188.9 million . this increase was mainly the result of higher copper ( +11.3 % ) , molybdenum ( +21.7 % ) and silver ( +5.7 % ) sales volumes and was partially offset by lower copper ( −8.1 % ) and molybdenum ( −5.0 % ) prices . the two largest components of operating costs and expenses are cost of sales and depreciation , amortization and depletion , both of which increased in each of the years in the periods shown above . in 2020 , cost of sales increased by $ 323.4 million and depreciation , amortization and depletion increased by $ 11.2 million . the increase in cost of sales in 2020 was mainly due to an increase in the cost of metals purchased from third parties and a decrease in the capitalization of leachable material . this increase was partially offset by a reduction in the cost of diesel and fuel . in 2019 , cost of sales increased by $ 197.4 million and depreciation , amortization and depletion increased by $ 90.1 million . story_separator_special_tag the increase in cost of sales in 2019 was mainly due to higher repairing materials and operating contractors ' costs , as well as a decrease in capitalized leachable material . this increase was partially offset by a decrease in the cost of metals purchased from third parties . net income attributable to scc in 2020 was 5.7 % higher than reported in 2019 ; this was mainly due to higher sales volumes and to higher copper and silver prices . net income attributable to scc in 2019 was 3.6 % lower than in 2018 ; this was primarily driven by a decrease in prices for copper and molybdenum , despite an increase in sales volumes . 72 production : the table below contains mine production data of our company for the three years ended december 31 , 2020 : replace_table_token_32_th the table below contains copper production data from each of our mines for the three years ended december 31 , 2020 : replace_table_token_33_th 2020 compared to 2019 : copper mine production in 2020 increased 0.8 % to 2,207.6 million pounds , up from 2,191.0 million pounds in 2019. this increase was due to : ● higher production at the cuajone mine ( +7.8 % ) , which was driven by an increase in ore grades and recoveries . ● higher production at the la caridad mine ( +1.8 % ) . ● higher production at the immsa operations ( +24.6 % ) , which was attributable to an increase in ore grades . molybdenum production increased 12.5 % in 2020 compared to the level in 2019 due to an increase in production at our toquepala ( +37.7 % ) , cuajone ( +28.6 % ) and la caridad ( +3.2 % ) operations ; this was partially offset by a decrease in production at our buenavista ( -10.6 % ) mine . zinc production decreased 6.8 % in 2020 , which was driven by a decrease in ore grades and in production at our santa eulalia ( -96.0 % ) and los charcas ( -5.0 % ) operations ; this was partially offset by an increase in production at our san martin ( +151.0 % ) mine , which restored production to full capacity at the end of the third quarter of 2019 . mined silver production increased 6.2 % in 2020 compared to the level recorded in 2019 ; this was mainly due to an increase in production at our cuajone ( +8.8 % ) , la caridad ( +16.4 % ) and immsa ( +15.0 % ) operations , which was partially offset by a decrease in production at the toquepala ( -2.4 % ) and buenavista ( -3.6 % ) mines . 2019 compared to 2018 : copper mine production in 2019 increased 12.5 % to 2,191.0 million pounds from 1,948.2 million pounds in 2018. this increase was due to : ● higher production at the toquepala mine ( +51.5 % ) , as a result of additional copper production of 93,108 tons from the successful ramping up of the new concentrator . ● higher production at the buenavista mine ( +5.8 % ) due to operating improvements at our new buenavista plants , the sx/ew ( +12.2 % ) and concentrator ( +4.0 % ) . 73 ● higher production at the immsa operations ( +32.9 % ) , as result of the restoration of the san martin mine operations . molybdenum production increased 22.3 % in 2019 compared to 2018 due to higher production at all of our mines , principally at the toquepala mine ( +75 % ) due to the successful ramping up of the new molybdenum plant that started production in april 2019 . zinc production increased 4.4 % in 2019 , as a result of higher production at our santa barbara mine due to higher grades and recoveries , as well as the restored production of 5,837 tons from our san martin mine . mined silver production increased 17.1 % in 2019 compared to 2018 , mainly due to higher production at our toquepala ( +60.5 % ) , immsa ( +22.9 % ) and buenavista ( +11.5 % ) operations , partially offset by lower production at the la caridad ( -6.6 % ) and cuajone ( -3.2 % ) mines . operating cash costs : an overall benchmark used by us and a common industry metric to measure performance is operating cash costs per pound of copper produced . operating cash cost is a non-gaap measure that does not have a standardized meaning and may not be comparable to similarly titled measures provided by other companies . this non-gaap information should not be considered in isolation or as substitute for measures of performance determined in accordance with gaap . a reconciliation of our operating cash cost per pound of copper produced to the cost of sales ( exclusive of depreciation , amortization and depletion ) as presented in the consolidated statement of earnings is presented under the subheading , “ non-gaap information reconciliation ” on page 96. we disclose operating cash cost per pound of copper produced , both before and net of by-product revenues . we define operating cash cost per pound of copper produced before by-product revenues as cost of sales ( exclusive of depreciation , amortization and depletion ) , plus selling , general and administrative charges , treatment and refining charges net of sales premiums ; less the cost of purchased concentrates , workers ' participation and other miscellaneous charges , including royalty charges , and the change in inventory levels ; divided by total pounds of copper produced by our own mines . in our calculation of operating cash cost per pound of copper produced , we exclude depreciation , amortization and depletion , which are considered non-cash expenses . exploration is considered a discretionary expenditure and is also excluded . workers ' participation provisions are determined on the basis of pre-tax earnings and are also excluded .
| replace_table_token_41_th the table below provides our copper sales volume by type of product as a percentage of our total copper sales volume : replace_table_token_42_th operating costs and expenses the table below summarizes the production cost structure by major components for the three years ended 2020 as a percentage of total production cost : replace_table_token_43_th 2020-2019 : operating costs and expenses in 2020 increased $ 331.6 million , compared to 2019 , primarily due to : replace_table_token_44_th 84 2019-2018 : operating costs and expenses in 2019 increased $ 317.1 million , compared to 2018 , primarily due to : operating cost and expenses for 2018 $ 4,215.5 plus : decrease in capitalized leachable material . 97.9 increase in other cost of sales ( exclusive of depreciation , amortization and depletion ) mainly due to higher repairing materials and operating contractors costs , partially offset by lower cost of metals purchased from third parties . 99.5 higher depreciation , amortization and depletion expense due to our expansion and maintenance investments . 90.1 higher selling , general and administrative expenses . 29.2 higher exploration expense . 0.4 operating cost and expenses for 2019 $ 4,532.6 replace_table_token_45_th 2020-2019 : non-operating income and expense were a net expense of $ 374.9 million in 2020 compared to a net expense of $ 326.5 million in 2019. the $ 48.4 million increase in net expense in 2019 was mainly due to : ● $ 20.5 million increase in the miscellaneous expense , net , principally due to a $ 24.2 million provision related to rain damages at our peruvian operations . ● $ 20.5 million increase in interest expense , which was attributable to the minera mexico debt issuance in september 2019 ; ● $ 5.4 million decrease in capitalized interest , given that completed projects in peru have been transferred to operations , and ● $ 2.0 million of lower interest income . 2019-2018 : non-operating income and expense were a net expense of $ 326.5 million in 2019 compared to a
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securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value , with the write-down recorded as a realized loss in securities gains ( losses ) . story_separator_special_tag block ; text-indent : 0pt '' > we view the investment portfolio as a source of income and liquidity . our investment strategy is to accept a lower immediate yield in the investment portfolio by targeting shorter term investments . our investment policy provides that no more than 40 % of our total investment portfolio should be composed of municipal securities . the investment portfolio at december 31 , 2010 was $ 282.2 million , compared to $ 256.1 million at december 31 , 2009. the interest earned on investments rose to $ 8.8 million in 2010 from $ 6.0 million in 2009. that was a result of higher average portfolio balances due to our growth . the average taxable-equivalent yield on the investment portfolio decreased from 5.06 % in 2009 to 4.08 % in 2010 , or 98 basis points . the investment portfolio at december 31 , 2009 was $ 256.1 million , compared to $ 102.3 million at december 31 , 2008. the interest earned on investments rose to $ 6.0 million in 2009 from $ 4.8 million in 2008. that was a result of higher average portfolio balances due to our growth . the average taxable-equivalent yield on the investment portfolio decreased from 5.60 % in 2008 to 5.06 % in 2009 , or 54 basis points . net interest margin analysis the net interest margin is impacted by the average volumes of interest-sensitive assets and interest-sensitive liabilities and by the difference between the yield on interest-sensitive assets and the cost of interest-sensitive liabilities ( spread ) . loan fees collected at origination represent an additional adjustment to the yield on loans . our spread can be affected by economic conditions , the competitive environment , loan demand , and deposit flows . the net yield on earning assets is an indicator of effectiveness of our ability to manage the net interest margin by managing the overall yield on assets and cost of funding those assets . the following table shows , for the twelve months ended december 31 , 2010 , 2009 and 2008 , the average balances of each principal category of our assets , liabilities and stockholders ' equity , and an analysis of net interest revenue , and the change in interest income and interest expense segregated into amounts attributable to changes in volume and changes in rates . this table is presented on a taxable equivalent basis , if applicable . 44 average consolidated balance sheets and net interest analysis on a fully taxable-equivalent basis for the years ended december 31 ( dollars in thousands ) replace_table_token_9_th 45 average consolidated balance sheets and net interest analysis on a fully taxable-equivalent basis for the years ended december 31 ( dollars in thousands ) replace_table_token_10_th ( 1 ) non-accrual loans are included in average loan balances in all periods . net loan fees of $ 750,000 , $ 730,000 and $ 920,000 are included in interest income in 2010 , 2009 and 2008 , respectively . ( 2 ) interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 35 % in 2010 , and 34 % in 2009 and 2008 . ( 3 ) unrealized gains of $ 6,717,000 , $ 1,197,000 and $ 376,000 are excluded from the yield calculation in 2010 , 2009 and 2008 , respectively . 46 the following table reflects changes in our net interest margin as a result of changes in the volume and rate of our interest-bearing assets and liabilities . changes as a result of mix or the number of days in the period have been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each . change in interest income and expenses on a taxable-equivalent basis 2010 compared to 2009 2009 compared to 2008 increase ( decrease ) in increase ( decrease ) in interest income and expense interest income and expense due to changes in : due to changes in : volume rate total volume rate total ( dollar amounts in thousands ) interest-earning assets : loans , net of unearned income $ 10,346 $ 2,918 $ 13,264 $ 15,763 $ ( 9,990 ) $ 5,773 mortgages held for sale 4 ( 43 ) ( 39 ) 219 ( 99 ) 120 investment securities : taxable 3,374 ( 1,409 ) 1,965 1,354 ( 677 ) 677 tax-exempt 1,162 1 1,163 870 ( 37 ) 833 federal funds ( 100 ) ( 53 ) ( 153 ) 1,100 ( 1,391 ) ( 291 ) restricted equity securities 1 45 46 24 ( 104 ) ( 80 ) interest bearing balances with banks 26 65 91 403 ( 437 ) ( 34 ) total earning assets 14,813 1,524 16,337 19,733 ( 12,735 ) 6,998 interest-bearing liabilities : interest-bearing demand deposits 590 ( 936 ) ( 346 ) 1,404 ( 1,327 ) 77 savings deposits 10 — 10 3 ( 1 ) 2 money market accounts 827 ( 3,692 ) ( 2,865 ) 3,241 ( 6,793 ) ( 3,552 ) time deposits 857 ( 1,802 ) ( 945 ) 3,339 ( 3,154 ) 185 federal funds purchased 31 — 31 ( 119 ) — ( 119 ) ) other borrowings 906 132 1,038 794 476 1,270 total interest-bearing liabilities 3,221 ( 6,298 ) ( 3,077 ) 8,662 ( 10,799 ) ( 2,137 ) increase in net interest income $ 11,593 $ 7,822 $ 19,4145 $ 11,071 $ ( 1,936 ) $ 9,135 the two primary factors that make up the spread are the interest rates received on loans and the interest rates paid on deposits . we have been disciplined in raising interest rates on deposits only as the market demanded and thereby managing cost of funds . story_separator_special_tag also , we have not competed for new loans on interest rate alone , but rather we have relied on effective marketing to business customers . our net interest spread and net interest margin were 3.75 % and 3.94 % , respectively , for the year ended december 31 , 2010 , compared to 3.07 % and 3.31 % , respectively , for the year ended december 31 , 2009. our average interest-earning assets for the year ended december 31 , 2010 increased $ 279.9 million , or 20.8 % , to $ 1.623 billion from $ 1.343 billion for the year ended december 31 , 2009. this increase in our average interest-earning assets was due to continued core growth in all of our markets , increased loan production and increased investment securities . our average interest-bearing liabilities increased $ 216.4 million , or 19.0 % , to $ 1.356 billion for the year ended december 31 , 2010 from $ 1.139 billion for the year ended december 31 , 2009. this increase in our average interest-bearing liabilities was primarily due to an increase in interest-bearing deposits in all our markets , but also reflects the issuance of $ 15 million in trust preferred securities in march 2010 and a $ 5 million subordinated note in june 2009. the ratio of our average interest-earning assets to average interest-bearing liabilities was 119.7 % and 117.9 % for the years ended december 31 , 2010 and 2009 , respectively . our average interest-earning assets produced a taxable equivalent yield of 4.88 % for the year ended december 31 , 2010 , compared to 4.68 % for the year ended december 31 , 2009. the average rate paid on interest-bearing liabilities was 1.13 % for the year ended december 31 , 2010 , compared to 1.61 % for the year ended december 31 , 2009 . 47 our net interest spread and net interest margin were 3.07 % and 3.31 % , respectively , for the year ended december 31 , 2009 , compared to 3.32 % and 3.70 % , respectively , for the year ended december 31 , 2008. our average interest-earning assets for the year ended december 31 , 2009 increased $ 386.5 million , or 40.4 % , to $ 1.3 billion from $ 956.6 million for the year ended december 31 , 2008. this increase in our average interest-earning assets was due to continued core growth in all of our markets , increased loan production and increased investment securities . our average interest-bearing liabilities increased $ 326.9 million , or 40.3 % , to $ 1.1 billion for the year ended december 31 , 2009 from $ 812.2 million for the year ended december 31 , 2008. this increase in our average interest-bearing liabilities was primarily due to an increase in interest-bearing deposits in all our markets , but also reflects the issuance of $ 15 million in trust preferred securities in september 2008 and a $ 5 million subordinated note in june 2009. the ratio of our average interest-earning assets to average interest-bearing liabilities was 117.9 % and 117.8 % for the years ended december 31 , 2009 and 2008 , respectively . our average interest-earning assets produced a taxable equivalent yield of 4.68 % for the year ended december 31 , 2009 , compared to 5.84 % for the year ended december 31 , 2008. the average rate paid on interest-bearing liabilities was 1.61 % for the year ended december 31 , 2009 , compared to 2.52 % for the year ended december 31 , 2008. provision for loan losses the provision for loan losses represents the amount determined by management to be necessary to maintain the allowance for loan losses at a level capable of absorbing inherent losses in the loan portfolio . our management reviews the adequacy of the allowance for loan losses on a quarterly basis . the allowance for loan losses calculation is segregated into various segments that include classified loans , loans with specific allocations and pass rated loans . a pass rated loan is generally characterized by a very low to average risk of default and in which management perceives there is a minimal risk of loss . loans are rated using a nine-point risk grade scale with loan officers having the primary responsibility for assigning risk grades and for the timely reporting of changes in the risk grades . these processes , and the assigned risk grades , the criticized and classified loans in the portfolio are segregated into the following regulatory classifications : special mention , substandard , doubtful or loss , with some general allocation of reserve based on these grades . at december 31 , 2010 , total loans rated special mention or worse were $ 98.3 million , or 7.05 % of total loans , compared to $ 79.1 million , or 6.6 % of total loans , at december 31 , 2009. impaired loans are reviewed specifically and separately under fasb asc 310-30-35 , subsequent measurement of impaired loans , to determine the appropriate reserve allocation . our management compares the investment in an impaired loan with the present value of expected future cash flow discounted at the loan 's effective interest rate , the loan 's observable market price or the fair value of the collateral , if the loan is collateral-dependent , to determine the specific reserve allowance . reserve percentages assigned to non-impaired loans are based on historical charge-off experience adjusted for other risk factors . to evaluate the overall adequacy of the allowance to absorb losses inherent in our loan portfolio , our management considers historical loss experience based on volume and types of loans , trends in classifications , volume and trends in delinquencies and non-accruals , economic conditions and other pertinent information . based on future evaluations , additional provisions for loan losses may be necessary to maintain the allowance for loan losses at an appropriate level . the provision expense for loan losses was $ 10.4 million for the year ended december 31 , 2010 , a decrease of $ 300,000 from $ 10.7
| also , during the fourth quarter of 2009 , the company expensed the first installment of the 13-quarter prepaid assessment adopted by the fdic in november 2009. the provision for loan losses increased $ 4.6 million , or 73.1 % , from $ 6.3 million in 2008 to $ 10.9 million in 2009. the increase in provision for loan losses was the result of funding the loan loss reserve to match growth in the loan portfolio and loan charge-offs . these negative effects were partially offset by higher net interest income , which was due to significant growth of our deposits and loan portfolio resulting from continued core growth in birmingham , huntsville and montgomery and our expansion into dothan in late 2008. also positively impacting net income in 2009 was an increase of $ 1.7 million in noninterest income , up 63.2 % , from $ 2.7 million in 2008 to $ 4.4 million in 2009. basic and diluted net income per common share were $ 1.07 and $ 1.02 , respectively , for the year ended december 31 , 2009 , compared to $ 1.37 and $ 1.31 , respectively , for the year ended december 31 , 2008. return on average assets was 0.43 % in 2009 , compared to 0.71 % in 2008 , and return on average stockholders ' equity was 6.33 % in 2009 , compared to 9.28 % in 2008 . 42 replace_table_token_7_th replace_table_token_8_th net interest income net interest income is the difference between the income earned on interest-earning assets and interest paid on interest-bearing liabilities used to support such assets . the major factors which affect net interest income are changes in volumes , the yield on interest-earning assets and the cost of interest-bearing liabilities . our management 's ability to respond to changes in interest rates by effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the momentum of our primary source of earnings . beginning in mid-2004 , the federal reserve open market committee , or fomc , increased interest rates 400 basis points through mid-2006 , where interest rates
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the following accounting polices and classifications used by aztar , among others , were changed as of january 3 , 2007 , the date on which aztar was acquired , to reflect tropicana entertainment 's accounting policies and classifications : ( i ) operating revenues are presented gross of promotional allowances and complimentaries offered to customers , while aztar presented operating revenues net of these items . these promotional allowances and complimentaries are then deducted from gross operating revenue to derive net operating revenues ; ( ii ) the cost of providing complimentary rooms , food and beverage to customers is presented as an expense of the department providing the service , while aztar presented these costs as expenses of the department that granted the complimentary items to the guest , which was primarily the casino department ; ( iii ) gaming taxes and licensing fees are presented as a separate caption in the statement of operations , while aztar presented these costs as part of the casino department ; ( iv ) provision for doubtful accounts expense is included as a casino department expense , while aztar presented a provision for doubtful accounts as a separate operating expense caption ; ( v ) depreciation and amortization expense after the acquisition of aztar will reflect useful lives which may differ from those used by aztar prior to its acquisition . in december 2007 , the nj commission denied tropicana entertainment 's application for plenary authorization as a casino holding company and declined to renew the existing license of adamar . instead , the nj commission declared operative the ica trust and instituted a conservatorship . as a result , adamar is controlled by the ica trust and the trustee/conservator assumed management responsibility for the tropicana atlantic city and began the process of marketing the property for sale . the proceeds that tropicana entertainment will be entitled to recover from the sale of adamar are limited by the conservator order to an amount not to exceed the lower of the actual cost of the adamar assets on the date on which we acquired aztarjanuary 3 , 2007 , and the value of the adamar assets calculated as if the investment in them had been made on the date of the new jersey license denialsdecember 12 , 2007. in addition , tropicana entertainment entered into a definitive agreement to sell the casino aztar evansville on march 31 , 2008. therefore , both the tropicana atlantic city and casino aztar evansville are included in assets held for sale or transferred in tropicana entertainment 's december 31 , 2007 balance sheet and discontinued operations in its income statement for the period ending december 31 , 2007. other recently completed acquisitions in addition to the aztar acquisition , tropicana casinos and resorts , through its operating subsidiaries , has made several significant acquisitions of gaming properties over the past few years , which properties it contributed to tropicana entertainment as part of the corporate reorganization . these acquisitions include : § the gaming assets and operations of the river palms in laughlin , nevada . realty acquired the real estate and substantially all of the non-gaming assets of the property . the acquisitions were made in september 2003 for an aggregate cash purchase price of $ 25.2 million . the montbleu in south lake tahoe , nevada , which tropicana casinos and resorts acquired in june 2005 for an aggregate cash purchase price of $ 47.2 million . during the fourth quarter of 2005 , tropicana casinos and resorts commenced a $ 21.0 million redevelopment of the montbleu , which encompassed , among other things , remodeling the common areas of the property , including the lobby , restaurants and onsite nightclub . the renovated montbleu re-opened in may 2006. the argosy riverboat casino and related assets in baton rouge , louisiana , which tropicana casinos and resorts acquired in october 2005 for an aggregate cash purchase price of approximately $ 149.7 million . the property has since been renamed the belle of baton rouge . 38 financial statement presentation the following provides a brief description of certain items that appear in the financial statements of tropicana entertainment and tropicana casinos and resorts and general factors that impact these items : operating revenue . total operating revenue represents gross revenues derived from casino operations , hotel room revenues associated with hotel operations , food and beverage , retail and other casino and hotel operations . net operating revenue represents total operating revenue less promotional allowances , which include the retail value of accommodations , food and beverage and other services provided to casino customers without charge and cash back awards such as cash coupons , rebates , cash complimentaries and refunds , or complimentaries. casino operating revenue or net win is derived primarily from patrons wagering at table games and slot machines and other gaming operations . table games include blackjack , craps , roulette , poker and specialty games . casino operating revenue is defined as the net win from gaming activities , computed as the difference between gaming wins and losses . table game drop and slot handle are casino specific terms used to measure volume . table game hold and slot hold represents the percentage of win divided by the respective volume indicator . casino operating revenue is recognized as earned at the time the relevant services are provided . hotel room revenue is derived from hotel rooms and suites rented to guests . hotel room revenue is recognized at the time the hotel rooms are provided to guests . food and beverage revenues are derived from food and beverage sales in the food outlets of the casino properties , including restaurants , room service and banquets . food and beverage revenue is recognized at the time the relevant food and or beverage service is provided to guests . story_separator_special_tag revenue from other casino and hotel operations is obtained from ancillary hotel operations such as telephone service sales , gift shop sales , arcade revenues , retail amenities , concessions , entertainment offerings and show room sales and certain other ancillary activities conducted at the casino properties . casino operating revenues vary from time to time due to table game hold , slot hold and the amount of gaming activity . hotel room revenues vary depending upon the occupancy levels at the hotels and the rates that can be charged . casino operating revenues , hotel room revenues , food and beverage revenues , and other revenues vary due to general economic conditions and competition . operating expense . operating expense represents the direct costs associated with , among other things , operating casinos , rooms departments , food and beverage outlets and other casino and hotel operations ( including retail amenities , concessions , entertainment offerings and certain other ancillary activities conducted at the casino properties ) , and also includes the cost of providing complimentaries . these direct operating costs primarily relate to payroll , supplies and , in the case of food and beverage operations , the cost of goods sold . operating expenses also take account of utility costs , marketing and advertising , repairs and maintenance , insurance , administrative and general expenses , land and building leases , gaming taxes , and real estate and property taxes . finally , operating expenses include depreciation of property and equipment used at the various operations and amortization of intangibles and other assets . among the costs described above , gaming taxes and licenses , casino expenses and food and beverage expenses account for a significantly greater proportion of the aggregate expenses constituting operating expenses than the others . expenses associated with gaming taxes and licenses reflect amounts payable to authorities in connection with gaming operations and are computed in various ways depending on the type of gaming or activity involved . gaming license fees and taxes are based upon such factors as a percentage of the gross revenues or net gaming proceeds received , the number of gaming devices and table games operated . in many jurisdictions , gaming tax rates are graduated such that they increase as gross revenues increase . gaming license fees and taxes may also vary with changes in applicable legislation . casino expense includes , among other things , costs associated with payroll , fixtures and equipment and other similar costs . casino expense varies depending on amounts expended in connection with such costs , which may depend on staffing and equipment requirements and the implementation of cost saving measures . food and beverage expense varies on the basis of the cost of certain food items and generally increases in relation to increases in food and beverage sales . operating income . operating income represents the net of operating revenues and operating expenses and excludes other items that are not related to operations , such as income earned from the investment of excess funds and minority interest allocations . income from continuing operations . income from continuing operations represents operating income plus interest income and other non-operating income , less interest expense and income allocated to minority interest , and excludes discontinued operations . net income ( loss ) . net income ( loss ) represents income ( loss ) from continuing operations and discontinued operations . 39 results of operations the results of operations for tropicana entertainment for the year ended december 31 , 2007 are summarized below . the assets and operations related to the tropicana atlantic city and the casino aztar evansville , which are considered to be held for sale for accounting purposes , are treated as discontinued operations in the presentation of results of operations of tropicana entertainment for the year ended december 31 , 2007. in addition , the results of operations for tropicana casinos and resorts , tropicana entertainment 's ultimate parent company and predecessor , for the years ended december 31 , 2006 and 2005 are summarized below . the assets relating to the amelia belle riverboat , the gaming assets and operations at the casuarina and the assets relating to tropicana pennsylvania are treated as discontinued operations for purposes of the presentation of the results of operations of tropicana casinos and resorts for the years ended december 31 , 2006 and 2005. the results of operations are reported by segment . the nevada segment is comprised of the tahoe horizon resort , the montbleu , the river palms and , following the aztar acquisition , the tropicana express . the mississippi river basin segment is comprised of the lighthouse point and the belle of baton rouge . following the consummation of the acquisition of aztar , the tropicana las vegas became a new , independent reporting segment . net operating revenue : replace_table_token_7_th ( 1 ) reflects results since june 10 , 2005 acquisition . ( 2 ) reflects results since october 25 , 2005 acquisition . ( 3 ) reflects results since january 3 , 2007 acquisition . n/m : not meaningful 40 net operating expense : replace_table_token_8_th ( 1 ) reflects results since june 10 , 2005 acquisition . ( 2 ) reflects results since october 25 , 2005 acquisition . ( 3 ) reflects results since january 3 , 2007 acquisition . n/m : not meaningful net operating income ( loss ) for the years ending december 31 , 2007 and 2006 : replace_table_token_9_th ( 1 ) reflects results since january 3 , 2007 acquisition . n/m : not meaningful 41 net operating income for the years ending december 31 , 2006 and 2005 : replace_table_token_10_th ( 1 ) reflects results since june 10 , 2005 acquisition . ( 2 ) reflects results since october 25 , 2005 acquisition .
| income from operations as a result of the factors described above , period over period income from operations decreased as revenue declined while operating expenses increased . 58 interest income ( expense ) all of cp vicksburg 's outstanding debt was repaid in december 2006. as a result , cp vicksburg did not incur any interest expense during 2007. as a result , period over period net interest expense decreased by $ 0.9 million . net income period over period net income decreased $ 5.6 million , or 369 % . net income was adversely affected by the reduction in business levels from the abnormally elevated levels experienced in the prior period in the aftermath of hurricane katrina , as discussed above , which adverse effect was more than offset by the reduction in interest expense resulting from the repayment of all of cp vicksburg 's debt in december 2006 and lower period over period operating expenses , as discussed above . year ended december 31 , 2006 compared to year ended december 31 , 2005 operating revenues net operating revenue increased $ 0.8 million , or 3 % , in the year ended december 31 , 2006 as compared to the year ended december 31 , 2005. this increase in net operating revenue can be attributed to the success of marketing initiatives executed in the period , and the continued increase in customer visits due to improved access owing to the installation of a new parking facility adjacent to the casino completed in the summer of 2004. the revenue increase was attributable , in part , to the increased population in jackson , mississippi ( which is the primary feeder city for the vicksburg gaming market ) and the temporary closure of many competing casinos in the gulf coast region resulting from the effects of hurricane katrina on august 25 , 2005. period over period revenue increases attributable to hurricane katrina have begun to level off as casinos have re-opened in the new orleans and the gulf coast regions and the transient population created
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in turn , this could have a material adverse effect on our business , financial condition and results of operations and , in particular , this could have a material adverse effect on the value and liquidity of securities in our investment portfolio . natural catastrophe risk we monitor our natural catastrophe risk globally for all perils and regions , in each case , where we believe there is significant exposure . our models employ both proprietary and vendor-based systems and include cross-line correlations for property , marine , offshore energy , aviation , workers compensation and personal accident . currently , we seek to limit our 1-in-250 year return period net probable maximum pre-tax loss from a severe catastrophic event in any geographic zone to approximately 25 % of total shareholders ' equity available to arch . we reserve the right to change this threshold at any time . based on in-force exposure estimated as of january 1 , 2017 , our modeled peak zone catastrophe exposure is a windstorm affecting the northeastern u.s. , with a net probable maximum pre-tax loss of $ 492 million , followed by windstorms affecting the gulf of mexico and florida tri-county with net probable maximum pre-tax losses of $ 427 million and $ 394 million , respectively . our exposures to other perils , such as u.s. earthquake and international events , were less than the exposures arising from u.s. windstorms and hurricanes in both periods . as of january 1 , 2017 , our modeled peak zone earthquake exposure ( los angeles area earthquake ) represented approximately 61 % of our peak zone catastrophe exposure , and our modeled peak zone international exposure ( japan earthquake ) was substantially less than both our peak zone windstorm and earthquake exposures . net probable maximum pre-tax loss estimates are net of expected reinsurance recoveries , before income tax and before excess reinsurance reinstatement premiums . loss estimates are reflective of the zone indicated and not the entire portfolio . since hurricanes and windstorms can affect more than one zone and make multiple landfalls , our loss estimates include clash estimates from other zones . the loss estimates shown above do not represent our maximum exposures and it is highly likely that our actual incurred losses would vary materially from the modeled estimates . there can be no assurances that we will not suffer a net loss greater than 25 % of total shareholders ' equity available to arch from one or more catastrophic events due to several factors , including the inherent uncertainties in estimating the frequency and severity of such events and the margin of error in making such determinations resulting from potential inaccuracies and inadequacies in the data provided by clients and brokers , the modeling techniques and the application of such techniques or as a result of a decision to change the percentage of shareholders ' equity exposed to a single catastrophic event . actual losses may also increase if our reinsurers fail to meet their obligations to us or the reinsurance protections purchased by us are exhausted or are otherwise unavailable . see “ risk factors—risk relating to our industry ” and “ management 's discussion and analysis of financial condition and results of operations—natural and man-made catastrophic events. ” financial measures management uses the following three key financial indicators in evaluating our performance and measuring the overall growth in value generated for acgl 's common shareholders : book value per share book value per share represents total common shareholders ' equity available to arch divided by the number of common shares and common share equivalents outstanding . management uses growth in book value per share as a key measure of the value generated for our common shareholders each period and believes that book value per share is the key driver of acgl 's share price over time . book value per share is impacted by , among other factors , our underwriting results , investment returns and share repurchase activity , which has an replace_table_token_88_th accretive or dilutive impact on book value per share depending on the purchase price . book value per share was $ 55.19 at december 31 , 2016 , a 15.8 % increase from $ 47.64 at december 31 , 2015 . the growth in 2016 was primarily generated through underwriting and investment returns and benefited from the accretive impact of fair valuing our convertible non-voting common equivalent preferred shares issued as part of the ugc acquisition . operating return on average common equity operating return on average common equity ( “ operating roae ” ) represents annualized after-tax operating income available to arch common shareholders divided by average common shareholders ' equity available to arch during the period . after-tax operating income available to arch common shareholders , a “ non-gaap measure ” as defined in the sec rules , represents net income available to arch common shareholders , excluding net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method , net foreign exchange gains or losses and ugc transaction costs and other , net of income taxes . management uses operating roae as a key measure of the return generated to arch common shareholders and has set an objective to achieve an average operating roae of 15 % or greater over the insurance cycle , as opposed to any one calendar year , which it believes to be an attractive return to common shareholders given the risks we assume . see “ comment on non-gaap financial measures. ” our operating roae was 9.4 % for 2016 , compared to 9.7 % for 2015 and 11.2 % for 2014 . the lower operating roae for 2016 primarily reflected a higher level of average equity than in 2015 , which more than offset a higher level of after-tax operating income . story_separator_special_tag total return on investments total return on investments includes investment income , equity in net income or loss of investment funds accounted for using the equity method , net realized gains and losses and the change in unrealized gains and losses generated by arch 's investment portfolio . total return is calculated on a pre-tax basis and before investment expenses excluding amounts reflected in the ‘ other ' segment , and reflects the effect of financial market conditions along with foreign currency fluctuations . management uses total return on investments as a key measure of the return generated to arch common shareholders on the capital held in the business , and compares the return generated by our investment portfolio against benchmark returns which we measured our portfolio against during the periods . the following table summarizes the pre-tax total return ( before investment expenses ) of investment held by arch compared to the benchmark return ( both based in u.s. dollars ) against which we measured our portfolio during the periods : replace_table_token_89_th ( 1 ) our investment expenses were approximately 0.34 % , 0.35 % and 0.28 % , respectively , of average invested assets in 2016 , 2015 and 2014 . total return for our investment portfolio underperformed that of the benchmark return index in 2016 and primarily reflected low investment returns on our investment grade fixed income portfolio , partially offset by strong returns on non-investment grade fixed income and alternatives . total return was impacted by strengthening of the u.s. dollar against a number of major currencies which reduced total return on non-u.s. dollar denominated investments during 2016 . excluding foreign exchange , total return was 2.35 % for 2016 , compared to 1.62 % for 2015 and 4.26 % for 2014 . the benchmark return index is a customized combination of indices intended to approximate a target portfolio by asset mix and average credit quality while also matching the approximate estimated duration and currency mix of our insurance and reinsurance liabilities . although the estimated duration and average credit quality of this index will move as the duration and rating of its constituent securities change , generally we do not adjust the composition of the benchmark return index except to incorporate changes to the mix of liability currencies and durations noted above . the benchmark return index should not be interpreted as expressing a preference for or aversion to any particular sector or sector weight . the index is intended solely to provide , unlike many master indices that change based on the size of their constituent indices , a relatively stable basket of investable indices . at december 31 , 2016 , the benchmark return index had an average credit quality of “ aa2 ” by moody 's investors service ( “ moody 's ” ) , an estimated duration of 3.57 years . replace_table_token_90_th the benchmark return index included weightings to the following indices , which are primarily from the bank of america merrill lynch ( “ boaml ” ) : replace_table_token_91_th comment on non-gaap financial measures throughout this filing , we present our operations in the way we believe will be the most meaningful and useful to investors , analysts , rating agencies and others who use our financial information in evaluating the performance of our company . this presentation includes the use of after-tax operating income available to arch common shareholders , which is defined as net income available to arch common shareholders , excluding net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method , net foreign exchange gains or losses , ugc transaction costs and other and income taxes , and the use of annualized operating return on average common equity . the presentation of after-tax operating income available to arch common shareholders and annualized operating return on average common equity are non-gaap financial measures as defined in regulation g. the reconciliation of such measures to net income available to arch common shareholders and annualized return on average common equity ( the most directly comparable gaap financial measures ) in accordance with regulation g is included under “ results of operations ” below . we believe that net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method , net foreign exchange gains or losses and ugc transaction costs and other in any particular period are not indicative of the performance of , or trends in , our business . although net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses are an integral part of our operations , the decision to realize investment gains or losses , the recognition of the change in the carrying value of investments accounted for using the fair value option in net realized gains or losses , the recognition of net impairment losses , the recognition of equity in net income or loss of investment funds accounted for using the equity method and the recognition of foreign exchange gains or losses are independent of the insurance underwriting process and result , in large part , from general economic and financial market conditions . furthermore , certain users of our financial information believe that , for many companies , the timing of the realization of investment gains or losses is largely opportunistic . in addition , net impairment losses recognized in earnings on our investments represent other-than-temporary declines in expected recovery values on securities without actual realization . the use of the equity method on certain of our investments in certain funds that invest in fixed maturity securities is driven by the ownership structure of such funds ( either limited partnerships or limited liability companies ) .
| the simulation results noted above are informational only , and no assurance can be given that our ultimate losses will not be significantly different than the simulation results shown above , and such differences could directly and significantly impact earnings favorably or unfavorably in the period they are determined . we do not have significant exposure to pre-2002 liabilities , such as asbestos-related illnesses and other long-tail liabilities . it is difficult to provide meaningful trend information for certain liability/casualty coverages for which the claim-tail may be especially long , as claims are often reported and ultimately paid or settled years , or even decades , after the related loss events occur . any estimates and assumptions made as part of the reserving process could prove to be inaccurate due to several factors , including the fact that relatively limited historical information has been reported to us through december 31 , 2016 . replace_table_token_136_th mortgage operations supplemental information amounts in the following tables reflect the acquisition of ugc on december 31 , 2016. the mortgage segment 's insurance in force ( “ iif ” ) and risk in force ( “ rif ” ) were as follows for the last four quarters : replace_table_token_137_th ( 1 ) the aggregate dollar amount of each insured mortgage loan 's current principal balance . ( 2 ) the aggregate amount of each insured mortgage loan 's current principal balance multiplied by the insurance coverage percentage specified in the policy for insurance policies issued and after contract limits and or loss ratio caps for risk-sharing or reinsurance transactions . ( 3 ) includes gse credit risk-sharing transactions and international insurance business . the following table provides supplemental disclosures for our u.s. mortgage insurance operations related to insured loans and loss metrics : replace_table_token_138_th ( 1 ) includes first lien primary and pool policies . ( 2 ) represents total paid claims divided by rif of loans for which claims were paid . replace_table_token_139_th for each quarter end in 2016 , the following table provides supplemental disclosures for our u.s. mortgage insurance operations ' risk in force : replace_table_token_140_th ( 1 ) represents the end of period rif divided by end of period iif . ( 2 )
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● fiscal 2016 pretax loss was $ 1.1 million compared to pretax income of $ 0.2 million in fiscal 2015. in addition to the $ 2.0 million reduction in sales , the decrease in pretax income was also driven by start-up costs on our extraction facility ( $ 0.4 million ) , costs related to the company 's separation with its former ceo as of march 31 , 2016 ( $ 0.6 million ) , and higher audit fees as a result of the delayed filing of our fiscal 2015 annual report on form 10-k ( $ 0.2 million ) . ● in fiscal 2016 , we recorded a valuation allowance of $ 3.6 million against our deferred tax assets , resulting in a net loss for the year of $ 4.4 million compared to a net loss of $ 0 . 02 million in fiscal 2015. while our long-term outlook remains positive , we felt that a valuation allowance was appropriate in light of our recent losses . 15 ● cash from operating activities was $ 0.7 million , a decrease of $ 0.5 million from the prior year . the decrease was driven by a $ 2.1 million increase in inventories to replenish depleted safety stock levels , offset by a $ 1.3 million increase in accounts payable and accrued expenses . cash and cash equivalents at march 31 , 2016 decreased $ 1.0 million compared to last year due to the increased inventory levels and investments in capital expenditures offset by proceeds from financing . working capital decreased 13 % to $ 6.5 million at march 31 , 2016 from $ 7.5 million a year ago , mainly due to the reduction in cash . story_separator_special_tag font-family : times new roman , times , serif '' > gross profit our gross profit percent of net sales was 3.1 % higher than the prior year as a result of increased sales in our consumer packaged products . in fiscal 2015 , decreased astaxanthin production volume impacted gross profit unfavorably by $ 0.8 million of abnormal costs . in fiscal 2014 , decreased astaxanthin production volume impacted gross profit unfavorably by $ 1.7 million , including abnormal costs of $ 0.4 million . a 44 % increase in sales of our higher margin consumer products was offset by a 17.5 % decrease in bulk sales in the current fiscal year . in fiscal 2015 , compared to fiscal 2014 , astaxanthin production levels decreased by 3.7 % and spirulina production levels increased by 3.3 % . the decrease in astaxanthin production levels was the result of unusual weather conditions and resulting environmental factors that affected the quantity , but not the quality , of our astaxanthin produced during the third and fourth quarters of fiscal 2015. operating expenses operating expenses increased by $ 2.7 million , or 24 % , in fiscal 2015 and increased as a percentage of net sales by 1.3 % . general and administrative expenses increased $ 1.4 million , or 23 % , due to an increase in legal fees of $ 1.1 million related to matters that were settled in the third quarter of fiscal 2015 , an increase in compensation costs related to salaries and benefits for new hires and transfers of $ 0.1 million and the accrual of a management bonus of $ 0.2 million . sales and marketing expenses increased $ 1.2 million , or 27 % , as a result of the expansion of our distribution of consumer products . major components of these costs are a $ 0.5 million increase in advertising and promotion , $ 0.2 million in bank charges and outside commission related to sales volume increases and $ 0.2 million increase in compensation costs related to salary adjustments , benefits and new hires . research and development expenses increased $ 0.04 million , or 10 % . 17 other expense other expense is comprised primarily of interest expense on term loans , amortization of debt issuance costs and interest on other financing agreements , offset by a nominal amount of interest earned and miscellaneous sales . income taxes for fiscal 2015 we recorded income tax expense of $ 253,000 , representing an effective tax rate of 111 % , compared with income tax expense of $ 92,000 in 2014. our effective tax rate was 28 % for the fiscal year ended march 31 , 2014 due to the low pretax income and permanent book to tax difference related to stock option compensation . liquidity and capital resources sources of liquidity as of march 31 , 2016 , we had $ 6.5 million in working capital , compared to $ 7 .5 million at march 31 , 2015. on may 27 , 2016 , we executed a short-term loan agreement with first foundation bank in the amount of $ 0.6 million , with an interest rate of 5.5 % , to be repaid by december 3 , 2016. funds generated by operating activities and available cash and cash equivalents continue to be our most significant sources of liquidity for working capital requirements and for funding of maintenance levels of capital equipment , leasehold improvements and system upgrades . based upon our current operating plan , analysis of our consolidated financial position and projected future results of operations , we believe that our operating cash flows and existing cash balances will be sufficient to finance current operating requirements and meet debt service and planned capital expenditures , for the next 12 months . we use estimates of future financial results including projected revenue , fund expenses , borrowings , and capital expenditures in reaching our conclusions . such estimates are subject to change based on future results and such change could cause future results to vary significantly from expected results presented in this form 10-k. any significant investments in capital equipment related to capacity expansion may not be able to be funded from operating activities and available cash , and may require additional debt or equity funding . story_separator_special_tag our results of operations and financial condition can be affected by numerous factors , many of which are beyond our control and could cause future results of operations to fluctuate materially as it has in the past . future operating results may fluctuate as a result of changes in sales volumes to our largest customers , weather patterns , increased competition , increased materials , nutrient and energy costs , government regulations and other factors beyond our control . a significant portion of our expense levels are relatively fixed , so the timing of increases in expenses is based in large part on forecasts of future sales . if net sales are below expectations in any given period , the adverse impact on results of operations may be magnified by our inability to adjust spending quickly enough to compensate for the sales shortfall . we may also choose to reduce prices or increase spending in response to market conditions , which may have a material adverse effect on financial condition and results of operations . contractual obligations the following table presents our contractual obligations at march 31 , 2016 ( in thousands ) : replace_table_token_5_th note : for additional information refer to note 5 , long-term debt and note 6 , leases in the notes to consolidated financial statements , included in item 8 , financial statements and supplementary data , of this annual report on form 10-k. ( 1 ) includes term loans with a balance of $ 7,403,000 as of march 31 , 2016 , secured by substantially all of the assets of the company . ( 2 ) interest calculated from loan amortization using current rates . ( 3 ) operating lease obligations do not include percentage rent , property taxes and payments for common area maintenance . 18 ( 4 ) purchase obligations include agreements to purchase goods or services that are enforceable , are legally binding and specify all significant terms , including fixed or minimum quantities to be purchased ; fixed , minimum or variable price provisions ; and the approximate timing of the transaction . purchase obligations do not include agreements that are cancelable without penalty . cash flows the following table summarizes our cash flows from operating , investing and financing activities for each of the past three fiscal years ( $ in thousands ) : replace_table_token_6_th the decrease in cash provided by operating activities from $ 1.2 million in fiscal 2015 to $ 0.7 million in fiscal 2016 is due primarily to higher increases in inventories and accounts payable . the decrease in cash provided by operating activities from $ 2.1 million in fiscal 2014 to $ 1.2 million in fiscal 2015 was due to a higher increase in receivables offset by a lower increase in inventory . net cash used in investing activities increased $ 0.5 million in fiscal 2016 compared to fiscal 2015 due primarily to higher self-funded capital expenditures over and above the use of the remaining restricted cash provided for the completion of our new extraction and warehouse facility . net cash used in investing activities increased in fiscal 2015 compared to fiscal 2014 due to the use of restricted cash for equipment and leasehold improvements , as well as the construction of a new office facility at the kona headquarters . 19 cash used in financing activities during fiscal 2016 included proceeds from long-term debt to fund our $ 2.5 million capacity expansion . cash used in financing activities in fiscal 2015 and 2014 consist mainly of the proceeds from stock option exercises and the servicing of debt acquired during fiscal 2013. effect of recently issued accounting standards and estimates in march 2016 , the fasb issued accounting standards update ( “ asu ” ) 2016-09 , “ compensation – stock compensation ( topic 718 ) : improvements to employee share-based payment accounting ” ( “ asu no . 2016-09 ” ) . this asu makes several modifications to topic 718 related to the accounting for forfeitures , employer tax withholding on share-based compensation , and the financial statement presentation of excess tax benefits or deficiencies . asu no . 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards . the standard is effective for interim periods beginning after december 15 , 2016 , with early adoption permitted . the company expects to adopt this guidance when effective and is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures . in february 2016 , the fasb issued asu 2016-02 , “ leases ( topic 842 ) ” ( “ asu no . 2016-02 ” ) . the principle objective of asu no . 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet . asu no . 2016-02 continues to retain a distinction between finance and operating leases but requires lessees to recognize a right-of-use asset representing its right to use the underlying asset for the lease term and a corresponding lease liability on the balance sheet for all leases with terms greater than twelve months . asu no . 2016-02 is effective for fiscal years and interim periods beginning after december 15 , 2018. early adoption of asu no . 2016-02 is permitted . the company is currently assessing the impact this standard may have on its consolidated financial statements and the related disclosures . in november 2015 , the fasb issued asu no . 2015-17 , “ income taxes ( topic 740 ) : balance sheet classification of deferred taxes ” . this guidance simplifies the presentation of deferred income taxes and requires that deferred tax assets and liabilities be classified as noncurrent in the classified statement of financial position . this guidance is effective for the company as of march 31 , 2018 and is not expected to have a material impact on the consolidated financial statements as the guidance only changes the classification of deferred income taxes .
| because of this , we expect current producers to increase capacity to meet this increasing demand , placing further competitive pressures on us in the future . 16 gross profit our gross profit percent of net sales decreased by 5.5 percentage points compared to fiscal 2015. gross profit was impacted by a 14 % decrease in astaxanthin production , which resulted in a higher cost per kilo of astaxanthin sold during the year . our production was impacted by lower sunlight and an unusual level of mid-day cloud cover in kona , hi in the first two quarters of fiscal 2016 as a result of the el nino conditions we experienced . we incurred $ 0.5 million of non-inventoriable costs during fiscal 2016 , including $ 0.4 million related to start-up costs of our new extraction facility . in fiscal 2015 , we incurred $ 0.2 of non-inventoriable costs . the decline in gross profit was also due to changes in our customer mix in the first three quarters of the year , which resulted in higher overall sales allowances and reduced gross profit by $ 0.9 or 3.6 percentage points during fiscal 2016 compared with fiscal 2015. operating expenses operating expenses decreased by $ 1.5 million , or 11 % , in fiscal 2016 and decreased as a percentage of net sales by 2.1 % . general and administrative expenses decreased $ 2.1 million , or 26 % , due to a decrease in legal fees of $ 2.5 million related to matters that were settled in the third quarter of fiscal 2015 , offset by higher salaries and benefits ( $ 0.2 million ) and costs related to the company 's separation with its former ceo as of march 31 , 2106 ( $ 0.5 million ) . sales and marketing expenses increased $ 0.6 million , or 10 % , as a result of the expansion of our distribution of consumer products . a major component of this increase is product demonstration costs which are up by $ 0.9 million , offset by a decrease
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although sometimes included in the consignment fee , we may also charge additional fees for the cost of transporting the vehicle to our facility , storage of the vehicle , and other incidental costs . under the consignment programs , only the fees associated with vehicle processing are recorded in revenue , not the actual sales price ( gross proceeds ) . sales transaction fees also include fees charged to vehicle buyers for purchasing vehicles , storage , loading and annual registration . transportation revenue includes charges to sellers for towing vehicles under certain contracts and towing charges assessed to buyers for delivering vehicles . purchased vehicle revenue includes the gross sales price of the vehicle which we have purchased or are otherwise considered to own and is primarily generated in the u.k. operating costs consist primarily of operating personnel ( which includes yard management , clerical and yard employees ) , rent , contract vehicle towing , insurance , fuel , equipment maintenance and repair , and costs of vehicles sold under purchase contracts . costs associated with general and administrative expenses consist primarily of executive management , accounting , data processing , sales personnel , human resources , professional fees , research and development and marketing expenses . acquisitions and new operations we have experienced significant growth in facilities as we have acquired 55 facilities and established four new facilities since the beginning of fiscal 2011 through july 31 , 2013. all of these acquisitions have been accounted for using the purchase method of accounting . as part of our overall expansion strategy of offering integrated services to vehicle sellers , we anticipate acquiring and developing facilities in new regions , as well as the regions currently served by our facilities . we believe that these acquisitions and openings strengthen our coverage as we have facilities located in north america , the u.k. , the u.a.e. , germany , spain , and brazil , and are able to provide national coverage for our sellers . the following table sets forth facilities that we have acquired or opened from august 1 , 2010 through july 31 , 2013 : replace_table_token_8_th 31 locations acquisition or greenfield date geographic service area vila jaguara , brazil acquisition november 2012 brazil ettlingen , germany acquisition november 2012 germany cordoba , spain acquisition june 2013 spain * salvage parent , inc. conducts business primarily as quad city salvage auction , crashed toys , and desert view auto auctions . combined , these businesses operate at 39 locations in 14 states . the period-to-period comparability of our consolidated operating results and financial position is affected by business acquisitions , new openings , weather and product introductions during such periods . in particular , we have certain contracts inherited through our u.k. acquisitions that require us to act as a principal , purchasing vehicles from the insurance companies and reselling them for our own account . it is our intention , where possible , to migrate these contracts to the agency model in future periods . changes in the amount of revenue derived in a period from principal transactions relative to total revenue will impact revenue growth and margin percentages . in addition to growth through business acquisitions , we seek to increase revenues and profitability by , among other things , ( i ) acquiring and developing additional vehicle storage facilities in key markets ; ( ii ) pursuing national and regional vehicle seller agreements ; ( iii ) expanding our service offerings to sellers and members ; and ( iv ) expanding the application of vb 2 into new markets . in addition , we implement our pricing structure and auction procedures and attempt to introduce cost efficiencies at each of our acquired facilities by implementing our operational procedures , integrating our management information systems and redeploying personnel , when necessary . story_separator_special_tag 2012 , a decrease of $ 2.2 million , or 26.5 % . interest expense decreased $ 1.1 million as a result of principal payments of long-term debt , which is further described in the notes to consolidated financial statements note 9. long-term debt , which is incorporated herein by reference . other income , net , increased $ 0.8 million due primarily to the gain on sale of assets . income taxes . our effective income tax rates for fiscal 2013 and 2012 were 35.0 % and 34.5 % , respectively . the change in the overall tax rate was driven by fluctuations in the u.s. state taxes and the geographical allocation of our taxable income . fiscal 2012 compared to fiscal 2011 revenues the following table sets forth information on revenue by class ( in thousands , except percentages ) : replace_table_token_10_th service revenues . service revenues were $ 757.3 million during fiscal 2012 compared to $ 713.1 million for fiscal 2011 , an increase of $ 44.2 million , or 6.2 % , above fiscal 2011. growth in unit volume generated $ 33.5 million in additional service revenue relative to last year and was driven primarily by growth in the number of units sold on behalf of franchise and independent car dealerships , new and expanded contracts with insurance companies and the migration from the principal model to the agency model in the u.k. growth in the average revenue per car sold generated $ 11.5 million in additional revenue over last year and was driven by an increase in the average vehicle auction selling price as over 50 % of our service revenue is tied in some manner to the ultimate selling price of the vehicle . story_separator_special_tag we believe the increase in the average vehicle auction selling price was driven primarily by : ( i ) the year over year increase in commodity pricing as we believe that commodity pricing , particularly the per ton price for crushed car bodies , has an impact on the ultimate selling price of vehicles sold for scrap and vehicles sold for dismantling ; ( ii ) the general increase in used car pricing , which we believe has an impact on the average selling price of vehicles which are repaired and retailed or purchased by the end user ; ( iii ) the mix of cars sold as the insurance company cars , which on average command a lower average selling price than non-insurance cars , represented a lower portion of all cars sold ; and ( iv ) in the u.k. , the beneficial impact of vb 2 which we introduced in 2008 and which expands our buyer base by opening vehicle sales to buyers worldwide . we can not determine the impact of the movement of these influences as we can not determine which vehicles are sold to the end user or for scrap , dismantling , retailing or export . nor can we predict their future movement . accordingly , we can not quantify the specific impact that commodity pricing , used car pricing , product sales mix , and the introduction of vb 2 in the u.k. had on the selling price of vehicles and ultimately on service revenue . the average dollar to pound exchange rate was 1.58 dollars to the pound and 1.60 dollars to the pound for fiscal 2012 and fiscal 2011 , respectively , and led to a decrease in service revenue of $ 0.8 million . vehicle sales . we have assumed certain contracts through our u.k. acquisitions that require us to act as a principal , purchasing vehicles from the insurance companies and reselling them for our own account . 34 vehicle sales revenues were $ 166.9 million during fiscal 2012 compared to $ 159.2 million for fiscal 2011 , an increase of $ 7.7 million , or 4.8 % , above fiscal 2011. the increase in vehicle sales revenue was due to the growth in the average selling price of vehicles which resulted in increased revenue of $ 20.2 million . the growth in the average selling price per unit was primarily due to : ( i ) the increase in commodity pricing , particularly the per ton price for crushed car bodies , which has an impact on the ultimate selling price of vehicles sold for scrap and vehicles sold for dismantling and ( ii ) in the u.k. , the continuing beneficial impact of vb 2 which we introduced to the u.k. in 2008 and which expands our buyer base by opening vehicle sales to buyers worldwide . we can not determine which vehicles are sold directly to the end user or for scrap , dismantling , retailing , or export and , accordingly , can not quantify the specific impact of commodity pricing nor can we isolate the impact that vb 2 had on the ultimate selling price of vehicles sold in the u.k. the decline in volume resulted primarily from the migration of certain contracts in the u.k. from the principal model to the agency model and resulted in a reduction in vehicle sales revenue of $ 11.1 million . the detrimental impact on recorded vehicle sales revenue due to the change in the british pound to u.s. dollar exchange rate was $ 1.4 million . yard operation expenses . yard operation expenses excluding depreciation and amortization and impairment , were $ 344.6 million during fiscal 2012 compared to $ 337.1 million for fiscal 2011 , an increase of $ 7.5 million , or 2.2 % , above fiscal 2011. the increase was driven by volume , which led to an increase of $ 13.5 million as we processed more vehicles in fiscal 2012 than in fiscal 2011. this increase was offset by a reduction in operating costs of $ 5.5 million driven by the decline in the cost to process each car . there was a detrimental impact on yard operating expenses due to the change in the british pound to u.s. dollar exchange rate of $ 0.5 million . included in yard operation costs were depreciation and amortization expenses which were $ 33.0 million and $ 37.0 million for the fiscal years ended july 31 , 2012 and 2011 , respectively . cost of vehicle sales . the cost of vehicles sold was $ 137.0 million during fiscal 2012 compared to $ 125.2 million for fiscal 2011 , an increase of $ 11.8 million , or 9.4 % . the increase in the cost per unit sold represented a $ 15.1 million increase relative to last year . unit volume decrease led to a decrease of $ 2.3 million . the beneficial impact on the cost of sales due to the change in the british pound to u.s. dollar exchange rate was $ 1.0 million . general and administrative expenses . general and administrative expenses , excluding depreciation and amortization , were $ 99.4 million for fiscal 2012 compared to $ 98.9 million for fiscal 2011 , an increase of less than $ 0.5 million , or 0.5 % . the beneficial impact on general and administrative expenses due to the change in the british pound to u.s. dollar exchange rate was $ 0.1 million . included in general and administrative costs were depreciation and amortization expenses which were $ 15.1 million and $ 8.7 million for the fiscal years ended july 31 , 2012 and 2011 , respectively . impairment . during the year ended july 31 , 2012 , we recorded an impairment of $ 8.8 million associated with the write-down to fair market value of certain assets , primarily real estate , computer hardware and our fleet of private aircraft which have been removed from operations and , if not disposed of , are reflected in assets held for sale on the balance sheet .
| used car values are determined by many factors including the used car supply , which is tied directly to new car sales , and the 32 average age of cars on the road . new cars sales grew on a year over year basis increasing the supply of used cars and the average age of a car on the road continued to grow . these factors , among others , lead to a decline in used car values on a year over year basis . during the same period the average cost to repair a car increased . the factors that influence repair costs , used car pricing and auction returns are many and varied and we can not predict their movements . accordingly , we can not predict future trends in salvage frequency . vehicle sales . we have certain contracts with insurance companies in which we act as a principal , purchasing vehicles and reselling them for our own account . we also purchase vehicles in the open market , primarily from individuals and resell them for our own account . vehicle sales revenues were $ 196.7 million during fiscal 2013 compared to $ 166.9 million for fiscal 2012 , an increase of $ 29.8 million , or 17.9 % , above fiscal 2012. the increase came from ( i ) our international expansion during the year into germany , spain , the united arab emirates and brazil which represented $ 1.1 million ; ( ii ) the acquisition of salvage parent , inc. which represented $ 3.2 million ; ( iii ) growth in the u.k. of $ 13.6 million and driven primarily by increased volume from insurance sellers in the u.k. and increased open market purchase activity from the general public ; and ( iv ) growth in north america of $ 11.9 million driven primarily by increased open market purchase activity . yard operation expenses . yard operation expenses , excluding depreciation and amortization and impairment , were $ 417.5 million during fiscal 2013 compared to $ 344.6 million for fiscal 2012 , an increase of $ 72.9 million , or 21.2 % , above fiscal 2012. the growth came from ( i ) our international expansion during the
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we intend to elect to be taxed as a reit and operate in a manner that we believe allows us to qualify as a reit for federal income tax purposes commencing with our taxable year ended december 31 , 2015. since our initial public offering and the formation transactions occurred on february 11 , 2015 , the results of operations and financial condition for the entities acquired by us in connection with our initial public offering and related formation transactions are not included in certain historical financial statements . more specifically , our results of operations and financial condition for the year ended december 31 , 2014 reflect the results of operations and financial condition for our predecessor . our results of operations for the year ended december 31 , 2015 reflect the results of operation and financial condition for our predecessor together with the entities we 36 acquired at and after the time of our initial public offering . the results of operations for each of these acquisitions are included in our consolidated statements of operations only from the date of acquisition . financial information analyzed below reflects the audited financial statements as of december 31 , 2015 , included in the f pages of this annual report on form 10-k. story_separator_special_tag amortization of deferred financing fees associated with the senior unsecured revolving credit facility and mortgage debt encumbered on one of our properties of $ 0.8 million to interest expense for the year ended december 31 , 2015. our predecessor accounted for property level debt through the fair value of their net equity interest in their real estate investments , and as such , mortgage debt was not recognized on our predecessor 's consolidated statements of assets , liabilities and capital . net unrealized gain on investments the unrealized gain or loss on investments represents the change in fair value of our predecessor 's real estate investments . during the year ended december 31 , 2015 and prior to our initial public offering , our predecessor had recognized a net unrealized loss of $ 5.1 million attributable to an increase in the debt valuation to approximate the actual costs to pay-off debt using the proceeds received from our initial public offering and a portion of borrowings under the senior unsecured revolving credit facility . our predecessor recognized a $ 71.4 million unrealized gain on investment for the year ended december 31 , 2014 that was attributable in part to $ 8.0 million of appreciation related to the acquisition of two new investments during the year , fbi—little rock and pto—arlington , $ 4.3 million of reduction in principal balance for the non-recourse debt underlying the properties owned by our predecessor and a $ 6.9 million reduction in the cost basis of the assets . distributions in excess of tax basis earnings and profits are considered a return of capital and reduce the cost basis of the investment . the majority of the remaining change is attributable to changes in net operating income of the properties as well as changes in market conditions including a decrease in residual 38 capitalization rates and discount rates , which had a positive effect on th e fair value of the properties owned by our predecessor for the year ended december 31 , 2014. following our initial public offering , we have not had unrealized gains as the accounting for the properties contributed by the easterly funds from the property owning subsidiaries to us in connection with the formation transactions have changed from investment company accounting to historical cost accounting . comparison of results of operations for the years ended december 31 , 2014 and december 31 , 2013 the following table summarizes the consolidated historical results of operations of our predecessor for the years ended december 31 , 2014 and 2013. replace_table_token_9_th revenues income from real estate investments is attributable to distributions from real estate entities that are recorded as dividend income to the extent distributed from the estimated taxable earnings and profits of the underlying investment vehicle and as a return of capital to the extent not in excess of estimated taxable earnings and profits . income from real estate investments increased by $ 2.3 million , or 57.9 % , to $ 6.3 million for the year ended december 31 , 2014 from $ 4.0 million for the year ended december 31 , 2013. of the $ 2.3 million increase , $ 1.5 million was attributable to distributions from four properties that made their first distribution after december 31 , 2013 : dot—lakewood , fbi—omaha , fbi—little rock and pto—arlington . operating expenses corporate general and administrative consists of employee compensation , professional fees and other administrative costs . corporate general and administrative increased by $ 4.8 million , or 113.0 % , to $ 9.1 million for the year ended december 31 , 2014 from $ 4.3 million for the year ended december 31 , 2013. this increase was primarily attributable to a $ 4.0 million increase in expenses related to our initial public offering , a $ 1.5 million increase in compensation expense , which was primarily attributable to a $ 1.0 million increase in non-cash compensation expense as well as an increase in the number of employees an overall increase in compensation , as well as a $ 0.5 million increase in acquisition expenses associated with the acquisition of the 14 western devcon properties . this increase was partially offset by a $ 1.2 million decrease in marketing expense due to the renegotiation of a contract resulting in a credit received in 2014 from a marketing vendor . fund general and administrative includes professional , organizational , insurance and other administration expenses incurred in connection with the formation and operations of the easterly funds and any related entities . story_separator_special_tag fund general and administrative decreased by $ 0.5 million , or 37.0 % , to $ 0.8 million for the years ended december 31 , 2014 from $ 1.3 million for the year ended december 31 , 2013. this decrease was primarily attributable to a $ 0.5 million decrease in organizational expenses due to the organization of easterly fund ii in february 2013. no new funds or entities were organized subsequent to the formation of easterly fund ii . net unrealized gain on investments net unrealized gain on investments consists of the net unrealized appreciation in the fair value of the easterly funds ' real estate investments . the value of the easterly funds ' real estate investments are impacted by a variety of factors including changes in 39 existing and projected net operating incomes and cash flows , ongoing capital proje cts , leasing related expenditures and changes in the key assumptions used in projecting likely prices achievable through third-party asset sales . these key assumptions , which vary from property to property and period to period , include indicators such as g rowth in rental rates , as well as investment factors such as prevailing and projected investment capitalization and discount rates and likely holding periods . see note 5 ( fair value of investments ) to our predecessor 's consolidated financial statements , pr ovided elsewhere in this annual report on form 10-k for additional discussion on fair value . the $ 71.4 million unrealized gain on investment for the year ended december 31 , 2014 was attributable in part to $ 8.0 million of appreciation related to the acquisition of two new investments during the year , fbi—little rock and pto—arlington , $ 4.3 million of reduction in principal balance for the non-recourse debt underlying the properties owned by our predecessor and a $ 6.9 million reduction in the cost basis of the assets . distributions in excess of tax basis earnings and profits are considered a return of capital and reduce the cost basis of the investment . the majority of the remaining change is attributable to changes in net operating income of the properties as well as changes in market conditions including a decrease in residual capitalization rates and discount rates , which had a positive effect on the fair value of the properties owned by our predecessor for the year ended december 31 , 2014. the $ 27.6 million unrealized gain on investment was attributable in part to $ 9.7 million of appreciation related to the acquisition of five new investments during 2013 , ice—charleston , mepcom—jacksonville , uscg—martinsburg , dot—lakewood , and fbi—omaha , $ 2.0 million of reduction in principal balance for the non-recourse debt underlying the properties owned by our predecessor and a $ 4.0 million reduction in the cost basis of the assets . distributions in excess of tax basis earnings and profits are considered a return of capital and reduce the cost basis of the investment . the majority of the remaining change is attributable to changes in projected net operating income of the properties as well as changes in market conditions including a decrease in residual capitalization rates and discount rates , which had a positive effect on the fair value of the properties owned by our predecessor for the year ended december 31 , 2013. liquidity and capital resources we anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months for all anticipated uses , including all scheduled principal and interest payments on our outstanding indebtedness , current and anticipated tenant improvements , stockholder distributions to maintain our qualification as a reit and other capital obligations associated with conducting our business . at december 31 , 2015 , we had approximately $ 8.2 million available in cash and cash equivalents and there was $ 245.6 million available under our senior unsecured revolving credit facility . our primary expected sources and uses and capital are as follows : sources · cash and cash equivalents ; · operating cash flow ; · available borrowings under our existing revolving credit facility ; · secured loans collateralized by individual properties ; · issuance of long-term debt ; · issuance of equity ; and · asset sales . uses short term : · redevelopments ; · tenant improvements allowances and leasing costs ; · recurring maintenance capital expenditures ; · debt repayment requirements ; · corporate and administrative costs ; and · distribution payments . 40 long term : · major redevelopment , renovation or expansion programs at individual properties ; · development ; · acquisitions ; and · debt maturities . although we may be able to anticipate and plan for certain of our liquidity needs , unexpected increases in uses of cash that are beyond our control and which affect our financial condition and results of operations may arise , or our sources of liquidity may be fewer than , and the funds available from such sources may be less than , anticipated or required . as of the date of this filing , there were no known commitments or events that would have a material impact on liquidity . initial public offering we completed our initial public offering on february 11 , 2015 , pursuant to which we registered and sold 13,800,000 shares of our common stock for an aggregate offering amount of $ 207.0 million . the net proceeds of our initial public offering were approximately $ 191.6 million after deducting underwriting discounts and commissions of approximately $ 13.5 million and estimated offering expenses of approximately $ 1.9 million . citigroup global markets inc. , raymond james & associates , inc. and rbc capital markets , llc acted as joint book-running managers for our initial public offering and as representatives of the underwriters .
| the financial information analyzed below summarize s the combined results of operations for both easterly ( for the period subsequent to our initial public offering of february 11 , 2015 through december 31 , 2015 ) and our predecessor for the years ended december 31 , 2015 , 2014 and 2013. comparison of results of operations for the years ended december 31 , 2015 and december 31 , 2014 replace_table_token_8_th revenues our rental income , tenant reimbursements , and other income for the year ended december 31 , 2015 represents income from the 29 properties contributed to us by the easterly funds and western devcon on february 11 , 2015 , the two properties acquired in the second quarter of 2015 , the one property acquired in the third quarter of 2015 and the four properties acquired in the fourth quarter of 37 2015. these properties were 100 % leased as of december 31 , 2015. we earned $ 59.9 million in rental income attributable to base rent and recorded a $ 0.2 million straight-line adjustment for the year ended december 31 , 2015. we also recognized $ 4.9 million of amortization associated with our above- and below-market leases within rental income for the year ended december 31 , 2015. many of our tenants are also responsible for a portion of our operating expenses and real estate taxes . this is billed in accordance with each tenant 's lease . we recognized $ 6.2 million in tenant reimbursements for the year ended december 31 , 2015. income from real estate investments for the year ended december 31 , 2014 is attributable to distributions from real estate entities that are recorded as dividend income to the extent distributed from estimated taxable earnings and profits of the underlying investment vehicle and as a return of capital to the extent not in excess of estimated taxable earnings and profits . operating expenses similar to rental income , our property operating expenses , real estate taxes , and depreciation and amortization recognized for the year ended december 31 , 2015 , represents expenses incurred from the operations of the properties contributed to us in connection with the formation transactions , the two properties acquired in the second quarter of 2015 , the one property acquired in the third quarter of 2015 and the four properties acquired in the fourth quarter of 2015. the company incurred $ 2.9 million in acquisition costs during the year ended december 31 , 2015 associated with the properties contributed by western devcon in exchange
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our significant accounting policies are described in the notes to our consolidated financial statements in this report . certain accounting policies inherently involve a greater reliance on the use of estimates , assumptions and judgments and , as such , have a greater possibility of producing results that could be materially different than originally reported , which could have a material impact on the carrying values of our assets and liabilities and our results of operations . we consider these accounting policies and estimates to be critical accounting policies . we have identified the determination of the allowance for loan losses , goodwill and other intangibles , income taxes and deferred tax assets , other-than-temporary impairment , business combinations , and method of accounting for loans acquired to be the accounting areas that require the most subjective or complex judgments and , as such , could be most subject to revision as new or additional information becomes available or circumstances change , including overall changes in the economic climate and or market interest rates . therefore , management has reviewed and approved these critical accounting policies and estimates and has discussed these policies with our audit and compliance committee . allowance for loan losses we believe the allowance for loan losses is the critical accounting policy that requires the most significant judgment and estimates used in preparation of our consolidated financial statements . some of the more critical judgments supporting the amount of our allowance for loan losses include judgments about the credit worthiness of borrowers , the estimated value of the underlying collateral , the assumptions about cash flow , determination of loss factors for estimating credit losses , the impact of current events , and conditions , and other factors impacting the level of probable inherent losses . under different conditions or using different assumptions , the actual amount of credit losses incurred by us may be different from management 's estimates provided in our consolidated financial statements . refer to the portion of this discussion that addresses our allowance for loan losses for a more complete discussion of our processes and methodology for determining our allowance for loan losses . fasb has issued a new credit impairment model , the current expected credit loss , or cecl model , which will become applicable to us in 2023. under the cecl model , we will be required to present certain financial assets carried at amortized cost , such as loans held for investment and held-to-maturity debt securities , at the net amount expected to be collected . the measurement of expected credit losses is to be based on information about past events , including historical experience , current conditions , and reasonable and supportable forecasts that affect the collectability of the reported amount . this measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter . this differs significantly from the “ incurred loss ” model currently required under gaap , which delays recognition until it is probable a loss has been incurred . accordingly , we expect that the adoption of the cecl model will materially affect how we determine our allowance for loan losses and could require us to significantly increase our allowance . moreover , the cecl model may create more volatility in the level of our allowance for loan losses . if we are required to materially increase our level of allowance for loan losses for any reason , such increase could adversely affect our business , financial condition and results of operations . the new cecl standard will become effective for us on january 1 , 2023 and for interim periods within that year . we are currently evaluating the impact the cecl model will have on our accounting , but we expect to recognize a one-time cumulative-effect adjustment to our allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective , consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. we can not yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on our business , financial condition and results of operations . 49 goodwill and other intangibles goodwill represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed . goodwill has an indefinite useful life and it is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired . an impairment loss is recognized to the extent that the carrying amount exceeds the asset 's fair value . 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 . these qualitative factors include but are not limited to overall deterioration in general economic conditions , industry and market conditions , and overall financial performance . if determined that it is more likely than not that there has been a deterioration in the fair value of the carrying value then the first of a two-step process would be performed . the first step , used to identify potential impairment , involves comparing each reporting unit 's estimated fair value to its carrying value , including goodwill . if the estimated fair value of a reporting unit exceeds its carrying value , goodwill is considered not to be impaired . if the carrying value exceeds estimated fair value , there is an indication of potential impairment and the second step is performed to measure the amount of impairment . if required , the second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment . story_separator_special_tag the implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination , by measuring the excess of the estimated fair value of the reporting unit , as determined in the first step , over the aggregate estimated fair values of the individual assets , liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination . if the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit , there is no impairment . if the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill , an impairment charge is recorded for the excess . an impairment loss can not exceed the carrying value of goodwill assigned to a reporting unit , and the loss establishes a new basis in the goodwill . subsequent reversal of goodwill impairment losses is not permitted . management has determined that we have four reporting units ( see note 26 to the consolidated financial statements ) . core deposit intangibles represent the estimated value of long-term deposit relationships acquired in bank or branch acquisition transactions . these costs are amortized over the estimated useful lives of the deposit accounts acquired on a method that we believe reasonably approximates the anticipated benefit stream from the accounts . the estimated useful lives are periodically reviewed for reasonableness . income taxes and deferred tax assets income taxes are provided for the tax effects of the transactions reported in our consolidated financial statements and consist of taxes currently due plus deferred taxes related to differences between the tax basis and accounting basis of certain assets and liabilities , including available-for-sale securities , allowance for loan losses , write-downs of oreo properties , write-downs on premises held-for-sale , accumulated depreciation , net operating loss carry forwards , accretion income , deferred compensation , intangible assets , and pension plan and post-retirement benefits . the deferred tax assets and liabilities represent the future tax return consequences of those differences , which will either be taxable or deductible when the assets and liabilities are recovered or settled . deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled . a valuation allowance is recorded when it is “ more likely than not ” that a deferred tax asset will not be realized . as changes in tax laws or rates are enacted , deferred tax assets and liabilities are adjusted through the provision for income taxes . the tax act reduced corporate income taxes which resulted in an adjustment of our deferred tax asset in 2017 ( see note 15 to the consolidated financial statements for the impact of the change ) . we file a consolidated federal income tax return for the bank . at december 31 , 2019 , we are in a net deferred tax asset position . 50 other-than-temporary impairment we evaluate securities for other-than-temporary impairment at least on a quarterly basis . consideration is given to ( 1 ) the length of time and the extent to which the fair value has been less than cost , ( 2 ) the financial condition and near-term prospects of the issuer , ( 3 ) the outlook for receiving the contractual cash flows of the investments , ( 4 ) the anticipated outlook for changes in the general level of interest rates , and ( 5 ) our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value ( see note 4 to the consolidated financial statements ) . business combinations , method of accounting for loans acquired we account for acquisitions under fasb asc topic 805 , business combinations , which requires the use of the acquisition method of accounting . all identifiable assets acquired , including loans , are recorded at fair value . no allowance for loan losses related to the acquired loans is recorded on the acquisition date because the fair value of the loans acquired incorporates assumptions regarding credit risk . acquired credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality , found in fasb asc topic 310-30 , receivables—loans and debt securities acquired with deteriorated credit quality and initially measured at fair value , which includes estimated future credit losses expected to be incurred over the life of the loans . loans acquired in business combinations with evidence of credit deterioration are considered impaired . loans acquired through business combinations that do not meet the specific criteria of fasb asc topic 310-30 , but for which a discount is attributable , at least in part to credit quality , are also accounted for under this guidance . certain acquired loans , including performing loans and revolving lines of credit ( consumer and commercial ) , are accounted for in accordance with fasb asc topic 310-20 , where the discount is accreted through earnings based on estimated cash flows over the estimated life of the loan . story_separator_special_tag federal reserve reducing the federal funds target rate in 2019 after increasing it in 2018 and a flat-to-inverted yield curve during periods of 2019. in 2018 , the federal funds target rate was increased four times . these increases over time positively impact our net interest margin because the yields on our variable rate assets in the loan and investment portfolios , and our short term investments reprice at higher rates faster than the rates that we pay on our interest-bearing liabilities reprice higher in a rising rate environment .
| we conducted business from a mortgage loan production office in richland county , south carolina until january 24 , 2020 and have since consolidated such business with other existing bank offices . this closure and consolidation resulted in a write-down of the real estate of $ 282 thousand during the fourth quarter of 2019 based on the appraised value of the real estate less estimated selling costs . the real estate is recorded at $ 591 thousand in premises held-for-sale at december 31 , 2019. once the real estate is sold , our occupancy expense will decline by approximately $ 91 thousand annually . noninterest expense increased $ 2.5 million , or 7.8 % to $ 34.6 million , in 2019 from $ 32.1 million in 2018. the increase in noninterest expense was primarily due to increases in salaries and employee benefits , occupancy expense , atm/debit card and data processing expense , and marketing and public relations expense , which were partially offset by lower fdic /fico premiums in 2019 as compared to 2018. during 2019 , we made significant strategic investments in our franchise , including two new full-service offices , our mobile and digital banking platforms , and hiring additional team members . income tax expense increased $ 164 thousand , or 6.1 % , to $ 2.9 million , in 2019 as compared to $ 2.7 million in 2018. our effective tax rate was 20.67 % in 2019 as compared to 19.35 % in 2018 . 51 net income was $ 11.2 million , or $ 1.45 diluted earnings per common share , for the year ended december 31 , 2018 , as compared to net income $ 5.8 million , or $ 0.83 diluted earnings per common share , for the year ended december 31 , 2017. during the year ended 2017 , we recognized a tax expense adjustment resulting from the change in corporate tax rates enacted in the tax act on december 22 , 2017. the lowering of the corporate tax rate to 21 % required that we make an approximate $ 1.2 million tax expense
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in the shop space category for both new leases and renewals , base rent psf continued to increase on leases executed in 2015. in the anchor category , base rent psf on new leases decreased slightly due to the geographic location of anchor deals in 2015 as compared to 2014. significant tenants and concentrations of risk we seek to reduce our operating and leasing risks through geographic diversification and by avoiding dependence on any single property , market , or tenant . the following table summarizes our three most significant tenants , each of which is a grocery tenant , occupying our shopping centers : replace_table_token_21_th ( 1 ) includes stores owned by grocery anchors that are attached to our centers . ( 2 ) includes our pro-rata share of unconsolidated properties and excludes those owned by anchors . bankruptcies although base rent is supported by long-term lease contracts , tenants who file bankruptcy may have the legal right to reject any or all of their leases and close related stores . in the event that a tenant with a significant number of leases in our shopping centers files bankruptcy and cancels its leases , we could experience a significant reduction in our revenues . we monitor the operating performance and rent collections of all tenants in our shopping centers , especially those tenants operating retail formats that are experiencing significant changes in competition , business practice , and store closings in other locations . we are not currently aware of the pending bankruptcy or announced store closings of any tenants in our shopping centers that would individually cause a material reduction in our revenues , and no tenant represents more than 5 % of our annual base rent on a pro-rata basis . our management team devotes significant time to monitoring consumer preferences , shopping behaviors , and demographics to anticipate both challenges and opportunities in the changing retail industry that may affect our tenants . as a result of our findings , we may reduce new leasing , suspend leasing , or curtail the allowance for the construction of leasehold improvements within a certain retail category or to a specific retailer . 36 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:8px ; padding-top:8px ; text-align : left ; padding-left:48px ; font-size:10pt ; '' > grir : $ 4.4 million increase driven by : $ 1.3 million increase in base rent from occupancy and rental rate growth , $ 1.8 million decrease in depreciation due to higher depreciation expense in 2014 relating to redevelopment activity , reduced interest expense roughly $ 800,000 by paying off or refinancing property debt at better rates in 2014 and 2015. columbia i : $ 1.8 million decrease from impairment loss upon the sale of one operating property during 2015 ; columbia ii : $ 424,000 increase due to impairment losses recognized upon the sale of two properties during 2014 ; and other investments in real estate partnerships : $ 11.4 million decrease within our other investment partnerships driven by the $ 10.9 million gains on the sale of two land parcels and two operating properties during 2014 . 40 the following represents the remaining components that comprise net income attributable to the common stockholders and unit holders : replace_table_token_27_th a $ 1.0 million tax benefit was recognized in 2014 upon the receipt of a state tax refund from amending our prior tax returns . we recognized $ 35.6 million of gains on the sale of real estate , net of taxes , in 2015 attributable to the sale of five operating properties and two land parcels as compared to $ 55.1 million of gains on the sale of real estate , net of taxes , in 2014 attributable to the sale of eleven operating properties and six land parcels . income attributable to noncontrolling interests increased $ 1.0 million due to to the 2014 acquisition of a portfolio held within a consolidated partnership , coupled with new operating activity from a development beginning operations and a recent redevelopment completion within our consolidated partnerships . comparison of the years ended december 31 , 2014 and 2013 : our revenues increased as summarized in the following table : replace_table_token_28_th minimum rent increased as follows : $ 16.8 million increase due to the acquisitions of operating properties ; $ 12.3 million increase from operations beginning at development properties ; and $ 9.9 million increase in minimum rent from same properties , with $ 4.4 million relating to redevelopment properties , and $ 5.5 million relating to higher rental rates and rent paying occupancy growth ; reduced by a $ 2.2 million decrease from the sale of operating properties . recoveries from tenants represent reimbursements to us for tenants ' pro-rata share of the operating , maintenance , and real estate tax expenses that we incur to operate our shopping centers . recoveries from tenants increased as follows : $ 3.8 million increase due to the acquisition of operating properties ; $ 3.5 million increase from operations beginning at development properties during 2014 and 2013 ; and , 41 $ 6.2 million increase in recoveries at same properties , which was driven by an increase in occupancy and recoverable costs ; reduced by $ 1.0 million decrease from the sale of operating properties . other income , which consists of incidental income earned at our centers , increased primarily as a result of settlement and lease termination fee income earned in 2014. we earn fees , at market-based rates , for asset management , property management , leasing , acquisition , and financing services that we provided to our co-investment partnerships and third parties as follows : replace_table_token_29_th asset and property management fees decreased due to the liquidation of one unconsolidated real estate partnership consisting of nine properties during the third quarter of 2013. changes in our operating expenses are summarized in the following table : replace_table_token_30_th depreciation and amortization increased as follows : $ 9.9 million increase from the acquisition of operating properties ; $ 5.5 million increase from operations beginning at development properties ; and , $ 2.6 million story_separator_special_tag increase at same properties , attributable to redevelopments and recent capital improvements being depreciated ; reduced by $ 800,000 from the sale of operating properties . operating and maintenance costs increased as follows : $ 2.6 million increase from operations beginning at development properties ; $ 2.4 million increase at same properties , attributable to an increase in snow removal costs ; and , $ 2.0 million increase relating to the acquisition of operating properties ; reduced by approximately $ 200,000 from the sale of operating properties . general and administrative expenses decreased approximately $ 1.0 million largely due to greater capitalization of development overhead costs by $ 4.4 million , stemming from higher volume of development projects , offset by an increase of $ 4.6 million of higher incentive compensation expense during 2014. additionally , changes in participant obligations within the deferred compensation plan resulted in a $ 1.9 million decrease in expense . real estate taxes increased as follows : $ 2.6 million increase from the acquisition of operating properties ; 42 $ 1.6 million increase relating to operations beginning at development properties ; and , $ 1.4 million increase at same properties from increased tax assessments ; reduced by approximately $ 300,000 from the sale of operating properties . the following table presents the components of other expense ( income ) : replace_table_token_31_th our interest expense , net increased $ 525,000 mainly due to the $ 77.8 million of mortgage debt assumed with a portfolio acquisition in the first quarter of 2014 , offset by additional capitalized interest on development projects . during 2014 , we recognized a $ 1.1 million of loss on the disposal of one operating property and one land parcel and a $ 175,000 impairment on two parcels of land held . during the year ended december 31 , 2013 , we recognized a $ 6.0 million impairment on a single operating property . net investment income increased $ 6.2 million , largely driven by an $ 8.1 million gain realized on the sale of available-for-sale securities offset by a $ 1.9 million decrease in net investment income from the deferred compensation plan relating to the change in the fair value of plan assets . during 2014 , we acquired the remaining 50 % interest and gained control of a previously unconsolidated investment in a real estate partnership that owns a single operating property . as the operating property constitutes a business , acquisition of control was accounted for as a step acquisition , and the net assets acquired were recognized at fair value . the gain of $ 18.3 million was recognized as the difference between the fair value and carrying value of the company 's previously held equity interest , using an income approach to measure fair value . 43 our equity in income of investments in real estate partnerships ( decreased ) increased as follows : ( in thousands ) regency 's ownership 2014 2013 change gri - regency , llc ( grir ) 40.00 % $ 13,727 12,789 938 macquarie countrywide-regency iii , llc ( mcwr iii ) ( 1 ) — % — 53 ( 53 ) columbia regency retail partners , llc ( columbia i ) 20.00 % 1,431 1,727 ( 296 ) columbia regency partners ii , llc ( columbia ii ) 20.00 % 233 1,274 ( 1,041 ) cameron village , llc ( cameron ) 30.00 % 1,008 662 346 regcal , llc ( regcal ) 25.00 % 966 332 634 regency retail partners , lp ( the fund ) ( 2 ) 20.00 % 27 7,749 ( 7,722 ) us regency retail i , llc ( usaa ) 20.01 % 567 487 80 bre throne holdings , llc ( bret ) ( 3 ) — % — 4,499 ( 4,499 ) other investments in real estate partnerships 50.00 % 13,311 2,146 11,165 total equity in income of investments in real estate partnerships $ 31,270 31,718 ( 448 ) ( 1 ) as of december 31 , 2012 , our ownership interest in mcwr iii was 24.95 % . the liquidation of mcwr iii was complete effective march 20 , 2013 . ( 2 ) on august 13 , 2013 , the fund sold 100 % of its interest in its entire portfolio of shopping centers to a third party . the fund will be dissolved following the final distribution of proceeds in 2014 . ( 3 ) on october 23 , 2013 , the company sold 100 % of its interest in the bret unconsolidated real estate partnership and received a capital distribution of $ 47.5 million , its share of the undistributed income of the partnership , and a redemption premium . regency no longer has any interest in the bret partnership . the decrease in our equity in income of investments in real estate partnerships is principally due to the following : grir : $ 947,000 increase from gain on one operating property disposal in 2014 ; columbia ii : $ 1.0 million decrease due to $ 424,000 of impairment losses recognized upon sale of two properties in 2014 compared to $ 830,000 of gains recognized in 2013 on the sale of four operating properties and one land parcel ; regcal : $ 654,000 gain on one operating property disposal in 2014 ; the fund : all operating properties were sold in august 2013 for gains of $ 7.4 million . the only activity in 2014 was collection of remaining receivables and the final distribution ; bret : $ 4.5 million decrease from liquidating our ownership interest in october 2013 ; and , other investments in real estate partnerships : $ 11.2 million increase driven by 2014 gains of $ 10.9 million on the sale of two land parcels and two operating properties . 44 the following represents the remaining components that comprise net income attributable to the common stockholders and unit holders : replace_table_token_32_th a $ 1.0 million tax benefit was recognized in 2014 upon the receipt of a state tax refund from amending our prior tax returns .
| 37 changes in our operating expenses are summarized in the following table : replace_table_token_24_th depreciation and amortization decreased as follows : $ 2.9 million decrease from the sale of operating properties ; $ 1.9 million increase primarily from operations beginning at development properties and acquisition of operating properties . operating and maintenance costs increased as follows : $ 1.6 million increase from operations beginning at development properties ; $ 2.9 million increase at same properties primarily driven by increases in property management fees , landscaping , and parking lot maintenance costs ; $ 2.1 million increase relating to acquisition of operating properties ; reduced by $ 1.4 million from the sale of operating properties . general and administrative expenses increased as follows : $ 3.9 million of higher compensation costs , including $ 2.2 million associated with executive management changes at december 31 , 2015 ; $ 2.3 million of lower development overhead capitalization based on fewer new development and redevelopment projects started in 2015 ; reduced by $ 1.1 million from the decrease in the value of participant obligations within the deferred compensation plan . real estate taxes increased as follows : $ 690,000 increase from acquisition of operating properties ; $ 510,000 increase relating to operations beginning at development properties ; and , $ 2.0 million increase at same properties from increased tax assessments ; reduced by approximately $ 360,000 from the sale of operating properties . 38 the following table presents the components of other expense ( income ) : replace_table_token_25_th the $ 6.9 million decrease in interest expense , net is mainly due to lower interest rates from refinancing our long-term debt during 2014 and 2015 and lower outstanding balances on notes payable . we did not recognize impairment losses during 2015. during the year ended december 31 , 2014 , we recognized a $ 1.1 million loss on the disposal of one operating property and one land parcel and a $ 175,000 impairment on two parcels of land held . during november 2015 , we incurred an $ 8.2 million charge from a make-whole premium on our $ 100.0 million early redemption of the $ 400.0
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corporate assets and liabilities that are not directly related to a specific reporting unit , but from which the reporting unit benefits , are allocated based on the respective contribution measure of each reporting unit . effective july 1 , 2013 , 43 we re-aligned the company 's reporting structure and consequently reallocated the carrying value of goodwill from its previous reporting units to its new reporting units based on the relative fair value of each new reporting unit to total enterprise value at july 1 , 2013. as a result of our change in reporting structure , we allocated goodwill to each reporting unit , and subsequently evaluated the extremity fixation and spine fixation reporting units for the possible impairment of goodwill , as there were indicators of impairment when completing a qualitative analysis . the result of this step two analysis was a full impairment of the goodwill allocated to our extremity fixation , and spine fixation reporting units , totaling $ 19.2 million . there continue to be no indicators of impairment in our remaining reporting units , which were reevaluated at year end using a qualitative assessment . litigation and contingent liabilities from time to time , we are parties to or targets of lawsuits , investigations and proceedings , including product liability , personal injury , patent and intellectual property , health and safety and employment and healthcare regulatory matters , which are handled and defended in the ordinary course of business . these lawsuits , investigations or proceedings could involve a substantial number of claims and could also have an adverse impact on our reputation and customer base . although we maintain various liability insurance programs for liabilities that could result from such lawsuits , investigations or proceedings , we are self-insured for a significant portion of such liabilities . we accrue for such claims when it is probable that a liability has been incurred and the amount can be reasonably estimated . the process of analyzing , assessing and establishing reserve estimates for these types of claims involves judgment . changes in the facts and circumstances associated with a claim could have a material impact on our results of operations and cash flows in the period that reserve estimates are revised . we believe our insurance coverage and reserves are sufficient to cover currently estimated exposures , but we can not give any assurance that we will not incur liabilities in excess of recorded reserves or our present insurance coverage . tax matters we and each of our subsidiaries are taxed at the rates applicable within each of their respective jurisdictions . the composite income tax rate , tax provisions , deferred tax assets and deferred tax liabilities will vary according to the jurisdiction in which profits arise . further , certain of our subsidiaries sell products directly to our other subsidiaries or provide administrative , marketing and support services to our other subsidiaries . these intercompany sales and support services involve subsidiaries operating in jurisdictions with differing tax rates . the tax authorities in such jurisdictions may challenge our treatments under residency criteria , transfer pricing provisions , or other aspects of their respective tax laws , which could affect our composite tax rate and provisions . we account for uncertain tax positions in accordance with asc topic 740— income taxes , which contains a two-step approach to recognizing and measuring uncertain tax positions . the first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that , on an evaluation of the technical merits , the tax position will be sustained on audit , including resolution of any related appeals or litigation processes . the second step is to measure the tax benefit as the largest amount that is more than 50 % likely to be realized upon ultimate settlement . we re-evaluate our income tax positions periodically to consider factors such as changes in facts or circumstances , changes in or interpretations of tax law , effectively settled issues under audit and new audit activity . such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision . we include interest related to tax issues as part of income tax expense in our consolidated financial statements . we record any applicable penalties related to tax issues within the income tax provision . share-based compensation the fair value of service-based stock options are determined using the black-scholes valuation model . such value is recognized as expense over the service period net of estimated forfeitures . the fair value of market-based stock options are determined at the date of the grant using the monte carlo valuation methodology . such value is recognized as expense over the requisite service period adjusted for estimated forfeitures for each separately vesting tranche of the award . the monte carlo methodology that we use to estimate the fair value of market-based options incorporates into the valuation the possibility that the market condition may not be satisfied . the expected term of options granted is estimated based on a number of factors , including the vesting and expiration terms of the award , historical employee exercise behavior for both options that are currently outstanding and options that have been exercised or are expired , the historical volatility of the company 's common stock and an employee 's average length of service . the risk-free interest rate is determined based upon a constant u.s. treasury security rate with a contractual life that approximates the expected 44 term of the option award . management estimates expected volatility based on the historical volatility of the company 's stock . the compensation expense recognized for all equity-based awards is net of estimated forfeitures . forfeitures are estimated based on an analysis of actual option forfeitures . story_separator_special_tag on june 30 , 2014 , we granted performance based restricted share awards to executive employees , which vesting is based on achieving earnings targets in two consecutive rolling four quarter periods . the fair value of performance-based restricted stock awards are recognized , net of estimated forfeitures , over the derived requisite vesting period beginning in the period in which they are deemed probable to vest . results of operations the following table presents certain items in our consolidated statements of operations as a percent of net sales for the periods indicated : replace_table_token_5_th our segment information is prepared on the same basis that management reviews the financial information for operational decision-making purposes . we manage our business by our four strategic business units ( “ sbus ” ) , which are comprised of biostim , biologics , extremity fixation , spine fixation , and supported by corporate activities . these sbus represent the segments for which our chief executive officer , who is our chief operating decision maker ( the “ codm ” ) , reviews financial information and makes resource allocation decisions among business units . accordingly , our segment information has been prepared based on our four sbu 's reporting segments . these four segments are discussed below . biostim the biostim sbu manufactures , distributes , and provides support services of market leading devices that enhance bone fusion . these class iii medical devices are indicated as an adjunctive , noninvasive treatment to improve fusion success rates in cervical and lumbar spine as well as a therapeutic treatment for non-spine fractures that have not healed ( non-unions ) . these devices utilize orthofix 's patented pulsed electromagnetic field ( “ pemf ” ) technology , which is supported by strong basic mechanism of action data in the scientific literature and as well as strong level one randomized controlled clinical trials in the medical literature . current research and clinical studies are also underway to identify potential new clinical indications . this sbu uses both distributors and independent sales representatives to sell its devices to hospitals , doctors and other healthcare providers , primarily in the u.s. biologics the biologics sbu provides a portfolio of regenerative products and tissue forms that allow physicians to successfully treat a variety of spinal and orthopedic conditions . this sbu specializes in the marketing of the company 's regeneration tissue forms . biologics markets its tissues through a network of distributors , independent sales representatives and affiliates to supply to hospitals , doctors , and other healthcare providers , primarily in the u.s. our partnership with the musculoskeletal transplant foundation 45 ( “ mtf ” ) allows us to exclusively market our trinity evolution ® and trinity elite ® tissue forms for musculoskeletal defects to enhance bony fusion . extremity fixation the extremity fixation sbu offers products and solutions that allow physicians to successfully treat a variety of orthopedic conditions unrelated to the spine . this sbu specializes in the design , development , and marketing of the company 's orthopedic products used in fracture repair , deformity correction and bone reconstruction procedures . extremity fixation distributes its products through a network of distributors , independent sales representatives and affiliates . this sbu uses both independent distributors and direct sales representatives to sell orthopedic products to hospitals , doctors , and other health providers , globally . spine fixation the spine fixation sbu specializes in the design , development and marketing of a broad portfolio of implant products used in surgical procedures of the spine . spine fixation distributes its products through a network of distributors and affiliates . this sbu uses distributors and independent sales representatives to sell spine products to hospitals , doctors and other healthcare providers , globally . corporate corporate activities are comprised of the operating expenses , including share-based compensation , of orthofix international n.v. and its holding company subsidiaries , along with activities not necessarily identifiable within the four sbus . net sales by sbu : the table below presents net sales for continuing operations by sbu reporting segment . net sales include product sales and marketing service fees . replace_table_token_6_th 2014 compared to 2013 net sales net sales increased 1.2 % or $ 4.7 million , to $ 402.3 million in 2014 compared to $ 397.6 million in 2013. the impact of foreign currency decreased sales by $ 0.3 million in 2014 when compared to 2013. net sales include product sales and marketing service fees , which is comprised of biologic sales of trinity evolution ® and trinity elite ® . net sales by sbu net sales in our biostim sbu increased 6.6 % or $ 9.6 million , to $ 154.7 million in 2014 compared to $ 145.1 million in 2013. the increase was due to enhancements to the sales organization , which included adding management and salespeople in underserved geographies as well as additional sales representatives exclusively dedicated to our physio-stim ® product line , as well as the reduction in third-party payor revenue in 2013 driven by our transition to recognize revenue upon accumulation of the full billable package for third-party payors given the increased complexity in insurance billing requirements . net sales in our biologics sbu increased 4.0 % or $ 2.1 million , to $ 55.9 million in 2014 compared to $ 53.7 million in 2013. the increase was mainly due to an expanded sales channel as well as continued conversion to our next generation cell-based bone growth tissue technology ( trinity elite ® ) . these increases were offset slightly by a reduction in marketing fee percentages received for our trinity products starting in april 2013 . 46 net sales in our extremity fixation sbu increased 6.1 % or $ 6.3 million , to $ 109.7 million in 2014 compared to $ 103.4 million in 2013. the increase was due to recently expanded product launches and improvement in international collections of cash basis sales .
| see “ discussion of infrastructure initiative ” below for additional information on bluecore . 2015 outlook for fiscal year 2015 , the company expects : ● net sales in the range of $ 385 million to $ 390 million , representing a decline of ( 0.7 % ) to growth of 0.6 % on a constant currency basis and a decline of 4.3 % to 3.1 % on a reported basis . ● adjusted ebitda to be between $ 55 million and $ 58 million . critical accounting policies and estimates our discussion of operating results is based upon the consolidated financial statements and accompanying notes to the consolidated financial statements prepared in conformity with u.s. gaap . the preparation of these statements 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 . these estimates and assumptions form the basis for the carrying values of assets and liabilities . on an ongoing basis , we evaluate these estimates , which are based on historical experience and various other assumptions that management believe to be reasonable under the circumstances at that certain point in time . actual results may differ , significantly at times , from these estimates . we have reviewed our critical accounting policies with the audit committee of the board of directors . we believe the following critical accounting policies and estimates affect the significant estimates and judgments we use in preparation of our consolidated financial statements . revenue recognition commercial revenue is related to the sale of our implant products , generally representing hospital customers . revenues are recognized when these products have been utilized and a confirming purchase order has been received from the hospital . revenue is also derived from third-party payors , including commercial insurance carriers , health maintenance organizations , preferred provider organizations and governmental payors such as medicare , in connection with the sale of
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risk factors - our business could suffer if we are unsuccessful in making , continuing and growing relationships with home improvement contractors and dealers ” of this form 10‑k . since 2012 , the company has had an emphasis on diversifying lending products by expanding commercial real estate , commercial business and residential lending , while maintaining the current size of the consumer loan portfolio . the company 's lending strategies are intended to take advantage of : ( 1 ) historical strength in indirect consumer lending , ( 2 ) recent market consolidation that has created new lending opportunities and the availability of experienced bankers , and ( 3 ) strength in relationship lending . retail deposits will continue to serve as an important funding source . see “ item 1. business : lending activities ” and “ item 1a . risk factors - risks related to our business ” of this form 10‑k . recently , improvements in the economy , employment rates , stronger real estate prices , and a general lack of new housing inventory has resulted in our significantly increasing originations of construction loans for properties located in our market areas . we anticipate that construction and development lending will continue to be a strong element of our total loan portfolio in future periods . we will continue to take a disciplined approach in our construction and development lending by concentrating our efforts on loans to builders and developers in our market areas known to us . originations of construction and development loans increased to $ 208.0 million in 2018 from $ 123.3 million in 2017. these short-term loans typically mature in six to twelve months . in addition , the commitment is usually not fully disbursed at origination , thereby reducing our net loans receivable in the short term . at december 31 , 2018 , outstanding construction and development loans totaled $ 247.3 million , or 18.7 % , of the gross loan portfolio and consisted of loans for residential and commercial construction projects , primarily for vertical construction and $ 16.7 million of land acquisition and development loans . total committed , including unfunded construction and development loans at december 31 , 2018 , was $ 333.2 million as compared to $ 222.0 million at december 31 , 2017. the company is significantly affected by prevailing economic conditions , as well as government policies and regulations concerning , among other things , monetary and fiscal affairs . deposit flows are influenced by a number of factors , including interest rates paid on time deposits , other investments , account maturities , and the overall level of personal income and savings . lending activities are influenced by the demand for funds , the number and quality of lenders , and regional economic cycles . sources of funds for lending activities include primarily deposits , including brokered deposits , borrowings , payments on loans and income provided from operations . the company 's earnings are primarily dependent upon net interest income , the difference between interest income and interest expense . interest income is a function of the balances of loans and investments outstanding during a given period and the yield earned on these loans and investments . interest expense is a function of the amount of deposits and borrowings outstanding during the same period and interest rates paid on these deposits and borrowings . another significant influence on the company 's earnings is fee income from mortgage banking activities . the company 's earnings are also affected by the provision for loan losses , service charges and fees , gains from sales of assets , operating expenses and income taxes . critical accounting policies and estimates certain of the company 's accounting policies are important to the portrayal of the company 's financial condition , since they require management to make difficult , complex or subjective judgments , some of which may relate to matters that are inherently uncertain . estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances . facts and circumstances which could affect these judgments include , but are not limited to , changes in interest rates , changes in the performance of the economy and changes in the financial condition of borrowers . management believes that its critical accounting policies include determining the allowance for loan losses , the fair value 71 of servicing rights , derivatives and hedging activity , and the accounting for deferred income taxes . the company 's accounting policies are discussed in detail in note 1 of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this form 10‑k . allowance for loan loss . the allowance for loan losses is the amount estimated by management as necessary to cover probable losses inherent in the loan portfolio at the balance sheet date . the allowance is established through the provision for loan losses , which is charged to income . a high degree of judgment is necessary when determining the amount of the allowance for loan losses . among the material estimates required to establish the allowance are : loss exposure at default ; the amount and timing of future cash flows on impacted loans ; value of collateral ; and determination of loss factors to be applied to the various elements of the portfolio . all of these estimates are susceptible to significant change . management reviews the level of the allowance at least quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio , past loss experience , current economic conditions and other factors related to the collectability of the loan portfolio . although the company believes that use of the best information available to establish the allowance for loan losses , future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation . story_separator_special_tag as the company adds new products to the loan portfolio and expands the company 's market area , management intends to enhance and adapt the methodology to keep pace with the increased size and complexity of the loan portfolio . changes in any of the above factors could have a significant effect on the calculation of the allowance for loan losses in any given period . management believes that its systematic methodology continues to be appropriate given the company 's increased size and level of complexity . servicing rights . servicing assets are recognized as separate assets when rights are acquired through the purchase or through the sale of financial assets . generally , purchased servicing rights are capitalized at the cost to acquire the rights . for sales of mortgage , commercial and consumer loans , a portion of the cost of originating the loan is allocated to the servicing right based on relative fair value . fair value is based on market prices for comparable mortgage , commercial , or consumer servicing contracts , when available , or alternatively , is based on a valuation model that calculates the present value of estimated future net servicing income . the valuation model incorporates assumptions that market participants would use in estimating future net servicing income , such as the cost to service , the discount rate , the custodial earnings rate , an inflation rate , ancillary income , prepayment speeds , and default rates and losses . servicing assets are evaluated quarterly for impairment based upon the fair value of the rights as compared to amortized cost . impairment is determined by stratifying rights into tranches based on predominant characteristics , such as interest rate , loan type , and investor type . impairment is recognized through a valuation allowance for an individual tranche , to the extent that fair value is less than the capitalized amount for the tranches . if the company later determines that all or a portion of the impairment no longer exists for a particular tranche , a reduction of the allowance may be recorded as a recovery and an increase to income . capitalized servicing rights are stated separately on the consolidated balance sheets and are amortized into noninterest income in proportion to , and over the period of , the estimated future net servicing income of the underlying financial assets . derivative and hedging activity . asc 815 , “ derivatives and hedging , ” requires that derivatives of the company be recorded in the consolidated financial statements at fair value . management considers its accounting policy for derivatives to be a critical accounting policy because these instruments have certain interest rate risk characteristics that change in value based upon changes in the capital markets . the company 's derivatives are primarily the result of its mortgage banking activities in the form of commitments to extend credit , commitments to sell loans , to-be-announced ( “ tba ” ) mortgage backed securities trades and option contracts to mitigate the risk of the commitments to extend credit . estimates of the percentage of commitments to extend credit on loans to be held for sale that may not fund are based upon historical data and current market trends . the fair value adjustments of the derivatives are recorded in the consolidated statements of income with offsets to other assets or other liabilities in the consolidated balance sheets . fair value . asc 820 , “ fair value measurements and disclosures , ” establishes a hierarchical disclosure framework associated with the level of pricing observability utilized in measuring financial instruments at fair value . the degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability . financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value . conversely , financial instruments rarely traded or not quoted will generally have little or no pricing observability and a higher degree of judgment utilized in measuring fair value . pricing observability is impacted by a number of factors , including the type of financial instrument , whether the financial instrument is new to the market 72 and not yet established and the characteristics specific to the transaction . the objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions ( that is , an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability ) . see note 15 of the notes to consolidated financial statements included in “ item 8. financial statements and supplementary data ” of this form 10‑k for additional information about the level of pricing transparency associated with financial instruments carried at fair value . income taxes . income taxes are reflected in the company 's consolidated financial statements to show the tax effects of the operations and transactions reported in the consolidated financial statements and consist of taxes currently payable plus deferred taxes . accounting standards codification , asc 740 , “ accounting for income taxes , ” requires the asset and liability approach for financial accounting and reporting for deferred income taxes . deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of assets and liabilities . they are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled and are determined using the assets and liability method of accounting . the deferred income provision represents the difference between net deferred tax asset/liability at the beginning and end of the reported period .
| the average cost of funds for total interest-bearing liabilities increased 46 basis points to 1.22 % for the year ended december 31 , 2018 , from 0.76 % for the year ended december 31 , 2017. this increase was predominantly due to the 78 growth in time deposits and an increase in short-term overnight fhlb borrowing rates reflecting increases in the targeted federal funds rate . management remains focused on matching deposit/liability duration with the duration of loans/assets where appropriate . interest income . interest income for the year ended december 31 , 2018 , increased $ 16.1 million , or 35.0 % , to $ 62.3 million , from $ 46.2 million for the year ended december 31 , 2017. the increase during the year was primarily attributable to an increase in the average balance of loans receivable , net and loans held for sale to $ 980.0 million for the year ended december 31 , 2018 , compared to $ 749.2 million for the year ended december 31 , 2017 , and a 31 basis point increase in the average yield on interest-earning assets to 5.52 % during the year ended december 31 , 2018 , from 5.21 % for the prior year . the increase in average yield on interest-earning assets compared to the prior year primarily reflects the growth in the loan portfolio and the proportionally larger level of loans in the average interest-earning asset mix . the average yield on loans receivable , net and loans held for sale increased to 5.98 % during the year ended december 31 , 2018 , from 5.80 % for the prior year . the following table compares average earning asset balances , associated yields , and resulting changes in interest income for the years ended december 31 , 2018 and 2017 : replace_table_token_28_th _ ( 1 ) the average loans receivable , net balances include non-accruing loans . interest expense . interest expense increased $ 5.3 million , or 107.3 % , to $ 10.2 million for the year ended december 31 , 2018 , from $ 4.9 million for the prior year . the increase was primarily attributable to an increase in interest expense on deposits of $ 3.4
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our long-term optimism is based upon the considerable size of the existing market opportunity for lighting retrofits , including the market opportunities in commercial office , government and retail markets , the continued development of our new products and product enhancements , including our new led product offerings , and our efforts to expand our channels of distribution and our cost reduction initiatives . as we attempt to adapt our business organization to the quickly evolving lighting market , we are implementing significant changes to our manufacturing operations to increase our flexibility , remain competitive and lower our cost structure . implementing these initiatives may result in additional cost and expenses , including asset impairment or write-down charges and other repositioning expenses and charges , which would likely materially adversely affect our reported results of operations . our anticipated increase in revenues in fiscal 2017 may impact our available cash and borrowing capacity as a result of the high capital costs associated with the increase in the sales of our products from existing levels . as a result , we are pursuing various alternative sources of liquidity , including the sale and leaseback of our manufacturing facility , which is expected to be completed by the end of june 2016 , subject to various closing conditions . our ability to achieve our desired growth and profitability depends on our ability to expand our reseller network , develop recurring revenue streams , effectively engage distribution and sales agents and improve our marketing , new product development , project management , margin enhancement and operating expense management , as well as other factors . our fiscal year ends on march 31. we refer to our prior fiscal years which ended on march 31 , 2014 as “ fiscal 2014 ” , and the year ended on march 31 , 2015 , as “ fiscal 2015 ” , and our current fiscal year , which ended on march 31 , 2016 , as “ fiscal 2016. ” our fiscal first quarter of each fiscal year ends on june 30 , our fiscal second quarter ends on september 30 , our fiscal third quarter ends on december 31 and our fiscal fourth quarter ends on march 31. market shift to light emitting diode products the rapid market shift in the lighting industry from legacy lighting products to led lighting products has caused us to adopt new strategies , approaches and processes in order to respond proactively to this paradigm shift . these changing underlying business fundamentals in this paradigm shift include : rapidly declining led product end user customer pricing and related component costs , improving led product performance and customer return on investment payback periods , all of which are driving increasing customer preferences for led lighting products compared to legacy lighting products . increasing led lighting product customer sales compared to decreasing hif product sales . generally lower led product gross margins than those typically realized on sales of legacy lighting products . 23 a broader and more diverse customer base and market opportunities compared to our historical commercial and industrial facility customers . increased importance of highly innovative product designs and features and faster speed to market product research and development capabilities . significantly reduced product technology life cycles ; significantly shorter product inventory shelf lives and the related increased risk of rapidly occurring product technology obsolescence . increased reliance on international component sources . less internal product fabrication and production capabilities needed to support led product assembly . different and broader types of components , fabrication and assembly processes needed to support led product assembly compared to our legacy products . expanding customer bases and sales channels . significantly longer end user product warranty requirements for led products compared to our legacy products . as we continue to focus our primary business on selling our led product lines to respond to the rapidly changing market dynamics in the lighting industry , we face intense competition from an increased number of other led product companies , a number of which have substantially greater resources and more experience and history with led lighting products than we do . fiscal 2016 developments since the fourth quarter of fiscal 2014 , we have experienced a reduction in the amount of new customer orders for our energy-efficient hif lighting systems within our industrial and exterior markets . we attribute this to an increasing awareness within the marketplace of emerging led product offerings . we believe that customers continue to defer purchase decisions as they evaluate the cost and performance of these led product offerings . during the fiscal 2015 third quarter , deferrals of purchasing decisions began to abate as customer purchases of led lighting systems during our fiscal 2015 back half increased compared to our fiscal 2014 back half . this trend continued during fiscal 2016 as our led lighting revenue increased by 49 % compared to fiscal 2015. during the second half of fiscal 2016 we experienced a slowing of customer capital spending which we attribute to general macro-economic concerns and conservative cash allocation strategies within our manufacturing and industrial customer base . additionally , during the fiscal 2016 third quarter , we began to further emphasize sales through our distribution channel by working through manufacturer representative agencies who represent lighting distributors throughout our addressable markets : commercial office and retail , area lighting and industrial applications . while we expect this activity to generate long-term growth , in the near-term it may have a dampening impact on revenues . during fiscal 2016 , we continued to see improvements in our led product gross margin related to led products as a result of our negotiated price decreases for lighting components and the benefits of our fiscal 2015 fourth quarter cost containment initiatives . during the fiscal 2016 second quarter , we experienced an increase in sales of our led door retrofit , or ldr , product line which has lower gross margins as compared to our other led product lines . story_separator_special_tag this increase in volume negatively impacted our overall gross margin during the fiscal 2016 second quarter . in october 2015 , we introduced a series of new led industrial high bay products . these led products have significant advantages in delivering lumens per watt and , we believe , the lowest total cost of ownership versus other led lighting products . additionally , we expect that our gross margins will improve as we increase sales of these new products . fiscal 2017 outlook on march 31 , 2016 , we entered into a purchase and sale agreement with tramontina u.s. cookware , inc. providing for the sale and leaseback of our manitowoc manufacturing facility for gross cash proceeds of approximately $ 2,600,000. the agreement includes customary terms related to a real estate sales transaction and requires the parties to negotiate a lease whereby we will lease approximately 200,000 square feet of the building for a term of not less than three years with rent at $ 2.00 per square foot per annum . the lease will contain options by both parties to reduce amount of leased space after march 1 , 2017 given sufficient notice . the closing of the transaction is expected to occur on or before june 30 , 2016 , subject to various closing conditions . we expect that our revenues and gross margin will increase during fiscal 2017 as we continue to recognize the benefits of higher purchase volumes of led components at lower costs , increasing sales volumes of our newly introduced and higher-margin led high bay products and increased utilization of our manufacturing facility . 24 we expect that our marketing expenditures will increase in fiscal 2017 primarily to support more robust customer lead generations and further enhance our brand awareness with our agents in their efforts to sell our products through our distribution channel . results of operations : fiscal 2016 versus fiscal 2015 the following table sets forth the line items of our consolidated statements of operations and as a relative percentage of our total revenue for each applicable period , together with the relative percentage change in such line item between applicable comparable periods ( in thousands , except percentages and per share amounts ) : replace_table_token_4_th * nm = not meaningful revenue . product revenue decreased 1.5 % , or $ 984,000. the slight decrease in product revenue was primarily a result of the impact of the softening macro-economic environment in the back half of fiscal 2016. strong customer response to our next generation high bay product offering drove increased led sales which were offset by tempered demand in the industrial sector as a result of macro-economic uncertainty . led lighting revenue increased by 48 % from $ 30,800,000 in fiscal 2015 to $ 45,679,000 in fiscal 2016. service revenue decreased 56.6 % , or $ 3,584,000 , due to higher service revenue in fiscal 2015 primarily due to more solar revenue and project revenue from a significant customer . total revenue decreased by 6.3 % , or $ 4,568,000 , primarily due to the items discussed above . cost of revenue and gross margin . our cost of product revenue decreased 27.4 % , or $ 18,758,000 , in fiscal 2016 versus the comparable period in fiscal 2015 due primarily to lower component cost , cost containment initiatives and inventory impairment charges in fiscal 2015. our cost of service revenue decreased 59.4 % , or $ 2,944,000 in fiscal 2016 versus the comparable period in fiscal 2015 primarily due to more solar projects and significant customer revenue in fiscal 2015 than fiscal 2016. gross profit improved from a negative 1.6 % of revenue in fiscal 2015 to 23.6 % in fiscal 2016. the prior year included inventory impairment charges of $ 12,130,000. our lighting gross margin was positively impacted by a favorable mix of higher-priced and higher-margin led high bay fixtures , negotiated price decreases for lighting components and the benefits of our fiscal 2015 fourth quarter cost containment initiatives . we expect our gross margins from sales of lighting products to increase during fiscal 2017 as we continue to recognize the benefits of higher purchase volumes of led components at lower costs , increasing sales volumes of our newly introduced and higher-margin led high bay products and increased utilization of our manufacturing facility . 25 operating expenses general and administrative . our general and administrative expenses increased 13.3 % , or $ 1,976,000 , in fiscal 2016 primarily due to the recognition of a loss contingency of $ 1,400,000 in the fourth quarter of 2016. goodwill and long lived asset impairment . we performed our annual goodwill impairment test in the fourth quarter of fiscal 2016. in conjunction with the annual goodwill impairment test , we determined that the entire amount of our recorded goodwill of $ 4,409,000 was impaired . in addition , long lived assets related to the pending sale and leaseback of our manufacturing facility were impaired by $ 1,614,000 to properly represent the fair value of the property being sold . sales and marketing . our sales and marketing expenses decreased 14.7 % , or $ 1,947,000 , in fiscal 2016 compared to fiscal 2015. the decrease was due to a decrease in headcount related expenses for compensation and reduced travel costs in conjunction with our cost containment efforts . research and development . our research and development expenses decreased by 34.7 % or $ 886,000 , in fiscal 2016 primarily due to a reduction in consulting fees and customer field sample testing costs related to our new products as we continue to increase our cost effectiveness related to launching new products and decrease our reliance on higher-cost third parties . interest expense . our interest expense in fiscal 2016 decreased by 21.0 % or $ 79,000 from fiscal 2015. the decrease in interest expense was due to a decrease in borrowings on our revolving credit facility . interest income .
| borrowings under the credit agreement outstanding as of march 31 , 2016 , amounted to approximately $ 3,719,000. orion estimates that as of march 31 , 2016 , it was eligible to borrow an additional $ 229,000 under the credit facility based upon current levels of eligible inventory and accounts receivable . orion was in compliance with its covenants in the credit agreement as of march 31 , 2016. our future liquidity needs are dependent upon many factors , including our relative revenue , gross margins , cash management practices , capital expenditures , pending or future litigation results , cost containment measures and future potential acquisition transactions . in addition , we tend to experience high working capital costs when we increase sales from existing levels . based on our current expectations , while we anticipate realizing improved net income performance during fiscal 2017 , we also currently believe that we will experience negative working capital cash flows during some quarters of fiscal 2017. while we believe that we will likely have adequate available cash and equivalents and credit availability under our credit agreement to satisfy our currently anticipated working capital and liquidity requirements during the near-term , there can be no assurance to that effect . we are pursuing various alternative sources of liquidity , including the pending sale and leaseback of our manufacturing facility , to help ensure that we will have adequate available cash to satisfy our working capital needs . we are also implementing certain inventory management practices which should help to reduce our inventory levels and enhance our cash position . if we experience significant liquidity constraints , we may be required to reduce our sales efforts , implement additional cost savings initiatives or undertake other efforts to conserve our cash . cash flows the following table summarizes our cash flows for our fiscal 2016 , fiscal 2015 and fiscal 2014 : replace_table_token_9_th cash flows related to operating activities . cash used in operating activities primarily consisted of a net loss adjusted for certain non-cash items including depreciation and amortization , stock-based compensation expenses , deferred income taxes ,
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we expect to complete enrollment and generate top-line data in 12 to 18 months , with potential bla submission in 2022. our 802 study , which is a phase 1b/2 study designed to determine the safety , tolerability , and preliminary antileukemia activity of imgn632 when administered in combination with azacitidine and or venetoclax to patients with relapsed and frontline cd123-positive aml , is in the dose-escalation phase , enrolling relapsed and refractory patients to determine the recommended phase 2 dose of imgn632 for combination regimens . we anticipate sharing data from this study in 2021. we continue to advance additional pipeline programs . imgc936 is an adc in co-development with macrogenics designed to target adam9 , an enzyme overexpressed in a range of solid tumors and implicated in tumor progression and metastasis . imgc936 incorporates a number of innovations , including antibody engineering to extend the half-life , site-specific conjugation with a fixed drug-antibody ratio to enable higher dosing , and a next-generation linker and payload for improved stability and bystander activity . the ind for imgc936 was accepted by the fda in the second quarter of 2020 and we began enrollment in the phase 1 study in the fourth quarter of 2020. imgn151 is our next generation anti-frα candidate in preclinical development . this adc integrates innovation in each of its components , which may enable imgn151 to address patient populations with lower levels of frα expression , including tumor types outside of ovarian cancer . we presented encouraging data for imgn151 at the american academy of cancer research virtual annual meeting ii in june 2020. we expect to file the ind for imgn151 by the end of 2021. we have selectively licensed restricted access to our adc platform technology to other companies to expand the use of our technology and to provide us with cash to fund our own product programs . these agreements typically provide the licensee with rights to use our adc platform technology with its antibodies or related targeting vehicles to a defined target to develop products . the licensee is generally responsible for the development , clinical testing , manufacturing , registration , and commercialization of any resulting product candidate . as part of these agreements , we are generally entitled to receive upfront fees , potential milestone payments , and royalties on the sales of any resulting products . in october 2020 , we entered into a collaboration and license agreement with huadong , a subsidiary of huadong medicine co. , ltd. , under which huadong will exclusively develop and commercialize mirvetuximab in the people 's republic of china , hong kong , macau , and taiwan , which we refer to as greater china . under the terms of the collaboration and license agreement , we received a non-refundable upfront payment of $ 40.0 million and are eligible to receive additional payments of up to $ 265.0 million as certain development , regulatory , and net sales milestones are achieved . we are also eligible to receive tiered low double digit to high teen royalties as a percentage of mirvetuximab commercial sales by huadong in greater china . huadong is responsible for the development and commercialization of mirvetuximab in greater china except in limited circumstances . we retain all rights to mirvetuximab in the rest of the world . we expect that substantially all of our revenue for at least the next year will result from payments under our collaborative arrangements . for more information concerning these relationships , including their ongoing financial and accounting impact on our business , please read note c , “ significant collaborative agreements , ” to our consolidated financial statements included in this report . to date , we have not generated revenues from commercial sales of internal products , and we expect to incur significant operating losses for the foreseeable future . as of december 31 , 2020 , we had $ 293.9 million in cash and cash equivalents compared to $ 176.2 million as of december 31 , 2019. in january 2021 , pursuant to an open market sale agreement sm , with jefferies , llc as sales agent , we sold 4.5 million shares of our common stock , generating net proceeds of $ 33.6 million after deducting underwriting discounts and offering expenses . 38 critical accounting policies and estimates we prepare our consolidated financial statements in accordance with accounting principles generally accepted in the u.s. the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to our collaborative agreements , clinical trial accruals , and stock-based compensation . we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from these estimates . during 2019 , we adopted accounting standards codification ( asc ) 842 , leases , using the transition method provided by accounting standards update ( asu ) no . 2018-11 , leases ( topic 842 ) : targeted improvements . under this method , we initially applied the new leasing rules on january 1 , 2019 , rather than at the earliest comparative period presented in the financial statements . periods prior to adoption are presented in accordance with previous guidance issued under asc 840 , leases . the adoption of asc 842 represented a change in accounting principle that resulted in the recognition of lease assets and liabilities on the balance sheet , including those previously classified as operating leases under asc 840 , and disclosure of key information about leasing arrangements . refer to note b to the consolidated financial statements for further discussion on this change . refer to note b to the consolidated financial statements for further discussion regarding our critical accounting policies , including revenue recognition , clinical trial accruals , and stock-based compensation . story_separator_special_tag story_separator_special_tag new targets and to develop and evaluate new antibodies , linkers , and cytotoxic agents for our products and in support of our collaborators . such expenses primarily include personnel , contract services , facility expenses , and laboratory supplies . there were no research expenses for 2020 as a result of the restructuring of the business at the end of the second quarter of 2019. preclinical and clinical testing preclinical and clinical testing includes expenses related to preclinical testing of our own , and , in certain instances , our collaborators ' product candidates , regulatory activities , and the cost of clinical trials . such expenses include personnel , patient enrollment at our clinical testing sites , consultant fees , contract services , and facility expenses . preclinical and clinical testing expenses increased to $ 75.4 million for 2020 compared to $ 71.2 million for 2019. this 40 increase is primarily the result of increased clinical trial costs driven by costs incurred related to advancing the mirasol , soraya , imgn632 , and imgc936 studies and less reimbursement recorded in the current year pursuant to our cost-sharing agreement with jazz . partially offsetting these increases were lower personnel , administrative , laboratory , and allocated facility expenses resulting from the restructuring of the business , lower clinical trial costs related to the forward i , forward ii , and imgn779 studies , and a decrease in contract services driven by certain regulatory and pre-commercial activities related to mirvetuximab and preclinical development of imgc936 in the prior year . process and product development process and product development expenses include costs for development of clinical and commercial manufacturing processes for our own and collaborator compounds . such expenses include the costs of personnel , contract services , laboratory supplies , and facility expenses . process and product development expenses decreased to $ 5.4 million for 2020 compared to $ 7.8 million for 2019. this decrease is principally due to a decrease in personnel expenses , laboratory supplies , and allocated facility expenses as a result of the restructuring of the business , partially offset by an increase in contract services driven by greater activity related to our imgn151 and imgc936 programs and less reimbursement recorded in the current period pursuant to our cost-sharing agreement with jazz . manufacturing operations manufacturing operations expense includes costs to have preclinical and clinical materials manufactured for our product candidates and quality control and quality assurance activities . such expenses include personnel , raw materials for our preclinical studies and clinical trials , non-pivotal and pivotal development costs with contract manufacturing organizations , and facility expenses . manufacturing operations expense increased $ 10.5 million to $ 33.7 million for 2020. the increase in 2020 is principally due to greater external manufacturing costs related to the potential commercial launch of mirvetuximab and less reimbursement recorded in the current period pursuant to our cost-sharing agreement with jazz , partially offset by lower personnel , administrative , and facility-related expenses resulting from the shut-down of our manufacturing facility in february 2019 and the restructuring of the business at the end of the second quarter of 2019. antibody development and supply expense in support of commercial validation and in anticipation of potential future clinical trials , as well as our ongoing trials , was $ 20.2 million and $ 8.3 million for 2020 and 2019 , respectively . development and supply expenses related to the potential commercial launch of mirvetuximab drove the increased spend in 2020. the process of antibody production is lengthy due in part to the lead time to establish a satisfactory production process at a vendor . accordingly , costs incurred related to antibody production and development have fluctuated from period to period and we expect these cost fluctuations to continue in the future . general and administrative expenses general and administrative expenses increased $ 0.1 million to $ 38.6 million for 2020 due primarily to a higher allocation of facility-related expenses for excess laboratory and office space and an increase in professional services , substantially offset by a decrease in personnel and administrative expenses resulting from the prior year restructuring . restructuring charges on june 26 , 2019 , the board of directors approved a plan to restructure the business to focus resources on continued development of mirvetuximab and a select portfolio of three earlier-stage product candidates , resulting in a significant reduction of our workforce , with a majority of these employees separating from the business by mid-july 2019 and most of the remaining affected employees transitioning over varying periods of time of up to 12 months . communication of the plan to the affected employees was substantially completed on june 27 , 2019. as a result of the workforce reduction , we recorded a charge of $ 16.0 million for severance related to a pre-existing plan in june 2019 , which was subsequently reduced to $ 15.3 million due to minor adjustments to the plan . the related cash payments were substantially paid out by june 30 , 2020. in addition , a charge of $ 4.0 million was recorded for incremental retention benefits in the same time period , of which $ 1.6 million and $ 2.4 million was recorded during 2020 and 2019 , respectively . in addition to the termination benefits and other related charges , we sub-leased the majority of the laboratory and office space at 830 winter street in waltham , massachusetts and liquidated excess equipment . in performing the required impairment test , we recorded a charge of $ 2.5 million in june 2019 to write down the equipment to fair value ; however , we determined the right-to-use asset related to the lease was recoverable , therefore , no impairment was recorded .
| deferred revenue of $ 110.1 million as of december 31 , 2020 includes $ 40.0 million related to the collaboration with huadong executed in october 2020 and $ 65.2 million related to the sale of our residual rights to receive royalty payments on commercial sales of kadcyla in 2019 , with the remainder of the balance primarily representing consideration received from our other collaborators pursuant to our license agreements which we have yet to earn pursuant to our revenue recognition policy . non-cash royalty revenue related to the sale of future royalties in february 2013 , the fda granted marketing approval to kadcyla , an adc resulting from one of our development and commercialization licenses with roche , through its genentech unit . we receive royalty reports and payments related to sales of kadcyla from roche one quarter in arrears . in accordance with our revenue recognition policy , $ 68.5 million and $ 47.4 million of non-cash royalties on net sales of kadcyla were recorded and included in royalty revenue for 2020 and 2019 , respectively . the increase in 2020 is a result of an increase in royalty payments driven by increases in net sales of kadcyla due to market expansion of kadcyla and approval of kadcyla for a second indication in 2019. kadcyla sales occurring after january 1 , 2015 are covered by royalty purchase agreements . pursuant to the terms of these agreements , we expect to recognize less non-cash royalty revenue during 2021 and subsequent years . see further details regarding the royalty obligation in note f , “ liability related to sale of future royalties , ” of the consolidated financial statements . 39 research and development expenses our research and development expenses relate to ( i ) research to evaluate new targets and to develop and evaluate new antibodies , linkers , and cytotoxic agents , ( ii ) preclinical testing of our own and , in certain instances , our collaborators ' product candidates , and the cost of our own clinical trials , ( iii ) development related to clinical and commercial manufacturing processes , and ( iv ) external manufacturing operations , and prior to 2019 , internal manufacturing operations , which also included raw materials . we restructured our business in 2019 , the details of which are included under restructuring charges below . research and development expense was $ 114.6 million and $ 114.5
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the cost build-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin . unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions , estimates or actual results . accounting for income taxes we use the asset and liability method of accounting for income taxes . under this method , income tax expense is recognized for the amount of taxes payable or refundable for the current year . in addition , deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , and for operating losses and tax credit carryforwards . management must make assumptions , judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities . our assumptions , judgments and estimates relative to the current provision for income taxes take into account current tax laws , our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities . we have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities . in addition , we are subject to the continual examination of our income tax returns by the u.s. internal revenue service ( “ irs ” ) and other domestic and foreign tax authorities . we expect future examinations to focus on our intercompany transfer pricing practices as well as other matters . we regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from such examinations . we believe such estimates to be reasonable ; however , the final determination of any of these examinations could significantly impact the amounts provided for income taxes in our consolidated financial statements . recent accounting pronouncements see note 1 of our notes to consolidated financial statements for information regarding recent accounting pronouncements that are of significance , or potential significance to us . 39 results of operations overview of 2019 for fiscal 2019 , we reported strong financial results consistent with the continued execution of our long-term plans for our two strategic growth areas , digital media and digital experience , while continuing to market and license a broad portfolio of products and solutions . on december 1 , 2018 , the beginning of our fiscal year 2019 , we adopted the requirements of the new revenue standard utilizing the modified retrospective method of transition , and began to report our financial results under the new revenue standard . the impact of the adoption was not significant to our results of operations . in our digital media segment , we are a market leader with creative cloud , our subscription-based offering which provides desktop tools , mobile apps and cloud-based services for designing , creating and publishing rich and immersive content . creative cloud delivers value with deep , cross-product integration , frequent product updates and feature enhancements , cloud-enabled services including storage and syncing of files across users ' machines , machine learning and artificial intelligence , access to marketplace , social and community-based features with our adobe stock and behance services , app creation capabilities , tools which assist with enterprise deployments and team collaboration , and affordable pricing for cost-sensitive customers . we offer creative cloud for individuals , students , teams and enterprises . we expect creative cloud will drive sustained long-term revenue growth through a continued expansion of our customer base by acquiring new users as a result of low cost of entry and delivery of additional features and value to creative cloud , as well as keeping existing customers current on our latest release . we have also built out a marketplace for creative cloud subscribers to enable the delivery and purchase of stock content in our adobe stock service . overall , our strategy with creative cloud is designed to enable us to increase our revenue with users , attract more new customers , and grow our recurring and predictable revenue stream that is recognized ratably . we continue to implement strategies that will accelerate awareness , consideration and purchase of subscriptions to our creative cloud offerings . these strategies include increasing the value creative cloud users receive , such as offering new desktop and mobile applications , as well as targeted promotions and offers that attract past customers and potential users to try out and ultimately subscribe to creative cloud . because of the shift towards creative cloud subscriptions and enterprise term license agreements ( “ etlas ” ) , revenue from perpetual licensing of our creative products has been immaterial to our business . we are also a market leader with our adobe document cloud offerings built around our adobe acrobat family of products , including adobe acrobat reader dc , and a set of integrated cloud-based document services , including adobe sign . acrobat provides reliable creation and exchange of electronic documents , regardless of platform or application source type . document cloud , which we believe enhances the way people manage critical documents at home , in the office and across devices , includes adobe acrobat dc and adobe sign , and a set of integrated services enabling users to create , review , approve , sign and track documents whether on a desktop or mobile device . adobe acrobat dc , with a touch-enabled user interface , is offered both through subscription and perpetual licenses . annualized recurring revenue ( “ arr ” ) is currently the key performance metric our management uses to assess the health and trajectory of our overall digital media segment . arr should be viewed independently of revenue , deferred revenue , unbilled backlog and remaining performance obligation as arr is a performance metric and is not intended to be combined with any of these items . story_separator_special_tag we adjust our reported arr on an annual basis to reflect any material exchange rates changes . our reported arr results in the current fiscal year are based on currency rates set at the beginning of the year and held constant throughout the year . we calculate arr as follows : creative arr annual value of creative cloud subscriptions and services + annual creative etla contract value document cloud arr annual value of document cloud subscriptions and services + annual document cloud etla contract value digital media arr creative arr + document cloud arr 40 creative arr exiting fiscal 2019 was $ 7.31 billion , up from $ 5.92 billion at the end of fiscal 2018 . document cloud arr exiting fiscal 2019 was $ 1.09 billion , up from $ 791 million at the end of fiscal 2018 . total digital media arr grew to $ 8.40 billion at the end of fiscal 2019 , up from $ 6.71 billion at the end of fiscal 2018 . revaluing our ending arr for fiscal 2019 using currency rates at the beginning of fiscal 2019 , our digital media arr at the end of fiscal 2019 would be $ 8.33 billion or approximately $ 66 million lower than the arr reported above . our success in driving growth in arr has positively affected our revenue growth . creative revenue in fiscal 2019 was $ 6.48 billion , up from $ 5.34 billion in fiscal 2018 and representing 21 % year-over-year growth . document cloud revenue in fiscal 2019 was $ 1.22 billion , up from $ 981.8 million in fiscal 2018 and representing 25 % year-over-year revenue growth . total digital media segment revenue grew to $ 7.71 billion in fiscal 2019 , up from $ 6.33 billion in fiscal 2018 and representing 22 % year-over-year growth . we are a market leader in the fast-growing category addressed by our digital experience segment . our digital experience business provides comprehensive solutions that include analytics , targeting , media optimization , digital experience management , cross-channel campaign management , marketing automation , audience management , commerce , premium video delivery and monetization . these comprehensive solutions enable marketers to measure , personalize and optimize marketing campaigns and digital experiences across channels for optimal marketing performance . during fiscal 2019 , our hierarchy of solutions in the digital experience segment consisted of the following cloud offerings : adobe advertising cloud—delivers an end-to-end platform for managing advertising across traditional tv and digital formats , and simplifies the delivery of video , display and search advertising across channels and screens . adobe analytics cloud—enables businesses to move from insights to actions in real time by uniquely integrating audiences as the core system of intelligence for the enterprise ; makes data available across all adobe clouds through the capture , aggregation , rationalization and understanding of vast amounts of disparate data and then translating that data into singular customer profiles ; includes adobe analytics and adobe audience manager . adobe marketing cloud—provides an integrated set of solutions to help marketers differentiate their brands and engage their customers , helping businesses manage , personalize , and orchestrate campaigns and customer journeys ; includes adobe experience manager ( “ aem ” ) , adobe campaign , adobe target , marketo engage and adobe primetime . adobe commerce cloud—provides digital commerce , order management and predictive intelligence based on a unified commerce platform enabling shopping experiences across a wide array of industries ; includes magento commerce . in addition to chief marketing officers , chief revenue officers and digital marketers , users of our digital experience solutions include advertisers , campaign managers , publishers , data analysts , content managers , social marketers , marketing executives and information management and technology executives . these customers often are involved in workflows that utilize other adobe products , such as our digital media offerings . by combining the creativity of our digital media business with the science of our digital experience business , we help our customers to more efficiently and effectively make , manage , measure and monetize their content across every channel with an end-to-end workflow and feedback loop . we utilize a direct sales force to market and license our digital experience solutions , as well as an extensive ecosystem of partners , including marketing agencies , systems integrators and independent software vendors that help license and deploy our solutions to their customers . we have made significant investments to broaden the scale and size of all of these routes to market , and our recent financial results reflect the success of these investments . we achieved record digital experience revenue of $ 3.21 billion story_separator_special_tag support revenue is comprised of consulting , training and maintenance and support , primarily related to the licensing of our enterprise offerings and the sale of our hosted digital experience services . our support revenue also includes technical support and developer support to partners and developer organizations related to our desktop products . our maintenance and support offerings , which entitle customers to receive desktop product upgrades and enhancements or technical support , depending on the offering , are generally recognized ratably over the term of the arrangement . segments in fiscal 2019 , we categorized our products into the following reportable segments : digital media —our digital media segment provides tools and solutions that enable individuals , teams and enterprises to create , publish , promote and monetize their digital content anywhere . our customers include content creators , experience designers , app developers , enthusiasts , students , social media users and creative professionals , as well as marketing departments and agencies , companies and publishers . our customers also include knowledge workers who create , collaborate on and distribute documents and creative content . digital experience —our digital experience segment provides products , services and solutions for creating , managing , executing , measuring , monetizing and optimizing customer experiences from advertising to commerce .
| digital experience revenue of $ 3.21 billion increased by $ 762.4 million , or 31 % , during fiscal 2019 , from $ 2.44 billion in fiscal 2018 . the increase was primarily due to the increase in subscription revenue driven by the addition of marketo and magento , which we acquired in the later part of fiscal 2018. our total deferred revenue of $ 3.50 billion as of november 29 , 2019 increased by $ 447.1 million , or 15 % , from $ 3.05 billion as of november 30 , 2018 . the increase was primarily due to increases in new contracts and the timing of renewals for offerings with cloud-enabled services and hosted services . cost of revenue of $ 1.67 billion increased by $ 477.7 million , or 40 % , during fiscal 2019 , from $ 1.19 billion in fiscal 2018 . the increase was primarily due to increases in amortization of intangibles from our acquisition of magento and marketo in the later part of fiscal 2018. to a lesser extent , increases in hosting services and data center costs also contributed to the overall increase in cost of revenue . operating expenses of $ 6.23 billion increased by $ 1.24 billion , or 25 % , during fiscal 2019 , from $ 4.99 billion in fiscal 2018 . the increase was primarily due to increases in base compensation and related benefits costs and stock-based compensation expense associated with headcount growth , including additions from the acquisitions of magento and marketo in the later part of fiscal 2018. to a lesser extent , increases in marketing spend also contributed to the overall increase in operating expenses . net income of $ 2.95 billion increased by $ 360.7 million , or 14 % , during fiscal 2019 from $ 2.59 billion in fiscal 2018 primarily due to increases in revenue and offset in part by
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wylie , and the schilli companies into lone star transportation . the plan is implemented to streamline and reduce the company 's cost structure , improve asset utilization and capitalize on operational synergies . additionally , the company announced the planned implementation of business improvement plans , which are expected to increase profitability by yield management capacity allocation , right-sizing trailer-to-tractor ratios , and improving maintenance execution . these plans are expected to improve annual operating income by $ 30.0 million in 2020. on september 4 , 2019 , the company announced a comprehensive restructuring plan ( project pivot ) intended to reduce its cost base , right size its organization and management team and increase and accelerate its previously announced operational improvement goals . as part of project pivot , the company has also executed a new management restructuring and substantial corporate cost reduction plan , which is expected to yield an additional $ 4 million in run-rate benefits by the end of the first quarter of fiscal 2020. on march 10 , 2020 , the company announced a plan to integrate three operating segments with three other operating segments ( phase ii of the plan ) , which will reduce the number of operating segments from 13 to 10 to further streamline and reduce the company 's cost structure , improve asset utilization and capitalize on operational synergies . how the company evaluates its operations the company uses a number of primary indicators to monitor its revenue and expense performance and efficiency , including adjusted ebitda , free cash flow , adjusted operating ratio and adjusted net income ( loss ) , and its key drivers of revenue quality , growth , expense control and operating efficiency . adjusted ebitda , free cash flow , adjusted operating ratio and adjusted net income ( loss ) are not recognized measures under gaap and should not be considered alternatives to , or more meaningful than , net income ( loss ) , cash flows from operating activities , operating income , operating ratio , operating margin or any other measure derived in accordance with gaap . see “ non-gaap financial measures ” for more information on the company 's use of these non-gaap measures , as well as a description of the computation and reconciliation of the company 's adjusted ebitda , free cash flow , and adjusted net income ( loss ) to net income ( loss ) and adjusted operating ratio to operating ratio . 32 revenue the company records four types of revenue : freight ( company and owner operator ) , brokerage , logistics and fuel surcharge . freight revenue is generated by hauling freight for the company 's customers using its trucks or its owner-operators ' equipment . generally , the company 's customers pay for its services based on the number of miles in the most direct route between pick-up and delivery locations and other ancillary services the company provides . freight revenue is the product of the number of revenue-generating miles driven and the rate per mile the company receives from customers plus accessorial charges , such as loading and unloading freight for its customers , cargo protection , fees for detaining its equipment or fees for route planning and supervision . freight revenue is affected by fluctuations in north american economic activity as well as changes in specific customer demand , the level of capacity in the industry and driver availability . the company 's brokerage revenue is generated by its use of third-party carriers when it needs capacity to move its customers ' loads . the main factor that affects brokerage revenue is the availability of the company 's drivers and owner-operators ( and hence the need for third-party carriers ) and the rate for the load . brokerage revenue is also affected by fluctuations in north american economic activity as well as changes in the level of capacity in the industry and driver availability . logistics revenue is generated from a range of services , including value-added warehousing , loading and unloading , vehicle maintenance and repair , preparation and packaging , fuel management , and other fleet management solutions . logistics revenue is primarily driven by specific customer requirements for additional services and may fluctuate depending on customers ' utilization of these services due to changes in cargo specifications , delivery staging and fluctuations in north american economic activity . fuel surcharges are designed to compensate the company for fuel costs above a certain cost per gallon base . generally , the company receives fuel surcharges on the miles for which it is compensated by customers . however , the company continues to have exposure to increasing fuel costs related to empty miles , fuel efficiency due to engine idle time and other factors and to the extent the surcharge paid by the customer is insufficient . the main factors that affect fuel surcharge revenue are the price of diesel fuel and the number of loaded miles . in general , a declining energy and fuel price environment negatively affects the company 's fuel surcharge revenues , and conversely , an environment with rising fuel and energy prices benefits its fuel surcharge revenues . although the company 's surcharge programs vary by customer , they typically involve a computation based on the change in national or regional fuel prices . the company 's fuel surcharges are billed on a delayed basis , meaning it typically bills customers in the current week based on a previous week 's applicable index . therefore , in times of increasing fuel prices , the company does not recover as much as it is currently paying for fuel . in periods of declining prices , the opposite is true . also , its fuel surcharge programs typically require a specified minimum change in fuel cost to prompt a change in fuel surcharge revenue . therefore , many of these programs have a time lag between when fuel costs change and when the change is reflected in fuel surcharge revenue . story_separator_special_tag expenses the company 's most significant expenses vary with miles traveled and include driver wages , services purchased from owner-operators and other transportation providers ( which are recorded on the “ purchased freight ” line of the company 's consolidated statements of operations and comprehensive income ( loss ) ) and fuel . driver-related expenses vary with miles traveled , however the company currently expects its expenses relating to driver wages to remain stable in the near-term as a result of driver wage increases implemented in the second half of 2018 to address the shortage of qualified drivers in the general trucking industry , compared to demand at that time . the expectation of stable driver wages paid per mile are due to current market conditions caused by shippers ' downward pressure on rates resulting in some easing of capacity in the industry . maintenance and tire expenses and cost of insurance and claims generally vary with the miles the company travels but also have a controllable component based on safety improvements , fleet age , efficiency and other factors . the company 's primary fixed costs are depreciation of long-term assets ( such as tractors , trailers and terminals ) , interest expense , rent and non-driver compensation . the company 's fuel surcharge programs help to offset increases in fuel prices but typically do not offset empty miles , idle time and out of route miles driven . as discussed above under “ revenue , ” its fuel surcharge programs have a time lag between when fuel costs change and when the change is reflected in fuel surcharge revenue . due to this time lag , the company 's fuel expense , net of fuel surcharge , negatively impacts its operating income during periods of sharply rising fuel costs and positively impacts its operating income during periods of falling fuel costs . in general , due to the fuel surcharge programs , its operating income is less negatively affected by an environment with higher , stable fuel prices than an environment with lower fuel prices . in addition to its fuel surcharge 33 programs , the company believes the most effective protection against fuel cost increases is to maintain a fuel-efficient fleet by incorporating fuel efficiency measures . also , the company has arrangements with some of its significant fuel suppliers to buy the majority of its fuel at contracted pricing schedules that fluctuate with the market price of diesel fuel . the company has not used derivatives as a hedge against higher fuel costs in the past but continues to evaluate this possibility . operating income ( loss ) differences in the mix of drivers and assets between the segments impact the proportion of operating income as a percentage of revenue . the flatbed solutions segment has proportionately higher operating income as a percentage of revenue when compared to the specialized solutions segment because certain operating expenses in the specialized solutions segment are proportionately greater . for example , the specialized solutions segment drivers , who typically are required to have a higher level of training and expertise , generally receive a higher driver pay per total mile than flatbed solutions segment drivers . in addition , the flatbed solutions segment utilizes a larger percentage of owner-operators as opposed to company drivers , which results in purchased freight expense being a more significant expense for this segment . the larger percentage of company drivers in the specialized solutions segment also results in a greater percentage of fuel expense and operations and maintenance expense relative to our flatbed solutions segment , each of which is impacted by the miles per gallon realized with company equipment and the number of miles driven by company drivers . similarly , the specialized solutions segment had higher depreciation and amortization expense primarily due to the increase in company-owned vehicles . factors affecting the comparability of the company 's financial results acquisitions the comparability of the company 's results of operations among the periods presented is impacted by the acquisitions listed below . also , as a result of the below acquisitions , the company 's historical results of operations may not be comparable or indicative of future results . flatbed solutions acquisitions · builders acquisition – effective august 1 , 2018 , the company acquired 100 % of the outstanding equity interests of builders , to expand its presence in the steel and construction materials markets . · leavitt 's acquisition – effective august 1 , 2018 , a company subsidiary acquired 100 % of the outstanding equity interests of leavitt 's freight service ( leavitt 's ) , to strengthen its operations in central oregon and expand its capabilities to the lumber industry . the company refers to the 2018 acquisitions described above collectively as the “ flatbed solutions acquisitions. ” specialized solutions acquisitions · kelsey trail acquisition – effective july 1 , 2018 , a company subsidiary acquired 100 % of the outstanding equity interests of kelsey trail , to strengthen and grow its operations in canada . · aveda acquisition – effective june 6 , 2018 , the company acquired 100 % of the outstanding equity interests of aveda , to expand its capabilities to include the specialized transportation of equipment required for the exploration , development and production of petroleum resources in the united states and canada . the company refers to the 2018 acquisitions described above collectively as the “ specialized solutions acquisitions. ” the company refers to the flatbed solutions acquisitions and specialized solutions acquisitions described above collectively as the “ recent acquisitions.
| 36 the following table sets forth the company 's flatbed solutions segment 's revenue , operating expenses , operating ratio , adjusted operating ratio and operating income for the years ended december 31 , 2019 and 2018 in dollars and as a percentage of its flatbed solutions segment 's total revenue and the increase or decrease in the dollar amounts of those items . the following table also sets forth certain operating statistics for the company 's flatbed solutions segment for the years ended december 31 , 2019 and 2018. flatbed solutions replace_table_token_6_th * indicates not meaningful . ( 1 ) includes intersegment revenues and expenses , as applicable , which are eliminated in the company 's consolidated results . ( 2 ) adjusted operating ratio is not a recognized measure under gaap . for a definition of adjusted operating ratio and reconciliation of adjusted operating ratio to operating ratio , see “ non-gaap financial measures ” below . ( 3 ) total miles includes company and owner operator and excludes brokerage . 37 revenue . total revenue increased 7.7 % to $ 1.74 billion for the year ended december 31 , 2019 from $ 1.61 billion for the year ended december 31 , 2018 , primarily as a result of the recent acquisitions . the change in total revenue , excluding the effect of the recent acquisitions of $ 153.7 million , was a decrease of $ 29.8 million , or 1.8 % , due to slow demand in the flatbed solution segment 's company freight and decreases in overall fuel surcharge revenue . company freight revenue , excluding the effect of the recent acquisitions of $ 106.7 million , decreased $ 23.8 million , or 3.3 % , from $ 721.7 million for the year ended december 31 , 2018 to $ 697.9 million for the year ended december 31 , 2019. owner operator freight revenue , excluding the effect of the recent acquisitions of $ 15.1 million , decreased $ 0.4 million , or 0.1 % , from $ 440.5 million for the year ended december 31 , 2018 to $ 440.1 million for the year ended december 31 , 2019. brokerage revenue , excluding the effect of the recent acquisitions of $ 24.4 million , increased $ 3.9 million , or 1.5 % , from $ 266.4 million for the year ended december 31 , 2018 to $ 270.3 million for the year
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accordingly , our financial objectives include the measured improvement of our credit ratios and the maintenance of appropriate levels of liquidity throughout the cyclical recovery phase . our financial objectives are integral to our overall corporate strategy and , accordingly , we have developed our financial objectives in conjunction with our portfolio management and growth objectives . the lodging industry is economically sensitive . therefore , our financial objectives are aimed at reducing the potentially negative impact of combining high operating leverage with high financial leverage , while preserving access to multiple capital sources and minimizing our weighted-average cost of capital . we seek to capitalize our acquisitions in a way that will advance our financial objectives . during the mature phase of the lodging cycle , our financial objectives may include increasing our liquidity position as a means to enhance financial flexibility in the event of a subsequent period of cyclical decline . our liquidity improvement objective may be accomplished through selective hotel dispositions , capital raises or by retaining excess cash generated by our operations . during the past four years , demand for lodging in the u.s. has increased , which has resulted in improved hotel revenues and profits . in light of increasing demand for lodging and generally muted supply of new hotel development , we believe we are currently in the middle phase of a cyclical lodging recovery . hotels acquired during the early stages of past cyclical recoveries have benefited from multi-year increases in profitability . accordingly , during the past three years , we selectively acquired interests in eight hotels : the doubletree guest suites times square in january 2011 ; the jw marriott new orleans in february 2011 ; the hilton san diego bayfront in april 2011 ; the hyatt chicago magnificent mile in june 2012 ; the hilton garden inn chicago downtown/magnificent mile in july 2012 ; the hilton new orleans st. charles in may 2013 ; the boston park plaza in july 2013 ; and the hyatt regency san francisco in december 2013. based on our purchase prices , the combined asset value of these eight hotels totals $ 1.5 billion , or $ 299,000 per key . in addition , we purchased the outside 50.0 % equity interest in our buyefficient joint venture in january 2011. our acquisition program is aimed at generating attractive risk-adjusted returns on our investment dollars . we , therefore , may target lodging assets outside of the typical branded , urban , upper upscale profile represented by our existing portfolio in order to capitalize on opportunities which may arise . we intend to select the brands and operators for our hotels that we believe will lead to the highest returns . on may 1 , 2013 , we purchased the 250-room hilton new orleans st. charles for a net purchase price of $ 59.1 million , including $ 0.2 million of proration credits and unrestricted cash received from the seller . the acquisition was funded with $ 53.2 million of proceeds generated by our january 2013 sale of four hotels and a commercial laundry facility located in rochester , minnesota , as well as with proceeds received from our february 2013 issuance of common stock . on july 2 , 2013 , we purchased the 1,053-room boston park plaza for a net purchase price of $ 248.0 million , including $ 2.0 million of proration credits , unrestricted and restricted cash and other adjustments received from the seller . the acquisition was funded with $ 92.3 million of proceeds generated by our january 2013 sale of four hotels and a commercial laundry facility located in rochester , minnesota , the assumption of a $ 119.2 million non-recourse loan secured by the hotel , as well as with proceeds received from the company 's february 2013 issuance of common stock and with cash on hand . the mortgage we assumed in conjunction with our purchase of the boston park plaza bears interest at a fixed rate of 4.4 % , and matures in february 2018. on december 2 , 2013 , we purchased the 802-room hyatt regency san francisco for a net purchase price of $ 262.5 million , including $ 5.5 million of purchase price adjustments comprised of restricted cash and other adjustments received from the seller . the acquisition was funded with proceeds generated by our november 2013 issuance of common stock . the scope of our acquisitions program may include large hotel portfolios or hotel loans . future acquisitions may be funded by our issuance of additional debt or equity securities , including our common and preferred op units , or by draws on our $ 150.0 million senior corporate credit facility . however , in light of our long-term financial objectives , we expect to fund the majority of our near-term acquisitions with a greater proportion of equity capital than debt capital . we have from time to time divested of assets that no longer fit our target profile , will not offer long-term returns in excess of our cost of capital , or that have high risk relative to their anticipated return expectations . in connection with this strategy , during the past three years , we sold 10 hotels : the royal palm miami beach in april 2011 ; the valley river inn located in eugene , oregon in october 2011 ; the marriott del mar in august 2012 ; the doubletree guest suites minneapolis , the hilton del mar , and the marriott troy in september 2012 ; and the kahler grand , the kahler inn & suites , the marriott rochester and the residence inn by marriott rochester ( the rochester hotels ) in january 2013. based on our sales prices , the combined asset value of these 10 hotels totals $ 547.2 million , or $ 182,000 per key . story_separator_special_tag in addition , during the past three years , we sold the following non-hotel assets : a commercial laundry facility located in salt lake city , utah in july 2011 ; an office building adjacent to the marriott troy in september 2012 ; and a commercial laundry facility located in rochester , minnesota in january 2013 . 33 in january 2013 , we sold the rochester hotels and a commercial laundry facility ( together with the rochester hotels , the rochester portfolio ) in rochester , minnesota , to an unaffiliated third party , for net proceeds of $ 195.6 million , of which $ 145.7 million was deposited with an accommodator in order to facilitate tax-deferred exchanges . during 2013 , all of the cash held by an accommodator was utilized to partially fund the tax-deferred exchanges of the hilton new orleans st. charles and the boston park plaza . the rochester hotels include the 660-room kahler grand , the 271-room kahler inn & suites , the 202-room marriott rochester and the 89-room residence inn by marriott rochester . we recognized a net gain on the sale of $ 51.6 million . we retained a $ 25.0 million preferred equity investment ( the preferred equity investment ) in the rochester hotels that yields an 11 % dividend , resulting in a deferred gain on the sale of $ 25.0 million . the $ 25.0 million gain will be deferred until the preferred equity investment is repaid . we also provided a $ 3.7 million working cash advance to the buyer , resulting in a deferred gain on the sale of $ 3.7 million . the $ 3.7 million gain will be deferred until we are repaid from the rochester portfolio 's available cash flow . in addition , we retained a $ 14.0 million liability related to the rochester portfolio 's pension plan , which could be triggered in certain circumstances , including termination of the pension plan . the recognition of the $ 14.0 million pension plan liability reduced our gain on the sale of the rochester portfolio . the $ 14.0 million gain will be recognized , if at all , when and to the extent we are released from any potential liability related to the rochester portfolio 's pension plan . concurrent with the rochester portfolio sale , we extinguished the outstanding $ 26.7 million mortgage secured by the kahler grand for a total cost of $ 29.8 million , prepaid the $ 0.4 million loan secured by the commercial laundry facility , and recorded a loss on extinguishment of debt of $ 3.1 million which is included in discontinued operations . in january 2013 , we repurchased $ 42.0 million of our operating partnership 's 4.60 % exchangeable senior notes ( the senior notes ) pursuant to a tender offer , and redeemed the remaining $ 16.0 million of the senior notes . we funded the total $ 58.0 million in senior note redemptions with available cash , leaving no future amounts outstanding related to the senior notes . we recognized a loss of $ 44,000 on this early extinguishment of debt . in february 2013 , we issued 25,300,000 shares of our common stock , including the underwriters ' over-allotment of 3,300,000 shares , for net proceeds of $ 294.9 million . we used these proceeds to redeem all of our series a preferred stock and all of our series c preferred stock , as well as to partially fund our acquisitions of the hilton new orleans st. charles and the boston park plaza . in march 2013 , we used a portion of the proceeds we received from our february 2013 common stock offering to redeem all 7,050,000 shares of our series a preferred stock for an aggregate redemption price of $ 178.6 million , including $ 2.3 million in accrued dividends . an additional redemption charge of $ 4.6 million was recognized related to the original issuance costs of the series a preferred stock , which were previously included in additional paid in capital . after the redemption date , we have no outstanding shares of series a preferred stock , and all rights of the holders of such shares were terminated . because we redeemed the series a preferred stock in full , trading of the series a preferred stock on the new york stock exchange ceased after the redemption date . in may 2013 , in anticipation of our acquisition of the boston park plaza and the $ 119.2 million mortgage debt we assumed , we used a portion of the proceeds we received from our february 2013 common stock offering to redeem all 4,102,564 shares of our series c preferred stock for an aggregate redemption price of $ 101.1 million , including $ 1.1 million in accrued dividends . an additional redemption charge of $ 0.1 million was recognized related to the original issuance costs of the series c preferred stock , which were previously included in additional paid in capital . after the redemption date , we have no outstanding shares of series c preferred stock , and all rights of the holders of such shares were terminated . in november 2013 , we issued 20,000,000 shares of our common stock for net proceeds of $ 270.9 million . we used a portion of the net proceeds from this offering to purchase the hyatt regency san francisco , and intend to use the remaining proceeds for potential future acquisitions , capital investment in our portfolio and other general corporate purposes , including working capital . as of december 31 , 2013 , the weighted average term to maturity of our debt is approximately four years , and 70.7 % of our debt is fixed rate with a weighted average interest rate of 5.4 % . the weighted average interest rate on all of our debt , which includes our variable-rate debt obligations based on variable rates at december 31 , 2013 , is 4.9 % . operating activities operating performance indicators .
| the following tables include comparisons of the key operating metrics for our portfolio , including prior ownership results as applicable for the doubletree guest suites times square , the jw marriott new orleans , the hilton san diego bayfront , the hyatt chicago magnificent mile , the hilton garden inn chicago downtown/magnificent mile , the hilton new orleans st. charles , the boston park plaza and the hyatt regency san francisco . replace_table_token_8_th replace_table_token_9_th ( 1 ) includes all the hotels in which we have interests as of december 31 , 2013 , except the boston park plaza due to the hotel adding 12 rooms in september 2012 , and an additional 100 rooms in january 2013 . ( 2 ) includes the 28 hotel comparable portfolio adjusted for the effects of converting the operating statistics for our ten marriott-managed hotels from a 13-period basis as reported in 2012 and 2011 to a standard 12-month calendar basis . non-gaap financial measures . we use the following non-gaap financial measures that we believe are useful to investors as key supplemental measures of our operating performance : ebitda , adjusted ebitda , ffo and adjusted ffo . these measures should not be considered in isolation or as a substitute for measures of performance in accordance with gaap . ebitda , adjusted ebitda , ffo and adjusted ffo , as calculated by us , may not be comparable to other companies that do not define such terms exactly as the company . these non-gaap measures are used in addition to and in conjunction with results presented in accordance with gaap . they should not be considered as alternatives to operating profit , cash flow from operations , or any other operating performance measure prescribed by gaap . these non-gaap financial measures reflect additional ways of viewing our operations that we believe , when viewed with our gaap results and the reconciliations to the corresponding gaap financial measures , provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure . we strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure . ebitda is a commonly used measure of performance in many industries . we believe ebitda is useful to investors in evaluating our operating performance because
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these limitations include : adjusted ebitda does not include the effect of the leapfrogrx compensation charges , which are a cash expense ; adjusted ebitda does not reflect stock-based compensation expense ; depreciation and amortization are non-cash charges , and the assets being depreciated or amortized will often have to be replaced in the future ; adjusted ebitda does not reflect any cash requirements for these replacements ; adjusted ebitda does not reflect restructuring expense ; adjusted ebitda does not reflect cash requirements for income taxes and the cash impact of other income or expense ; and other companies in our industry may calculate adjusted ebitda differently than we do , limiting its usefulness as a comparative measure . replace_table_token_6_th 43 adjusted ebitda was $ ( 6.2 ) million , $ 9.6 million , and $ 5.0 million for the fiscal years ended september 30 , 2014 , 2013 , and 2012 , respectively . our adjusted ebitda for the fiscal year ended september 30 , 2014 decreased primarily due to a decrease in total revenues partially offset by a decrease in operating expenses . revenues decreased primarily due to sales execution challenges , our lengthy sales cycles and our continued dependence on a relatively small number of customers for a significant portion of our total revenues . the decrease in expenses was primarily due to a decrease in personnel cost and third-party contractors cost . key components of results of operations revenues revenues are comprised of license and implementation revenues and saas and maintenance revenues . license and implementation license and implementation revenues are generated from the sale of software licenses for our on premise solutions and related implementation services . we expect our license and implementation revenues for the fiscal year 2015 to be higher than those recorded in the current fiscal year ended on september 30 , 2014 due to improvement in sales execution during the 2014 fiscal year . saas and maintenance saas and maintenance revenues primarily include subscription and related implementation fees from customers accessing our cloud-based solutions and revenues associated with maintenance contracts from license customers . also included in saas and maintenance revenues are other revenues , including revenues related to application support , training and customer-reimbursed expenses . in fiscal year 2014 , we took several steps to transform our business model in order to increase the percentage of our business coming from saas and maintenance revenues . we believe we have an opportunity to accelerate the shift in our business model to recurring revenues , as saas is gaining wide acceptance as a delivery model , particularly in the technology sector and mid-market life science companies . we have started marketing and selling some of our products and services ( such as revvy ) only as a saas offering . accordingly , we expect that saas and maintenance revenues for the fiscal year 2015 will be higher than fiscal year 2014 and we believe will increase as a percentage of total revenues as we continue to acquire new customers . cost of revenues our total cost of revenues is comprised of the following : license and implementation cost of license and implementation revenues includes costs related to the implementation of our on premise solutions . cost of license and implementation revenues primarily consists of personnel-related costs including salary , bonus , stock-based compensation and overhead allocation as well as third-party contractors and royalty fees paid to third parties for rights to their intellectual property . cost of license and implementation revenues may vary from period to period depending on a number of factors , including the amount of implementation services required to deploy our solutions and the level of involvement of third-party contractors providing implementation services . saas and maintenance cost of saas and maintenance revenues includes those costs related to the implementation of our cloud-based solutions , maintenance and support and application support for our on premise solutions and training . cost 44 of saas and maintenance revenues primarily consists of personnel-related costs including salary , customer reimbursable expense , bonus , stock-based compensation , leapfrogrx compensation charges and overhead allocation , third-party contractors , amortization of costs recorded on internally developed software and data center-related expenses . we believe that cost of saas and maintenance revenues will continue to increase in absolute dollars as we continue to focus on building infrastructure for our cloud-based solutions . operating expenses our operating expenses consist of research and development , sales and marketing and general and administrative expenses . research and development our research and development expenses consist primarily of personnel-related costs including salary , bonus , stock-based compensation and overhead allocation as well as third-party contractors and travel-related expenses . our software development costs for new software solutions and enhancements to existing software solutions are generally expensed as incurred . however , we capitalize development costs incurred in connection with the development of certain additional service offerings that will only be offered through the cloud . as of september 30 , 2014 , the net book value of capitalized software development costs was $ 3.8 million , of which $ 3.4 million is related to the software that was made available for use by our customers in fiscal year 2014. the remaining amount of $ 0.4 million relates to the development of a product that is not completed as of september 30 , 2014. we expect our research and development expenses to increase in absolute dollars as we continue to develop new applications and enhance our existing software solutions . sales and marketing our sales and marketing expenses consist primarily of personnel-related costs including salary , bonus , commissions , stock-based compensation , and overhead allocation as well as third-party contractors , travel-related expenses and marketing programs . for fiscal year 2014 , we recognize sales commission expense upon the booking of a contract , while we recognize revenue over the period services were provided . story_separator_special_tag we expect our sales and marketing expenses to increase in absolute dollars as we continue to invest in our sales and marketing organization , increase the number of our sales and marketing employees and increase market program spend to grow in our business . general and administrative our general and administrative expenses consist primarily of personnel-related costs including salary , bonus , stock-based compensation , and overhead allocation , audit and legal fees as well as third-party contractors and travel-related expenses . we expect to continue to incur significant accounting and legal costs related to being a public company , as well as insurance , investor relations and other costs . leapfrogrx compensation charges in january 2012 , we acquired leapfrogrx for initial cash consideration of $ 3.0 million as well as potential additional payments to former leapfrogrx stockholders totaling up to $ 8.3 million , which are expected to be incurred through january 2015. these additional payments are , among other things , subject to future continued employment and are therefore considered compensatory in nature and are being recognized as compensation expense ( leapfrogrx compensation charges ) over the term of each component . as of september 30 , 2014 we had expensed an aggregate of $ 6.1 million of leapfrogrx compensation charges . accounting pronouncements for a summary of recent accounting pronouncements with application to our consolidated financial statements see note 1 to the consolidated financial statements in item 8 , which is incorporated herein by reference . 45 story_separator_special_tag style= '' font-size:12pt ; margin-top:0pt ; margin-bottom:0pt '' > replace_table_token_13_th 49 for fiscal year 2014 , interest ( income ) expense , net primarily related to interest income earned from our invested cash , net of financing costs related to our capital leases . the decrease in interest expense , net in the fiscal year ended september 30 , 2014 as compared to same period the previous year was primarily due to the repayment in full of our term loan in may 2013 and continued repayment of existing capital leases . other expense , net decreased primarily due a $ 0.7 million re-measurement in the fair value of a convertible preferred stock warrant during the fiscal year ended september 30 , 2013 , partially offset by a $ 0.1 million foreign exchange gain . provision for income taxes replace_table_token_14_th provision for income taxes is primarily related to the state minimum tax and foreign tax on our profitable foreign operations . the change in income tax provision is primarily due to the change in income related to our foreign operations . for the fiscal year ended september 30 , 2014 , the tax expense computed using the statutory federal tax rate would have been a benefit of $ 7.0 million as compared to the income tax provision of $ 0.4 million . the difference was primarily due to the valuation allowance , partially offset by research and development tax credits and state taxes net of federal benefit . for the fiscal year ended september 30 , 2013 , the tax expense computed using the statutory federal tax rate would have been a benefit of $ 0.2 million as compared to the income tax provision of $ 0.4 million . the difference was primarily due to permanent differences , partially offset by research and development tax credits . comparison of the fiscal years ended september 30 , 2013 and 2012 revenues replace_table_token_15_th license and implementation license and implementation revenues increased $ 9.4 million , or 19 % , to $ 59.1 million for the fiscal year ended september 30 , 2013 from $ 49.8 million for the fiscal year ended september 30 , 2012. our revenues from existing customers were $ 46.6 million for the fiscal year ended september 30 , 2013 and $ 41.9 million for the fiscal year ended september 30 , 2012. the increase was due to an increased volume of activity . 50 saas and maintenance saas and maintenance revenues increased $ 8.3 million , or 24 % , to $ 42.8 million for the fiscal year ended september 30 , 2013 from $ 34.5 million for the fiscal year ended september 30 , 2012. the increase in saas and maintenance revenues was primarily driven by an increase of $ 4.6 million in saas revenues . our maintenance and support , application support and training revenues increased $ 3.7 million in the period primarily due to an increase in the number of service contracts . cost of revenues replace_table_token_16_th license and implementation cost of license and implementation revenues increased $ 4.3 million , or 19 % , to $ 26.8 million during the fiscal year ended september 30 , 2013 from $ 22.5 million for the fiscal year ended september 30 , 2012. this increase was in line with the 19 % year-on-year increase in license and implementation revenue during the fiscal year ended september 30 , 2013. as a percentage of revenue , cost of license and implementation revenues remained at 45 % in fiscal year 2013. the increase in the cost of license and implementation revenue was primarily the result of an increase of $ 4.7 million in personnel costs due primarily to increased headcount and stock-based compensation expense and a $ 0.2 million increase in royalty fees paid to third parties , partially offset by a reduction of $ 0.6 million in outside services , travel and other expenses . saas and maintenance cost of saas and maintenance revenues increased $ 1.3 million , or 7 % , to $ 19.4 million during the fiscal year ended september 30 , 2013 from $ 18.1 million for the fiscal year ended september 30 , 2012. this increase was associated with the 24 % year-on-year increase in saas and maintenance revenue during the fiscal year ended september 30 , 2013 , which was primarily due to an increase of $ 0.8 million in third-party contractors , an increase of $ 0.3 million in personnel costs and other expenses and an increase of $ 0.2 million in customer reimbursable expenses .
| cost of revenues replace_table_token_11_th license and implementation cost of license and implementation revenues decreased $ 10.2 million , or 38 % , to $ 16.7 million during the fiscal year ended september 30 , 2014 from $ 26.8 million for the fiscal year ended september 30 , 2013. the decrease was primarily the result of a $ 7.2 million reduction in personnel costs primarily associated with our workforce reduction and a $ 3.2 million reduction in third-party contractors costs . as a percentage of revenue , cost of license and implementation revenues increased to 47 % in fiscal year 2014 from 45 % in fiscal year 2013 , primarily due to a decrease in license and implementation revenues . saas and maintenance cost of saas and maintenance revenues increased $ 1.7 million , or 9 % , to $ 21.1 million during the fiscal year ended september 30 , 2014 from $ 19.4 million for the fiscal year ended september 30 , 2013. the increase was primarily due to $ 1.7 of million amortization costs recorded on internally developed software capitalized in the fiscal year 2013 and a $ 0.5 million increase in personnel costs , partially offset by a $ 0.5 million decrease in customer reimbursable expenses and certain other costs . 48 operating expenses replace_table_token_12_th research and development research and development expenses increased by $ 1.9 million , or 12 % , to $ 18.7 million during the fiscal year ended september 30 , 2014 from $ 16.8 million for the fiscal year ended september 30 , 2013 due to an increase in employee-related costs as we capitalized a higher amount of costs incurred in connection with internally-developed software in fiscal year 2013. for the fiscal year 2014 , the increase was primarily due to a $ 2.0 million increase in personnel costs and a $ 0.5 million increase in stock-based compensation expenses , mainly due to decrease in costs capitalized in connection with the development of internally-developed software , partially offset
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however , under the terms of the agreement , neither chembio 's partner nor the specific type of cancer is being disclosed . the cancer project represents an application of the dpp® technology outside of the infectious disease field , and the scope of the agreement involves product development of a quantitative , reader-based cancer assay for two cancer markers , utilizing chembio 's dpp® technology and its dpp® micro reader . during the third quarter of 2015 , we completed successful feasibility , and our partner agreed to fund continued development of the dpp® cancer assay , which development and verification is ongoing . · dpp® traumatic brain injury assay : the dpp® traumatic brain injury assay is a rapid poc test for the detection of traumatic brain injury ( tbi ) and sports-related concussion . in january 2015 , we entered into an agreement with the concussion science group ( csg ) division of perseus science group llc , to combine csg 's patented biomarker with our proprietary dpp® platform and dpp® micro reader , to develop a semi-quantitative or quantitative poc test , to diagnose tbi . the dpp® traumatic brain injury assay is in the feasibility and pre-clinical stage . under institutional review board ( irb ) agreements with multiple hospitals , we are conducting pre-clinical studies of the prototype dpp® traumatic brain injury assay using patient samples . · dpp® bovine tuberculosis : the dpp ® bovidtb assay is a rapid poc test for the detection of bovine tuberculosis ( tb ) . in september 2016 , the company was awarded a $ 600,000 grant from the united states department of agriculture ( usda ) to develop the dpp ® bovidtb assay . the grant will be managed by the small business innovation research program ( sbir ) of the national institute of food and agriculture ( nifa ) , a federal agency within the usda and the assay will be developed in collaboration with national animal disease center ( nadc ) and infectious disease research institute ( idri ) . under the two-year grant , chembio will use its patented dpp ® technology to undertake to develop a simple , rapid , accurate and cost-effective test for bovine tb in cattle . the dpp ® bovidtb assay will be designed to provide results within 20 minutes , thereby significantly improving on the time-consuming , tedious and inadequate diagnostic methods currently in use . regulatory activities · dpp® hiv-syphilis assay : we have developed a u.s. version of the dpp® hiv-syphilis assay , designed to meet the performance requirements for the `` reverse '' algorithm that is currently in clinical use for syphilis testing in the united states . the clinical trial to support the fda application for approval of the dpp® hiv-syphilis assay was initiated during first quarter of 2016 and is expected to be completed in the first quarter of 2017. following the completion of the clinical trial , we will file a premarket approval application with the u.s. food and drug administration . in january 2017 , we received ce mark approval for the dpp® hiv-syphilis assay . · dpp® zika igm/igg system : in july of 2016 chembio obtained a ce mark for the dpp® zika igm/igg assay . the dpp® zika igm/igg system , which includes an assay utilizing the patented dpp® technology as well as a digital reader ( dpp® micro reader ) , are now cleared for commercialization in european countries as well as the majority of the caribbean nations , not including u.s. territories . in november of 2016 , we received approval from anvisa , brazil 's regulatory agency and we are working with our brazilian partner , bio-manguinhos , to obtain anvisa approval for the dpp® micro reader . we have also filed regulatory submissions to u.s. food and drug administration ( emergency use authorization ) , the world health organization ( emergency use assessment and listing ) , and cofepris ( mexico ) , and we are actively engaged with these organizations . there can be no assurance that any of the aforementioned research & development and or regulatory products or activities will result in any product approvals or commercialization , nor that any of the existing research and development activities , or any new potential development programs or collaborations will materialize or that they will meet regulatory or any other technical requirements and specifications , and or that if continued , will result in completed products , or that such products , if they are successfully completed , can or will be successfully commercialized . 30 recent events on january 9 , 2017 , the company announced it completed the acquisition of rvr diagnostics sdn bhd , a malaysia corporation ( `` rvr '' ) , pursuant to the previously reported amended and restated stock purchase agreement , dated as of december 7 , 2016 ( the `` stock purchase agreement '' ) , by and among chembio , rvr , avijit roy and magentiren vajuram . see footnote 16 to chembio 's consolidated financial statements included in this form 10-k for more information . results of operations for the year ended december 31 , 2016 as compared with the year ended december 31 , 2015 income : for the year ended december 31 , 2016 , loss before income taxes was $ 7,546,000 compared to loss before income taxes of $ 3,557,000 for the year ended december 31 , 2015. net loss for the year ended december 31 , 2016 consists not only of the $ 7,546,000 loss before income tax described above , but also of the $ 5,801,000 non-cash income tax provision described below under `` income tax provision ( benefit ) '' . net loss for the year ended december 31 , 2015 consists not only of the $ 3,557,000 loss before income tax described above , but also of the $ 1,160,000 non-cash income tax benefit described below under `` income tax provision ( benefit ) '' . story_separator_special_tag the change in loss before income taxes is primarily attributable to decreased revenue and gross margin , and increased operating expenses . gross margin decreased in the year ended december 31 , 2016 as compared with the year ended december 31 , 2015 , by $ 2,035,000 , or ( 19.4 ) % . the increased operating expenses , the most significant of which were an increase materials and supplies for r & d of $ 1,512,000 , increased clinical trial expenses of $ 412,000 , and an increase in wages and related expenses of $ 633,000 , partially offset by decreased commission expenses of $ 611,000 , accounted for most of the change in loss before income taxes . revenues : replace_table_token_3_th revenues for our lateral flow hiv tests and related components during the year ended december 31 , 2016 decreased by approximately $ 2,015,000 from the same period in 2015. this was primarily attributable to decreased sales to africa of approximately $ 1,436,000 , decreased sales to europe of $ 40,000 , decreased sales to the u.s. of $ 1,580,000 , partially offset by increased sales to mexico of $ 123,000. revenues for our dpp® products during the year ended december 31 , 2016 decreased by approximately $ 5,865,000 over the same period in 2015 , primarily for decreases in sales in brazil to fiocruz of $ 5,340,000. the increase in r & d , and in milestone and grant revenue , was primarily due to revenues from certain development projects that were awarded during the period . r & d revenues include funds , recognized on an `` as expenses are incurred '' basis or on a proportonial performance basis , from various grants , see footnote 14 of our financial statements . gross margin : replace_table_token_4_th the overall gross margin dollar decrease of 2,035,000 consisted of a $ 3,855,000 decrease in gross margin from net product sales and a $ 1,820,000 increase in non-product revenues . the decrease in net product sales gross margin of $ 3,855,000 is primarily attributable to the change in product sales compared to 2015. the net product sales gross margin decrease is comprised of two components , one is the decrease in product sales of $ 8,207,000 , which at the 37.1 % margin contributed $ 3,044,000 to the decrease , and the other is the decreased change in margin percentage of 5.9 % which contributed the balance of $ 812,000. the 5.9 % decrease in the percentage , from 37.1 % in 2015 to 31.2 % in 2016 , was primarily due to increased overhead as a percentage of products produced , due to the lower volume of sales . 31 research and development : this category includes costs incurred for clinical and regulatory affairs and for product research and development . replace_table_token_5_th expenses for clinical and regulatory affairs for the year ended december 31 , 2016 increased by $ 462,000 as compared to the same period in 2015. this was due to an increase of $ 412,000 in clinical trial expenses and increased wages and related costs of $ 79,000. r & d expenses other than clinical & regulatory affairs increased by $ 1,588,000 in the year ended december 31 , 2016 , as compared with the same period in 2015. the increases were primarily related to an increase in wages and related costs , and in material and supplies , to support our sponsored research and internal development programs . selling , general and administrative expense : replace_table_token_6_th selling , general and administrative expenses for the year ended december 31 , 2016 , decreased by $ 67,000 as compared with the same period in 2015 , a 0.9 % decrease . this decrease resulted primarily from decreases in consulting , commissions ( due to decreased sales to brazil ) , and stock-based compensation , which were partially offset by increases in wages and related costs and travel expenses which for 2016 included the continued development of a sales and marketing team over 2015 , marketing materials , professional fees and in investor relations/investment bankers . 32 other income and expense : replace_table_token_7_th other income ( expense ) for the year ended december 31 , 2016 increased approximately $ 29,000 , primarily due to interest income , compared to the same period in 2015. income tax provision ( benefit ) : for the year ended december 31 , 2016 the company recognized a $ 5,801,000 non-cash income tax provision and decreased its deferred tax assets by $ 5,801,000 as the company took a full valuation allowance against its carryforward losses in the second quarter . for the year ended december 31 , 2015 , the company recognized a $ 1,160,000 non-cash income tax benefit and increased its deferred tax assets by $ 1,160,000. the effective tax rate used to recognize the benefit in 2015 was 32.0 % to record the amount charged . in the 2015 year , non-deductible expenses for tax purposes accounted for most of the difference from the standard 34 % u.s. tax rate . the company still maintains a full valuation allowance on research and development tax credits 33 results of operations for the year ended december 31 , 2015 as compared with the year ended december 31 , 2014 income : for the year ended december 31 , 2015 , loss before income taxes was $ 3,557,000 compared to loss before income taxes of $ 1,550,000 for the year ended december 31 , 2014. net loss for the year ended december 31 , 2015 consists not only of the $ 3,557,000 loss before income tax described above , but also of the $ 1,160,000 non-cash income tax benefit described below under `` income tax provision ( benefit ) '' . net loss for the year ended december 31 , 2014 consists not only of the $ 1,550,000 loss before income tax described above , but also of the $ 413,000 non-cash income tax benefit described below under `` income tax provision ( benefit ) '' .
| you can identify forward-looking statements by terminology such as `` may , '' `` could '' , `` will , '' `` should , '' `` expects , '' `` intends , '' `` plans , '' `` anticipates , '' `` believes , '' `` estimates , '' `` predicts , '' `` potential , '' `` continues '' or the negative of these terms or other comparable terminology . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . except as may be required by applicable law , we do not undertake or intend to update or revise our forward-looking statements , and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments . thus , you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements . you should carefully review and consider the various disclosures we make in this report and our other reports filed with the securities and exchange commission that attempt to advise interested parties of the risks , uncertainties and other factors that may affect our business . all of the company 's future products that are currently being developed are based on its patented dual path platform ( dpp® ) , which is a unique diagnostic point-of-care platform that has certain advantages over lateral flow technology . the company has completed development of several products that employ the dpp® technology . these products are currently marketed under chembio 's label ( dpp® hiv 1/2 screening assay and dpp® hiv 1/2 –syphilis assay ) , or which may be marketed pursuant to private label license or distribution agreements such as those with the oswaldo cruz foundation ( `` fiocruz '' ) , and bio-rad . research and development ( `` r & d '' ) , milestone , and grant and royalty revenues for the years ended december 31 , 2016 , 2015 and 2014 were $ 4.19 million , $ 2.37 million and $
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the company has continually qualified its installed base and determined that a number of venues did not fit their criteria for interesting and valuable content , and these locations were de-installed . all components were removed and reused on new locations or for maintenance purposes . the company has better qualified the criteria for targeted venues and continues to add locations . the company generated revenue from installation fees for new installations and upgrades , monthly monitoring fees to venues , social media fees to venues and artists and digital advertising of $ 46,681 compared to $ 2,724 in 2012. the company had costs of goods sold for 2013 of $ 7,352 , producing a gross profit of $ 39,329 or 84 % of revenue . with $ 796,094 of selling , general and administrative expenses , the company produced a net operating loss of $ $ 756,765. increased overhead costs compared to prior periods resulted from additional personnel in video production who are tasked with curating and placing content , as well as increased advertising and promotion expenses to increase awareness and viewers to the web sites . the company had other expenses based on fully accounting for the long term potential effect of the convertible debentures of a total of $ 1,496,460 which created a net loss for the year of $ 2,253,225. this compares to the yearend results for 2012 with cost of goods sold of $ 22,786 and a gross loss of $ 20,062 which after selling , general and administrative costs of $ 662,536 left an operating loss of $ 682,598. we had total current assets at december 31 , 2013 of $ 64,106 versus current liabilities of $ 2,688,215 which is made up primarily of debts due to related parties and the treatment of the convertible debentures . background and reverse merger effective the first quarter of 2011 , the company no longer met the criteria of a development stage entity . under our agreement with icare , we are obligated to provide our services to customers produced by icare at prices 20 % lower than the prices charged to customers who purchase our services directly from us , to make financing available to customers produced by icare who elect to enter into two- or three-year contracts with us and to accept credit cards or “ normal credit terms of net 15 days ” on billing . we are also obligated to make the following payments to icare under this agreement : 5 % of the gross revenues received from any sysco customer ; an integration fee of $ 100,000 , of which $ 50,000 was paid in cash and balance of which was discharged by the company 's issuance 15,861,372 shares of its common stock to icare , which have been valued in our financial statements at $ 22,205 ; $ 250 per trade show event that we attend ; and an amount to be determined for additional promotions and marketing programs . we believe that the payment of 5 % of the gross revenues will reduce the cash flow from each contract on which it is paid by 5 % and that the payment of $ 250 per trade show and other amounts will have an insubstantial effect on cash flow . as of december 31 , 2013 , the company did not have any venues referred by sysco and , therefore , the company has no financial obligations . the company is assessing the value of the agreement and whether they will continue . our financial statements have been prepared on a going concern basis , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . our independent auditors have included in the report on our financial statements a statement that raises substantial concern about our ability to continue as a going concern . 16 story_separator_special_tag id= '' glftr '' style= '' width : 100 % '' > 18 the following table provides a summary of our balance sheet and net cash flows from operating , investing , and financing activities for the years ended december 31 , 2013 and 2012. replace_table_token_2_th from its inception ( august 26 , 2010 ) to the date hereof , the company has obtained funding through loans from related parties , private placements and the sale of debentures . the company plans to fund its activities during fiscal 2014 and beyond through cash from operations and through the sale of debt or equity securities and or bank financing . we can give no assurance that sufficient funding will be available on acceptable terms , or at all , and , if it is not , we may have to significantly reduce , or discontinue , our operations . to the extent that we raise additional funds by issuing equity securities or additional securities that are convertible into our debt securities , our stockholders may experience significant dilution . the company believes that it will require capital in the form of equity or borrowed money of approximately $ 600,000 during the next 12 months . the company 's current liquidity presents a material risk to investors because the company does not currently have sufficient funds to expand its business as planned . the company estimates that if it will require additional capital to get to cash flow breakeven . the company and its placement agent will continue to seek additional capital , it has received no commitment for further financing from investors or banks and no assurance can be given that any such commitment will be forthcoming or , if so , in what amount . 19 contractual obligations the following table sets forth information with respect to our known contractual obligations as of the december 31 , 2012 , aggregated by type of contractual obligation . replace_table_token_3_th off-balance sheet arrangements none . controls and procedures pursuant to section 404 of sarbanes-oxley , management is required to report story_separator_special_tag the company has continually qualified its installed base and determined that a number of venues did not fit their criteria for interesting and valuable content , and these locations were de-installed . all components were removed and reused on new locations or for maintenance purposes . the company has better qualified the criteria for targeted venues and continues to add locations . the company generated revenue from installation fees for new installations and upgrades , monthly monitoring fees to venues , social media fees to venues and artists and digital advertising of $ 46,681 compared to $ 2,724 in 2012. the company had costs of goods sold for 2013 of $ 7,352 , producing a gross profit of $ 39,329 or 84 % of revenue . with $ 796,094 of selling , general and administrative expenses , the company produced a net operating loss of $ $ 756,765. increased overhead costs compared to prior periods resulted from additional personnel in video production who are tasked with curating and placing content , as well as increased advertising and promotion expenses to increase awareness and viewers to the web sites . the company had other expenses based on fully accounting for the long term potential effect of the convertible debentures of a total of $ 1,496,460 which created a net loss for the year of $ 2,253,225. this compares to the yearend results for 2012 with cost of goods sold of $ 22,786 and a gross loss of $ 20,062 which after selling , general and administrative costs of $ 662,536 left an operating loss of $ 682,598. we had total current assets at december 31 , 2013 of $ 64,106 versus current liabilities of $ 2,688,215 which is made up primarily of debts due to related parties and the treatment of the convertible debentures . background and reverse merger effective the first quarter of 2011 , the company no longer met the criteria of a development stage entity . under our agreement with icare , we are obligated to provide our services to customers produced by icare at prices 20 % lower than the prices charged to customers who purchase our services directly from us , to make financing available to customers produced by icare who elect to enter into two- or three-year contracts with us and to accept credit cards or “ normal credit terms of net 15 days ” on billing . we are also obligated to make the following payments to icare under this agreement : 5 % of the gross revenues received from any sysco customer ; an integration fee of $ 100,000 , of which $ 50,000 was paid in cash and balance of which was discharged by the company 's issuance 15,861,372 shares of its common stock to icare , which have been valued in our financial statements at $ 22,205 ; $ 250 per trade show event that we attend ; and an amount to be determined for additional promotions and marketing programs . we believe that the payment of 5 % of the gross revenues will reduce the cash flow from each contract on which it is paid by 5 % and that the payment of $ 250 per trade show and other amounts will have an insubstantial effect on cash flow . as of december 31 , 2013 , the company did not have any venues referred by sysco and , therefore , the company has no financial obligations . the company is assessing the value of the agreement and whether they will continue . our financial statements have been prepared on a going concern basis , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . our independent auditors have included in the report on our financial statements a statement that raises substantial concern about our ability to continue as a going concern . 16 story_separator_special_tag id= '' glftr '' style= '' width : 100 % '' > 18 the following table provides a summary of our balance sheet and net cash flows from operating , investing , and financing activities for the years ended december 31 , 2013 and 2012. replace_table_token_2_th from its inception ( august 26 , 2010 ) to the date hereof , the company has obtained funding through loans from related parties , private placements and the sale of debentures . the company plans to fund its activities during fiscal 2014 and beyond through cash from operations and through the sale of debt or equity securities and or bank financing . we can give no assurance that sufficient funding will be available on acceptable terms , or at all , and , if it is not , we may have to significantly reduce , or discontinue , our operations . to the extent that we raise additional funds by issuing equity securities or additional securities that are convertible into our debt securities , our stockholders may experience significant dilution . the company believes that it will require capital in the form of equity or borrowed money of approximately $ 600,000 during the next 12 months . the company 's current liquidity presents a material risk to investors because the company does not currently have sufficient funds to expand its business as planned . the company estimates that if it will require additional capital to get to cash flow breakeven . the company and its placement agent will continue to seek additional capital , it has received no commitment for further financing from investors or banks and no assurance can be given that any such commitment will be forthcoming or , if so , in what amount . 19 contractual obligations the following table sets forth information with respect to our known contractual obligations as of the december 31 , 2012 , aggregated by type of contractual obligation . replace_table_token_3_th off-balance sheet arrangements none . controls and procedures pursuant to section 404 of sarbanes-oxley , management is required to report
| 17 year ended december 31 , 2013 sales : the company continued generating revenue from installation fees , monthly monitoring fees to venues , social media fess to venues and artists , pay-per-view fees , tip jar and donate now buttons , and advertising revenue with the placement of digital display and video ads for a total of $ 46,681. the company ended the year with relationships with 8 ad networks which are providing the digital ads . cost of sales and gross profit : costs of sales for the period were $ 7,352 representing costs to install new venues plus maintenance and replacement parts . this led to a gross profit of $ 39,329 or 84 % of revenue . selling , general and administrative expenses : selling , general and administrative expenses incurred during this period were $ 796,094 and were predominantly attributable to personnel costs , selling costs , the continued development of the streaming live and recorded video network and support services , and other operating costs including web site hosting fees . other expenses : the company has accounted for the future exposure of the convertible debentures with interest expense of $ 873,027 , the loss on change in fair market value of derivative liability of $ 385,000 and the loss on extinguishment of debt of $ 238,433. loss from operations and net loss : during this period , our loss from operations was $ 756,765 and our net loss was $ 2,253,225. liquidity and capital resources as of december 31 , 2012 , and december 31 , 2013 , we had cash and cash equivalents of $ 327 and $ 37,215 , respectively . we financed our operations for the year ended december 31 , 2012 , from stock sales and capital contributions totaling $ 126,000 and from loans from christopher carey , president of the company , in the aggregate principal amount of $ 179,305. for the year ended december 31 , 2013 , we financed operations through the sale of stock and capital contributions of $ 7,500 from loans from christopher carey , president of the company of $ 45,948 ,
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set forth below are the accounting estimates that we have identified as critical to our business operations and an understanding of our results of operations , based on the high degree of judgment or complexity in their application . see note 1 of the notes to consolidated financial statements for a discussion of other significant accounting policies . goodwill goodwill for our reporting units is tested for impairment annually on april 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred . we elected to perform a quantitative goodwill impairment test as of april 30 , 2017 , and no impairment charges resulted from the impairment test . the quantitative goodwill impairment test requires a determination of whether the fair value of a reporting unit is less than its carrying value . we estimate the fair value of our reporting units using an “ income ” valuation approach , which discounts expected future cash flows of the reporting unit at a computed weighted average cost of capital as the discount rate . the income valuation approach requires the use of significant estimates and assumptions , which include revenue growth rates and future operating margins used to calculate projected future cash flows , weighted average costs of capital , and future economic and market conditions . in connection with this process , we also reconcile the estimated aggregate fair values of our reporting units to our market capitalization , including consideration of a control premium that represents the estimated amount an investor would pay for our equity securities to obtain a controlling interest . we believe that this reconciliation process is consistent with a market participant perspective . we base our cash flow forecasts on our knowledge of the automotive industry , our recent performance , our expectations of our future performance , and other assumptions we believe to be reasonable but that are unpredictable and inherently uncertain . actual future results may differ from those estimates . we also make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units . as of december 31 , 2017 , we have $ 231.7 million of goodwill related to the domestic reporting unit , $ 532.4 million related to the import reporting unit , $ 712.1 million related to the premium luxury reporting unit , and $ 38.8 million in “ other. ” the fair values of each of the reporting units were substantially in excess of their carrying values as of april 30 , 2017 , the date of our quantitative goodwill impairment test . other intangible assets our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers , which have indefinite lives and are tested for impairment annually on april 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred . 25 our franchise rights , which related to 73 stores and totaled $ 589.4 million at april 30 , 2017 , are evaluated for impairment on a franchise-by-franchise basis annually . we elected to perform quantitative franchise rights impairment tests as of april 30 , 2017 , and no impairment charges resulted from the impairment tests . the quantitative impairment test for franchise rights requires the comparison of the franchise rights ' estimated fair value to carrying value by store . fair values of rights under franchise agreements are estimated using level 3 inputs by discounting expected future cash flows of the store . the forecasted cash flows contain inherent uncertainties , including significant estimates and assumptions related to growth rates , margins , working capital requirements , capital expenditures , and cost of capital , for which we utilize certain market participant-based assumptions using third-party industry projections , economic projections , and other marketplace data we believe to be reasonable . if , hypothetically , the fair value of each of the franchise rights quantitatively tested had been determined to be 10 % lower as of the valuation date , no impairment charges would have resulted . the effect of a hypothetical 10 % decrease in fair value estimates is not intended to provide a sensitivity analysis of every potential outcome . chargeback liability revenue on finance and insurance products represents commissions earned by us for the placement of : ( i ) loans and leases with financial institutions in connection with customer vehicle purchases financed , ( ii ) vehicle service contracts with third-party providers , and ( iii ) other vehicle protection products with third-party providers . we primarily sell these products on a straight commission basis ; however , in certain cases , we also participate in the future underwriting profit on certain products pursuant to retrospective commission arrangements with the issuers of those products , which is recognized as earned . we may be charged back for commissions related to financing , vehicle service contracts , or other vehicle protection products in the event of early termination , default , or prepayment of the contracts by customers ( “ chargebacks ” ) . however , our exposure to loss generally is limited to the commissions that we receive . these commissions are recorded at the time of the sale of the vehicles , net of an estimated liability for chargebacks . we estimate our liability for chargebacks on an individual product basis using our historical chargeback experience based on internal cancellation data , as well as cancellation data received from third parties that sell and administer these products . our estimated liability for chargebacks totaled $ 120.8 million at december 31 , 2017 , and $ 116.8 million at december 31 , 2016 . chargebacks are influenced by the volume of vehicle sales in recent years , commission levels , product penetration , product mix , and increases or decreases in early termination rates resulting from cancellation of vehicle service contracts and other vehicle protection products , defaults , refinancings , payoffs before maturity , and other factors . story_separator_special_tag while we consider these factors in the estimation of our chargeback liability , actual events may differ from our estimates , which could result in an adjustment to our estimated liability for chargebacks . the increase in our liability for chargebacks is largely attributable to increases in commission levels received upon the sale of vehicle service contracts , vehicle unit volume , and product penetration in recent years , as well as product mix . our actual chargeback experience has not been materially different from our recorded estimates . a 10 % change in our estimated cancellation rates would have changed our estimated liability for chargebacks at december 31 , 2017 , by approximately $ 12.1 million . see note 18 of the notes to consolidated financial statements for further information regarding chargeback liabilities . 26 reported operating data years ended december 31 , ( $ in millions , except per vehicle data ) 2017 vs. 2016 2016 vs. 2015 2017 2016 variance favorable / ( unfavorable ) % variance 2015 variance favorable / ( unfavorable ) % variance revenue : new vehicle $ 12,180.8 $ 12,255.8 $ ( 75.0 ) ( 0.6 ) $ 11,995.0 $ 260.8 2.2 retail used vehicle 4,577.1 4,481.7 95.4 2.1 4,370.3 111.4 2.5 wholesale 301.3 513.6 ( 212.3 ) ( 41.3 ) 398.4 115.2 28.9 used vehicle 4,878.4 4,995.3 ( 116.9 ) ( 2.3 ) 4,768.7 226.6 4.8 finance and insurance , net 939.2 894.6 44.6 5.0 868.7 25.9 3.0 total variable operations ( 1 ) 17,998.4 18,145.7 ( 147.3 ) ( 0.8 ) 17,632.4 513.3 2.9 parts and service 3,398.3 3,321.4 76.9 2.3 3,082.8 238.6 7.7 other 137.9 141.9 ( 4.0 ) 146.8 ( 4.9 ) total revenue $ 21,534.6 $ 21,609.0 $ ( 74.4 ) ( 0.3 ) $ 20,862.0 $ 747.0 3.6 gross profit : new vehicle $ 588.4 $ 635.8 $ ( 47.4 ) ( 7.5 ) $ 673.1 $ ( 37.3 ) ( 5.5 ) retail used vehicle 308.0 334.9 ( 26.9 ) ( 8.0 ) 358.4 ( 23.5 ) ( 6.6 ) wholesale 7.2 ( 17.3 ) 24.5 ( 4.7 ) ( 12.6 ) used vehicle 315.2 317.6 ( 2.4 ) ( 0.8 ) 353.7 ( 36.1 ) ( 10.2 ) finance and insurance 939.2 894.6 44.6 5.0 868.7 25.9 3.0 total variable operations ( 1 ) 1,842.8 1,848.0 ( 5.2 ) ( 0.3 ) 1,895.5 ( 47.5 ) ( 2.5 ) parts and service 1,490.7 1,434.7 56.0 3.9 1,338.0 96.7 7.2 other 25.5 30.5 ( 5.0 ) 28.0 2.5 total gross profit 3,359.0 3,313.2 45.8 1.4 3,261.5 51.7 1.6 selling , general , and administrative expenses 2,436.2 2,349.4 ( 86.8 ) ( 3.7 ) 2,263.5 ( 85.9 ) ( 3.8 ) depreciation and amortization 158.6 143.4 ( 15.2 ) 127.4 ( 16.0 ) franchise rights impairment — — — 15.4 15.4 other income , net ( 79.2 ) ( 69.1 ) 10.1 ( 17.9 ) 51.2 operating income 843.4 889.5 ( 46.1 ) ( 5.2 ) 873.1 16.4 1.9 non-operating income ( expense ) items : floorplan interest expense ( 97.0 ) ( 76.5 ) ( 20.5 ) ( 58.3 ) ( 18.2 ) other interest expense ( 120.2 ) ( 115.5 ) ( 4.7 ) ( 90.9 ) ( 24.6 ) interest income 1.0 1.1 ( 0.1 ) 0.1 1.0 other income ( loss ) , net 9.3 3.7 5.6 ( 1.3 ) 5.0 income from continuing operations before income taxes $ 636.5 $ 702.3 $ ( 65.8 ) ( 9.4 ) $ 722.7 $ ( 20.4 ) ( 2.8 ) retail vehicle unit sales : new vehicle 329,116 337,622 ( 8,506 ) ( 2.5 ) 339,080 ( 1,458 ) ( 0.4 ) used vehicle 234,148 225,713 8,435 3.7 227,290 ( 1,577 ) ( 0.7 ) 563,264 563,335 ( 71 ) — 566,370 ( 3,035 ) ( 0.5 ) revenue per vehicle retailed : new vehicle $ 37,011 $ 36,300 $ 711 2.0 $ 35,375 $ 925 2.6 used vehicle $ 19,548 $ 19,856 $ ( 308 ) ( 1.6 ) $ 19,228 $ 628 3.3 gross profit per vehicle retailed : new vehicle $ 1,788 $ 1,883 $ ( 95 ) ( 5.0 ) $ 1,985 $ ( 102 ) ( 5.1 ) used vehicle $ 1,315 $ 1,484 $ ( 169 ) ( 11.4 ) $ 1,577 $ ( 93 ) ( 5.9 ) finance and insurance $ 1,667 $ 1,588 $ 79 5.0 $ 1,534 $ 54 3.5 total variable operations ( 2 ) $ 3,259 $ 3,311 $ ( 52 ) ( 1.6 ) $ 3,355 $ ( 44 ) ( 1.3 ) ( 1 ) total variable operations includes new vehicle , used vehicle ( retail and wholesale ) , and finance and insurance results . ( 2 ) total variable operations gross profit per vehicle retailed is calculated by dividing the sum of new vehicle , retail used vehicle , and finance and insurance gross profit by total retail vehicle unit sales . 27 replace_table_token_8_th 28 same store operating data we have presented below our operating results on a same store basis to reflect our internal performance . the “ same store ” amounts presented below include the results of our stores for the identical months in each period presented in the comparison , commencing with the first full month in which the store was owned by us . for example , the results for a store acquired in february 2016 would be included only in our same store comparison of 2017 to 2016 , not in our same store comparison of 2016 to 2015 . therefore , the amounts presented in the year 2016 column that is being compared to the year 2017 column may differ from the amounts presented in the year 2016 column that is being compared to the year 2015 column .
| net income from continuing operations benefited from a decrease in the income tax provision of $ 41.3 million in 2017 due to the tax reform bill , net after-tax gains related to business/property divestitures of $ 42.2 million in 2017 , $ 30.1 million in 2016 , and $ 11.1 million in 2015 , and after-tax gains of $ 6.7 million in 2017 in connection with payments we received from manufacturers related to a legal settlement and for the waiver of certain franchise protest rights and $ 8.9 million in 2016 related to legal settlements . see “ other income , net ” below . strategic initiatives we continue to implement our comprehensive , customer-focused brand extension strategy , which includes autonation-branded parts and accessories , the expansion of autonation-branded collision centers and autonation-branded automotive auctions , and autonation usa stand-alone used vehicle sales and service centers . in 2017 , we opened two automotive auctions , three autonation usa stores , and one collision center . additionally , we acquired seven collision centers . as part of our brand extension strategy , we also implemented autonation pre-owned 360 , which includes our technology , processes , and procedures for our one price used vehicle centralized pricing and appraisal strategy , as well as our “ we 'll buy your car ” program ( under which customers receive a guaranteed trade-in offer honored for 7 days or 500 miles at any of our locations ) , and related training and systems . we expect that these initiatives will expand and strengthen the autonation retail brand , improve the customer experience , provide new growth opportunities , and enable us to expand our footprint in our core and other markets . in the fourth quarter of 2017 , we announced that we have partnered with waymo , the self-driving technology company of alphabet inc. , in a multi-year agreement to support waymo 's autonomous vehicle program . our franchised stores , autonation usa stores , and other autonation locations will provide vehicle maintenance and repairs for waymo 's self-driving hybrid vehicle fleet , beginning with chrysler pacificas in the phoenix area , with the potential to expand to other markets and brands . we do not expect this agreement to have a material effect on our financial results during the early stages of this strategic partnership . inventory management our new and used vehicle inventories are stated at the lower
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through realtor.com and our listhub business , we aggregate , syndicate and display real estate listings across the web , accounting for an estimated 60 % of all for sale listing detail page views online or on mobile applications through third party property listing businesses in the u.s. part of the reason we have become the leading source for real estate listing content is that we work closely with and respect the rights of real estate professionals while still maintaining a balance that allows consumers to obtain the information and expertise they expect and need . at the same time , we are committed to delivering valuable connections , advertising systems and productivity tools to real estate professionals , with the goal of helping to make them more successful . by combining realtor.com advertising systems with the productivity tools offered through our top producer product line , we are able to help grow and enrich connections between our customers and consumers , and to help our customers better manage those connections in an effort to facilitate transactions and grow their business . our dual focus on both the consumer and the real estate professional has helped us create and maintain realtor.com as a distinct advantage in the online real estate space . for over 15 years , we have provided consumers with access to a highly accurate and comprehensive set of real estate listing data and have built relationships within the real estate industry that are both broad and deep as a result . we expect this industry to continue to progress as new technologies are embraced and as consumers ' needs and wants evolve . we also expect that real estate professionals , to stay relevant , will likewise need to evolve along with technology , consumers and the market . we aim to keep realtor.com positioned to lead this transformation with our consumers and real estate professionals at the forefront , and expect to leverage our collection of advertising systems , productivity tools and other assets to do so . products and services through our realtor.com web site , mobile applications and business operations , we offer a number of services to real estate franchises , brokers and agents , as well as non-real estate related advertisers in an effort to connect those advertisers with our consumer audience . we categorize the products and services available through the realtor.com business as listing advertisements , non-listing advertisements or listhub syndication and reporting . the collection of services offered through the realtor.com business represented approximately 74 % , 70 % and 66 % of our overall revenues from continuing operations for fiscal years 2011 , 2010 and 2009 , respectively . 22 top producer is our software-as-a-service ( saas ) business providing productivity tools tailored to real estate agents . the top producer business complements realtor.com and our mission of connecting consumers and real estate professionals to facilitate transactions by empowering real estate professionals ' ability to connect with , cultivate and ultimately convert their relationships with home buyers and sellers into transactions . our top producer product offerings include a web and mobile-based customer relationship management ( crm ) solution , our market snapshot ® product and a series of template web site products . the top producer product suite represented approximately 16 % , 19 % and 19 % of our overall revenues from continuing operations for fiscal years 2011 , 2010 and 2009 , respectively . we separately operate several other web sites providing multi-family rental , senior housing and moving related content and services for our consumer audience . through our move rentals and senior housing businesses , we aggregate and display rental listings nationwide . we offer a variety of listing-related advertisements that allow rental property owners and managers to promote their listings and connect with consumers through our web sites . pricing models include monthly subscriptions and cost per click ( cpc ) . through our moving.com business we provide consumers with quotes from moving companies and truck rental companies . the majority of revenue from moving.com is derived from cost per lead ( cpl ) pricing models . our move rentals , senior housing and moving.com product lines collectively represented approximately 10 % , 11 % and 11 % of our overall revenues from continuing operations for fiscal years 2011 , 2010 and 2009 , respectively . in the third quarter of 2009 , we sold certain products previously produced through our enterprise business . in the fourth quarter of 2009 , we entered into an agreement with builders homesite , inc. , to create builders digital experience llc ( bdx ) , a joint venture into which we contributed our new construction web site and related business , and that is dedicated to helping new home builders reach buyers with innovative online marketing solutions . these products collectively represented approximately 4 % of our overall revenue from continuing operations for fiscal year 2009. market and economic conditions in recent years , our business has been , and we expect may continue to be , influenced by a number of macroeconomic , industry-wide and product-specific trends and conditions . for a number of years prior to 2006 , the u.s. residential real estate market experienced a period of hyper-sales rates and home price appreciation , fueled by the availability of low interest rates and flexible mortgage options for many consumers . during the latter half of 2006 and through 2008 lending standards were tightened , equity markets declined substantially , liquidity in general was impacted , unemployment rates rose and consumer spending declined . the combination of these factors materially impacted the u.s. housing market in the form of lower home sales , lower home prices and accelerating delinquencies and foreclosures , all of which created a vicious cycle that further exacerbated the housing market downturn . the effects on the housing market have persisted for several years and were felt in 2011 and continue to be felt into 2012. while some markets are seeing signs of a housing recovery , in general the u.s. story_separator_special_tag residential real estate market is still challenged . as a result of the factors discussed above , the real estate market has been difficult over the past several years and is not expected to improve in the near future . entering 2012 , delinquencies are expected to continue to be double that of foreclosures , causing uncertainty in the price floor within many markets . this coupled with the fact that banks continue to have significantly tighter credit standards for mortgage loans have made home purchases that much more difficult . we believe these market conditions will continue to place pressure on spending by real estate professionals in the near term . this environment has had a direct impact on our primary customers , the real estate professionals . fewer home sales and lower home prices have substantially impacted commission income , which has caused real estate professionals to either reduce their marketing spend or exit the market altogether . the prolonged housing market downturn and resulting impact on our customers has caused us to experience a decline in revenue over the past three years . acquisitions and dispositions in the third quarter of 2011 , we acquired the assets of peep.ly , llc ( social bios ) . the social bios assets include social media products that can compile and integrate a user 's social networking profiles from various social media properties to build a web site landing page that provides a profile of the user and allows the user to conduct a directory search for others whereby the user 's social profile is matched against the social profiles of others to determine social overlaps or commonalities . the acquisition did not have a material impact on our consolidated financial position , results of operation or cash flows . in the third quarter of 2010 , we acquired all of the outstanding shares of threewide corporation ( threewide ) for approximately $ 13.1 million in cash . threewide was the operator of listhub , an online real estate listing syndicator and provider of advanced performance reporting solutions for the purpose of helping to drive an effective online advertising program for brokers , real estate franchises and individual agents . the total purchase price has been allocated to the assets acquired , including intangible assets and liabilities assumed based on their respective fair values . 23 in the second quarter of 2008 , we decided to divest our welcome wagon ® business . in the second quarter of 2009 , we closed the sale of the business for a sales price of $ 2.0 million . we received $ 1.0 million in cash and a $ 1.0 million promissory note . the principal balance of the note , which was originally due on or before october 1 , 2010 , was paid in full in july 2010. the outstanding principal bore an interest rate of 7 % per annum , with quarterly interest payments due commencing on october 1 , 2009. the transaction resulted in a gain on disposition of discontinued operations of $ 1.2 million for the year ended december 31 , 2009. as part of the sale in 2002 of our consumerinfo division to experian holding , inc. ( experian ) , $ 10.0 million of the purchase price was put in escrow to secure our indemnification obligations ( the indemnity escrow ) . under the terms of the stock purchase agreement , our maximum potential liability for claims by experian was capped at $ 29.3 million less the balance in the indemnity escrow , which amount was approximately $ 8.5 million . during 2008 , experian demanded $ 29.3 million in indemnity payments . we denied liability and a bifurcated arbitration proceeding ensued to resolve the dispute . subsequent to the completion of the first phase of the arbitration proceedings , in april 2009 , the parties settled the dispute and entered into a full release of all claims under which experian received $ 7.4 million from the indemnity escrow and we received the balance of the escrow of $ 1.1 million , which is included in gain on disposition of discontinued operations for the year ended december 31 , 2009. our consolidated financial statements for all periods presented reflects the classification of our welcome wagon ® division as discontinued operations . accordingly , the revenue , operating expenses , and cash flows of this division have been excluded from the respective captions in the consolidated statements of operations and consolidated statements of cash flows and have been reported as loss from discontinued operations , net of applicable income taxes of zero ; and as net cash provided by ( used in ) discontinued operations. total revenue and loss from discontinued operations for the year ended december 31 , 2009 were as follows ( in thousands ) : revenue $ 9,609 total operating expenses ( 9,050 ) restructuring charges ( 1,045 ) loss from discontinued operations $ ( 486 ) gain on disposition of discontinued operations $ 2,303 in the third quarter of 2009 , we sold certain product lines associated with the enterprise business for a sale price of approximately $ 1.4 million in cash . the transaction resulted in a gain on sale of assets of $ 1.3 million which is reflected in other income , net in our consolidated statements of operations for the year ended december 31 , 2009. investment in joint ventures in august 2010 , we entered into a joint venture agreement with a national mortgage banker d/b/a mortgage match and contributed an initial investment of $ 0.5 million in exchange for a 49.9 % ownership in the joint venture . we recorded our initial investment in the joint venture at $ 0.5 million , reflecting such cash payment . in addition , we entered into an interim services agreement in august 2010 with our joint venture partner , under which we hosted and operated the mortgagematch.com web site , performed various supporting services and received a fixed monthly fee . in december 2010 , the mortgagematch.com web site was launched .
| 27 replace_table_token_7_th ( 1 ) the following chart summarizes the stock-based compensation and charges that have been included in the following captions for the periods presented : replace_table_token_8_th 28 replace_table_token_9_th for the years ended december 31 , 2011 and 2010 revenue revenue decreased $ 5.8 million , or 3 % , to $ 191.7 million for the year ended december 31 , 2011 , compared to $ 197.5 million for the year ended december 31 , 2010. the decrease in revenue was primarily due to a decline in our top producer ® product suite due to a decline in our crm subscriber base , which was due to reduced spending by real estate professionals along with declines in our rental products . these declines were partially offset by increased revenues in our realtor.com ® product lines primarily due to new product introductions , including listhub and our prequal plus online mortgage prequalification offering . cost of revenue cost of revenue decreased $ 2.7 million , or 6 % , to $ 40.4 million for the year ended december 31 , 2011 , compared to $ 43.1 million for the year ended december 31 , 2010. the decrease was primarily due to decreased production and fulfillment costs associated with our featured products of $ 1.3 million resulting from improved self-service templates for our customers , a decrease in personnel related costs of $ 1.0 million , a decrease in royalties of $ 0.7 million and credit card processing fees of $ 0.5 million due to reduced revenues and a decrease in depreciation expense of $ 0.7 million , partially offset by a $ 1.3 million increase in technology licensing fees related to new on-line functionality and other cost increases of $ 0.2 million . gross margin percentage increased to 79 % for the year ended december 31 , 2011 , compared to 78 % for the year ended december 31 , 2010 due to the decreased costs described above . operating expenses sales and marketing . sales and marketing expenses decreased $ 5.1 million , or 7 % , to $ 68.6 million for the year ended december 31 , 2011 , compared to $ 73.7 million for the year ended december 31 , 2010. the decrease was primarily due to a $ 4.1 million decrease in personnel related costs directly related to reduced revenues , a $ 1.4 million decrease in marketing and tradeshow expenses and a decrease in online distribution costs of $ 0.7 million , partially offset by a $ 0.6 million increase in software license costs , a $ 0.3
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these shares of stock have vesting conditions tied to continuing employment and , as such , the shares are compensatory and we will recognize share based payment expense over the underlying stock vesting period . the accounting purchase price also includes $ 0.2 million related to unvested andera stock options that we assumed in the acquisition . this amount reflects the fair value of the underlying awards that relate to pre-acquisition service periods . 30 on january 29 , 2014 , we acquired rationalwave analytics , inc. ( rationalwave ) , an early stage predictive analytics technology company , for a cash payment of $ 1.2 million and 113,731 shares of our common stock which was valued at approximately $ 3.7 million as of the acquisition date . we also issued 92,151 shares of our common stock to key rationalwave stockholders joining us as employees . these shares of stock have vesting conditions tied to continuing employment and , as such , these shares are compensatory and we will recognize share based payment over the underlying stock vesting period . on august 20 , 2013 , we acquired sf2i sa ( sterci ) , a swiss corporation , for a cash payment of 111.0 million swiss francs ( approximately $ 121.0 million based on exchange rates in effect at the acquisition date ) . on september 4 , 2013 , we acquired all of the remaining equity of simplex gtp limited ( simplex ) , a uk-based corporation , for a cash payment of £3.4 million ( approximately $ 5.4 million based on exchange rates in effect at the acquisition date ) . sterci and simplex are leading providers of financial messaging solutions utilizing the swift global messaging network on behalf of more than 350 customers across 20 different countries . the sterci and simplex acquisitions , combined with our existing financial messaging business , create a new global center of excellence in financial messaging , providing solutions for banks , financial institutions and corporations around the world . financial highlights for fiscal year 2014 , our revenue increased to $ 300.6 million from $ 254.8 million in the prior year . this revenue increase was attributable to revenue increases in our hosted solutions segment ( $ 39.9 million ) , payments and transactional documents segment ( $ 4.9 million ) and our digital banking segment ( $ 1.1 million ) . the revenue increase in our hosted solutions segment was primarily due to increased revenue from our financial messaging solutions as the result of our sterci acquisition and , to a lesser extent , increased revenue from our legal spend management and paymode-x solutions . the revenue increase in our payments and transactional documents segment was related to higher european revenue in our payment and document automation products . the digital banking segment 's revenue increase was primarily due to increased subscription and transaction revenue from our acquisition of andera . we had net loss of $ 19.1 million in the fiscal year ended june 30 , 2014 compared to net loss of $ 14.4 million in the prior year . our fiscal year 2014 net loss includes the impact of $ 14.2 million of net interest expense related to our convertible debt . the 2014 net loss also reflects the impact of increased operating expenses of $ 30.0 million , offset in part by increased gross margins of $ 34.4 million . the increases in our operating expenses were due primarily to increased employee related costs as we continued to grow our business and the operating impact of our recent acquisitions , including an increase of $ 6.7 million in intangible asset amortization expense . the increase in our gross margin was driven primarily by revenue increases across all operating segments . in fiscal year 2014 , we derived approximately 44 % of our revenue from customers located outside of north america , principally in the united kingdom , continental europe and the asia-pacific region . we expect future revenue growth to be driven by our digital banking , legal spend management , financial messaging and paymode-x solutions . our customers operate in many different industries , a diversification that we believe helps us in a challenging economic climate . additionally , we believe that our recurring and subscription revenue base helps position us defensively against any short term economic downturn . while we believe that we continue to compete favorably in all of the markets we serve , ongoing or worsening economic stresses could negatively impact our business in the future . revenue sources our revenues are derived from multiple sources and are reported under the following classifications : subscriptions and transactions fees . we derive subscriptions and transactions fees from a number of sources , principally our saas offerings . subscription revenues are typically recognized on a ratable basis over the subscription period . transaction revenues are typically recorded at the time transactions 31 are processed . some of our saas products require customers to pay non-refundable set up or installation fees . in these cases , since the up-front fees do not represent a separate revenue earnings process , these fees are deferred and recognized as revenue over the estimated life of the customer relationship , which is generally between five and ten years . a significant part of our focus remains on growing the revenue contribution from our saas offerings and subscriptions and transactions based revenue streams . software license fees . software license revenues , which we derive from our software applications , are generally based on the number of software applications and user licenses purchased . fees from the sale of perpetual software licenses are generally recognized upon delivery of the software to the customer , assuming that payment from the customer is probable and there are no extended payment terms . story_separator_special_tag however , certain of our software arrangements , particularly those related to financial institution customers , are recognized on a percentage of completion basis over the life of the project because they require significant customization and modification and involve extended implementation periods . service and maintenance fees . our service and maintenance revenues consist of professional services fees and customer support and maintenance fees . revenues relating to professional services not associated with highly customized software solutions are normally recognized at the time services are rendered . professional services revenues associated with software license arrangements that include significant customization and modification are generally recognized on a percentage of completion basis over the life of the project . software maintenance fees are recognized as revenue ratably over the respective maintenance period , which is typically one year . other revenues . we derive other revenues from the sale of printers , check paper and magnetic ink character recognition toners . these revenues are normally recognized at the time of delivery . critical accounting policies and significant judgments and estimates we believe that several accounting policies are important to understanding our historical and future performance . we refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate , and different estimateswhich also would have been reasonablecould have been used . these critical accounting policies and estimates relate to revenue recognition , the valuation of goodwill and intangible assets , the valuation of acquired deferred revenue and income taxes . these critical policies and our procedures related to these policies are discussed below . in addition , refer to note 2 to the accompanying consolidated financial statements for a discussion of all of our significant accounting policies . revenue recognition software arrangements we recognize revenue on our software license arrangements when four basic criteria are met : persuasive evidence of an arrangement exists , delivery of the product has occurred , the fee is fixed and determinable and collectability is probable . we consider a fully executed agreement or a customer purchase order to be persuasive evidence of an arrangement . delivery is deemed to have occurred upon transfer of the product to the customer or the completion of services rendered . we consider the arrangement fee to be fixed and determinable if it is not subject to adjustment and if the customer has not been granted extended payment terms . excluding our long term contract arrangements for which revenue is recorded on a percentage of completion basis , extended payment terms are deemed to be present when any portion of the software license fee is due in excess of 90 days after the date of product delivery . in arrangements that contain extended payment terms , software revenue is recorded as customer payments become contractually due , assuming all other revenue recognition criteria have been met . we consider the arrangement fee to be probable of collection if our internal credit analysis indicates that the customer will be able to pay contractual amounts as they become due . 32 our software arrangements often contain multiple revenue elements , such as software licenses , professional services , hardware and post-contract customer support . for multiple element software arrangements which qualify for separate element treatment , revenue is recognized for each element when each of the four basic criteria is met which , excluding post-contract customer support , is typically upon delivery . revenue for post-contract customer support agreements is recognized ratably over the term of the agreement , which is generally one year . revenue is allocated to each element , excluding the software license , based on vendor specific objective evidence ( vsoe ) . vsoe is limited to the price charged when the element is sold separately or , for an element not yet being sold separately , the price established by management having the relevant authority . we do not have vsoe for our software licenses since they are seldom sold separately . accordingly , revenue is allocated to the software license using the residual value method . under the residual value method , revenue equal to vsoe of each undelivered element is recognized upon delivery of that element . any remaining arrangement fee is then allocated to the software license . this has the effect of allocating any sales discount inherent in the arrangement to the software license fee . certain of our software arrangements require significant customization and modification and involve extended implementation periods . these arrangements do not qualify for separate element revenue recognition treatment as described above , and instead must be accounted for under contract accounting . under contract accounting , companies must select from two generally accepted methods of accounting : the completed contract method and the percentage of completion method . the completed contract method recognizes revenue and costs upon contract completion , and all project costs and revenues are reported as deferred items in the balance sheet until that time . the percentage of completion method recognizes revenue and costs on a contract over time , as the work progresses . we use the percentage of completion method of accounting for our long-term contracts , as we believe that we can make reasonably reliable estimates of progress toward completion . progress is measured based on labor hours , as measured at the end of each reporting period , as a percentage of total expected labor hours . accordingly , the revenue we record in any reporting period for arrangements accounted for on a percentage of completion basis is dependent upon our estimates of the remaining labor hours that will be incurred in fulfilling our contractual obligations . our estimates at the end of any reporting period could prove to be materially different from final project results , as determined only at subsequent stages of project completion .
| million for the fiscal year ended june 30 , 2014 compared to the prior fiscal year was due to the overall increase in revenue as well as improved subscriptions and transactions gross margins in north america , offset in part by increased operating expenses primarily related to increased sales and marketing costs . we expect revenue and profit for the payments and transactional documents segment to increase in fiscal year 2015 as a result of increased sales of our payment and document automation solutions and continued improvement of gross margins . hosted solutions . the revenue increase in our hosted solutions segment for the fiscal year ended june 30 , 2014 compared to the prior fiscal year was due to increased financial messaging revenue of $ 32.6 million , primarily from our sterci acquisition and , to a lesser extent , from revenue increases in our legal spend management and paymode-x solutions . the segment profit increase of $ 2.5 million for the fiscal year ended june 30 , 2014 compared to the prior fiscal year arose from improved gross margins of $ 21.5 million as a result of the increased financial messaging revenue and improved subscriptions and transactions gross margins from our legal spend management and paymode-x solutions , offset by increased operating expenses of $ 19.0 million primarily associated with the operating costs of sterci . we expect revenue for the hosted solutions segment to increase in fiscal year 2015 as a result of increased revenue from our legal spend management , financial messaging and paymode-x solutions . we expect profit to remain relatively consistent during fiscal year 2015 as we leverage the increase in revenue to further invest in these offerings . digital banking . the revenue increase in our digital banking segment for the fiscal year ended june 30 , 2014 compared to the prior fiscal year was primarily due to an increase of $ 1.6
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our advisory fees may fluctuate based on a number of factors , including the following : changes in aum due to appreciation or depreciation of our investment portfolios , and the levels of the contribution and withdrawal of assets by new and existing clients ; distribution of aum among our investment strategies , which have differing fee schedules ; distribution of aum between institutional accounts and retail accounts , for which we generally earn lower overall advisory fees ; and the level of our performance with respect to accounts on which we are paid performance fees . expenses our expenses consist primarily of compensation and benefits expense , as well as general and administrative expense . these expenses may fluctuate due to a number of factors , including the following : variations in the level of total compensation expense due to , among other things , bonuses , awards of equity to our employees and members of our operating company , changes in our employee count and mix , and competitive factors ; and expenses , such as rent , professional service fees and data-related costs , incurred , as necessary , to run our business . compensation and benefits expense our largest expense is compensation and benefits , which includes the salaries , bonuses , equity-based compensation , and related benefits and payroll costs attributable to our members and employees . compensation and benefits packages are benchmarked against relevant industry and geographic peer groups in order to attract and retain qualified personnel . pursuant to the pzena investment management , llc amended and restated 2006 equity incentive plan ( the 2006 equity incentive plan ) , we have issued restricted units and options to purchase units in our operating company . we use a fair-value method in recording the compensation expense associated with the granting of these restricted units , and options to purchase units , to new and existing members under the 2006 equity incentive plan . under this method , compensation expense is measured at the grant-date based on the 36 estimated fair value of the award and is recognized over the award 's vesting period . the fair value of the units is determined by reference to the market price of our class a common stock on the date of grant , since these units are exchangeable for shares of our class a common stock on a one-for-one basis . we determined that the total grant-date fair values of the units granted in 2011 , 2010 , and 2009 were $ 0.6 million , $ 1.4 million , and $ 0.1 million , respectively . for each of the years ended 2011 , 2010 , and 2009 , we recognized approximately $ 0.8 million , $ 0.3 million and $ 0.1 million , respectively , in compensation and benefits expense associated with the amortization of all restricted operating company class b units . under the pzena investment management , inc. 2007 equity incentive plan ( the 2007 equity incentive plan ) , we have issued options to acquire shares of our class a common stock . the fair value of the options to purchase class b units and class a common stock is determined by using an appropriate option pricing model on the grant-date . we determined that the total grant-date fair values of all options awarded in 2011 , 2010 , and 2009 , were $ 0.5 million , $ 0.1 million , and $ 5.4 million , respectively , using the black-scholes option pricing model . for each of the years ended december 31 , 2011 , 2010 , and 2009 , we recognized approximately $ 2.1 million in compensation and benefits expense associated with the amortization of all unvested options to acquire operating company class b units and unvested options to acquire class a common stock issued under the 2006 and 2007 equity incentive plans . pursuant to the pzena investment management , llc amended and restated bonus plan ( the bonus plan ) , eligible employees whose cash compensation is in excess of certain thresholds have a portion of that excess mandatorily deferred . these deferred amounts may be invested , at the employee 's discretion , in certain third-party mutual funds , restricted phantom units of our operating company , or money market funds . amounts deferred in any calendar year reduce that year 's cash compensation expense and are amortized ratably over a four-year period commencing the following year . for the years ended december 31 , 2011 , 2010 , and 2009 approximately $ 2.2 million , $ 2.2 million , and $ 1.6 million , respectively , in such compensation was deferred . at december 31 , 2011 and 2010 , the liability associated with deferred compensation investment accounts was approximately $ 1.2 million and $ 0.9 million , respectively , and is recorded as deferred compensation liability on the consolidated statements of financial condition . for the years ended december 31 , 2011 , 2010 and 2009 , we recognized approximately $ 2.1 million , $ 1.3 million and $ 0.7 million , respectively , in compensation and benefits expense associated with the amortization of all deferred compensation awards . should additional amounts be deferred in future years , we would expect the non-cash portion of our compensation expense to increase as the previously and subsequently deferred amounts are amortized through the statement of operations . as of december 31 , 2011 , we had approximately $ 2.1 million in total unrecorded compensation expense related to unvested operating company phantom units issued pursuant to our bonus plan , operating company unit and option grants issued under the 2006 equity incentive plan , and option grants issued under our 2007 equity incentive plan . we expect that the amortization of these amounts will be approximately $ 1.3 million in 2012 , $ 0.7 million in 2013 , and $ 0.1 million in 2014. for the year ended december 31 , 2011 , we awarded $ 1.0 million in delayed-vesting cash awards issued to certain members . story_separator_special_tag these delayed-vesting cash awards have varying vesting schedules , with $ 0.6 million to be paid in 2012 and the remaining $ 0.4 million to be paid in 2013. for the year ended december 31 , 2010 , we awarded $ 0.5 million in delayed-vesting cash awards , of which $ 0.3 million was paid during 2011 , with the remaining $ 0.2 million to be paid in 2012. in 2011 , we recognized approximately $ 2.2 million in charges related to certain employee departures . general and administrative expense general and administrative expense includes office rent and other expenses , professional and outside services fees , depreciation , and the costs associated with operating and maintaining our research , trading , and portfolio accounting systems . our occupancy-related costs and professional services expenses , in particular , generally increase or decrease in relative proportion to the overall size and scale of our business operations . we incur additional expenses associated with being a public company for , among other things , director and officer insurance , director fees , sec reporting and compliance ( including sarbanes-oxley and dodd-frank 37 compliance ) , professional fees , transfer agent fees , and other similar expenses . these additional expenses have and will continue to reduce our net income . other income/ ( expense ) other income/ ( expense ) is derived primarily from investment income or loss arising from our consolidated subsidiaries , our investments in various private investment vehicles that we employ to incubate new strategies , income or loss generated by our investments in third-party mutual funds , interest expense on our outstanding debt prior to its repayment , mark-to-market movements on our swap agreement prior to its termination , and interest income generated on our cash balances . other income/ ( expense ) is also affected by changes in our estimates of the liability due to our selling and converting shareholders associated with payments owed to them under the tax receivable agreement which was executed in connection with our reorganization and offering on october 30 , 2007. as discussed further below under tax receivable agreement , this liability represents 85 % of the amount of cash savings , if any , in u.s. federal , state , and local income tax that we realize as a result of the amortization of the increases in tax basis generated from our acquisitions of our operating company 's units from our selling and converting shareholders . amounts waived by our selling and converting shareholders , if any , reduce this liability . we expect the interest and investment components of other income/ ( expense ) , in the aggregate , to fluctuate based on market conditions and the performance of our consolidated investment partnerships and other investments . non-controlling interests our operating company has historically consolidated the results of operations of the private investment partnerships over which we exercise a controlling influence . we are the sole managing member of our operating company and control its business and affairs and , therefore , consolidate its financial results with ours . in light of our employees ' and outside investors ' interest in our operating company , we have reflected their membership interests as a non-controlling interest in our consolidated financial statements . as a result , our income is generated by our economic interest in our operating company 's net income . as of december 31 , 2011 , the holders of class a common stock ( through the company ) and the holders of class b units of the operating company held approximately 16.3 % and 83.7 % , respectively , of the economic interests in the operations of the business . income tax expense/ ( benefit ) as a c corporation under the internal revenue code , we are liable for federal , state and local taxes on the income derived from our economic interest in the operating company , which is net of its provision for new york city unincorporated business taxes , or ubt . correspondingly , in our consolidated financial statements , we report both the operating company 's provision for ubt , as well as our provision for federal , state and local corporate taxes . valuation allowances are established , when necessary , to reduce deferred tax assets to the amount more likely than not to be realized . as of december 31 , 2011 and 2010 , our valuation allowance against the deferred tax asset associated with our acquisition of operating company units in conjunction with the offering and subsequent exchanges was $ 61.1 million and $ 59.4 million , respectively . story_separator_special_tag increased by $ 1.3 billion , or 9.1 % , from $ 14.3 billion at december 31 , 2009 , to $ 15.6 billion at december 31 , 2010 , and increased by $ 3.6 billion , or 33.6 % , from $ 10.7 billion at december 31 , 2008 , to $ 14.3 billion at december 31 , 2009 . 41 at december 31 , 2011 , we managed $ 11.3 billion in institutional accounts and $ 2.2 billion in retail accounts , for a total of $ 13.5 billion in assets . for the year ended december 31 , 2011 , we experienced total gross outflows of $ 3.8 billion , which were partially offset by total gross inflows of $ 3.0 billion . assets in institutional accounts decreased by $ 1.2 billion , or 9.6 % , from $ 12.5 billion at december 31 , 2010 , due to $ 1.1 billion in market depreciation and $ 2.2 billion in gross outflows , partially offset by $ 2.1 billion in gross inflows . assets in retail accounts decreased by $ 0.9 billion , or 29.0 % , from $ 3.1 billion at december 31 , 2010 , as a result of $ 1.6 billion in gross outflows and $ 0.2 billion in market depreciation , partially offset by $ 0.9 billion in gross inflows .
| large cap value . we screen a universe of the 500 largest u.s.-listed companies , based on market capitalization , to build a portfolio generally consisting of 30 to 40 stocks . we launched this strategy in october 2000. at december 31 , 2011 , the large cap value strategy generated a one-year annualized gross return of -5.3 % , underperforming both its benchmark and the broader equity market in general . this underperformance relative to the benchmark was due primarily to our overweight investment exposure to the financial services and technology sectors , partially offset by our stock selection within the energy sector . 39 global value . we screen a universe of the 1,500 largest non u.s.-listed companies , based on market capitalization , and the 500 largest u.s.-listed companies , based on market capitalization , to build a portfolio generally consisting of 40 to 60 stocks . we launched this strategy in january 2004. at december 31 , 2011 , the global value strategy generated a one-year annualized gross return of -12.8 % , underperforming both its benchmark and the broader equity market in general . this underperformance relative to the benchmark was due primarily to our overweight investment exposure to the financial services and technology sectors , and our underweight exposure to the consumer staples sector . value service . we screen a universe of the 1,000 largest u.s.-listed companies , based on market capitalization , to build a portfolio generally consisting of 30 to 40 stocks . we launched this strategy in january 1996. at december 31 , 2011 , the value strategy generated a one-year annualized gross return of -3.7 % , underperforming both its benchmark and the broader equity market in general . this underperformance relative to the benchmark was due primarily to our overweight investment exposure to the technology and financial services sectors and our underweight exposure to the utilities sector , partially offset by an overweight exposure to the consumer discretionary sector and our stock selection within the energy sector . eafe diversified value .
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reductions in government spending may impact the availability of new program awards in 2015. for example , the budget control act commits the u.s. government to reduce the federal deficit by $ 1.2 trillion over ten years through a combination of automatic , across-the-board spending cuts and caps on discretionary spending , or sequestration . automatic across-the-board cuts required by sequestration could have a material adverse effect on our technology development revenues 34 and , consequently , our results of operations . while the exact manner in which sequestration will impact our business is unclear , funding for programs in which we participate could be reduced , delayed or canceled . our ability to obtain new contract awards also could be negatively affected . recent sales of scc and medical shape sensing business in march 2013 , we sold our scc group to macauley-brown , inc. , another defense contractor , for $ 6.1 million in cash . in january 2014 , we sold our assets associated with the development of fiber optic shape sensing and localization for the medical field to affiliates of intuitive surgical , inc. , or intuitive , for total cash consideration of up to $ 30 million , including $ 6 million received at closing , $ 6 million received in april 2014 and up to $ 18 million that we may receive in the future based on the achievement of certain technical milestones and royalties on system sales if any . our sales of scc in 2013 and of our medical shape sensing business in 2014 are expected to result in lower revenues than historically realized until we can increase revenues significantly , primarily from product sales . as a result , we may incur greater net losses than we have in prior years . proposed merger with advanced photonix , inc. on january 30 , 2015 , we , advanced photonix , inc. , a delaware corporation ( “ api ” ) , and api merger sub , inc. , a delaware corporation and our wholly owned subsidiary ( `` api merger sub '' ) , entered into an agreement and plan of merger and reorganization ( the “ merger agreement ” ) , pursuant to which api merger sub will merge with and into api ( the “ merger ” ) , with api surviving as our wholly owned subsidiary . upon the effective time of the merger , each share of the common stock of api will be converted into the right to receive shares of our common stock at an exchange ratio of 0.31782. in addition , unless otherwise provided by the terms of the warrant , each outstanding warrant to purchase api shares will be converted into the right to purchase shares of our common stock and each outstanding option to purchase shares of api common stock will be converted into an option to purchase shares of our common stock of , in each case at the same exchange ratio . the completion of the merger is subject to the satisfaction or waiver of a number of customary closing conditions in the merger agreement , including , among others , the effectiveness of a form s-4 registration statement that we have filed with the securities and exchange commission ( the “ sec ” ) , the adoption of the merger agreement and approval of the transactions contemplated thereby by api 's stockholders , approval by our stockholders of the issuance of shares of our common stock , the absence of certain governmental restraints and the absence of a material adverse effect on us or api . we have filed the form s-4 registration statement with the sec , however that registration statement has not yet become effective . following the effectiveness of the form s-4 , luna and advanced photonix will mail the joint proxy statement/prospectus included in the form s-4 to our respective stockholders for consideration at the companies ' stockholder meetings . although the companies have not yet formally determined the dates of their stockholder meetings , we currently expect the stockholder meetings to be held and , subject to the satisfaction and or waiver of the conditions to the merger , the merger to close in may 2015. upon closing of the merger , we expect to account for the merger under the acquisition method of accounting in accordance with financial accounting standards board accounting standard topic 805 , business combinations . description of our revenues , costs and expenses revenues we generate revenues from technology development , product sales and commercial product development and licensing activities . we derive technology development revenues from providing research and development services to third parties , including government entities , academic institutions and corporations , and from achieving milestones established by some of these contracts and in collaboration agreements . in general , we complete contracted research over periods ranging from six months to three years , and recognize these revenues over the life of the contract as costs are incurred or upon the achievement of certain milestones built into the contracts . our technology development revenues represented approximately 62 % and 57 % of our total revenues for the years ended december 31 , 2013 and 2014 , respectively . our products and licensing revenues reflect amounts that we receive from sales of our products or development of products for third parties , as well as fees paid to us in connection with licenses or sub-licenses of certain patents and other intellectual property , and represented approximately 38 % and 43 % of our total revenues for the years ended december 31 , 2013 and 2014 , respectively . cost of revenues 35 cost of revenues associated with technology development revenues consists of costs associated with performing the related research activities including direct labor , amounts paid to subcontractors and overhead allocated to technology development activities . story_separator_special_tag cost of revenues associated with product sales and license revenues consists of license fees for use of certain technologies ; product manufacturing costs including all direct material and direct labor costs ; amounts paid to our contract manufacturers ; manufacturing , shipping and handling ; provisions for product warranties ; and inventory obsolescence , as well as overhead allocated to each of these activities . operating expense operating expense consists of selling , general and administrative expenses , as well as expenses related to research , development and engineering , depreciation of fixed assets and amortization of intangible assets . these expenses also include compensation for employees in executive and operational functions including certain non-cash charges related to expenses from option grants , facilities costs , professional fees , salaries , commissions , travel expense and related benefits of personnel engaged in sales , product management and marketing activities ; costs of marketing programs and promotional materials ; salaries , bonuses and related benefits of personnel engaged in our own research and development beyond the scope and activities of our technology development segment ; product development activities not provided under contracts with third parties ; and overhead costs related to these activities . interest expense , net in february 2010 , we entered into a new line of credit facility with silicon valley bank , or svb , with a borrowing capacity of $ 5.0 million . in may 2011 , we entered into a loan modification agreement with svb under which we repaid the outstanding balance under the prior line of credit and obtained a term loan in the amount of $ 6.0 million , along with a new $ 1.0 million line of credit . in may 2012 , we entered into another loan modification agreement with svb under which we extended the maturity date of the line of credit to may 2014 and adjusted certain covenants . on march 21 , 2013 , we entered into another loan modification agreement with svb under which we replaced the previous financial covenants with a single covenant that we maintain a minimum cash balance of $ 5.0 million . at december 31 , 2014 , we had $ 0.6 million outstanding on the term loan and no amounts outstanding on the line of credit . effective on january 21 , 2014 , this minimum cash balance covenant was modified to reduce the required minimum balance to $ 3.5 million . during the years 2013 and 2014 , interest expense included interest accrued on our outstanding bank credit facilities , and interest incurred with respect to our capital lease obligations . critical accounting policies and estimates technology development revenues we perform research and development for u.s. federal government agencies , educational institutions and commercial organizations . we recognize revenue under research contracts when a contract has been executed , the contract price is fixed and determinable , delivery of services or products has occurred , and collectability of the contract price is considered reasonably assured and can be reasonably estimated . revenue is earned under cost reimbursable , time and materials and fixed price contracts . direct contract costs are expensed as incurred . under cost reimbursable contracts , we are reimbursed for costs that are determined to be reasonable , allowable and allocable to the contract and paid a fixed fee representing the profit negotiated between us and the contracting agency . revenue from cost reimbursable contracts is recognized as costs are incurred plus an estimate of applicable fees earned . we consider fixed fees under cost reimbursable contracts to be earned in proportion to the allowable costs incurred in performance of the contract . revenue from time and materials contracts is recognized based on direct labor hours expended at contract billing rates plus other billable direct costs . fixed price contracts may include either a product delivery or specific service performance throughout a period . for fixed price contracts that are based on the proportional performance method and involve a specified number of deliverables , we recognize revenue based on the proportion of the cost of the deliverables compared to the cost of all deliverables included in the contract as this method more accurately measures performance under these arrangements . for fixed price contracts that provide for the development and delivery of a specific prototype or product , revenue is recognized based upon the percentage of completion method . 36 our contracts with agencies of the u.s. government are subject to periodic funding by the respective contracting agency . funding for a contract may be provided in full at inception of the contract or ratably throughout the contract as the services are provided . in evaluating the probability of funding for purposes of assessing collectability of the contract price , we consider our previous experience with our customers , communication with our customers regarding funding status and our knowledge of available funding for the contract or program . if funding is not assessed as probable , revenue recognition is deferred until realization is reasonably assured . contract revenue recognition inherently involves estimation , including the contemplated level of effort to accomplish the tasks under the contract , the cost of the effort and an ongoing assessment of progress toward completing the contract . from time to time , as part of normal management processes , facts may change , causing revisions to estimated total costs or revenues expected . the cumulative impact of any revisions to estimates and the full impact of anticipated losses on any type of contract are recognized in the period in which they become known . the underlying bases for estimating our contract research revenues are measurable expenses , such as labor , subcontractor costs and materials , and data that are updated on a regular basis for purposes of preparing our cost estimates . our research contracts generally have a period of performance of six to 18 months , and our estimates of contract costs have historically been consistent with actual results .
| our products and licensing segment costs increased $ 0.6 million from $ 3.4 million in the year ended december 31 , 2013 to $ 4.0 million in the year ended december 31 , 2014. this increase was due primarily to the increase in sales as noted above . a significant part of the increase came from our optical vector analyzer product which typically has a higher margin and therefore tends to increase costs less than our other products . operating expense replace_table_token_6_th selling , general and administrative expenses decreased $ 1.3 million from $ 11.5 million in the year ended december 31 , 2013 to $ 10.3 million in the year ended december 31 , 2014. this decrease reflects the recognition in 2013 of an aggregate of $ 0.9 million of professional fees , such as investment banking and legal costs , and compensation costs incurred in connection with the sale of our medical shape sensing business in january 2014 , reductions in headcount taken subsequent to the sale of the medical shape sensing business , lower outside professional fees incurred with respect to sec and nasdaq filings and compliance and lower share-based compensation expense . research , development , and engineering expenses decreased $ 0.5 million from $ 2.6 million in the year ended december 31 , 2013 , to $ 2.1 million in the year ended december 31 , 2014. this decrease was due primarily to the transfer of ten engineers and technicians to intuitive in january 2014 in connection with the sale of the medical shape sensing business . interest expense , net and other income our net interest expense was approximately $ 0.2 million for the year ended december 31 , 2013 compared to approximately $ 0.1 million for the year ended december 31 , 2014. during 2013 and 2014 , our primary outstanding borrowing was the term loan provided by svb . the average monthly loan balance for the year ended december 31 , 2013 was $ 2.9 million as compared to $ 1.3 million for the year ended december 31 , 2014 , resulting in a decrease
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we aim to increase our product selling prices in order to cover raw material price increases , but the inability to do so could impact our profitability . movements in raw material costs and resulting changes in the selling prices may also impact changes in period-to-period comparisons of net sales . material conversion our hdpe and pp pipe and related water management product lines compete with other manufacturers of corrugated polyethylene pipe as well as manufacturers of alternative products made with traditional materials , such as concrete , steel and pvc . our net sales are driven by market trends , including the continued increase in adoption of thermoplastic corrugated pipe products as a replacement for traditional materials . thermoplastic corrugated pipe is generally lighter , more durable , more cost effective and easier to install than comparable products made from traditional materials . high performance thermoplastic corrugated pipe represented approximately 26 % of the total storm sewer market in 2014 ; up from what we believe was less than 10 % ten years ago and less than 1 % twenty years ago . we believe this trend will continue as customers continue to acknowledge the superior attributes and compelling value proposition of our thermoplastic products and expanded regulatory approvals allow for their use in new markets and geographies . in addition , we believe that the recent introduction of pp pipe products will also help accelerate conversion given the additional applications for which our pp pipe products can be used . we believe the adoption of hdpe and pp pipe outside of the united states is still in its early stages and represents a significant opportunity for us to continue to increase the conversion to our products from traditional products in these markets , including canada , mexico and south america where we operate . 55 growth in allied products our allied products include storm and septic chambers , pvc drainage structures , fittings , stormwater filters and water separators . these products complement our pipe product lines and allow us to offer a comprehensive water management solution to our customers and drive organic growth . our leading market position in pipe products allows us to cross-sell allied products effectively . our comprehensive offering of allied products also helps us increase pipe sales in certain markets . our allied products typically carry higher gross margins as compared to our pipe product lines and are less sensitive to increases in resin prices since resin prices represent a smaller percentage of the cost for allied products . our leading position in the pipe market has allowed us to increase organic growth of our allied products . we also expect to expand our allied product offerings through acquisitions . for fiscal years 2015 , 2014 and 2013 , we generated sales of allied products of $ 283.5 million , $ 260.4 million and $ 248.6 million , respectively . raw material costs our raw material cost and product selling prices fluctuate with changes in the price of resins utilized in production . virgin and recycled resins , which are derived either directly or indirectly from crude oil derivatives and natural gas liquids , currently account for approximately 60 % of our cost for pipe products . raw materials account for a similar percentage of the cost of our allied products . we actively manage our resin purchases and typically pass fluctuations in the cost of resin through to our customers in order to maximize our profitability . fluctuations in the price of crude oil and natural gas prices may impact the cost of resin . in addition , changes in and disruptions to existing ethylene or polyethylene capacities could also significantly increase resin prices ( such as the aftermath of hurricanes katrina and rita ) , often within a short period of time , even if crude oil and natural gas prices remain low . our ability to pass through raw material price increases to our customers may , in some cases , lag the increase in our costs of goods sold . sharp rises in raw material prices over a short period of time have historically occurred with a significant supply disruption ( hurricanes or fires at petrochemical facilities ) , which may increase prices to levels that can not be fully passed through to customers due to pricing of competing products made from different raw materials or the anticipated length of time the raw material pricing will stay elevated . for more information regarding risks relating to our raw material costs , see item 1a . risk factors risks relating to our business. we currently purchase in excess of 700 million pounds of virgin and recycled resin annually from over 450 suppliers in north america . as a high-volume buyer of resin , we are able to achieve economies of scale to negotiate favorable terms and pricing . our purchasing strategies differ based on the material ( virgin resin versus recycled material ) ordered for delivery to our production locations . the price movements of the different materials also vary , resulting in the need to use a number of strategies to reduce volatility and successfully pass on cost increases to our customers through timely selling price increases when needed . in order to reduce the volatility of raw material costs in the future , our raw material strategies for managing our costs include the following : increasing the use of less price-volatile recycled hdpe resin in our pipe products in place of virgin resin ; internally processing an increasing percentage of our recycled hdpe resin in order to closely monitor quality and minimize costs ( approximately 66 % of our recycled hdpe resin was internally processed in fiscal year 2015 ) ; managing a resin price risk program that entails both physical fixed price and volume contracts along with financial hedges which are designed to apply to a significant portion of our annual virgin resin purchases . for our polypropylene virgin resin price exposure , we utilize financial hedges of propylene as a proxy for the polypropylene . story_separator_special_tag historically , the month to month change in market based pricing has been very similar between propylene and polypropylene maintaining supply agreements with our major resin suppliers that provide multi-year terms and volumes that are in excess of our projected consumption . 56 we also consume a large amount of energy and other petroleum products in our operations , including the electricity we use in our manufacturing process as well as the diesel fuel consumed in delivering a significant volume of products to our customers through our in-house fleet . as a result , our operating profit also depends upon our ability to manage the cost of the energy and fuel we require , as well as our ability to pass through increased prices or surcharges to our customers . seasonality our operating results are impacted by seasonality . historically , sales of our products have been higher in the first and second quarters of each fiscal year due to favorable weather and longer daylight conditions accelerating construction project activity during these periods while fourth quarter results are impacted by the timing of spring in the northern united states and canada . seasonal variations in operating results may also be significantly impacted by inclement weather conditions , such as cold or wet weather , which can delay projects , resulting in decreased net sales for one or more quarters , but we believe that these delayed projects generally result in increased net sales during subsequent quarters . in the non-residential , residential and infrastructure markets in the northern united states and canada , the construction season typically begins to gain momentum in late march and lasts through november , before winter sets in , significantly slowing the construction markets . in the southern and western united states , mexico , central america and south america , the construction markets are less seasonal . the agricultural drainage market is concentrated in the early spring just prior to planting and in the fall just after crops are harvested prior to freezing of the ground in winter . currency exchange rates although we sell and manufacture our products in many countries , our sales and production costs are primarily denominated in u.s. dollars . we have whollyowned facilities in canada , the netherlands , and puerto rico and joint venture facilities in mexico , chile , brazil , argentina , colombia and peru . the functional currencies in the areas in which we have whollyowned facilities and joint venture facilities other than the u.s. dollar are the canadian dollar , euro , mexican peso , chilean peso , brazilian real , argentine peso and colombian peso . from time to time , we use derivatives to reduce our exposure to currency fluctuations . in 2013 , we entered into euro-denominated forward contracts to hedge transactions related to the procurement of new equipment , which expired prior to march 31 , 2014. also in 2013 , our south american joint venture entered into multiple non-deliverable forward contracts to reduce its exposure to fluctuations in the u.s. dollar relative to the chilean peso , argentine peso , colombian peso and brazilian real . during fiscal 2015 , we began to implement hedging strategies to manage exposure to the canadian dollar and , to a lesser extent , the mexican peso . description of our segments we operate a geographically diverse business , serving customers in approximately 80 countries . for fiscal year 2015 , approximately 87 % ( $ 1,027.9 million ) of net sales were attributable to customers located in the united states and approximately 13 % ( $ 152.1 million ) of net sales were attributable to customers outside of the united states . our operations are organized into two reportable segments based on the markets we serve : domestic and international . we generate a greater proportion of our net sales and gross profit in our domestic segment , which consists of all regions of the united states . we expect the percentage of total net sales and gross profit derived from our international segment to continue to increase in future periods as we continue to expand globally . see note 23. business segment information , to our audited consolidated financial statements included in item 8. financial statements and supplementary data of this form 10-k. 57 domestic in the united states , the markets we serve were strong through 2007 , but slowed significantly beginning in 2008 in tandem with the decline in general economic conditions in the united states associated with the global financial crisis . since 2011 , a modest recovery in the markets in the united states has had a favorable impact on our product sales . our operating results have been , and will continue to be , impacted by macroeconomic trends in the united states . for fiscal years 2015 , 2014 , and 2013 , we generated net sales attributable to our domestic segment of $ 1,027.9 million , $ 935.3 million , and $ 879.0 million , respectively . unconsolidated sales for our two domestic unconsolidated joint ventures , baysaver and tigre-ads usa , were $ 24.9 million and $ 5.2 million in fiscal years 2015 and 2014 , respectively ( there were no applicable sales amounts in fiscal year 2013 as the company 's investments in these two domestic unconsolidated joint ventures did not occur until fiscal years 2014 and 2015 , respectively ) . international our international segment manufactures and markets products in regions outside of the united states , with a growth strategy focused on our owned facilities in canada and those markets serviced through our joint ventures in mexico , central america and south america . pipe manufactured in these countries is primarily sold into the same region . our joint venture strategy has provided us with local and regional access to new markets . the outlook for our international segment has improved .
| 66 cost of goods sold and gross profit gross profit increased $ 12.1 million , or 6.3 % , to $ 206.1 million during fiscal year 2015 as compared to $ 194.0 million during fiscal year 2014. compensation expense relating to a one-time special dividend paid in january 2014 ( the special dividend ) resulted in a one-time expense to costs of goods sold of $ 13.9 million , reducing our gross profit in fiscal year 2014. excluding this compensation expense charge in fiscal year 2014 , gross profit decreased $ 1.8 million or 0.8 % as compared to fiscal year 2014. gross profit as a percentage of net sales decreased from 18.2 % in fiscal year 2014 to 17.5 % in fiscal year 2015. excluding the impact of the special dividend of $ 13.9 million in 2014 , gross profit as a percentage of net sales declined from 19.5 % to 17.5 % primarily due to the negative impact of pipe raw material cost increases . pipe sales grew 11.1 % in fiscal year 2015 while allied products sales grew 8.8 % over the same period . the positive impact of higher pipe and allied product sales was significantly offset by increased pipe raw material prices of approximately 11.8 % in fiscal year 2015 as compared to fiscal year 2014. we were not able to immediately pass through the impact of these higher raw material prices to customers during the period due to the sharp fall in commodity prices in the late fall of calendar 2014. domestic freight costs declined to 9.8 % of domestic net sales in fiscal year 2015 as compared to 10.1 % of domestic net sales in fiscal year 2014 primarily as a result of lower diesel fuel prices , particularly in the last half of fiscal year 2015. the change in domestic gross profit was primarily driven by the negative impact of sharply higher raw material costs offsetting the positive impact of the growth in domestic pipe and allied product sales which resulted in an increase in domestic gross profit of $ 0.6 million , or 0.3 % ,
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securitization and servicing expense decreased $ 904,000 , or 46.4 % , to $ 1.0 million from $ 1.9 million in 2015 reflecting a lower volume of sales . consulting expense increased $ 1.1 million , or 24.7 % , to $ 5.4 million from $ 4.3 million in 2015. the increased expense reflected consulting related to reducing european prepaid operations expense , a more scalable sbloc loan processing system , consulting for information related to internal reporting and investor relations consulting . other non-interest expense decreased $ 3.7 million or , 17.4 % , to $ 17.4 million from $ 21.1 million in 2015. the decrease reflected a $ 3 million civil money penalty assessed in 2015 in connection with the amendment to the 2014 consent order , a $ 1.0 million decrease in other operating taxes and a $ 372,000 decrease in meals and entertainment . european prepaid operations were sold in april 2017. income tax benefit and expense income tax expense for continuing operations was $ 23.1 million for 2017 versus benefit of $ 12.7 million for 2016 and expense of $ 1.5 million for 2015. the tax expense rate of 57.1 % in 2017 significantly exceeded statutory federal and state rates , as a result of the net impact of the reduction in federal corporate tax rate from 34 % to 21 % . the reduction required an adjustment through tax expense for the difference between the prior and new tax rate , which will be effective in 2018 , applied to total net deferred tax assets . we currently estimate a combined federal and state statutory tax rate of 27 % for 2018. the tax benefit rate of 18.2 % in 2016 was lower than the 34 % statutory rate as a result of additional allowances against deferred tax assets recognized in that year . the effective tax rate for 2015 was 21.3 % which reflected the impact of tax exempt municipal securities income . as a result of deferred tax assets relating to walnut street , at december 31 , 2017 there were approximately $ 10.0 million of related valuation allowances . future reversals of these allowances are dependent on the excess of future recoveries on loans over any additional charges related to walnut street . the amount of those reversals and corresponding decreases to income tax expense in any period will also depend on the level of taxable income and projected period of utilization of the deferred tax assets . based upon available information , we do not believe that these allowances will reverse in the future . liquidity and capital resources liquidity defines our ability to generate funds to support asset growth , meet deposit withdrawals , satisfy borrowing needs and otherwise operate on an ongoing basis . we invest the funds we do not need for daily operations primarily in our interest bearing account at the federal reserve . our primary source of funding has been deposits . while there was only a modest increase in deposits of $ 22.5 million in 2017 , our deposit levels in 2017 exceeded our ability to deploy the funds in our loan portfolios . excess funds were invested in 55 available for sale securities which increased to $ 1.29 billion at december 31 , 2017 from $ 1.25 billion at december 31 , 2016. loan repayments , also a source of funds , were exceeded by new loan disbursements during 2017 , resulting in net loan growth of approximately $ 172.9 million . while we do not have a traditional branch system , we believe that our core deposits , which include our demand , interest checking , savings and money market accounts , have similar characteristics to those of a bank with a branch system . the majority of our deposit accounts are obtained with the assistance of third parties and as a result are classified as brokered by the fdic . the fdic guidance for classification of deposit accounts as brokered is relatively broad , and generally includes accounts which were referred to or “ placed ” with the institution by other companies . i f the bank ceases to be categorized as “ well capitalized ” under banking regulations , it will be prohibited from accepting , renewing or rolling over brokered deposits without the consent of the fdic . in such a case , the fdic 's refusal to grant consent to our accepting , renewing or rolling over brokered deposits could story_separator_special_tag story_separator_special_tag asset or liability measured . from time to time , assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs to measure fair value at the measurement date . transfers into or out of hierarchy levels are based upon the fair value at the beginning of the reporting period . we periodically review our investment portfolio to determine whether unrealized losses on securities are temporary , based on evaluations of the creditworthiness of the issuers or guarantors , and underlying collateral , as applicable . in addition , we consider the continuing performance of the securities . we recognize credit losses through the consolidated statement of operations . if management believes market value losses are temporary and that we have the ability and intention to hold those securities to maturity , we recognize the reduction in other comprehensive income , through equity . we evaluate whether an other than temporary impairment exists by considering primarily the following factors : ( a ) the length of time and extent to which the fair value has been less than the amortized cost of the security , ( b ) changes in the financial condition , credit rating and near-term prospects of the issuer , ( c ) whether the issuer is current on contractually obligated interest and principal payments , ( d ) changes in the financial condition of the security 's underlying collateral and ( e ) the payment story_separator_special_tag securitization and servicing expense decreased $ 904,000 , or 46.4 % , to $ 1.0 million from $ 1.9 million in 2015 reflecting a lower volume of sales . consulting expense increased $ 1.1 million , or 24.7 % , to $ 5.4 million from $ 4.3 million in 2015. the increased expense reflected consulting related to reducing european prepaid operations expense , a more scalable sbloc loan processing system , consulting for information related to internal reporting and investor relations consulting . other non-interest expense decreased $ 3.7 million or , 17.4 % , to $ 17.4 million from $ 21.1 million in 2015. the decrease reflected a $ 3 million civil money penalty assessed in 2015 in connection with the amendment to the 2014 consent order , a $ 1.0 million decrease in other operating taxes and a $ 372,000 decrease in meals and entertainment . european prepaid operations were sold in april 2017. income tax benefit and expense income tax expense for continuing operations was $ 23.1 million for 2017 versus benefit of $ 12.7 million for 2016 and expense of $ 1.5 million for 2015. the tax expense rate of 57.1 % in 2017 significantly exceeded statutory federal and state rates , as a result of the net impact of the reduction in federal corporate tax rate from 34 % to 21 % . the reduction required an adjustment through tax expense for the difference between the prior and new tax rate , which will be effective in 2018 , applied to total net deferred tax assets . we currently estimate a combined federal and state statutory tax rate of 27 % for 2018. the tax benefit rate of 18.2 % in 2016 was lower than the 34 % statutory rate as a result of additional allowances against deferred tax assets recognized in that year . the effective tax rate for 2015 was 21.3 % which reflected the impact of tax exempt municipal securities income . as a result of deferred tax assets relating to walnut street , at december 31 , 2017 there were approximately $ 10.0 million of related valuation allowances . future reversals of these allowances are dependent on the excess of future recoveries on loans over any additional charges related to walnut street . the amount of those reversals and corresponding decreases to income tax expense in any period will also depend on the level of taxable income and projected period of utilization of the deferred tax assets . based upon available information , we do not believe that these allowances will reverse in the future . liquidity and capital resources liquidity defines our ability to generate funds to support asset growth , meet deposit withdrawals , satisfy borrowing needs and otherwise operate on an ongoing basis . we invest the funds we do not need for daily operations primarily in our interest bearing account at the federal reserve . our primary source of funding has been deposits . while there was only a modest increase in deposits of $ 22.5 million in 2017 , our deposit levels in 2017 exceeded our ability to deploy the funds in our loan portfolios . excess funds were invested in 55 available for sale securities which increased to $ 1.29 billion at december 31 , 2017 from $ 1.25 billion at december 31 , 2016. loan repayments , also a source of funds , were exceeded by new loan disbursements during 2017 , resulting in net loan growth of approximately $ 172.9 million . while we do not have a traditional branch system , we believe that our core deposits , which include our demand , interest checking , savings and money market accounts , have similar characteristics to those of a bank with a branch system . the majority of our deposit accounts are obtained with the assistance of third parties and as a result are classified as brokered by the fdic . the fdic guidance for classification of deposit accounts as brokered is relatively broad , and generally includes accounts which were referred to or “ placed ” with the institution by other companies . i f the bank ceases to be categorized as “ well capitalized ” under banking regulations , it will be prohibited from accepting , renewing or rolling over brokered deposits without the consent of the fdic . in such a case , the fdic 's refusal to grant consent to our accepting , renewing or rolling over brokered deposits could story_separator_special_tag story_separator_special_tag asset or liability measured . from time to time , assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs to measure fair value at the measurement date . transfers into or out of hierarchy levels are based upon the fair value at the beginning of the reporting period . we periodically review our investment portfolio to determine whether unrealized losses on securities are temporary , based on evaluations of the creditworthiness of the issuers or guarantors , and underlying collateral , as applicable . in addition , we consider the continuing performance of the securities . we recognize credit losses through the consolidated statement of operations . if management believes market value losses are temporary and that we have the ability and intention to hold those securities to maturity , we recognize the reduction in other comprehensive income , through equity . we evaluate whether an other than temporary impairment exists by considering primarily the following factors : ( a ) the length of time and extent to which the fair value has been less than the amortized cost of the security , ( b ) changes in the financial condition , credit rating and near-term prospects of the issuer , ( c ) whether the issuer is current on contractually obligated interest and principal payments , ( d ) changes in the financial condition of the security 's underlying collateral and ( e ) the payment
| in 2017 , total non-interest expense decreased $ 43.7 million mainly due to the conclusion of the bsa and lookback consulting expenses in 2016 and significant staff position reductions at the end of third quarter 2016. ongoing cost cutting efforts were also reflected in a reduction in data processing and other expense categories . in 2017 , income tax expense was impacted by legislation reducing federal corporate income tax rates . as a result , deferred tax assets were adjusted to the new rates , decreasing the value of those assets and increasing tax expense . the lower 21 % tax rate is currently estimated to result in a combined 27 % federal and state income tax rate in 2018 . in 2014 , we discontinued our philadelphia commercial lending operations following our determination that those operations were inconsistent with our strategic focus on generating low cost deposits and deploying that funding into lower risk , more granular and national lines of business and investment securities . we currently focus our lending activities upon four specialty lending segments : sbloc loans , sba loans , vehicle fleet and other equipment leasing , and the origination of loans for sale into commercial securitizations . the majority of the $ 39.7 million loss in discontinued operations in 2016 resulted from loans against a florida mall which were written down by $ 23.9 million as a result of an “ as is ” appraisal when the loans became non-performing . the bank has assumed legal ownership and possession of the mall and a letter of intent for its sale has been signed . the sale is scheduled to close in 2018. at year end 2017 , our net discontinued assets amounted to $ 304.3 million compared to $ 360.7 million at year end 2016. as these balances are reduced , either through sales or repayment , we plan to invest the proceeds into our continuing lending lines . critical accounting policies and estimates our accounting and reporting policies conform with generally accepted accounting principles in the united states and to general practices within the financial services
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· we are subject to volatility in pricing and supply availability of our key raw materials used in our paper pcc product line and refractory product line . · we continue to rely on china for a portion of our supply of magnesium oxide in the refractories segment , which may be subject to uncertainty in availability and cost . · fluctuations in energy costs have an impact on all of our businesses . · changes in the fair market value of our pension assets , rates of return on assets , and discount rates could continue to have a significant impact on our net periodic pension costs as well as our funding status . · as we expand our operations abroad we face the inherent risks of doing business in many foreign countries , including foreign exchange risk , import and export restrictions , and security concerns . · the company 's operations , particularly in the mining and environmental areas ( discharges , emissions and greenhouse gases ) , are subject to regulation by federal , state and foreign authorities and may be subject to , and presumably will be required to comply with , additional laws , regulations and guidelines which may be adopted in the future . during the second quarter of 2011 , m-real corporation announced plans to divest its alizay paper mill in france . over the past several months , m-real has been in discussions with a number of paper producers ; however none of the candidates have fulfilled m-real 's conditions for sale . although the paper mill is presently not operating , we believe discussions for the sale of the mill continue . if m-real terminates its operations at the alizay paper mill , the company would likely shut down its pcc satellite facility and could incur an impairment of assets charge . under that scenario , the company could pursue options for mitigation or recovery of assets , including redeployment of assets to other locations to the extent feasible . the net book value of the facility as of december 31 , 2011 is $ 5.3 million . 2011 annual sales at alizay were approximately $ 7 million . during the third quarter of 2011 , newpage corporation filed for chapter 11 bankruptcy protection . the company does business with five newpage mills , including operating three satellite pcc facilities at newpage locations . at present , the company continues to supply pcc to these mills . if newpage is unable to emerge from the bankruptcy process or should these facilities cease operations , the company could incur an impairment of assets charge of up to $ 16 million and may incur additional provisions for bad debt . annual sales to newpage locations in 2011 were approximately $ 20 million . the company has evaluated these facilities for impairment of assets and , based upon the information currently available and probability-weighted cash flows of various potential outcomes , has determined that no impairment charge is required in the fourth quarter . during the third quarter of 2011 , upm-kymmene announced its intention to permanently reduce paper capacity at several locations in europe by the end of 2011. the company operated a pcc satellite facility at one of these locations at anjalankoski , finland , which ceased operations in the fourth quarter of 2011. the company accelerated depreciation of the assets at this location , which had a net book value of $ 0.7 million at the time of the announcement , over the last four months of the year . sales at the company 's satellite at anjalankoski for 2011 were approximately $ 15 million . 19 the company will continue to focus on innovation and new product development and other opportunities for continued growth as follows : · develop multiple high-filler technologies , such as filler-fiber , under the fulfill tm platform of products , to increase the fill rate in freesheet paper and continue to progress with commercial discussions and full-scale paper machine trials . · increase our sales of pcc for paper by further penetration of the markets for paper filling at both freesheet and groundwood mills , particularly in emerging markets . · expand the company 's pcc coating product line using the satellite model . · promote the company 's expertise in crystal engineering , especially in helping papermakers customize pcc morphologies for specific paper applications . · expand pcc produced for paper filling applications by working with industry partners to develop new methods to increase the ratio of pcc for fiber substitutions . · develop unique calcium carbonates and talc products used in the manufacture of novel biopolymers , a new market opportunity . · deploy new talc and gcc products in paint , coating and packaging applications . · deploy value-added formulations of refractory materials that not only reduce costs but improve performance . · expand our solid core wire product line into bric , middle eastern and other asian countries . · deploy our laser measurement technologies into new applications . · deploy operational excellence principles into all aspects of the organization , including system infrastructure and lean principles . · explore selective acquisitions to fit our core competencies in minerals and fine particle technology . however , there can be no assurance that we will achieve success in implementing any one or more of these opportunities . story_separator_special_tag margin-right : 0pt '' > cost of goods sold in 2011 was 79.7 % of sales compared with 79.1 % in the prior year . production margin increased $ 3 million , or 1 % as compared with a 4 % increase in sales . in the specialty minerals segment , production margin decreased 1 % , or $ 0.7 million , as compared with a 2 % increase in sales . this segment incurred higher raw materials and energy costs that were not fully recovered by price increases . story_separator_special_tag in the refractories segment , production margin increased $ 3.7 million , or 5 % as compared with a 9 % increase in sales . this segment incurred higher raw material costs that were partially offset by price increases , higher equipment sales and the effects of foreign exchange . cost of goods sold in 2010 was 79.1 % of sales compared with 82.8 % in the prior year . production margin increased $ 53.3 million , or 34 % as compared with a 10 % increase in sales . volumes increased in all product lines as economic conditions improved from prior year levels . the businesses also increased their productivity levels and derived continued benefits from our announced restructuring programs . in the specialty minerals segment , production margin increased 18 % , or $ 20.1 million , as compared with a 6 % increase in sales . volume had a favorable impact on production margin of $ 18.1 million as compared to prior year in both the pcc and processed 21 minerals product lines . this segment also reflected cost savings of $ 2.9 million , incremental benefits derived from our announced restructuring programs of $ 2.6 million , and lower net raw material and energy costs of $ 5.3 million . this was partially offset by net price concessions of $ 9.3 million . in the refractories segment , production margin increased over 79 % , or $ 33.2 million as compared with a 21 % increase in sales . production margin was favorably affected by increased volumes of $ 28.0 million and restructuring savings of $ 4.6 million . marketing and administrative costs increased 1.7 % to $ 92.1 million in 2011 from $ 90.5 million in the prior year . marketing and administrative costs as a percentage of net sales however , represented 8.8 % of net sales as compared with 9.0 % in the prior year . in 2010 , marketing and administrative expenses were 1 % lower than in the prior year . research and development expenses decreased 2 % in 2011 to $ 19.3 million from $ 19.6 million and represented 1.9 % of net sales . in 2010 , research and development expense decreased 2 % from 2009 and represented 2.0 % of net sales . restructuring and other costs in 2011 were $ 0.5 million and primarily related to additional $ 0.9 million of restructuring costs associated with our 2007 restructuring of our pcc merchant facility in germany and the additional severance cost associated with the ceasing of production at our pcc facility at anjalankoski , finland . this was partially offset by the reversals of previously recorded liabilities from our 2009 program . restructuring and other costs during 2010 were $ 0.8 million and primarily related to railcar lease early termination costs associated with the announced plant closures of our franklin , virginia , and plymouth , north carolina , satellite facilities and additional net provisions for severance and other employee benefits . replace_table_token_10_th * percentage not meaningful the company recorded income from operations in 2011 of $ 100.3 million as compared with $ 98.3 million in the prior year . included in income from operations in 2011 were restructuring charges of $ 0.5 million . included in 2010 were restructuring charges of $ 0.8 million . the specialty minerals segment recorded income from operations of $ 72.8 million in 2011 as compared with $ 74.7 million in the prior year . included in income from operations were restructuring charges of $ 1.0 million and $ 0.5 million in 2011 and 2010 , respectively . the refractories segment recorded income from operations of $ 33.2 million in 2011 as compared to $ 28.0 million in the prior year . included in income from operations in 2011 were restructuring reversals of $ ( 0.6 ) million . included in the income from operations in the prior year were restructuring charges of $ 0.3 million . in 2010 , the specialty minerals segment recorded income from operations of $ 74.7 million as compared $ 34.2 million in the prior year . the refractories segment recorded income from operations of $ 28.0 million in 2010 as compared to a loss from operations of $ 48.8 million in the previous year . replace_table_token_11_th * percentage not meaningful the company recorded non-operating deductions of $ 2.6 million in 2011 as compared with non-operating income of $ 0.6 million in the previous year . included in non-operating deductions in 2011 were foreign currency losses of $ 1.4 million recognized upon the sale of a 50 % interest in and deconsolidation of the company 's joint venture in korea . the company recorded non-operating income of $ 0.6 million in 2010 as compared with non-operating deduction of $ 6.1 million in the prior year . included in the non-operating income 2010 was a gain on the sale of previously impaired assets of $ 0.2 million and a settlement relating to a customer contract termination of $ 0.8 million . replace_table_token_12_th * percentage not meaningful 22 the company recorded provision for taxes on income of $ 27.5 million in 2011 as compared with $ 29.0 million in the previous year . the effective tax rate for 2011 was 28.1 % as compared with 29.3 % in the prior year . the decrease in the tax rate in the current year primarily relates to a favorable united states tax court case settlement and the resulting expiration of the statute of limitation of the tax years related to the tax court case . the company recorded provision for taxes on income of $ 29.0 million in 2010 as compared to a benefit of $ 5.4 million in the previous year . the effective tax rate for 2010 was 29.3 % as compared with a tax benefit of 23.3 % in the previous year . the increase in the tax over the previous year primarily relates to the decrease in the tax benefit of depletion as a percentage of earnings as well as the geographical mix of earnings .
| foreign exchange had a favorable impact on sales of approximately $ 3.5 million or less than 1 percentage point of growth . worldwide net sales of paper pcc increased 2 % to $ 496.6 million from $ 484.6 million in the prior year . total paper pcc volumes increased 3 % from 2009 levels with moderate volume increases with the exception of asia where there was an 18 % increase in volumes due to the startup of a new satellite facility in india and increase of volumes at other facilities . volume increases of approximately $ 18.2 million were partially offset by $ 10 million in contractual price decreases . sales of specialty pcc increased 16 % in 2010 to $ 58.0 million from $ 50.1 million in the prior year . this increase was primarily attributable to higher volumes . net sales of processed minerals products in 2011 increased 5 % to $ 115.5 million from $ 110.4 million in 2010. gcc products and talc products increased 3 % and 7 % to $ 68.6 million and $ 46.9 million , respectively . the increases in the processed minerals product line was attributable to increased volumes due to slight improvements in the residential and commercial construction markets and moderate improvements in the automotive market . volumes increased 7 % from the prior year . net sales of processed minerals products in 2010 increased 18 % to $ 110.4 million from $ 93.7 million in 2009. gcc products and talc products increased 8 % and 36 % to $ 66.4 million and $ 44.0 million , respectively . the increased in the processed minerals product line as primarily attributable to increased gcc volumes and due to increased volumes and selling price increases within our talc product line , as well as improvements in the residential and commercial construction markets and the automotive market as compared to the depressed conditions in the prior year . volumes increased 9 % from the prior year . net sales in the refractories segment in
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on november 30 , 2011 , ecova acquired prenova , inc. ( prenova ) , an atlanta-based energy management company . the cash paid for the acquisition of prenova of $ 35.6 million was funded primarily through borrowings under ecova 's committed credit agreement . in january 2012 , ecova acquired lpb energy management ( lpb ) , a dallas-based energy management company . the cash paid for the acquisition of lpb of $ 50.3 million was funded by ecova through $ 25.0 million of borrowings under its committed credit agreement , a $ 20.0 million equity infusion from existing shareholders ( including avista capital and the other owners of ecova ) , and available cash . while we do not expect these acquisitions to have an impact on 2012 earnings , they increase ecova 's market share and allow ecova to offer its clients a broader range of services leading to potential future earnings growth . the acquisition of cadence network in july 2008 was funded with the issuance of ecova common stock . under the transaction agreement , the previous owners of cadence network can exercise a right to have their shares of ecova common stock redeemed by ecova during july 2011 or july 2012 if ecova is not liquidated through either an initial public offering or sale of the business to a third party . these redemption rights were not exercised in july 2011. these redemption rights expire july 31 , 2012. the redemption price would be determined based on the fair market value of ecova at the time of the redemption election as determined by certain independent parties . as of december 31 , 2011 , there were redeemable noncontrolling interests of $ 38.9 million related to these redemption rights . should the previous owners of cadence network exercise their redemption rights , ecova will seek the necessary funding through its credit facility , a capital request from existing owners , an infusion of capital from potential new investors or a combination of these sources . in january 2011 , avista capital purchased shares held by one of the previous owners of cadence network for $ 5.6 million . we may seek to monetize all or part of our investment in ecova in the future , regardless of whether ecova 's minority owner redemption rights are exercised . the value of a potential monetization depends on future market conditions , growth of the business and other factors . this may provide access to public market capital and provide potential liquidity to avista corp. and the other owners of ecova . there can be no assurance that such a transaction will be completed . other businesses the net loss for these operations was $ 0.3 million for 2011 compared to a net loss of $ 1.7 million for 2010. the improvement in results was due in part to increased earnings at metalfx and a decrease in the net loss on investments . also , in 2010 , we recorded a $ 2.2 million impairment of our investment in a fuel cell business . liquidity and capital resources we need to access long-term capital markets from time to time to finance capital expenditures , repay maturing long-term debt and obtain additional working capital . our ability to access capital on reasonable terms is subject to numerous factors , many of which , including market conditions , are beyond our control . if we are unable to obtain capital on reasonable terms , it may limit or eliminate our ability to finance capital expenditures and repay maturing long-term debt . our liquidity needs could exceed our short-term credit availability and lead to defaults on various financing arrangements . we would also likely be prohibited from paying dividends on our common stock . in february 2011 , we entered into a new committed line of credit with various financial institutions in the total amount of $ 400.0 million with an expiration date of february 2015 that replaced our $ 320.0 million and $ 75.0 million committed lines of credit that had expiration dates in april 2011. in december 2011 , this committed line of credit was amended to extend the expiration date to february 2017 and improve the pricing terms . as of december 31 , 2011 , there were $ 61.0 million of cash borrowings and $ 29.0 million in letters of credit outstanding . as of december 31 , 2011 , we had $ 310.0 million of available liquidity under this line of credit . 23 avista corporation in december 2011 , we issued $ 85.0 million of 4.45 percent first mortgage bonds due in 2041. the net proceeds from the sale of the bonds were used to repay a portion of the borrowings outstanding under our $ 400.0 million committed line of credit . we expect to issue up to $ 100.0 million of long-term debt in 2012. in september 2011 , we cash settled interest rate swap contracts ( notional amount of $ 85.0 million ) and paid a total of $ 10.6 million . the interest rate swap contracts were entered during the third quarter of 2011 and were settled in connection with the pricing of $ 85.0 million of first mortgage bonds as described above . upon settlement of the interest rate swaps , the regulatory asset ( included as part of long-term debt ) is amortized as a component of interest expense over the life of the forecasted interest payments . in 2011 , we issued $ 26.5 million of common stock , including $ 19.5 million under a sales agency agreement . we expect to issue up to $ 45 million of common stock from time to time in 2012 in order to maintain our capital structure at an appropriate level for our business . we have 0.2 million shares available to be issued under the sales agency agreement and we expect to expand this agreement for a significant portion of our 2012 common stock issuances . story_separator_special_tag after considering the issuances of long-term debt and common stock during 2012 , we expect net cash flows from operating activities , together with cash available under our $ 400.0 million committed line of credit agreement , to provide adequate resources to fund : capital expenditures , dividends , and other contractual commitments . avista utilities regulatory matters general rate cases we regularly review the need for electric and natural gas rate changes in each state in which we provide service . we will continue to file for rate adjustments to : provide for recovery of operating costs and capital investments , and provide the opportunity to improve our earned returns as allowed by regulators . with regards to the timing and plans for future filings , the assessment of our need for rate relief and the development of rate case plans takes into consideration short-term and long-term needs , as well as specific factors that can affect the timing of rate filings . such factors include , but are not limited to , in-service dates of major capital investments and the timing of changes in major revenue and expense items . we filed general rate cases in washington in may 2011 ( which was settled with new rates effective january 1 , 2012 ) and in idaho in july 2011 ( which was settled with new rates effective october 1 , 2011 ) . we expect to file general rate cases in washington in the second quarter of 2012 and in idaho in the second half of 2012. washington general rate cases in december 2009 , the wutc issued an order in our electric and natural gas general rate cases that were filed with the wutc in january 2009. the wutc approved a base electric rate increase for our washington customers of 2.8 percent , which was designed to increase annual revenues by $ 12.1 million . base natural gas rates for our washington customers increased by an average of 0.3 percent , which was designed to increase annual revenues by $ 0.6 million . the new electric and natural gas rates became effective on january 1 , 2010. in november 2010 , the wutc approved an all-party settlement stipulation in our general rate case filed in march 2010. as agreed to in the settlement stipulation , electric rates for washington customers increased by an average of 7.4 percent , which was designed to increase annual revenues by $ 29.5 million . natural gas rates for washington customers increased by an average of 2.9 percent , which was designed to increase annual revenues by $ 4.6 million . the new electric and natural gas rates became effective on december 1 , 2010. in december 2011 , the wutc approved a settlement agreement in our electric and natural gas general rate cases filed in may 2011. as agreed to in the settlement agreement , base electric rates for our washington customers increased by an average of 4.6 percent , which is designed to increase annual revenues by $ 20.0 million . base natural gas rates for our washington customers increased by an average of 2.4 percent , which is designed to increase annual revenues by $ 3.75 million . the new electric and natural gas rates became effective on january 1 , 2012. no capital structure ratios or cost of capital components were specified in the settlement agreement . as part of the settlement agreement , we agreed to not file a general rate case in washington prior to april 1 , 2012 . 24 avista corporation the settlement agreement also provides for the deferral of certain generation plant maintenance costs . in order to address the variability in year-to-year maintenance costs , beginning in 2011 , we are deferring changes in maintenance costs related to our coyote spring 2 natural gas-fired generation plant and our 15 percent ownership interest in units 3 & 4 of the colstrip generation plant . we compare actual , non-fuel , maintenance expenses for the coyote springs 2 and colstrip plants with the amount of baseline maintenance expenses used to establish base retail rates , and defer the difference . the deferral will occur annually , with no carrying charge , with deferred costs being amortized over a four-year period , beginning in the year following the period costs are deferred . the amount of expense to be requested for recovery in future general rate cases would be the actual maintenance expense recorded in the test period , less any amount deferred during the test period , plus the amortization of previously deferred costs . for 2011 , we deferred $ 0.5 million of maintenance costs in washington . idaho general rate cases in july 2009 , the ipuc approved a settlement agreement in our general rate cases that were filed with the ipuc in january 2009. the new electric and natural gas rates became effective on august 1 , 2009. as agreed to in the settlement , base electric rates for our idaho customers increased by an average of 5.7 percent , which was designed to increase annual revenues by $ 12.5 million . base natural gas rates for our idaho customers increased by an average of 2.1 percent , which was designed to increase annual revenues by $ 1.9 million . in september 2010 , the ipuc approved a settlement agreement with respect to our general rate case filed in march 2010. the new electric and natural gas rates became effective on october 1 , 2010. as agreed to in the settlement , base electric rates for our idaho customers increased by an average of 9.3 percent , which was designed to increase annual revenues by $ 21.2 million . base natural gas rates for our idaho customers increased by an average of 2.6 percent , which was designed to increase annual revenues by $ 1.8 million .
| utility resource costs decreased $ 5.0 million , after elimination of intracompany resource costs of $ 93.1 million in 2011 and $ 65.9 million in 2010. including intracompany resource costs , electric resource costs increased $ 5.1 million and natural gas resource costs increased $ 17.1 million . the increase in electric resource costs was primarily due to an increase in other fuel costs ( represents fuel that was purchased for generation but was later sold when conditions indicated that it was not economical to use the fuel for generation as part of the resource optimization process ) and the amortization of deferred power supply costs , partially offset by a decrease in fuel costs ( due to lower thermal generation ) and power purchased ( due in part to higher hydroelectric generation ) . the increase in natural gas resource costs was primarily due to an increase in natural gas purchased due to an increase in retail sales . utility other operating expenses increased $ 12.8 million primarily due to increased maintenance expenses ( including planned major maintenance at colstrip ) , pensions and other postretirement benefits , and labor . utility depreciation and amortization increased $ 5.1 million driven by additions to utility plant . utility taxes other than income taxes increased $ 10.0 million primarily reflecting higher retail revenue related taxes , as well as increased property taxes . 27 avista corporation non-utility other operating expenses increased $ 31.9 million primarily due to an increase of $ 29.6 million for ecova reflecting increased costs necessary for business growth and the acquisition of loyalton . interest expense decreased $ 1.9 million primarily due to refinancing transactions completed in december 2010 that lowered our effective rate on long-term debt . this was partially offset by higher interest rates on short-term borrowings . capitalized interest increased $ 2.6 million due to higher average construction work in progress balances and higher borrowing rates ( including an increase on short-term borrowing rates used in the calculation ) . other expense-net decreased $ 3.8 million primarily due to a decrease in donations , a decrease in
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