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corporate reorganization extraction oil & gas , inc. , formerly known as extraction oil & gas , llc , was converted from a delaware limited liability company to a delaware corporation , on october 12 , 2016. in connection with the ipo on october 17 , 2016 , extraction oil & gas holdings , llc ( “ holdings ” ) was merged with and into extraction , and extraction was the surviving entity to the merger ( the “ corporate reorganization ” ) . all equity holders in holdings , other than the holders of the series b preferred units ( which were converted in connection with the closing of the ipo into shares of series a preferred stock ) , but including the holders of restricted units and incentive units , received approximately 108.5 million shares of our common stock , with the allocation of such shares among our existing equity holders determined , pursuant to the terms of the limited liability company agreement of holdings , by reference to an implied valuation based on the 10-day volume weighted average price of extraction 's common stock following the closing of the ipo . the merger was treated as a reorganization of entities under common control . as part of holdings ' merger with and into extraction , all of holdings ' other subsidiaries became direct or indirect subsidiaries of extraction . convertible preferred securities we previously issued to affiliates of apollo capital management ( “ apollo ” ) $ 75.0 million in series a preferred units to fund a portion of the purchase price for the bayswater acquisition . the series a preferred units were entitled to receive a cash dividend of 10 % per year , payable quarterly in arrears . in connection with the consummation of the ipo , we used $ 90.0 million of the net proceeds to redeem the series a preferred units in full , which included a premium of $ 15.0 million . in addition , we have issued to , among others , investment funds affiliated with oz management lp and yorktown partners llc ( “ yorktown ” ) $ 185.3 million in series b preferred units to fund a portion of the purchase price for the bayswater acquisition . the series b preferred units were entitled to receive a cash dividend of 10 % per year , payable quarterly in arrears , and we had the ability to pay up to 50 % of the quarterly dividend in kind . the series b preferred units were converted in connection with the closing of the ipo into shares of our series a preferred stock that are entitled to receive a cash dividend of 5.875 % per year , payable quarterly in arrears , and we have the ability to pay such quarterly dividends in kind at a dividend rate of 10 % per year ( decreased proportionately to the extent such quarterly dividends are partially paid in cash ) . beginning on or after the later of ( a ) 90 days after the closing of the ipo and ( b ) the earlier of 120 days after the closing of the ipo and the expiration of the lock-up period contained in the underwriting agreement entered into in connection with the ipo ( the `` lock-up period end date '' ) , the series a preferred stock will be convertible into shares of our common stock at the election of the series a preferred holders at a conversion ratio per share of series a preferred stock of 61.9195. beginning on or after the lock-up period end date until the three year anniversary of the closing of the ipo , we may elect to convert the series a preferred stock at a 60 conversion ratio per share of series a preferred stock of 61.9195 , but only if the closing price of our common stock trades at or above a certain premium to our initial offering price , such premium to decrease with time . in certain situations , including a change of control , the series a preferred stock may be redeemed for cash in an amount equal to the greater of ( i ) 135 % of the liquidation preference of the series a preferred stock and ( ii ) a 17.5 % annualized internal rate of return on the liquidation preference of the series a preferred stock . the series a preferred stock mature on october 15 , 2021 , at which time they are mandatorily redeemable for cash at the liquidation preference . amendment to revolving credit facility on december 7 , 2016 , the borrowing base of our revolving credit facility was increased from $ 450.0 million to $ 475.0 million . see “ management 's discussion and analysis of financial condition and results of operations–liquidity and capital resources–revolving credit facility. ” income taxes in connection with the ipo , holdings was merged into the company . prior to this corporate reorganization , we were not subject to federal or state income taxes . accordingly , the financial data attributable to us prior to such corporate reorganization contain no provision for federal or state income taxes because the tax liability with respect to holdings ' taxable income was passed through to our members . beginning october 12 , 2016 , we began to be taxed as a c corporation under the internal revenue code and subject to federal and state income taxes at a blended statutory rate of approximately 38 % of pretax earnings . how we evaluate our operations we use a variety of financial and operational metrics to assess the performance of our oil and gas operations , including : · sources of revenue ; · sales volumes ; · realized prices on the sale of oil , natural gas and ngl , including the effect of our commodity derivative contracts ; · lease operating expenses ( “ loe ” ) ; · capital expenditures ; and · adjusted ebitdax ( a non-gaap measure ) . story_separator_special_tag sources of our revenues our revenues are derived from the sale of our oil and natural gas production , as well as the sale of ngl that are extracted from our natural gas during processing . our oil , natural gas and ngl revenues do not include the effects of derivatives . for the year ended december 31 , 2014 , our revenues were derived 81 % from oil sales , 10 % from natural gas sales and 9 % from ngl sales . for the year ended december 31 , 2015 , our revenues were derived 79 % from oil sales , 13 % from natural gas sales and 8 % from ngl sales . for the year ended december 31 , 2016 , our revenues were derived 70 % from oil sales , 17 % from natural gas sales and 13 % from ngl sales . our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in commodity prices . 61 sales volumes the following table presents historical sales volumes for our properties for the periods indicated : replace_table_token_10_th as reservoir pressures decline , production from a given well or formation decreases . growth in our future production and reserves will depend on our ability to continue to add proved reserves in excess of our production . accordingly , we plan to maintain our focus on adding reserves through organic growth as well as acquisitions . our ability to add reserves through development projects and acquisitions is dependent on many factors , including takeaway capacity in our areas of operation and our ability to raise capital , obtain regulatory approvals , procure contract drilling rigs and personnel and successfully identify and consummate acquisitions . please read “ risks related to the oil , natural gas and ngl industry and our business ” in item 1a . of this annual report for a further description of the risks that affect us . realized prices on the sale of oil , natural gas and ngl our results of operations depend upon many factors , particularly the price of oil , natural gas and ngl and our ability to market our production effectively . oil , natural gas and ngl prices are among the most volatile of all commodity prices . for example , during the period from january 1 , 2014 to december 31 , 2016 , nymex west texas intermediate oil prices ranged from a high of $ 107.26 per bbl to a low of $ 26.21 per bbl . average daily prices for nymex henry hub gas ranged from a high of $ 6.15 per mmbtu to a low of $ 1.64 per mmbtu during the same period . declines in , and continued depression of , the price of oil and natural gas occurring during 2015 and continuing during 2016 are due to a combination of factors including increased u.s. supply , global economic concerns and geopolitical risks . these price variations can have a material impact on our financial results and capital expenditures . oil pricing is predominately driven by the physical market , supply and demand , financial markets and national and international politics . the nymex wti futures price is a widely used benchmark in the pricing of domestic and imported oil in the united states . the actual prices realized from the sale of oil differ from the quoted nymex wti price as a result of quality and location differentials . in the dj basin , oil is sold under various purchase contracts with monthly pricing provisions based on nymex pricing , adjusted for differentials . natural gas prices vary by region and locality , depending upon the distance to markets , availability of pipeline capacity and supply and demand relationships in that region or locality . the nymex henry hub price of natural gas is a widely used benchmark for the pricing of natural gas in the united states . similar to oil , the actual prices realized from the sale of natural gas differ from the quoted nymex henry hub price as a result of quality and location differentials . for example , wet natural gas with a high btu content sells at a premium to low btu content dry natural gas because it yields a greater quantity of ngl . location differentials to nymex henry hub prices result from variances in transportation costs based on the natural gas ' proximity to the major consuming markets to which it is ultimately delivered . also affecting the differential is the processing fee deduction retained by the natural gas processing plant , generally in the form of percentage of proceeds . the price we receive for our natural gas produced in the dj basin is based on cig prices , adjusted for certain deductions . our price for ngl produced in the dj basin is based on a combination of prices from the conway hub in kansas and mont belvieu in texas where this production is marketed . the following table provides the high and low prices for nymex wti and nymex henry hub prompt month contract prices and our differential to the average of those benchmark prices for the periods indicated . in the table below , the nymex averages and our average realized prices , with and without derivative settlements , are calculated based on 62 the average of each month 's prices for the periods indicated . the differential varies , but our oil , natural gas and ngl normally sells at a discount to the nymex wti and nymex henry hub price , as applicable . replace_table_token_11_th ( 1 ) based on the difference between our average realized price and the nymex henry hub average as converted into mcf using a conversion factor of 1.1 to 1. derivative arrangements to achieve more predictable cash flow and to reduce our exposure to adverse fluctuations in commodity prices , from time to time we enter into derivative arrangements for our oil and natural gas production .
| ” financial overview for the year ended december 31 , 2016 , crude oil , natural gas and ngl sales , coupled with the impact of settled derivatives , increased to $ 306.7 million as compared to $ 255.4 million in the same prior year period due to an increase in sales volumes of 3,856.0 mboe , offset primarily by a decline of $ 8.02 in realized price per boe , including settled derivatives . for the year ended december 31 , 2016 , we had a net loss of $ 456.0 million as compared to net loss of $ 47.3 million for the year ended december 31 , 2015. the increase in net loss was driven by non-cash compensation expense of $ 200.3 million primarily related to the ipo and a net loss on commodity derivatives of $ 100.9 million , primarily due to the increase in nymex crude oil futures prices as december 31 , 2016 compared to december 31 , 2015 and change in fair value from the execution of new positions . adjusted ebitdax was $ 192.3 million for the year ended december 31 , 2016 , as compared to $ 176.1 million in the same period in 2015 , reflecting a 9 % increase . adjusted ebitdax is a non-gaap financial measure . for a definition of adjusted ebitdax and a reconciliation to our most directly comparable financial measure calculated and presented in accordance with gaap , please read “ —adjusted ebitdax. ” 58 operational overview during the year ended december 31 , 2016 , we continued to focus on growing production while at the same time implementing operational efficiencies to reduce drilling and completion costs . we drilled 103 gross ( 89.8 net ) horizontal wells and completed 72 gross ( 54.9 net ) horizontal wells in the dj basin . as of january 2017 , we are currently running a full time three-rig program and plan to use a fourth rig on a spot basis to fill in gaps in the drilling program . recent developments recent acquisitions november 2016 acquisition on november 22 , 2016 , we acquired an unaffiliated oil and gas company 's interest in approximately 9,200 net acres of leaseholds located in the core dj basin for approximately $ 120.0 million , including customary closing adjustments .
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approximately $ 5.2 billion remained authorized for repurchases as of december 31 , 2019 and may be used for open market and other share purchases . contractual obligations the following table summarizes our significant contractual obligations and other long-term liabilities as of december 31 , 2019 : replace_table_token_4_th ( a ) represents principal amounts of long-term debt , including current maturities of debt , which excludes any unamortized debt issuance costs and discounts . ( b ) interest on debt includes 77 years of interest on $ 300 million of debentures at 7.6 % interest that become due in 2096 . ( c ) amount in 2020 primarily represents certain purchase orders for goods and services utilized in the ordinary course of our business . ( d ) represents pension funding obligations associated with international plans for 2020 only and are based on assumptions that are subject to change as we are currently not able to reasonably estimate our contributions for years after 2020 . due to the uncertainty with respect to the timing of potential future cash outflows associated with our uncertain tax positions , we are not able to reasonably estimate the period of cash settlement with the respective taxing authorities . therefore , gross unrecognized tax benefits have been excluded from the contractual obligations table above . we had $ 425 million of gross hal 2019 form 10-k | 22 item 7 | liquidity and capital resources unrecognized tax benefits , excluding penalties and interest , at december 31 , 2019 , of which we estimate $ 235 million may require a cash payment by us . we estimate that $ 205 million of the cash payment will not be settled within the next 12 months . other factors affecting liquidity financial position in current market . as of december 31 , 2019 , we had $ 2.3 billion of cash and equivalents and $ 3.5 billion of available committed bank credit under our revolving credit facility which expires in 2024. furthermore , we have no financial covenants or material adverse change provisions in our bank agreements , and our debt maturities extend over a long period of time . we believe our cash on hand , cash flows generated from operations and our available credit facility will provide sufficient liquidity to address the challenges and opportunities of the current market and our global cash needs in 2020 , including capital expenditures , working capital investments , dividends , if any , and contingent liabilities . guarantee agreements . in the normal course of business , we have agreements with financial institutions under which approximately $ 2.1 billion of letters of credit , bank guarantees , or surety bonds were outstanding as of december 31 , 2019 . some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization . credit ratings . our credit ratings with standard & poor 's ( s & p ) remain a- for our long-term debt and a-2 for our short-term debt , with a negative outlook . our credit ratings with moody 's investors service ( moody 's ) remain baa1 for our long-term debt and p-2 for our short-term debt , with a stable outlook . customer receivables . in line with industry practice , we bill our customers for our services in arrears and are , therefore , subject to our customers delaying or failing to pay our invoices . in weak economic environments , we may experience increased delays and failures to pay our invoices due to , among other reasons , a reduction in our customers ' cash flow from operations and their access to the credit markets , as well as unsettled political conditions . if our customers delay paying or fail to pay us a significant amount of our outstanding receivables , it could have a material adverse effect on our liquidity , consolidated results of operations and consolidated financial condition . see note 5 to the consolidated financial statements for further discussion . hal 2019 form 10-k | 23 item 7 | business environment and results of operations story_separator_special_tag style= '' line-height:120 % ; text-align : left ; text-indent:48px ; font-size:10pt ; '' > international operations the average international rig count for 2019 increased 110 rigs , or 11 % compared to 2018 . we continue to see a broad-based recovery across numerous international geographies , and we expect more revenue and margin growth opportunities coming from mature fields and shallow water markets in 2020. barring a global economic slowdown , broader offshore recovery should add momentum to the international growth . in 2020 , we expect the international spend by our customers to slightly increase , making it the third consecutive year of spending growth . venezuela . the general license issued by the office of foreign assets control ( ofac ) of the u.s. department of treasury , which allows us to continue operating in venezuela despite ofac sanctions imposed against the venezuelan energy industry , was set to expire on july 27 , 2019 , but has been extended several times and is now set to expire on april 22 , 2020. consequently , unless ofac further extends the term of the general license , we will cease operations in venezuela on that date in order to comply with the sanctions . in that event , it is unlikely that we will be able to remove our assets that remain in venezuela and those assets may be expropriated . story_separator_special_tag since we have previously written down all of our investment in venezuela and have maintained limited operations in this country during the general license period , we do not expect the expiration of the license to have a material adverse effect on our business , consolidated results of operations and consolidated financial condition . hal 2019 form 10-k | 25 item 7 | results of operations in 2019 compared to 2018 results of operations in 2019 compared to 2018 replace_table_token_6_th replace_table_token_7_th consolidated revenue in 2019 was $ 22.4 billion , a decrease of $ 1.6 billion , or 7 % , compared to 2018 , primarily due to lower activity and pricing in north america land , primarily associated with stimulation services and well construction . revenue from north america was 53 % of consolidated revenue in 2019 and 60 % of consolidated revenue in 2018 . we reported a consolidated operating loss of $ 448 million in 2019 driven by $ 2.5 billion of impairments and other charges . this compares to operating income of $ 2.5 billion in 2018 , which includes $ 265 million of impairments and other charges related to venezuela . a significant decline in stimulation activity and pricing in north america land during 2019 negatively impacted operating results , coupled with reduced drilling activity in the middle east . see note 2 to the consolidated financial statements for further discussion on impairments and other charges . operating segments completion and production completion and production revenue was $ 14.0 billion in 2019 , a decrease of $ 1.9 billion , or 12 % , compared to 2018 . operating income was $ 1.7 billion in 2019 , a 27 % decrease from $ 2.3 billion in 2018 . these results were primarily driven by reduced activity and pricing for stimulation services and lower completion tool sales in north america land . partially offsetting these results were increased artificial lift activity in north america land , higher completion tool sales in the gulf of mexico , increased pressure pumping activity and higher completion tool sales in the eastern hemisphere , and higher pressure pumping activity in latin america . drilling and evaluation drilling and evaluation revenue was $ 8.4 billion in 2019 , an increase of $ 355 million , or 4 % , from 2018 . these results were primarily driven by a global increase in wireline activity , increased activity in multiple product service lines in the north sea and mexico , coupled with improved drilling activity in asia pacific and higher testing activity in the eastern hemisphere . these improvements were partially offset by decreased activity for drilling-related services in north america land and lower project management activity in the middle east . hal 2019 form 10-k | 26 item 7 | results of operations in 2019 compared to 2018 operating income was $ 642 million in 2019 , a decrease of $ 103 million , or 14 % , compared to 2018 . these results were primarily driven by a decline in drilling activity in north america land , coupled with lower project management and drilling activity in the middle east . partially offsetting these results were global improvements in wireline activity and increased drilling-related services in europe/africa/cis . geographic regions north america north america revenue was $ 11.9 billion in 2019 , an 18 % decrease compared to 2018 , resulting from lower activity and pricing in north america land , primarily associated with stimulation and drilling-related activity . this decline was partially offset by increased artificial lift activity in north america land and improved completion tool sales in the gulf of mexico . latin america latin america revenue was $ 2.4 billion in 2019 , a 14 % increase compared to 2018 , resulting primarily from increased activity in multiple product service lines in mexico and argentina , partially offset by decreased well construction activity in brazil . europe/africa/cis europe/africa/cis revenue was $ 3.3 billion in 2019 , a 12 % increase compared to 2018 . the increases were due to higher activity for multiple product service lines throughout the region , primarily in the north sea , israel and russia , partially offset by decreased pipeline services across the region . middle east/asia middle east/asia revenue was $ 4.9 billion in 2019 , a 7 % increase compared to 2018 . the increases were due to higher activity throughout the region , primarily related to pressure pumping , completion tool sales and wireline activity , partially offset by decreased drilling activity and project management activity in the middle east . other operating items impairments and other charges were $ 2.5 billion in 2019 , consisting of asset impairments , primarily associated with pressure pumping and drilling equipment , as well as severance and other costs incurred as we adjusted our cost structure during the year . this compares to $ 265 million of impairments and other charges recorded in 2018 , representing a write-down of all of our remaining investment in venezuela . see note 2 to the consolidated financial statements for further discussion on these charges . nonoperating items effective tax rate . during 2019 , we recorded a total income tax provision of $ 7 million on a pre-tax loss of $ 1.1 billion , resulting in an effective tax rate of -0.6 % . during 2018 , we recorded a total income tax provision $ 157 million on pre-tax income of $ 1.8 billion , resulting in an effective tax rate of 8.7 % . see note 11 to the consolidated financial statements for significant drivers of these effective tax rates . hal 2019 form 10-k | 27 item 7 | results of operations in 2018 compared to 2017 results of operations in 2018 compared to 2017 information related to the comparison of our operating results between the years 2018 and 2017 is included in `` item 7. management 's discussion and analysis of financial condition
| some of the more significant determinants of current and future spending levels of our customers are oil and natural gas prices and our customers ' expectations about future prices , global oil supply and demand , completions intensity , the world economy , the availability of credit , government regulation and global stability , which together drive worldwide drilling and completions activity . additionally , many of our customers in north america have shifted their strategy from production growth to operating within cash flow and generating returns . lower oil and natural gas prices usually translate into lower exploration and production budgets and lower rig count , while the opposite is usually true for higher oil and natural gas prices . our financial performance is therefore significantly affected by oil and natural gas prices and worldwide rig activity , which are summarized in the tables below . the following table shows the average oil and natural gas prices for west texas intermediate ( wti ) , united kingdom brent crude oil and henry hub natural gas : 2019 2018 2017 oil price - wti ( 1 ) $ 56.98 $ 64.94 $ 50.93 oil price - brent ( 1 ) 64.36 71.08 54.30 natural gas price - henry hub ( 2 ) 2.54 3.17 3.04 ( 1 ) oil price measured in dollars per barrel ( 2 ) natural gas price measured in dollars per million british thermal units ( btu ) , or mmbtu the historical average rig counts based on the weekly baker hughes rig count data were as follows : replace_table_token_5_th hal 2019 form 10-k | 24 item 7 | business environment and results of operations crude oil prices have been extremely volatile over the past five years . wti oil spot prices declined significantly beginning in 2014 from a peak price of $ 108 per barrel in june 2014 to a low of $ 26 per barrel in february 2016 , a level which had not been experienced since 2003. since the low point experienced in early 2016 , oil prices increased substantially , with wti oil spot prices reaching a high of $ 77 per barrel in june 2018. in late 2018 , oil prices again declined with wti oil spot prices reaching a low of $ 44 per barrel in december , but rising to a high of $ 66
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we identified our policies for the allowance for loan losses , security valuations and impairments , goodwill and other intangible assets , and income taxes to be critical because management has to make subjective and or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions . management has reviewed the application of these policies with the audit committee of valley 's board of directors . 39 the judgments used by management in applying the critical accounting policies discussed below may be affected by significant changes 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 material changes in the allowance for loan losses in future periods , and the inability to collect on outstanding loans could result in increased loan losses . in addition , the valuation of certain securities ( including debt security valuations based on the expected future cash flows of their underlying collateral ) in our investment portfolio could be negatively impacted by illiquidity or dislocation in marketplaces resulting in depressed market prices thus leading to further impairment losses . allowance for loan losses . the allowance for credit losses includes the allowance for loan losses and the reserve for unfunded commercial letters of credit and represents management 's estimate of credit losses inherent in the loan portfolio at the balance sheet date . the determination of the appropriate level of the allowance is based on periodic evaluations of the loan portfolios . there are numerous components that enter into the evaluation of the allowance for loan losses , which includes a quantitative analysis , as well as a qualitative review of its results . the qualitative review is subjective and requires a significant amount of judgment . various banking regulators , as an integral part of their examination process , also review the allowance for loan losses . such regulators may require , based on their judgments about information available to them at the time of their examination , that certain loan balances be charged off or require that adjustments be made to the allowance for loan losses when their credit evaluations differ from those of management . additionally , our allowance for credit losses methodology includes loan portfolio evaluations at the portfolio segment level , which consist of a commercial and industrial , commercial real estate , residential mortgage , and a consumer loan portfolio segments . allowance for loan losses on non-covered loans the allowance for losses on non-covered loans relates only to loans , which are not subject to the loss-sharing agreements with the fdic . the allowance for losses on non-covered loans consists of the following : specific reserves for individually impaired loans ; reserves for adversely classified loans , and higher risk rated loans that are not impaired loans ; reserves for other loans that are not impaired ; and , if applicable , reserves for impairment of purchased credit-impaired ( pci ) loans subsequent to their acquisition date . our reserves on classified and non-classified loans also include reserves based on general economic conditions and other qualitative risk factors both internal and external to valley , including changes in loan portfolio volume , the composition and concentrations of credit , new market initiatives , and the impact of competition on loan structuring and pricing . valley has no allowance reserves established at december 31 , 2013 related to the non-covered pci loans ; however , the information below regarding our policies to determine the allowance for covered loans is identical to the procedures performed by valley to determine the carrying amounts and reserves for impairment of non-covered pci loans subsequent to their acquisition date . allowance for loan losses on covered loans during 2010 , we acquired loans in two fdic-assisted transactions that are covered by loss-sharing agreements with the fdic whereby we will be reimbursed for a substantial portion of any future losses . like the non-covered pci loans acquired and purchased during the first quarter of 2012 , we evaluated the acquired covered loans and elected to account for them in accordance with accounting standards codification ( asc ) subtopic 310-30 , loans and debt securities acquired with deteriorated credit quality , since all of these loans were acquired at a discount attributable , at least in part , to credit quality . the covered loans are initially recorded at their estimated fair values segregated into pools of loans sharing common risk characteristics , exclusive of the 40 loss-sharing agreements with the fdic . the fair values include estimates related to expected prepayments and the amount and timing of undiscounted expected principal , interest and other cash flows . the covered loans are subject to our internal credit review . if and when unexpected credit deterioration occurs at the loan pool level subsequent to the acquisition date , a provision for credit losses for covered loans will be charged to earnings for the full amount of the decline in expected cash flows for the pool , without regard to the fdic loss-sharing agreements . under the accounting guidance of asc subtopic 310-30 , for acquired credit impaired loans , the allowance for loan losses on covered loans is measured at each financial reporting date based on future expected cash flows . this assessment and measurement is performed at the pool level and not at the individual loan level . accordingly , decreases in expected cash flows resulting from further credit deterioration on a pool of acquired covered loan pools as of such measurement date compared to those originally estimated are recognized by recording a provision and allowance for credit losses on covered loans . subsequent increases in the expected cash flows of the loans in that pool would first reduce any allowance for loan losses on covered loans ; and any excess will be accreted for prospectively as a yield adjustment . story_separator_special_tag the portion of the additional estimated losses on covered loans that is reimbursable from the fdic under the loss-sharing agreements is recorded in non-interest income and increases the fdic loss-share receivable asset . note 1 to the consolidated financial statements describes the methodology used to determine the allowance for loan losses and a discussion of the factors driving changes in the amount of the allowance for loan losses is included in this md & a . changes in our allowance for loan losses valley considers it difficult to quantify the impact of changes in forecast on its allowance for loan losses . however , management believes the following discussion may enable investors to better understand the variables that drive the allowance for loan losses , which amounted to $ 113.6 million at december 31 , 2013. for impaired credits , if the present value of expected cash flows were 10 percent higher or lower , the allowance would have decreased $ 5.8 million or increased $ 6.9 million , respectively , at december 31 , 2013. if the fair value of the collateral ( for collateral dependent loans ) was 10 percent higher or lower , the allowance would have decreased $ 1.9 million or increased $ 4.5 million , respectively , at december 31 , 2013. if classified loan balances were 10 percent higher or lower , the allowance would have increased or decreased by approximately $ 1.5 million , respectively , at december 31 , 2013. the credit rating assigned to each non-classified credit is an important variable in determining the allowance . if each non-classified credit were rated one grade worse , the allowance would have increased by approximately $ 761 thousand , while if each non-classified credit were rated one grade better there would be no change in the level of the allowance as of december 31 , 2013. additionally , if the historical loss factors used to calculate the allowance for non-classified loans were 10 percent higher or lower , the allowance would have increased or decreased by approximately $ 6.4 million , respectively , at december 31 , 2013. a key variable in determining the allowance is management 's judgment in determining the size of the allowances attributable to general economic conditions and other qualitative risk factors . at december 31 , 2013 , such allowances were 6.7 percent of the total allowance . if such allowances were 10 percent higher or lower , the total allowance would have increased or decreased by $ 758 thousand , respectively , at december 31 , 2013. security valuations and impairments . management utilizes various inputs to determine the fair value of its investment portfolio . to the extent they exist , unadjusted quoted market prices in active markets ( level 1 ) or quoted prices on similar assets ( level 2 ) are utilized to determine the fair value of each investment in the portfolio . in the absence of quoted prices and liquid markets , valuation techniques would be used to determine fair value of any investments that require inputs that are both significant to the fair value measurement and 41 unobservable ( level 3 ) . valuation techniques are based on various assumptions , including , but not limited to , cash flows , discount rates , rate of return , adjustments for nonperformance and liquidity , and liquidation values . a significant degree of judgment is involved in valuing investments using level 3 inputs . the use of different assumptions could have a positive or negative effect on our consolidated financial condition or results of operations . see note 3 to the consolidated financial statements for more details on our security valuation techniques . management must periodically evaluate if unrealized losses ( as determined based on the securities valuation methodologies discussed above ) on individual securities classified as held to maturity or available for sale in the investment portfolio are considered to be other-than-temporary . the analysis of other-than-temporary impairment requires the use of various assumptions , including , but not limited to , the length of time an investment 's book value is greater than fair value , the severity of the investment 's decline , any credit deterioration of the investment , whether management intends to sell the security , and whether it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis . debt investment securities deemed to be other-than-temporarily impaired are written down by the impairment related to the estimated credit loss and the non-credit related impairment is recognized in other comprehensive income or loss . other-than-temporarily impaired equity securities are written down to fair value and a non-cash impairment charge is recognized in the period of such evaluation . see the investment securities section of this md & a and note 4 to the consolidated financial statements for additional analysis and discussion of our other-than-temporary impairment charges . goodwill and other intangible assets . we record all assets , liabilities , and non-controlling interests in the acquiree in purchase acquisitions , including goodwill and other intangible assets , at fair value as of the acquisition date , and expense all acquisition related costs as incurred as required by asc topic 805 , business combinations. goodwill totaling $ 428.2 million at december 31 , 2013 is not amortized but is subject to annual tests for impairment or more often , if events or circumstances indicate it may be impaired . other intangible assets totaling $ 36.1 million at december 31 , 2013 are amortized over their estimated useful lives and are subject to impairment tests if events or circumstances indicate a possible inability to realize the carrying amount . such evaluation of other intangible assets is based on undiscounted cash flow projections . the initial recording of goodwill and other intangible assets requires subjective judgments concerning estimates of the fair value of the acquired assets and assumed liabilities . the goodwill impairment analysis is generally a two-step test .
| the decrease in net income was largely due to : ( i ) a $ 42.2 million , or 8.6 percent , decline in our net interest income largely caused by a 43 basis point decline in the yield on average interest earning assets driven by the low level of long-term market interest rates in 2013 , ( ii ) a 1.7 percent increase in non-interest expense due , in part , to a 17.3 percent increase in our fdic insurance assessments and amortization of tax credit investments , partially offset by ( iii ) a 5.5 percent decrease in the effective tax rate largely due to the decline in pre-tax income and increased tax credit investments , ( iv ) a 37 percent decline in our provision for credit losses caused by the positive effect of the gradual improvement in credit conditions and the u.s. economy on our non-covered loan portfolio during 2013 and a $ 2.3 million recovery of additional impairment recognized on certain covered loan pools acquired in fdic-assisted transactions , and ( v ) a $ 7.7 million , or 6.4 percent , increase in non-interest income resulting primarily from higher net gains on securities transactions and net gains on sales of assets , largely offset by a decrease in gains on sales of residential mortgage loans originated for sale due to a significant decrease in consumer refinance activity in the second half of 2013. see the net interest income , non-interest income , non-interest expense , and income taxes sections below for more details on the items above impacting our 2013 annual results . economic overview and indicators . improvements in business spending , consumer confidence , the housing market and exports , all added up to an increasingly stronger economy in 2013. an upward revision to the official 2013 employment numbers meant that in eight months of the year the u.s. economy topped 200 thousand jobs in net hiring gains . while january 2014 employment numbers were disappointing , much of the decline is being attributed to
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; limitations on the ability of carriers to deliver products to the company 's facilities and customers ; limitations on the ability or desire of the company 's customers to conduct their business , purchase products and services and pay for purchases on a timely basis or at all ; and decreased demand for products and services . the situation surrounding covid-19 remains fluid . the company is unable to determine or predict the nature , duration , or scope of the overall impact that the covid-19 pandemic will have on the company 's business , results of operations , liquidity , or financial condition , as such impact will depend on future developments , including the severity and duration of the pandemic and government and other actions taken in response thereto , all of which are highly uncertain . further , even after the covid-19 pandemic subsides , the company may continue to experience adverse impacts to its business as a result of , among other things , any economic impact that has occurred or may occur in the future and changes in customer or supplier behavior . story_separator_special_tag reconcile net income to net cash of approximately $ 1,846,000 and reduction in accounts receivable of approximately $ 5,696,000. the primary use of cash for the company 's operating activities for the twelve month period ended december 31 , 2020 include working capital requirements , mainly an increase in inventories and a decrease in accounts payable of approximately $ 3,538,000 and $ 2,859,000 , respectively . all other operating accounts were a net used amount of approximately $ 319,000 . - 13 - the company 's primary use of cash in its investing activities in the twelve month period ended december 31 , 2020 are for building improvements and capital equipment of approximately $ 729,000 primarily for production requirements at the atg . the company 's primary providing of cash in its financing activities in the twelve month period ended december 31 , 2020 include proceeds from the line of credit and ppp loan of approximately $ 750,000 and $ 4,000,000 , respectively , partially offset by approximately $ 547,000 of principal payments on long-term debt , approximately $ 294,000 of principal payments on equipment financing obligations and approximately $ 100,000 for the purchase of treasury shares . the covid-19 pandemic could impact our liquidity . lower production schedules , possible inability of our customers to make timely payments to us , and similar factors could lower cash generated from operations and adversely affect our financial position . as of march 20 , 2020 , the company increased its line of credit from $ 4,000,000 to $ 6,000,000. as of july 31 , 2020 , the company extended the line of credit to expire december 31 , 2022. as of july 31 , 2020 , the interest rate is a rate per year equal to the bank 's prime rate or libor plus 2.15 % . in addition , the company is required to pay a commitment fee of 0.25 % on the unused portion of the line of credit . there was $ 3,750,000 balance outstanding at december 31 , 2020 and $ 3,000,000 balance at december 31 , 2019. the company has an equipment loan facility in the amount of $ 1,000,000 available until july 9 , 2021. this line is non-revolving and non-renewable . the loan term for the equipment covered by the agreement is 60 months . monthly payments are fixed for the term of each funding based upon the lender 's lease pricing in effect at the time of such funding . there is nothing outstanding as of december 31 , 2020 and at december 31 , 2019. on april 21 , 2020 , the company executed a promissory note ( the “ note ” ) in the amount of $ 4,000,000 as part of the paycheck protection program ( the “ ppp loan ” ) administered by the small business administration ( the “ sba ” ) and authorized under the coronavirus aid , relief , and economic security act ( the cares act ” ) . the ppp loan is being made through the bank of america , na ( the “ lender ” ) . the term of the ppp loan is two years with an annual interest rate of 1.00 % . payments of principal and interest on the ppp loan will be deferred until the sba remits the loan forgiveness amount to the lender . payments on any unforgiven amounts will begin on the date on which loan forgiveness is determined or 10 months after the end of the borrower 's covered period if forgiveness is not requested . commencing one month after the expiration of the deferral period , the company is required to pay the lender the principal amount outstanding on the ppp loan in equal monthly payments of principal and interest . at the time of application , the company determined that the loan was necessary in order to secure the company 's ability to meet its obligations in the face of potential disruptions in its business operations and the potential inability of its customers to pay their accounts when due . as of december 31 , 2020 , the company incurred payroll costs and other eligible qualifying expenses within the 24-week covered period after receipt of the ppp loan , that the company believes to be consistent with the terms of the ppp loan . no assurance can be given that we will obtain forgiveness of the ppp loan in whole or in part . the company believes its cash generating capability and financial condition , together with available credit facilities will be adequate to meet our future operating , investing and financing needs . - 14 - off balance sheet arrangements not applicable . critical accounting policies the company prepares its consolidated financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) story_separator_special_tag ; limitations on the ability of carriers to deliver products to the company 's facilities and customers ; limitations on the ability or desire of the company 's customers to conduct their business , purchase products and services and pay for purchases on a timely basis or at all ; and decreased demand for products and services . the situation surrounding covid-19 remains fluid . the company is unable to determine or predict the nature , duration , or scope of the overall impact that the covid-19 pandemic will have on the company 's business , results of operations , liquidity , or financial condition , as such impact will depend on future developments , including the severity and duration of the pandemic and government and other actions taken in response thereto , all of which are highly uncertain . further , even after the covid-19 pandemic subsides , the company may continue to experience adverse impacts to its business as a result of , among other things , any economic impact that has occurred or may occur in the future and changes in customer or supplier behavior . story_separator_special_tag reconcile net income to net cash of approximately $ 1,846,000 and reduction in accounts receivable of approximately $ 5,696,000. the primary use of cash for the company 's operating activities for the twelve month period ended december 31 , 2020 include working capital requirements , mainly an increase in inventories and a decrease in accounts payable of approximately $ 3,538,000 and $ 2,859,000 , respectively . all other operating accounts were a net used amount of approximately $ 319,000 . - 13 - the company 's primary use of cash in its investing activities in the twelve month period ended december 31 , 2020 are for building improvements and capital equipment of approximately $ 729,000 primarily for production requirements at the atg . the company 's primary providing of cash in its financing activities in the twelve month period ended december 31 , 2020 include proceeds from the line of credit and ppp loan of approximately $ 750,000 and $ 4,000,000 , respectively , partially offset by approximately $ 547,000 of principal payments on long-term debt , approximately $ 294,000 of principal payments on equipment financing obligations and approximately $ 100,000 for the purchase of treasury shares . the covid-19 pandemic could impact our liquidity . lower production schedules , possible inability of our customers to make timely payments to us , and similar factors could lower cash generated from operations and adversely affect our financial position . as of march 20 , 2020 , the company increased its line of credit from $ 4,000,000 to $ 6,000,000. as of july 31 , 2020 , the company extended the line of credit to expire december 31 , 2022. as of july 31 , 2020 , the interest rate is a rate per year equal to the bank 's prime rate or libor plus 2.15 % . in addition , the company is required to pay a commitment fee of 0.25 % on the unused portion of the line of credit . there was $ 3,750,000 balance outstanding at december 31 , 2020 and $ 3,000,000 balance at december 31 , 2019. the company has an equipment loan facility in the amount of $ 1,000,000 available until july 9 , 2021. this line is non-revolving and non-renewable . the loan term for the equipment covered by the agreement is 60 months . monthly payments are fixed for the term of each funding based upon the lender 's lease pricing in effect at the time of such funding . there is nothing outstanding as of december 31 , 2020 and at december 31 , 2019. on april 21 , 2020 , the company executed a promissory note ( the “ note ” ) in the amount of $ 4,000,000 as part of the paycheck protection program ( the “ ppp loan ” ) administered by the small business administration ( the “ sba ” ) and authorized under the coronavirus aid , relief , and economic security act ( the cares act ” ) . the ppp loan is being made through the bank of america , na ( the “ lender ” ) . the term of the ppp loan is two years with an annual interest rate of 1.00 % . payments of principal and interest on the ppp loan will be deferred until the sba remits the loan forgiveness amount to the lender . payments on any unforgiven amounts will begin on the date on which loan forgiveness is determined or 10 months after the end of the borrower 's covered period if forgiveness is not requested . commencing one month after the expiration of the deferral period , the company is required to pay the lender the principal amount outstanding on the ppp loan in equal monthly payments of principal and interest . at the time of application , the company determined that the loan was necessary in order to secure the company 's ability to meet its obligations in the face of potential disruptions in its business operations and the potential inability of its customers to pay their accounts when due . as of december 31 , 2020 , the company incurred payroll costs and other eligible qualifying expenses within the 24-week covered period after receipt of the ppp loan , that the company believes to be consistent with the terms of the ppp loan . no assurance can be given that we will obtain forgiveness of the ppp loan in whole or in part . the company believes its cash generating capability and financial condition , together with available credit facilities will be adequate to meet our future operating , investing and financing needs . - 14 - off balance sheet arrangements not applicable . critical accounting policies the company prepares its consolidated financial statements in accordance with u.s. generally accepted accounting principles ( gaap )
| , general and administrative expenses selling , general and administrative ( sg & a ) decreased approximately $ 885,000 or ( 10.0 ) % for the twelve month period ended december 31 , 2020 when compared to the same period in 2019. the decrease is primarily driven by the cpg due to lower media advertising , sales support , commissions , travel , and trade show expenses of approximately $ 941,000 and a net increase of approximately $ 56,000 in all other sg & a expenditures for the atg and cpg for the twelve month period ended december 31 , 2020 compared to the same period in 2019 . - 12 - interest expense interest expense increased approximately $ 55,000 or 44.0 % primarily due to the line of credit and paycheck protection program ( the “ ppp loan ” ) at the atg for the twelve month period ended december 31 , 2020 compared to the same period in 2019. see also note 5 , long-term debt , of the accompanying consolidated financial statements for information on long-term debt . income taxes the company 's effective tax rate for operations was ( 61.3 ) % in 2020 and 21.5 % in 2019. the effective tax rate in both years reflects federal and state income taxes , permanent non-deductible expenditures , the deduction for foreign-derived intangible income ( fdii ) , and the federal tax credit for research and development expenditures . the decrease in the effective tax rate between 2019 and 2020 is a result of an increase in the ratio of tax benefits to net income before taxes . see also note 7 , income taxes , of the accompanying consolidated financial statements for information concerning income taxes . net income income from operations decreased approximately $ 2,347,000 or ( 95.9 ) % when comparing the twelve month period ended december 31 , 2020 to the same period in 2019 as net income at the atg was lower by approximately $ 4,770,000 while the
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overview and history – see “ item 1. business ” for a further description of our history and background we are a leading engineering and design services company focused on the sustainable commercial indoor horticulture market . we engineer and design indoor cea facilities and then integrate complex environmental equipment systems into those facilities . recent developments covid-19 pandemic in december 2019 , a novel strain of coronavirus , covid-19 , was reported to have surfaced in wuhan , china . in january 2020 , this coronavirus spread to other countries , including the united states , and efforts to contain the spread of this coronavirus intensified . in march 2020 , the world health organization declared the outbreak of the coronavirus a pandemic . we are a business that supplies other essential businesses with support and supplies necessary to operate and we therefore believe we are an essential business allowed to continue operating under the stay-at-home orders that may be issued by many states and cities . the extent to which the covid-19 pandemic impacts our results will depend on future developments , which are highly uncertain and can not be predicted , including new information which may emerge concerning the severity of covid-19 and the actions to contain covid-19 or treat its impact . the outbreak and any preventative or protective actions that governments or we may take in respect of covid-19 may result in a period of business disruption , reduced client business and reduced operations . due to the uncertainty and adverse impact on our operations and financial condition resulting from the outbreak of covid-19 , we took the following actions : ● in march 2020 , we began executing a substantial reduction in discretionary marketing and general & administrative expenses . ● on march 30 , 2020 , we reduced our headcount by 13 people ( 27 % ) , from 48 to 35 , by terminating ten employees and furloughing three other employees , including one member of our leadership team . ● effective april 6 , 2020 , we reduced compensation for almost every remaining employee , including a 20 % reduction for the senior members of our leadership team . ● effective july 27 , 2020 , the reduced compensation for everyone other than the leadership team was reinstated . effective september 7 , 2020 , the reduced compensation for the leadership team was reinstated . 35 the ultimate magnitude of covid-19 , including the extent of its impact on our financial and operational results , which could be material , will depend on the length of time that the pandemic continues , its effect on the demand for our products and our supply chain , the effect of governmental regulations imposed in response to the pandemic , as well as uncertainty regarding all of the foregoing . we can not at this time predict the full impact of the covid-19 pandemic , but it could have a larger material adverse effect on our business , financial condition , results of operations and cash flows beyond what is discussed within this report . coronavirus aid , relief , and economic security act ( “ cares act ” ) on march 27 , 2020 , the cares act was enacted . the cares act is an approximate $ 2 trillion emergency economic stimulus package passed in response to the coronavirus outbreak . the cares act , among other things , includes broad sweeping provisions such as direct financial assistance to americans in the form of one-time payments to individuals ; aid to businesses in the form of loans and grants ; and efforts to stabilize the u.s. economy and keep americans employed in general . on april 16 , 2020 , we received a loan in the amount of $ 1,020,600 under the paycheck protection program ( “ ppp ” ) of the cares act . the ppp provides for loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the qualifying business . on june 5 , 2020 , the paycheck protection program flexibility act of 2020 ( the “ pppfa ” ) was enacted . the pppfa extended the covered period of the loans under the ppp from eight weeks to 24 weeks from the origination date of the loan , or december 31 , 2020 , whichever is earlier . therefore , the ppp now provides a mechanism for forgiveness of up to the full amount borrowed after 24 weeks as long as the borrower uses the loan proceeds during the 24-week period after the loan origination for eligible purposes , including payroll costs , certain benefits costs , rent and utilities costs or other permitted purposes , and maintains its payroll levels , subject to certain other requirements and limitations . the amount of loan forgiveness is subject to reduction , among other reasons , if the borrower terminates employees or reduces salaries during the 24-week period . the interest rate on the loan is 1.0 % per annum . the pppfa also extended the deferment period for principal and interest payments on ppp loans from six months to ten months . therefore , the payments of principal and interest under our ppp loan are deferred for ten months from the final day of the loan forgiveness period ( the “ deferral period ” ) . although the company believes the ppp loan proceeds were used in accordance with the cares act guidance , the company has not yet determined if any of the ppp loan is subject to forgiveness and has therefore continued to show the entire ppp loan as an obligation on its financial statements . story_separator_special_tag any unforgiven portion of the ppp loan is payable over the two-year term , with payments deferred during the deferral period . the company may elect to prepay the unforgiven loan at any time without payment of any premium . bridge financing during the fourth quarter of 2020 the company entered into bridge financing notes ( the “ bridge financing notes ” ) totalling $ 1,854,500. the bridge financing notes are a combination of $ 1,004,500 in the new james lowe note ( see note 3 – related party transactions ) , $ 350,000 received in november 2020 , and an additional $ 500,000 received in december 2020. the bridge financing notes carry interest at the rate of 12 % and mature on december 31 , 2021. the bridge financing notes provided for a mandatory conversion into common stock upon the closing of a sale of the securities of the company , whether in a private placement or pursuant to an effective registration statement under the securities act , resulting in at least $ 2,500,000 of gross proceeds to the company ( a “ qualified offering ” ) . in the event of a qualified offering , the outstanding principal and interest of the bridge financing notes will be converted into the identical security issued at such qualified offering at 75 % of the per security price paid by investors in connection with the qualified offering . the offering described above under item 5 “ market for the registrant 's common equity and related stockholder matters and issuer purchases of equity securities—completion of registered public offering ” was a qualified offering and the bridge financing notes plus accrued interest of $ 53,725 were converted into 254,430 shares of common stock in connection with the offering on february 17 , 2021. story_separator_special_tag define adjusted ebitda as net income ( loss ) attributable to urban-gro , inc. , determined in accordance with gaap , excluding the effects of certain operating and non-operating expenses including , but not limited to , interest expense , depreciation of tangible assets , amortization of intangible assets , impairment of investments , and stock-based compensation that we do not believe reflect our core operating performance . our board of directors and management team focus on adjusted ebitda as a key performance and compensation measure . we believe that adjusted ebitda assists us in comparing our operating performance over various reporting periods because it removes from our operating results the impact of items that our management believes do not reflect our core operating performance . the following table reconciles net loss attributable to the company to adjusted ebitda for the periods presented : replace_table_token_4_th liquidity and capital resources as of december 31 , 2020 , we had cash of $ 184,469 , which represented a decrease of $ 264,234 from december 31 , 2019. since inception , we have incurred significant operating losses and have funded our operations primarily through issuances of equity securities , debt , and operating revenue . as of december 31 , 2020 , we had an accumulated deficit of $ 21,964,321 , a working capital deficit of $ 9,300,836 , and negative stockholders ' equity of $ 7,406,164. prior to the $ 62.1 million common stock offering on february 17 , 2021 , our ability to generate sufficient revenues to pay our debt obligations and accounts payable when due was subject to risks and uncertainties . historical consolidated financial statements included in this report were prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might result from the outcome of this uncertainty . our ability to continue as a going concern was dependent upon , among other things , our ability to generate revenue , control costs and raise capital . with the completion of the $ 62.1 million common stock offering on february 17 , 2021 management believes these doubts have been alleviated . 37 as described in the notes to the consolidated financial statements included in this report , on february 21 , 2020 , we entered into the letter agreement by and among us , as borrower , urban-gro canada technologies inc. and impact engineering , inc. , as guarantors , the lenders party thereto , and bridging finance inc. , as administrative agent for the lenders , providing for a senior secured demand term loan facility in the amount of c $ 2.7 million ( $ 2.0 million ) and a demand revolving credit facility of up to c $ 5.4 million ( $ 4.0 million ) . all amounts outstanding under the credit agreement were repaid in february of 2021 with a portion of the net proceeds from the $ 62.1 million common stock offering and the credit agreement was terminated . effective january 9 , 2019 , we executed a letter agreement with an exclusive placement agent in connection with a private placement offering . beginning in march 2019 , the placement agent initiated an offering of up to $ 6.0 million from the sale of units , with each unit consisting of a $ 1,000 convertible debenture ( the “ debentures ” ) and common stock purchase warrants to purchase 34.58 shares of our common stock at $ 18.00 per share for a period of two years from the purchase date . the debentures were due may 31 , 2021 and bore interest at 8 % , compounded annually , with interest due at maturity .
| gross profit was $ 5.7 million ( 22 % of revenue ) during the year ended december 31 , 2020 compared to $ 6.6 million ( 27 % of revenue ) during the year ended december 31 , 2019. gross profit as a percentage of revenue decreased due to a revenue mix shift in the current period favoring equipment systems versus services revenue as noted above . operating expenses decreased by $ 4.0 million , or 32 % , to $ 8.5 million for the year ended december 31 , 2020 compared to $ 12.5 million for the year ended december 31 , 2019. the decrease in operating expenses was comprised of a $ 2.9 million reduction in general operating expenses , mainly due to reduced salary and travel expenses , a $ 0.7 million reduction of marketing related expenses , and a $ 0.5 million decrease in amortization of broker issuing costs and broker warrants associated with our offering of convertible debentures in 2019. non-operating expenses were $ 2.3 million for the year ended december 31 , 2020 , compared to $ 2.5 million for the year ended december 31 , 2019 , a decrease of $ 0.2 million ( 8 % ) . interest expense , excluding amortization related to the convertible debentures of $ 1.3 million in 2019 , increased by $ 0.8 million to $ 1.5 million compared to $ 0.7 million in the year ended december 31 , 2019 , due to an increase in debt . for the years ended december 31 , 2020 and 2019 , the company recognized an impairment loss of $ 0.3 million and $ 0.5 million , respectively , related to the investment in total grow control holdings inc. ( “ tgh ” ) . the company incurred a $ 0.2 million expense for contingent consideration from the acquisition of impact engineering , inc. during the year ended december 31 , 2020. the company also recorded a foreign exchange loss of $ 0.4 million in the year ended december 31 , 2020 due to the revaluation of our canadian denominated debt . as a result of the above , we incurred
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and willingness of the participants in various joint ventures to honor their commitments ; our ability to successfully and timely obtain land-use entitlements and construction financing , and address issues that arise in connection with the use and development of our land ; natural disasters and other unforeseen damage for which our insurance may not provide adequate coverage ; our inability to successfully grow our ancillary businesses ; potential liability under environmental or construction laws , or other laws or regulations affecting our business ; regulatory changes that adversely affect the profitability of our businesses ; our ability to comply with the terms of our debt instruments ; and our ability to successfully estimate the impact of certain regulatory , accounting and tax matters . 22 please see “ item 1a-risk factors ” of this annual report for a further discussion of these and other risks and uncertainties which could affect our future results . we undertake no obligation to publicly revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events , except to the extent we are legally required to disclose certain matters in sec filings or otherwise . outlook we continue to believe that we are still in the early stages of a protracted slow growth housing recovery . the housing market 's recovery has continued its progression at a slow and steady pace , moving upward in a fairly narrow channel as we enter fiscal 2015. the recovery has been supported on the downside by the significant production deficit that has resulted from the extremely low volumes of dwellings , both single family and multifamily , that has been built over the past seven years . at the same time , the recovery has been constrained by a limited supply of available homes on the market , limited supply of land available to add to the supply of homes and constrained demand from purchasers who would like to buy but are unable to access the mortgage market . we believe the recovery will also continue to benefit the rental market as first time home purchasers find limited access to the for sale market as a result of high down payments and strict underwriting standards . looking back , fiscal 2014 was an excellent year for lennar , with revenues and pretax earnings attributable to lennar increasing 31 % and 49 % , respectively , from 2013. in fiscal 2014 , our gross margin increased 50 basis points to 25.4 % . this gross margin , combined with our selling , general and administrative expenses of 10.5 % , increased our operating margin 60 basis points to 14.9 % during fiscal 2014. during fiscal 2014 , labor and material costs increased by 7 % , which represents a slowing pace of costs increases from the past two years . in addition , we ended the year with a strong sales backlog , up 21 % in homes and 22 % in dollar value , which gives us a great start for fiscal 2015. during fiscal 2014 , we also had strong performances from our other business segments . our financial services segment produced $ 80.1 million of pretax earnings . rialto generated $ 66.6 million of operating earnings net of earnings attributable to noncontrolling interests , benefiting from the rialto mortgage finance ( `` rmf '' ) business and earnings from its real estate funds . our multifamily rental business continued to grow during fiscal 2014 , as it sold two completed rental properties and ended the year with 19 communities under construction , one completed and fully leased , three partially completed and leasing and one under development . finally , our fivepoint communities is well positioned , managing the entitlement and development of some of the most desirable real estate assets in southern and northern california . in fiscal 2015 , our principal focus in our homebuilding operations will continue to be on generating strong operating margins on the homes we sell by delivering homes from our excellent land positions , although we expect to see some margin contraction due to competitive pressures and the inclusion of some additional previously mothballed land assets being developed . in addition , the significant decline in oil prices may negatively impact our houston segment in fiscal 2015 , however this decline could potentially have offsetting benefits . thus we can not project the impact of declining oil prices at this time . we will continue to carefully balance pricing power , sales incentives , brokerage commissions and advertising expenses to maximize our results . in addition , we plan to continue to invest in carefully underwritten strategic land acquisitions in well-positioned markets that we expect will continue to support our homebuilding operations going forward and help us increase operating leverage as our deliveries increase . in fiscal 2014 , land purchases were $ 1.4 billion compared to $ 1.8 billion in fiscal 2013. for fiscal 2015 , we are continuing our pivot towards a land lighter model in homebuilding with the focus of becoming cash flow positive and deleveraging our balance sheet . we expect to start generating positive cash flows in fiscal 2016. during fiscal 2015 , we expect our financial services segment 's earnings to increase as the segment will continue to benefit as our homebuilding business expands and the number of non-lennar purchasers using our mortgage company continues to grow in various markets . we are also focused on our multiple platforms including rialto , multifamily , and fivepoint . as rialto continues to grow as a blue chip capital investment management company and commercial real estate capital provider , we expect contributions from rialto 's rmf business will begin to generate a more predictable and recurring component of earnings for rialto . in fiscal 2015 , rialto will continue its transition into an asset light , fund model . story_separator_special_tag our multifamily segment anticipates that the construction of its development pipeline will be completed over the next four years , and as a merchant builder of apartments , we plan to sell our apartments once rents and occupancies have stabilized . we are well positioned and expect to sell another five communities towards the end of fiscal 2015. in addition , we expect fivepoint communities to continue to mature as a long-term strategy as it develops land in premium california locations to fill the growing demand for well-located approved and developed homesites . in conclusion , we believe that our company remains well positioned to benefit from the housing market 's recovery . we expect that our company 's main driver of earnings will continue to be our homebuilding and financial services operations , as we are currently well positioned to deliver between 23,500 and 24,000 homes with gross margins expected to average about 24 % during fiscal 2015. we are also focused on our multiple platforms including rialto , multifamily , and fivepoint , as such ancillary business continue to mature and expand their franchises providing longer-term opportunities that we expect will enhance shareholder value . overall , we are on track to achieve another year of substantial profitability in fiscal 2015 , as the 23 housing market recovery continues and we will continue to benefit from our strategic land acquisitions and new community openings . story_separator_special_tag style= '' font-family : inherit ; font-size:8pt ; '' > rialto revenues were $ 230.5 million in the year ended november 30 , 2014 , compared to revenues of $ 138.1 million in the year ended november 30 , 2013 . revenues increased primarily due to the receipt of a $ 34.7 million advanced distribution with regard to rialto 's carried interest in rialto real estate fund , lp ( “ fund i ” ) in order to cover the income tax obligation which resulted from allocations of taxable income due to rialto 's general partner interest in fund i. in addition , revenues increased due to an increase in securitization revenue and interest income from rialto mortgage finance ( “ rmf ” ) , partially offset by a decrease in interest income associated with rialto 's portfolio of real estate loans . rialto expenses were $ 249.1 million in the year ended november 30 , 2014 , compared to expenses of $ 151.1 million in the year ended november 30 , 2013 . expenses increased primarily due to an increase in loan impairments of $ 41.0 million due to changes in estimated cash flows expected to be collected on the segment 's loan portfolios and the change from the accretable yield income method to a cost recovery basis method in the fourth quarter of 2014. we made this determination in order to better reflect the performance of the loan portfolios due to the uncertainty in estimating the timing and amount of future cash flows . in addition , expenses increased due to an increase in interest expense and other general administrative expenses . rialto equity in earnings from unconsolidated entities was $ 59.3 million and $ 22.4 million in the years ended november 30 , 2014 and 2013 , respectively , primarily related to our share of earnings from the rialto real estate funds . the higher equity in earnings related to increases in fair value and recognition of gains related to certain assets in the rialto real estate funds . in the year ended november 30 , 2014 , rialto other income , net was $ 3.4 million , which consisted primarily of net realized gains on the sale of real estate owned ( `` reo '' ) of $ 43.7 million and rental and other income , partially offset by expenses related to owning and maintaining reo , $ 19.3 million of impairments on reo and other expenses . in the year ended november 30 , 2013 , rialto other income , net , was $ 16.8 million , which consisted primarily of net realized gains on the sale of reo of $ 48.8 million , a gain of $ 8.5 million related to a bargain purchase acquisition , which included cash and a loan receivable as consideration , and rental income , partially offset by expenses related to owning and maintaining reo and $ 16.1 million of impairments on reo . operating loss for our lennar multifamily segment was $ 11.0 million in the year ended november 30 , 2014 , compared to $ 17.0 million in the year ended november 30 , 2013 . in the year ended november 30 , 2014 , the operating loss in lennar multifamily primarily related to general and administrative expenses , partially offset by the segment 's share of gains of $ 14.7 million as a result of the sale of two operating properties by lennar multifamily unconsolidated entities and management fee income . in the year ended november 30 , 2013 , the operating loss in lennar multifamily primarily related to general and administrative expenses , partially offset by gross profit on a land sale and management fee income . corporate general and administrative expenses were $ 177.2 million , or 2.3 % as a percentage of total revenues , in the year ended november 30 , 2014 , compared to $ 146.1 million , or 2.5 % as a percentage of total revenues , in the year ended november 30 , 2013 . as a percentage of total revenues , corporate general and administrative expenses improved due to increased operating leverage . net earnings ( loss ) attributable to noncontrolling interests were ( $ 10.2 ) million and $ 25.3 million in the years ended november 30 , 2014 and 2013 , respectively .
| currently , our biggest competition is from the sales of existing and foreclosed homes . we differentiate our new homes from those homes by issuing new home warranties , updated floor plans , our everything 's included marketing program , community amenities and in certain markets by emphasizing energy efficiency and new technologies . gross margins on home sales were $ 1.7 billion , or 25.4 % , in the year ended november 30 , 2014 , compared to gross margins on home sales of $ 1.3 billion , or 24.9 % , in the year ended november 30 , 2013 . gross margin percentage on home sales improved compared to the year ended november 30 , 2013 , primarily due to an increase in the average sales price of homes delivered , a decrease in sales incentives offered to homebuyers as a percentage of revenue from home sales and $ 20.9 million of insurance recoveries and other nonrecurring items , partially offset by an increase in materials , labor and land costs . gross profits on land sales totaled $ 41.7 million in the year ended november 30 , 2014 , compared to $ 17.0 million in the year ended november 30 , 2013 . gross profits on land sales in the year ended november 30 , 2013 included a $ 4.8 million recovery of an option deposit previously written-off . selling , general and administrative expenses were $ 714.8 million in the year ended november 30 , 2014 , compared to $ 559.5 million in the year ended november 30 , 2013 . as a percentage of revenues from home sales , selling , general and administrative expenses improved to 10.5 % in the year ended november 30 , 2014 , from 10.6 % in the year ended november 30 , 2013 . lennar homebuilding equity in earnings ( loss ) from unconsolidated entities was ( $ 0.4 ) million in the year ended november 30 , 2014 , compared to $ 23.8 million in the year ended november 30 ,
| 11,085 |
when a loan is considered to be impaired , the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan 's effective interest rate or if the loan is collateral-dependent , the fair value of the collateral is used to determine the amount of impairment . impairment losses are included in the allowance for loan losses through a charge to the provision for losses on loans . subsequent recoveries are credited to the allowance for loan losses . cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement . cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal and then to interest income . certain economic and interest rate factors could have a material impact on the determination of the allowance for loan losses . an improving economy could result in the expansion of businesses and creation of jobs which would positively affect our loan growth and improve our gross revenue stream . conversely , certain factors could result from an expanding economy which could increase our credit costs and adversely impact our net earnings . a significant rapid rise in interest rates could create higher borrowing costs and shrinking corporate profits which could have a material impact on a borrower 's ability to pay . we will continue to concentrate on maintaining a high quality loan portfolio through strict administration of our loan policy . another factor that we have considered in the determination of the allowance for loan losses is loan concentrations to individual borrowers or industries . at december 31 , 2015 , we did not have any individual loan that exceeded our in-house credit limit of $ 20.0 million . we had three relationships consisting of 12 different non-covered loans that exceeded our $ 20.0 million in-house credit limit . total exposure resulting from these three relationships was $ 80.1 million . additional disclosure concerning the company 's largest loan relationships is provided in the “ balance sheet comparison ” section below . a substantial portion of our loan portfolio is in the commercial real estate and residential real estate sectors . those loans are secured by real estate in our primary market areas . a substantial portion of oreo is located in those same markets . therefore , the ultimate collectability of a substantial portion of our loan portfolio and the recoverability of a substantial portion of the carrying amount of oreo are susceptible to changes to market conditions in our primary market area . fair value accounting estimates gaap requires the use of fair values in determining the carrying values of certain assets and liabilities , as well as for specific disclosures . the most significant include impaired loans , oreo , and the net assets acquired in business combinations . certain of these assets do not have a readily available market to determine fair value and require an estimate based on specific parameters . when market prices are unavailable , we determine fair values utilizing estimates , which are constantly changing , including interest rates , duration , prepayment speeds and other specific conditions . in most cases , these specific parameters require a significant amount of judgment by management . at december 31 , 2015 , the percentage of the company 's assets measured at fair value was 17 % . see note 22 , “ fair value of financial instruments , ” in the notes to consolidated financial statements herein for additional disclosures regarding the fair value of our assets and liabilities . when a loan is considered impaired , a specific valuation allowance is allocated , if necessary , so that the loan is reported net , at the present value of estimated future cash flows using the loan 's existing rate or at the fair value of collateral if repayment is expected solely from the collateral . in addition , foreclosed assets are carried at the net realizable value , following foreclosure . the company 's impaired loans and foreclosed property are concentrated in markets and areas where the determination of fair value through market research ( recent sales and or qualified appraisals ) is difficult . accordingly , the determination of fair value in the current environment is difficult and more subjective than it would be in traditionally stable real estate environments . although management believes its processes for determining the value of these assets are appropriate and allow ameris to arrive at a fair value , the processes require management judgment and assumptions and the value of such assets at the time they are revalued or divested may be different from management 's determination of fair value . 30 business combinations assets purchased and liabilities assumed in a business combination are recorded at their fair value . the fair value of a loan portfolio acquired in a business combination requires greater levels of management estimates and judgment than the remainder of purchased assets or assumed liabilities . on the date of acquisition , when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the company will not collect all contractually required principal and interest payments , the difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference . the company must estimate expected cash flows at each reporting date . subsequent decreases to the expected cash flows will generally result in a provision for loan losses . subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges and adjusted accretable yield which will have a positive impact on interest income . in addition , purchased loans without evidence of credit deterioration are also handled under this method . income taxes gaap requires the asset and liability approach for financial accounting and reporting for deferred income taxes . story_separator_special_tag we use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant income tax temporary differences . see note 16 , “ income taxes , ” in the notes to consolidated financial statements for additional details . as part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items , such as gains on fdic-assisted transactions and the provision for loan losses , for tax and financial reporting purposes . these differences result in deferred tax assets and liabilities that are included in our consolidated balance sheet . we must also assess the likelihood that our deferred tax assets will be recovered from future taxable income , and to the extent we believe that recovery is not likely , we must establish a valuation allowance . significant management judgment is required in determining our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . to the extent we establish a valuation allowance or adjust this allowance in a period , we must include an expense within the tax provisions in the statement of income . long-lived assets , including intangibles intangible assets consist of goodwill and core deposit intangibles . goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions . core deposit intangibles represent premiums paid for deposits acquired via acquisition and are being amortized over its estimated useful life , typically five to seven years . net income/ ( loss ) and earnings per share the company 's net income available to common shareholders during 2015 was approximately $ 40.8 million , or $ 1.27 per diluted share , compared with $ 38.4 million , or $ 1.46 per diluted share , in 2014 , and $ 18.3 million , or $ 0.75 per diluted share , in 2013. for the fourth quarter of 2015 , the company recorded net income available to common shareholders of approximately $ 14.1 million , or $ 0.43 per diluted share , compared with $ 10.6 million , or $ 0.39 per diluted share , for the quarter ended december 31 , 2014 , and $ 966,000 , or $ 0.04 per diluted share , for the quarter ended december 31 , 2013 . 31 earning assets and liabilities average earning assets were approximately $ 4.32 billion in 2015 , compared with approximately $ 3.30 billion in 2014. the earning asset and interest-bearing liability mix is regularly monitored to maximize the net interest margin and , therefore , increase return on assets and shareholders ' equity . the following statistical information should be read in conjunction with the remainder of “ management 's discussion and analysis of financial condition and results of operation ” and the consolidated financial statements and related notes included elsewhere in this annual report and in the documents incorporated herein by reference . the following tables set forth the amount of our interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities , net interest spread and net interest margin on average interest-earning assets . federally tax-exempt income is presented on a taxable-equivalent basis assuming a 35 % federal tax rate . replace_table_token_5_th 32 story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 '' > following is a comparison of noninterest income for 2015 , 2014 and 2013. replace_table_token_7_th 2015 compared with 2014. total noninterest income in 2015 was $ 85.6 million , compared with $ 62.8 million in 2014 , an increase of $ 22.8 million . this increase is due to a $ 10.8 million increase in mortgage banking activity , a $ 9.9 million increase in service charges on deposit accounts , a $ 1.1 million increase in other service charges , a $ 626,000 increase in gain on the sale of sba loans and a $ 353,000 increase in other income . income from mortgage banking activities continued to increase during 2015 , from $ 26.0 million in 2014 to $ 36.8 million in 2015 , as the company 's mortgage division reached a mature stage with a team of long-tenured mortgage bankers producing strong results . service charges on deposit accounts increased $ 9.9 million , or 40.0 % , in 2015 as a result of acquisition activity and successful efforts on commercial deposit accounts . other service charges increased $ 1.1 million , or 41.8 % , in 2015 due to acquisitions and increased sales efforts . since 2011 , the company has devoted significant resources to both treasury deposit products and treasury sales professionals , which contributed significantly to the company 's growth in non-interest bearing deposits . gains on sales of sba loans increased $ 626,000 to $ 4.5 million during 2015 , as the company continued its efforts to build an sba division . 2014 compared with 2013. total noninterest income in 2014 was $ 62.8 million , compared with $ 46.5 million in 2013 , an increase of $ 16.3 million . the majority of this increase relates to a $ 6.9 million increase in mortgage banking activity , a $ 5.1 million increase in service charges on deposit accounts , a $ 3.9 million increase in other income , and a $ 496,000 increase in other service charges . income from mortgage banking activities increased substantially during 2014 , from $ 19.1 million in 2013 to $ 26.0 million in 2014 , as the company 's mortgage division continued its growth .
| million , compared with $ 151.5 million in 2014 , an increase of $ 26.6 million , or 17.5 % . the company 's net interest margin , on a tax equivalent basis , decreased to 4.12 % for the year ended december 31 , 2015 , compared with 4.59 % for the year ended december 31 , 2014 . 2014 compared with 2013. for the year ended december 31 , 2014 , interest income was $ 164.6 million , an increase of $ 38.2 million , or 30.3 % , compared with the same period in 2013. average earning assets increased $ 830.8 million , or 33.6 % , to $ 3.30 billion for the year ended december 31 , 2014 , compared with $ 2.47 billion as of december 31 , 2013. yield on average earning assets on a taxable equivalent basis decreased during 2014 to 5.03 % , compared with 5.15 % for the year ended december 31 , 2013. interest expense on deposits and other borrowings for the year ended december 31 , 2014 was $ 14.7 million , compared with $ 10.1 million for the year ended december 31 , 2013. the company 's funding mix continued to improve during 2014 , leading to savings in cost of funds . during 2014 , average noninterest-bearing accounts amounted to $ 751.9 million and comprised 23.5 % of average total deposits , compared with $ 489.6 million , or 19.7 % of average total deposits , during 2013. average balances of time deposits amounted to $ 768.4 million and comprised 24.0 % of average total deposits during 2014 , compared with $ 671.1 million , or 27.0 % of average total deposits , during 2013. on a taxable-equivalent basis , net interest income for 2014 was $ 151.5 million , compared with $ 117.2 million in 2013 , an increase of $ 34.3 million , or 29.3 % . the company 's net interest margin , on a tax equivalent basis , decreased to 4.59 % for the year ended december 31 , 2014 , compared with 4.74 %
| 11,086 |
although it is influenced by housing starts to a lesser degree than the homebuilding market , the repair and remodel end market is still dependent upon some of the same factors as the homebuilding market , including demographic trends , interest rates , consumer confidence , employment rates , foreclosure rates , and the health of the economy and home financing markets . we expect that our ability to remain competitive in this space as well as grow our market share will depend on our continued ability to provide a high level of customer service coupled with a broad product offering . ● use of prefabricated components . prior to the housing downturn , homebuilders were increasingly using prefabricated components in order to realize increased efficiency and improved quality . shortening cycle time from start to completion was a key imperative of the homebuilders during periods of strong consumer demand . during the housing downturn , that trend decelerated as cycle time had less relevance . customers who traditionally used prefabricated components , for the most part , still do . however , the conversion of customers to this product offering slowed during the downturn . we are now seeing the demand for prefabricated components increase as the residential new construction market continues to strengthen and the availability of skilled construction labor remains limited . ● economic conditions . economic changes both nationally and locally in our markets impact our financial performance . the building products supply industry is highly dependent upon new home construction and subject to cyclical market changes . our operations are subject to fluctuations arising from changes in supply and demand , national and local economic conditions , labor costs , competition , government regulation , trade policies and other factors that affect the homebuilding industry such as demographic trends , interest rates , single-family housing starts , employment levels , consumer confidence , and the availability of credit to homebuilders , contractors , and homeowners . beginning in 2007 , the mortgage markets experienced substantial disruption due to increased defaults . this resulted in a stricter regulatory environment and reduced availability of mortgages for potential homebuyers due to an illiquid credit market and tighter standards to qualify for mortgages . mortgage financing and commercial credit for smaller homebuilders continue to be constrained , although there have been recent signs of easing . as the housing industry is dependent upon the economy as well as potential homebuyers ' access to mortgage financing and homebuilders ' access to commercial credit , it is likely that the housing industry will not fully recover to the historical average until conditions in the economy and the credit markets further improve . ● cost of materials . prices of wood products , which are subject to cyclical market fluctuations , may adversely impact operating income when prices rapidly rise or fall within a relatively short period of time . we purchase certain materials , including lumber products , which are then sold to customers as well as used as direct production inputs for our manufactured and prefabricated products . short-term changes in the cost of these materials , some of which are subject to significant fluctuations , are sometimes passed on to our customers , but our pricing quotation periods may limit our ability to pass on such price changes . we may also be limited in our ability to pass on increases on in-bound freight costs on our products . our inability to pass on material price increases to our customers could adversely impact our operating results . ● controlling expenses . another important aspect of our strategy is controlling costs and enhancing our status as a low-cost building materials supplier in the markets we serve . we pay close attention to managing our working capital and operating expenses . we have a “ best practices ” operating philosophy , which encourages increasing efficiency , lowering costs , improving working capital , and maximizing profitability and cash flow . we constantly analyze our workforce productivity to achieve the optimum , cost-efficient labor mix for our facilities . further , we pay careful attention to our logistics function and its effect on our shipping and handling costs . · expand into multi-family and light commercial business . our primary focus has been , and continues to be , on single-family residential new construction . however , we will continue to identify opportunities for profitable growth in the multi-family and light commercial markets . 26 · successful integration of the probuil d business : the acquisition of probuild has substantially increased the scale of our company . successfully integrating probuild will be critical to achieving our future objectives . combining our two companies may be more difficult , costly , or time consumin g than expected , which could result in the acquisition not achieving its intended results , including the expected operational synergies and cost savings . in addition , as a result of the probuild acquisition we have substantially increased indebtedness . red uction of our outstanding debt will be a key imperative as we work to achieve the intended results of the acquisition . recent developments acquisitions on february 9 , 2015 , the company acquired certain assets and the operations of timber tech texas , inc. and its affiliates ( “ timber tech ” ) for $ 5.8 million in cash ( including certain adjustments ) . timber tech is based in cibolo , texas , which is approximately 25 miles northeast of downtown san antonio . timber tech is a manufacturer of roof trusses , floor trusses , wall panels and sub-components , as well as a supplier of glue laminated timber and veneer lumber beams . on july 31 , 2015 , we acquired all of the operating affiliates of probuild through the purchase of all issued and outstanding equity interests of probuild for $ 1.63 billion in cash , subject to certain adjustments . previously headquartered in denver , colorado , probuild is one of the nation 's largest professional building materials suppliers . story_separator_special_tag we believe that the probuild acquisition will lead to greater diversification and scale , an improved geographic footprint , and significant potential cost savings . in addition , we bring to probuild significant sales expertise in value-added products , which we believe , when combined with probuild 's diverse customer base , will result in enhanced sales growth of higher margin products for the company . the probuild purchase price was funded with the net cash proceeds from ( i ) the sale of $ 700.0 million in aggregate principal amount of 10.75 % senior unsecured notes due 2023 ( “ 2023 notes ” ) , ( ii ) the entry into a new $ 600.0 million term loan credit agreement ( “ 2015 term loan ” ) , ( iii ) a $ 295.0 million draw on an amended and restated $ 800.0 million senior secured revolving credit facility ( “ 2015 facility ” ) , and ( iv ) a public offering of 9.2 million new shares of our common stock at an offering price of $ 12.80 per share , subject , in each case , to applicable discounts , commissions , fees , and expenses . the probuild and timber tech transactions were accounted for by the acquisition method , and accordingly their results of operations were included in the company 's consolidated financial statements from the respective acquisition dates . the purchase price has been allocated to the assets acquired based on estimated fair values at the acquisition date , with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill . current operating conditions and outlook though the level of housing starts remains below the historical average , the homebuilding industry has shown improvement since 2011. according to the u.s. census bureau , actual u.s. single-family housing starts for 2015 were 714,700 , an increase of 10.3 % compared to 2014. u.s single-family units under construction increased 11.1 % during this same time period . while the housing industry has strengthened over the past few years , the limited availability of credit to smaller homebuilders and potential homebuyers and the slow economic recovery , among other factors , have hampered a stronger recovery . a composite of third party sources , including the nahb , are forecasting 825,000 u.s. single-family housing starts for 2016 , which is an increase of 15.4 % from 2015. our net sales for the year ended december 31 , 2015 were up 122.2 % over the same period last year , 119.1 % of which was due to recent acquisitions , primarily the acquisition of probuild . excluding the impact of recent acquisitions , which are described in note 3 to the consolidated financial statements included in item 8 of this annual report on form 10-k , net sales increased 3.1 % . we estimate net sales increased 8.5 % due to increased volume , which was partially offset by a 5.4 % decrease due to the impact of commodity price deflation on net sales . our gross margin percentage increased by 3.0 % during the year ended december 31 , 2015 compared to the year ended december 31 , 2014. excluding the impact of the probuild acquisition , our gross margin percentage increased 1.7 % , primarily due to improved customer pricing relative to our costs and a higher mix of value-added sales . we made significant changes to our business during the downturn that have improved our operating efficiency and allowed us to better leverage our operating costs against changes in sales volume . we intend to implement similar changes in probuild 's business activities to the extent feasible . however , our selling , general and administrative expenses , as a percentage of net sales , were 22.7 % for the year ended december 31 , 2015 , a 3.6 % increase from 19.2 % in 2014. excluding probuild , selling , general , and administrative expenses were 22.0 % of net sales . the increase was primarily due to acquisition costs related to the probuild acquisition , an increase in facility closure costs associated with location consolidations , and an increase in intangible asset amortization . 27 as a result of the probuild acquisition , we have substantially increased indebtedness . as such , reduct ion of our outstanding debt is a key area of focus for the company . during the year ended december 31 , 2015 , we repaid $ 235.0 million of the original $ 295.0 million borrowed under the 2015 facility at the closing of the acquisition . in addition , we repaid $ 1.4 million on the 2015 term loan during the same period . on february 12 , 2016 , we completed separate privately negotiated note exchange transactions in which $ 218.6 million in aggregate principal amount of our 2023 notes was exchanged for $ 207.6 million in aggregate principal amount of our 7.625 % senior secured notes due 2021 ( “ 2021 notes ” ) . the 2021 notes were issued under the existing indenture dated as of may 29 , 2013. on february 29 , 2016 , we completed additional privately negotiated note exchange transactions in which $ 63.8 million in aggregate principal amount of our 2023 notes was exchanged for $ 60.0 million in aggregate principal amount of our 7.625 % senior secured notes due 2021 ( “ 2021 notes ” ) . following these transactions $ 617.6 million in aggregate principal amount of our 2021 notes and $ 417.6 million in aggregate principal amount of our 2023 notes remain outstanding . these transactions allowed the company to reduce its long-term debt by approximately $ 14.8 million and reduce its annual cash interest expense by approximately $ 10.0 million . we still believe the long-term outlook for the housing industry is positive due to growth in the underlying demographics . we feel we are well-positioned to take advantage of the construction activity in our markets and to continue to increase our market share , which may include strategic acquisitions .
| % , primarily due to improved customer pricing relative to our costs and a higher mix of value-added sales from our manufactured products categories in 2015 compared to 2014. selling , general and administrative expenses . selling , general and administrative expenses increased $ 503.9 million , or 164.1 % . excluding probuild , our selling , general , and administrative expense increased $ 68.0 million or 22.2 % . excluding probuild , our salaries and benefits expense , excluding stock compensation expense , was $ 218.4 million , an increase of $ 27.3 million from 2014 , largely due to a 6.2 % increase in full-time equivalent employees related to increased sales volume and other recent acquisitions . office general and administrative expense increased $ 31.2 million , primarily due to a $ 30.2 million increase in professional service fees largely attributable to acquisition and integration costs related to the probuild acquisition . facility closure costs increased $ 3.6 million primarily due to costs associated with location consolidations following the probuild acquisition . intangible asset amortization increased $ 1.6 million due to other recent acquisitions . delivery expense increased $ 1.7 million largely due to increased sales volume . as a percentage of net sales , selling , general and administrative expenses increased from 19.2 % in 2014 to 22.7 % in 2015. excluding probuild , selling , general and administrative expenses were 22.0 % of net sales . as a percentage of net sales , salaries and benefits expense , excluding stock compensation expense , increased 0.9 % , office general and administrative expense increased 1.7 % , facility closure costs increased 0.2 % , intangible asset amortization increased 0.1 % and delivery expenses decreased 0.1 % . the increase in selling , general and administrative expenses , as a percentage of net sales , was primarily due to the factors discussed above , and to a lesser degree , the negative impact of commodity price deflation on our net sales . interest expense , net . interest expense was $ 109.2 million in 2015 , an increase of
| 11,087 |
million , or $ 0.89 per fully diluted share , and net income attributable to common stockholders of $ 26.7 million , or $ 0.27 per fully diluted share ; executed 239 leases , representing 784,801 rentable square feet across the total portfolio , achieving a 20.2 % increase in mark-to-market rent over previously fully escalated rents on new , renewal , and expansion leases ; 181 of these leases , representing 621,224 rentable square feet , were within the manhattan office portfolio capturing a 23.4 % increase in mark-to-market rent over previously fully escalated rents on new , renewal and expansion leases ; signed 98 new leases representing 457,052 rentable square feet in 2014 for the manhattan office portfolio ( excluding the retail component of these properties ) , achieving an increase of 31.5 % in mark-to-market rent over expired previously fully escalated rents ; acquired the ground and operating leases at 112 west 34th street and the ground lease at 1400 broadway for a total of approximately $ 734 million in assumption of debt , cash , common stock and operating partnership units ; the empire state building observatory revenue grew 9.5 % to $ 111.5 million , from $ 101.8 million in 2013 ; and declared and paid aggregate dividends of $ 0.34 per share and operating partnership unit during 2014. as of december 31 , 2014 , our total portfolio , containing 10.0 million rentable square feet of office and retail space , was 88.6 % occupied . including signed leases not yet commenced , our total portfolio was 89.6 % leased at december 31 , 2014 . our manhattan area office properties were 87.5 % occupied ( or 88.5 % giving effect to leases signed but not yet commenced as of that date ) and our greater new york metropolitan area office properties were 91.1 % occupied ( or 92.9 % giving effect to leases signed but not yet commenced as of that date ) . our office properties as a whole were 88.2 % occupied ( or 89.4 % giving effect to leases signed but not yet commenced as of that date ) . our ability to increase occupancy and rental revenue at our office properties depends on the successful completion of our repositioning program as described below and market conditions . the other component of our real estate segment , retail leasing , comprises both standalone retail properties and retail space in our manhattan office properties . our retail properties , including retail space in our manhattan office properties , were 93.2 % occupied ( or 93.2 % giving effect to leases signed but not yet commenced as of that date ) as of december 31 , 2014 . the empire state building is our flagship property . the empire state building provides us with a diverse source of revenue through its office and retail leases , observatory operations and broadcasting licenses , and related leased space . during the years ended december 31 , 2014 and 2013 , respectively , we generated approximately $ 171.8 million and $ 140.1 million of revenue from the empire state building , excluding observatory operations . during the years ended december 31 , 2014 and 2013 , the observatory operations of the empire state building generated revenue of approximately $ 111.5 million and $ 101.8 million , respectively , of revenue from its observatory operations . our observatory operations is a separate accounting segment following the offering and related formation transactions . our observatory operations are subject to regular patterns of tourist activity in manhattan . during the past ten years of our annual observatory revenue , approximately 16 % to 18 % was realized in 52 the first quarter , 26.0 % to 28.0 % was realized in the second quarter , 31.0 % to 33.0 % was realized in the third quarter , and 23.0 % to 25.0 % was realized in the fourth quarter . the components of the empire state building revenue are as follows : replace_table_token_13_th from 20 02 through 2006 , we gradually gained full control of the day-to-day management of our manhattan office properties ( with the estate of leona m. helmsley previously holding certain approval rights at some of these properties as a result of its interest in the entities owning the properties ) . since then , we have been undertaking a comprehensive redevelopment and repositioning strategy of our manhattan office properties that has included the physical improvement through upgrades and modernization of , and tenant upgrades in , such properties . since we assumed full control of the day-to-day management of our manhattan office properties beginning with one grand central place in 2002 , and through december 31 , 2014 , we have invested a total of approximately $ 594.0 million ( excluding tenant improvement costs and leasing commissions ) in our manhattan office properties pursuant to this program . the $ 594.0 million includes amounts invested at our recently acquired properties , 1400 broadway and 112 west 34th street . of the $ 594.0 million invested pursuant to this program , $ 291.0 million was invested at the empire state building . we currently estimate that between $ 75.0 million and $ 115.0 million of capital is needed beyond 2014 to complete substantially the redevelopment and repositioning program at our manhattan office properties . we expect the redevelopment program at the empire state building to continue until the end of 2016 due to the size and scope of our remaining work and our desire to minimize tenant disruptions at the property . these estimates are based on our current budgets ( which do not include tenant improvement and leasing commission costs ) and are subject to change . we intend to fund these capital improvements through a combination of operating cash flow and borrowings . story_separator_special_tag these improvements , within our redevelopment and repositioning program , include restored , renovated and upgraded or new lobbies ; elevator modernization ; renovated public areas and bathrooms ; refurbished or new windows ; upgrade and standardization of retail storefront and signage ; façade restorations ; modernization of building-wide systems ; and enhanced tenant amenities . these improvements are designed to improve the overall value and attractiveness of our properties and have contributed significantly to our tenant repositioning efforts , which seek to increase our occupancy ; raise our rental rates ; increase our rentable square feet ; increase our aggregate rental revenue ; lengthen our average lease term ; increase our average lease size ; and improve our tenant credit quality . we have also aggregated smaller spaces in order to offer larger blocks of office space , including multiple floors , that are attractive to larger , higher credit-quality tenants and to offer new , pre-built suites with improved layouts . this strategy has shown what we believe to be attractive results to date , and we believe has the potential to improve our operating margins and cash flows in the future . we believe we will continue to enhance our tenant base and improve rents as our pre-redevelopment leases continue to expire and be re-leased . as of december 31 , 2014 , excluding principal amortization , we have approximately $ 44.1 million of debt maturing in 2015 and no maturities in 2016 , and we have total debt outstanding of approximately $ 1.6 billion , with a weighted average interest rate of 3.55 % and a weighted average maturity of 3.6 years and 62.2 % of which is fixed-rate indebtedness . story_separator_special_tag july 2014. marketing , general and administrative expenses marketing , general and administrative expenses decreased due to lower professional fees incurred in the year ended december 31 , 2014. professional fees in the year ended december 31 , 2013 were $ 7.7 million higher due to non-capitalizable costs associated with the consolidation and the offering . this was partially offset by 2014 private perpetual preferred exchange offering costs of $ 1.4 million , higher marketing expenses of $ 1.0 million and higher corporate-related expenses in 2014. observatory expenses observatory expenses increased by $ 23.4 million and is attributable to the acquisition of the observatory operations from the non-controlled entity empire state building company , l.l.c. , upon the completion of the offering and related formation transactions on october 7 , 2013 , and the operations of the observatory are now included in our consolidated results . on a non-consolidated basis , observatory expenses increased $ 4.7 million due to higher audio tour payroll and higher advertising and legal expenses . construction expenses the construction expenses increase correlates with the increase in the new construction projects as noted above in construction revenue . real estate taxes the increase in real estate taxes is primarily attributable to the acquisition of the four non-controlled properties upon the completion of the offering and related formation transactions on october 7 , 2013 , which increased real estate taxes by 55 $ 33.9 million and by the acquisition of two properties during july 2014 which increased real estate taxes by $ 5.1 million . remaining increase is primarily due to higher assessments or tax rates , or both , at the existing properties . acquisition and formation transaction expenses acquisition and formation transaction expenses decreased by $ 139.3 million due to the completion of the formation transactions in 2013. acquisition expenses in 2014 are related to the acquisition of the option properties . depreciation and amortization the increase in depreciation and amortization is primarily attributable to the acquisition of the four non-controlled properties upon the completion of the offering and related formation transactions on october 7 , 2013 , which increased depreciation and amortization by $ 58.9 million and by the acquisition of two properties during july 2014 which increased depreciation and amortization by $ 19.8 million . interest expense interest expense increased due to higher principal balances as a result of the acquisition of the non-controlled properties upon completion of the offering and related formation transaction on october 7 , 2013 , the acquisition of the option properties during july 2014 , the issuance of senior unsecured notes in august 2014 and capital expenditures related to leasing costs and our renovation and redevelopment programs . the costs of the higher principal balances were offset by our ability to refinance debt at lower interest rates and lower interest costs . interest expense for the year ended december 31 , 2014 included $ 3.8 million for prepayment penalties and deferred finance cost write-off related to the early refinancing of the metro center mortgage loan . settlement expense settlement expense of $ 55.0 million reflects costs associated with the settlement of litigation during the year ended december 31 , 2013. on september 28 , 2012 , a stipulation of settlement resolving the original class actions was entered into . the terms of the settlement included , amongst other things , a payment of $ 55.0 million , with a minimum of 80 % in cash and a maximum of 20 % in freely-tradable shares of common stock and or operating partnership units . as the payment was fully made by the principal owners of certain predecessor entities , $ 55.0 million was recorded as settlement expense in our predecessor 's statement of operations , with a corresponding $ 55.0 million capital contribution to our predecessor at that time . gain on consolidation of non-controlled entities the gain on consolidation of non-controlled entities in 2013 reflects gains associated with the acquisition of the four non-controlled properties upon the completion of the offering and related formation transactions on october 7 , 2013. the gain is primarily a result of the fair value exceeding the book value of our predecessor ownership interests in the four non-controlled entities plus the elimination of the intercompany ground and building leases .
| 54 observatory revenue observatory revenue increased by $ 87.8 million and is attributable to the acquisition of the observatory operations from the non-controlled entity empire state building company , l.l.c. , upon the completion of the offering and related formation transactions on october 7 , 2013 , and the operations of the observatory are now included in our consolidated results . on a non-consolidated basis , observatory revenue increased $ 9.7 million due to higher ticket prices . construction revenue the increase in construction revenue is attributable to a larger volume of significant construction projects during the year ended december 31 , 2014 compared to the year ended december 31 , 2013. the increase in the number of projects is primarily due to the timing of the short duration projects . third-party management and other fees the decrease in third party management and other fees revenue is primarily due to acquisition of the four non-controlled entities upon completion of the offering and related formation transactions on october 7 , 2013 and of 1400 broadway and 112 west 34th street , the two option properties , on july 15 , 2014 and the subsequent elimination of fees due to consolidation of these properties . other revenues and fees the decrease in other revenues and fees was primarily due to 2013 income received as a voluntary reimbursement of legal expenses previously incurred which was partially offset by higher lease cancellation income earned in 2014. property operating expenses the increase in property operating expenses is primarily attributable to the acquisition of the four non-controlled properties upon the completion of the offering and related formation transactions on october 7 , 2013 , which increased property operating expenses by $ 67.2 million and by the acquisition of two properties during july 2014 which increased property operating expenses by $ 7.2 million . ground rent expenses ground rent expenses include $ 1.3 million from the acquisition of one of the non-controlled properties upon completion of the offering and related formation transactions on october 7 , 2013 and $ 3.6 million of ground rent expenses from the two properties acquired during
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it also features an easy-to-navigate software architecture , a vivid color touchscreen and a micro-usb connection that supports a rechargeable battery , software updates through the tandem device updater , and uploads to t : connect diabetes ma nagement application , or t : connect . t : connect is our custom cloud-based data management application that provides customers and healthcare providers a fast , easy and visual way to display therapy management data from the pump and supported blood glucose me ters . o ur next generation pump , t : slim x2 , also features an advanced bluetooth radio capable of communicating with multiple compatible devices . we have rapidly increased sales since our commercial launch by expanding our sales , clinical and marketing infrastructure , by developing , commercializing and marketing multiple differentiated products that utilize our technology platform and consumer-focused approach , and by providing strong customer support . we believe that by demonstrating our product benefits and the shortcomings of existing insulin therapies , more people will choose our insulin pumps for their therapy needs , allowing us to further penetrate and expand the market . we also believe we are well positioned to address consumers ' needs and preferences with our current products and products under development and by offering customers a pathway to our future innovations through the tandem device updater as they are approved by the fda . products under development our products under development support our strategy to focus on both consumer and clinical needs . we intend to leverage our consumer-focused approach and proprietary technology platform to continue to develop products that have the features and functionality that will allow us to target people in different segments of the insulin-dependent diabetes market . our current products under development include : t : slim x2 with g5 integration , which will feature the display of dexcom g5 cgm sensor information directly on the pump home screen ; t : slim x2 with plgs , our first generation aid system is expected to include a predictive low glucose suspend , or plgs , algorithm ; t : slim x2 with typezero , our second generation aid system is expected to integrate t : slim x2 with technology that we licensed from typezero ; and t : sport insulin delivery system will be half the size of t : slim and is being designed for people who seek even greater discretion and flexibility with the use of their insulin pump . for additional information , see the section of this annual report under the caption “ business ” in part i , item 1. pump shipments since inception , we have derived nearly all of our sales from the shipment of insulin pumps and associated supplies in the united states . we consider the number of units shipped per quarter to be an important metric for managing our business . we have shipped over 50,000 insulin pumps since the initiation of our commercial efforts in 2012. pump shipments are broken down by product and by fiscal quarter as follows : 70 replace_table_token_4_th ( 1 ) this table does not reflect returns or exchanges of pump products that occur in the ordinary course of business . ( 2 ) this table does not reflect the impact of 1,413 trade-ins made under the technology upgrade program ( discussed below ) related to our commercial launch of t : slim x2 . ( 3 ) the decrease in t : slim g4 shipments coincided with our commercial launch of t : slim x2 . technology upgrade program in the third quarter of 2016 , we launched a technology upgrade program that provides eligible t : slim and t : slim g4 customers a path towards ownership of t : slim x2 by providing customers the right to exchange their t : slim or t : slim g4 for t : slim x2 , under a variable pricing structure . the technology upgrade program expires on september 30 , 2017. due to the high degree of accounting complexity , the technology upgrade program has created , and will continue to create , unpredictable financial results under united states generally accepted accounting principles , or gaap , for the duration of the program . the accounting treatment for this program requires the deferral of up to 100 % of sales and cost of sales for shipments of eligible pumps beginning in the third quarter of 2016. we have determined that , from an accounting perspective , the opportunity for a customer to trade a t : slim or t : slim g4 in exchange for a t : slim x2 represents either a right of return or a guarantee at the time of the initial product purchase . because we have not offered an upgrade program in the past , we do not have sufficient history with similar upgrade programs to estimate the number of customers that will participate . as a result , sales and cost of sales for all eligible t : slim and t : slim g4 shipments are subject to deferral . the amount of sales and cost of sales deferred varies based on a number of factors , including the model of pump involved and the timing of the initial sales relative to the availability of certain future products . 71 we expect to recognize the deferred amount of sales and cost of sales at the earlier of when the obligations under the technology upgrade program are satisfied or when the program expires . if a customer elects to participate in the technology upgrade p rogram , we will recognize upgrade fees that we receive , if any , and the associated costs at the time of fulfilling the given obligation . at this time , we are not able to estimate when we will recognize deferred sales or cost of sales as a result of the tec hnology upgrade program , nor are we able to estimate the amount of upgrade fees or associated costs for a customer 's election to participate in the technology upgrade program . story_separator_special_tag in general , the deferrals required by the technology upgrade program may have th e effect of initially decreasing our gaap sales even where the number of our pump shipments increases . historical financial results for the years ended december 31 , 2016 , 2015 and 2014 , our sales were $ 84.2 million , $ 72.9 million and $ 49.7 million , respectively . for the year ended december 31 , 2016 , we recorded net sales deferrals of $ 4.3 million and recognized net additional $ 0.3 million in cost of sales as a result of the technology upgrade program . for the years ended december 31 , 2016 , 2015 and 2014 , our net loss was $ 83.4 million , $ 72.4 million and $ 79.5 million , respectively . our accumulated deficit as of december 31 , 2016 was $ 404.6 million . trends impacting financial results overall , we have experienced considerable sales growth since the commercial launch of t : slim in the third quarter of 2012 , while incurring operating losses since our inception . our operating results fluctuate on a quarterly or annual basis , particularly in the periods surrounding anticipated and actual regulatory approvals , and initial stages of commercialization of our new products and those of our competitors . these fluctuations have been , and may continue to be , more pronounced since the commencement of the technology upgrade program . prior to 2016 , we experienced sequential growth of sales in each quarter from the first quarter to the fourth quarter , and sequential sales from the fourth quarter to the following first quarter decreased . in 2016 , we did not experience our historical sales growth in the second half of the year compared to the first half of the year . we believe that the timing of the commercial launch of t : slim x2 , as well as the launch and regulatory approval of competitive products , impacted our quarterly pump shipments during the six months ended december 31 , 2016. in particular , in the period leading up to the commercial launch of t : slim x2 , we believe there was an increasing number of potential customers who delayed their purchasing decision until they could include t : slim x2 in their decision-making process . in addition , pump shipments were impacted by a decision by unitedhealthcare that restricted a majority of their members from accessing our pumps . we expect our financial results will fluctuate on a quarterly or annual basis in the future due to a variety of factors , including the impact of : market acceptance of our products , and the timing of the sale of our products ; seasonality associated with summer vacations , annual deductibles and coinsurance requirements associated with most medical insurance plans utilized by our individual customers and the individual customers of our distributors ; the buying patterns of our distributors and other customers ; the timing of the commercialization of new products by us or our competitors ; reimbursement decisions by third-party payors ; the size and timing of any changes to our infrastructure ; anticipated and actual regulatory approvals of new products ; and our technology upgrade program and its related financial and accounting impact . in particular , in 2017 , we expect the combined effect of the timing of our launch of dexcom g5 sensor integration with t : slim x2 , the increasing productivity of our existing sales force , and our expectation that customers will largely return to their historical decision making patterns will once again result in our sales being heavily weighted towards the second half of the year . 72 on the date our financial statements for the year ended december 31 , 2016 were issued , we did not have sufficient cash to fund our operations through december 31 , 2017 without additional financing , and therefore , we concluded there was substantial doubt about our ability to continue as a going concern within one year after the date the financial statements were issued . as a result , the audit report and opinion of our independent registered public accounting firm contained in our financial statements for the year ended december 31 , 2016 includes an explanatory paragraph that describes conditions that raise substantial doubt about our ability to continue as a going concern . third party reimbursement a substantial portion of the purchase price of an insulin pump is typically paid for by third-party payors , including private insurance companies , preferred provider organizations and other managed care providers . access to adequate coverage and reimbursement for our current and future products by third-party payors is essential to the acceptance of our products by customers . future sales of our current and future products will be limited unless our customers can rely on third-party payors to pay for all or part of the associated purchase cost . for example , effective july 1 , 2016 , unitedhealthcare designated one of our competitors as their preferred , in-network durable medical equipment provider of insulin pumps for most customers over the age of 18. we believe this decision has and will continue to prevent a majority of unitedhealthcare members from purchasing an insulin pump from us for the foreseeable future . however , in most other circumstances in which we do not have contracts established with third-party payors , we utilize our network of national and regional distributors to service our customers . leverage from technology platform we believe we can ultimately achieve profitability because our proprietary technology platform will allow us to maximize efficiencies in the development , production , sale and marketing of multiple differentiated products . by offering products that are all based on our proprietary technology platform , in combination with the flexibility provided by our recently-approved tandem device updater , we believe we can develop and bring to market products and functionality more rapidly , while significantly reducing our per-unit design and development costs .
| our cost of sales in 2016 was $ 60.7 million , resulting in gross profit of $ 23.6 million , compared to $ 46.3 million cost of sales and gross profit of $ 26.6 million in 2015. the gross margin in 2016 was 28 % , compared to 36 % in 2015. the decrease in gross profit was primarily due to a net $ 4.6 million reduction in gross profit as a result of the deferral of sales due to the technology upgrade program . during 2016 , in conjunction with the technology upgrade program , we recorded net sales deferrals of $ 4.3 million , net deferrals of $ 0.8 million in cost of sales and recognized $ 1.1 million of incremental cost of sales for the upgrade of 1,413 pumps to t : slim x2 . the net reduction of gross profit associated with the technology upgrade program negatively affected our gross margin for 2016 by four percentage points . in addition , we recorded a $ 2.8 million charge for inventory excess and obsolescence as the result of the commercialization of t : slim x2 , the launch of the technology upgrade program and the larger than anticipated decrease in t : slim g4 sales in the second half of the year . for the first and second quarters in the year ended december 31 , 2016 , t : slim g4 shipments as a percentage of total pump shipments were 60 % and 57 % , respectively . by comparison , in the third and fourth quarters of the same year t : slim g4 shipments as a percentage of total pump shipments decreased to 40 % and 7 % , respectively . this inventory excess and obsolescence charge negatively affected our gross margin for 2016 by three percentage points . the remaining decrease in gross margin was primarily due to an increase in warranty and other non-manufacturing costs , such as freight , training , and royalty costs , as a percentage of sales . the gross margin was further impacted by an increase in
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in anticipation of the completion of our glycerin refining unit , in 2011 we purchased refined glycerin and resold it into the india domestic market to begin developing a customer base . in addition , we have begun to develop a base of industrial customers who use fatty acid methyl ester ( biodiesel ) as a specialty chemical for commercial manufacturing . 19 north america segment revenue substantially all of our north america revenues during the period covered by this report were from sales of ethanol and wdg . during the twelve months ended december 31 , 2011 , we produced and sold 37,388,849 gallons of ethanol and 273,533 tons of wdg compared to none during the twelve months ended december 31 , 2010. cost of goods sold substantially all of our corn is procured by j.d . heiskell . our cost of corn includes rail transportation , local basis costs and a handling fee paid to j.d . heiskell . cost of goods sold also includes chemicals , plant overhead and out bound transportation . plant overhead includes direct and indirect costs associated with the operation of the ethanol plant , including the cost of electricity and natural gas , maintenance , insurance , rental , direct labor , depreciation and freight . transportation includes the costs of in-bound delivery of corn by rail and out-bound shipments of ethanol and wet distillers grain by truck . in 2011 , transportation cost for ethanol and wdg was approximately $ 0.09 per gallon . pursuant to a corn procurement and working capital agreement with j.d . heiskell , we purchase all of our corn from heiskell . title to the corn passes to us when the corn is deposited into the weigh bin and entered into the production process . the credit terms of the corn purchased from j.d . heiskell is five days . j.d . heiskell purchases our ethanol and wdg on one-day terms . the price of corn is established by j.d heiskell based on chicago board of trade ( cbot ) pricing including transportation and basis , plus a handling fee . we establish pricing for wdg and ethanol pursuant to marketing agreements with kinergy and a.l . gilbert . ethanol prices are based on daily opis published rates , while the price of wdg is based on a percentage of dry distiller grains and corn prices . j.d . heiskell is contractually obligated to sell all of the ethanol to kinergy marketing llc who in turn sells the ethanol to local blenders and all of the wdg to a.l gilbert who in turn sells the wdg to local dairies and feedlots . sales , marketing and general administrative expenses ( sg & a ) sg & a expenses consist of employee compensation , professional services , travel , depreciation , taxes , insurance , rent and utilities , including license and permit fees , penalties and interest , and sales and marketing fees . our single largest expense is employee compensation , including related stock compensation , followed by sales and marketing fees paid in connection with the marketing and sale of ethanol and wdg . in october 2010 we entered into an exclusive marketing agreement with kinergy marketing llc to market and sell our ethanol and an agreement with a.l . gilbert to market and sell our wdg . the agreements expire on august 31 , 2013 and december 31 , 2012 , respectively , and are automatically renewed for additional one-year terms . pursuant to these agreements , our marketing costs for ethanol and wdg are approximately 2 % of sales . research and development expenses ( r & d ) in 2010 , substantially all of our r & d expenses were related to the operation of our integrated cellulose and starch ethanol commercial demonstration facility in butte , mt . in 2011 , substantially all of our r & d expenses were attributable to our industrial biotechnology research team in maryland acquired in july 2011 as a result of the acquisition of zymetis , inc. and for the operation and subsequent closing of our facility in butte , mt . in 2011 , certain costs related to establishing a demonstration plant in keyes , ca were included as well . 20 india segment revenue substantially all of our india segment revenues during the period covered by this report were from sales of biodiesel and glycerin . during the twelve months ended december 31 , 2011 , we sold 8,636 metric tons of biodiesel and 772 metric tons of refined glycerin compared to 7,598 metric tons of biodiesel and 1,046 tons of crude glycerin during the twelve months ended december 31 , 2010. in 2011 , we purchased 1,000 metric tons of refined glycerin of which 772 metric tons were resold in 2011 to develop a market for refined glycerin in advance of the completion of our glycerin refining unit . during the latter part of 2010 and into the early months of 2011 , nrpo prices increased to the point where biodiesel production was uneconomical . as a result , we resold the feedstock we held in inventory rather than producing biodiesel . cost of goods sold cost of goods sold consists primarily of feedstock oil , chemicals , direct costs ( principally labor and labor related costs ) , and factory overhead . depending upon the costs of these inputs in comparison to the sales price of biodiesel and glycerin , our gross margins may vary from positive to negative . factory overhead includes direct and indirect costs associated with the plant , including the cost of repairs and maintenance , consumables , maintenance , on-site security , insurance , depreciation and inbound freight . we purchase nrpo , a non-edible feedstock , for our biodiesel unit from neighboring natural oil processing plants at a discount to refined palm oil . nrpo is received by truck and title passes when the nrpois received at our facility . credit terms vary by vendor ; however , we generally receive 15 days of credit on the purchases . story_separator_special_tag we purchase crude glycerin in the international market on letters of credit or advance payment terms . sales , marketing and general administrative expenses ( sg & a ) sg & a expenses consist of employee compensation , professional services , travel , depreciation , taxes , insurance , rent and utilities , including licenses and permits , penalties , and sales and marketing fees . pursuant to an operating agreement with secunderabad oils limited , we receive operational support and working capital . we compensate secunderabad oils limited with a percentage of the profits and losses generated from operations . payments of interest are identified as interest income while payments of profit and losses are identified as compensation for the operational support component of this agreement . we therefore include the portion of profit or losses paid to secunderabad oils limited as a component of sg & a and our sg & a component will vary based on the profits earned by operations . in addition , we market our biodiesel and glycerin through our internal sales staff , commissioned agents and brokers . commissions paid to agents are included as a component of sg & a . research and development expenses ( r & d ) our india segment has no research and development activities . 21 results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 revenues our revenues are derived primarily from sales of ethanol and wdg in north america and biodiesel and glycerin in india . replace_table_token_4_th north america . the increase in revenues in the north america segment for the year ended december 31 , 2011 reflects the operation of the keyes , ca plant beginning april 2011. we generated 82 % of revenue from sales of ethanol and 18 % of revenue from sales of wdg . for the eight months of operations in 2011 plant production averaged 101 % of nameplate capacity . india . the increase in revenues in the india segment for the year ended december 31 , 2011 reflects ( i ) an increase in the amount of biodiesel produced and sold as a result of two large international sales ( $ 6.8 million ) in the second half of the year , ( ii ) the resale of feedstock inventory ( $ 602,590 ) ; and ( iii ) the resale of refined glycerin ( $ 607,145 ) . cost of goods sold replace_table_token_5_th north america . the increase in costs of goods sold in the north america segment for the year ended december 31 , 2011 reflects the operation of the keyes , ca plant beginning in april 2011. for the year ended december 31 , 2011 , we ground 380,774 tons of corn . india . the increase in costs of goods sold in the india segment is primarily attributable to an increase in production in the second half of 2011. for the year ended december 31 , 2011 , we processed 9,302 metric tons of nrpo . operating expenses r & d replace_table_token_6_th 22 the increase in r & d in our north america segment in 2011 reflects the costs of acquiring and operating our research and development facility in college park , maryland . sg & a replace_table_token_7_th north america . the increase in sg & a in the year ended december 31 , 2011 was primarily attributable to ( i ) an increase in compensation expense related to an increase in management and administrative personnel at the keyes plant ; and ( ii ) an increase in ethanol and wdg sales and marketing expenses . compensation expense rose from approximately $ 1.1 million for the year ended december 31 , 2010 to approximately $ 2.7 million for the year ended december 31 , 2011. the number of management and administrative employees at our keyes plant rose during the two-year period as we were hiring plant personnel late in the year of 2010 and for the first two months of 2011 , while having the full complement of employees during the balance of the fiscal year of 2011. in addition , retrofit and restart costs in the amount of approximately $ 3.0 million were charged to sg & a . marketing fees of approximately $ 2.0 million were incurred during the year ended december 31 , 2011 in connection with sales of ethanol and wdg . india . our single largest expense in sg & a is the operational support fees paid to secunderabad oils limited . these fees are computed as a percentage of operating profits . for the years ended december 31 , 2011 and 2010 , we incurred approximately $ 115,000 and $ 135,000 , respectively in operational support fees . other . resources associated with the biofuels marketing subsidiary were reassigned to other segments during 2010 resulting in a decrease in other sg & a . other income/expense other income ( expense ) consisted of the following items : ● interest expense is attributable to debt facilities acquired by our parent company , our subsidiaries universal biofuels pvt . ltd. , international biofuels , inc. , ae advanced fuels keyes , inc. and interest accrued on the complaint filed by cordillera fund , l.p. these debt facilities included revenue participation fees , warrants issued as fees and the payment of other fees and discount fees , which are amortized as part of interest expense . currently , the debt facility for universal biofuels pvt . ltd. accrues interest at the default rate of interest . we incurred interest expense of approximately $ 13.6 million for the twelve months ended december 31 , 2011 ( $ 4.0 million from india loans and $ 9.6 million from north america loans ) compared to $ 4.0 million for the twelve months ended december 31 , 2010 ( $ 1.8 million from india loans and $ 2.2 million from north america loans ) . we capitalized interest in the amount of approximately $ 185,000 and $ 54,000 , respectively , during the twelve months ended december 31 , 2011 and 2010 .
| during the six months ended june 30 , 2011 and 2010 , we processed 1,284 and 4,761 metric tons of nrpo , respectively . the high cost of nrpo caused us to cease production from february to july 2011 . 37 operating expenses replace_table_token_26_th r & d . we made minimal expenditures on r & d during the six months ended june 30 , 2011 as we were moving our equipment from our commercial demonstration facility in butte , mt into storage . in comparison , our principal area of spending for r & d during the six months ended june 30 , 2010 was our integrated cellulose and starch ethanol commercial demonstration facility in butte , mt . we incurred expenses of $ 110,000 during the six months ended june 30 , 2010 , from operating the commercial demonstration facility . during the six months ended june 30 , 2011 we incurred charges of $ 56,000 related to disposal of equipment from the disassembly and storage of our facility in butte , mt . sg & a north america . the increase in sg & a in the six months ended june 30 , 2011 compared to 2010 was primarily attributable to ( i ) an increase in compensation expense related to in the addition of management and administrative personnel at the keyes plant ; and ( ii ) an increase in ethanol and wdg sales and marketing expenses . compensation expense rose from approximately $ 151,000 for the six months ended june 30 , 2010 to approximately $ 1.4 million for the six months ended june 30 , 2011. marketing fees of approximately $ 447,000 were incurred during the six months ended june 30 , 2011 in connection with sales of ethanol and wdg . india . the increase in sg & a for the six months ending june 30 , 2011 resulted from a reclassification of excess overhead cost to sg & a for a period when there were minimal sales and personnel focused on maintenance and administrative tasks . our single largest expense in
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21 to sustain our growth in 2014 and beyond , we believe we must continue to offer imaging technology for mobile applications that address a growing market for mobile banking and mobile imaging solutions sold into other vertical markets . factors adversely affecting the pricing of or demand for our mobile applications , such as competition from other products or technologies , any decline in the demand for mobile applications , or negative publicity or obsolescence of the software environments in which our products operate , could result in lower revenues or gross margins . further , because most of our revenues are from a single type of technology , our product concentration may make us especially vulnerable to market demand and competition from other technologies , which could reduce our revenues . the implementation cycles for our software and services by our channel partners and customers can be lengthy , often a minimum of three to six months and sometimes longer for larger customers , and require significant investments . for example , as of september 30 , 2013 , we executed agreements indirectly through channel partners or directly with customers covering 1,420 mobile deposit ® customers , 805 of whom have completed implementation and launched mobile deposit ® to their customers . if implementation of our products by our channel partners and customers is delayed or otherwise not completed , our business , financial condition and results of operations may be adversely affected . we derive revenue predominately from the sale of licenses to use the products covered by our patented technologies , such as our mobile deposit ® product , and to a lesser extent by providing maintenance and professional services for the products we offer . the revenue we derive from the sale of such licenses is primarily derived from the sale to our channel partners of licenses to sell the applications we offer . revenues related to most of our licenses for mobile products are required to be recognized up front upon satisfaction of all applicable revenue recognition criteria . the recognition of future revenues from these licenses is dependent upon a number of factors , including , but not limited to , the term of our license agreements , the timing of implementation of our products by our channel partners and customers and the timing of any re-orders of additional licenses and or license renewals by our channel partners and customers . during each of the last few years , sales of licenses to one or more channel partners have comprised a significant part of our revenue each year . this is attributable to the timing of renewals or purchases a license and does not represent a dependence on any channel partner . if we were to lose a channel partner relationship , we do not believe such a loss would adversely affect our operations because either we or another channel partner could sell our products to the end-user that purchased products from the channel partner we lost . however , in that case , we or another channel partner must establish a relationship with the end-users , which could take time to develop , if it develops at all . we have numerous competitors in the mobile payments industry , many of which have greater financial , technical , marketing and other resources than we do . however , we believe our patented imaging and analytics technology , our growing portfolio of products for the financial services industry and our position as a pure play mobile payments company provides us with a competitive advantage . to remain competitive , we must be able to continue to offer products that are attractive to the ultimate end-user and that are secure , accurate and convenient . we intend to continue to further strengthen our portfolio of products through research and development to help us remain competitive . we may have difficulty adapting to changing market conditions and developing enhancements to our software applications on a timely basis in order to maintain our competitive advantage . our continued growth will ultimately depend upon our ability to develop additional applications and attract strategic alliances to sell such technologies . 22 results of operations comparison of the year ended september 30 , 2013 and 2012 the following table summarizes certain aspects of our results of operations for the year ended september 30 , 2013 compared to the year ended september 30 , 2012 ( in thousands , except percentages ) : replace_table_token_4_th revenue total revenue increased $ 5,710,502 , or 63 % , to $ 14,803,185 in 2013 compared to $ 9,092,683 in 2012. the increase was primarily due to an increase in sales of software licenses of $ 4,330,144 , or 68 % , to $ 10,716,505 in 2013 compared to $ 6,386,361 in 2012. the increase in software license revenue primarily relates to increases in sales of our mobile deposit ® product due to an increase in the number of large software licenses purchased by partners and customers and the timing of license renewals in 2013 compared to 2012. maintenance and professional services revenue increased $ 1,380,358 , or 51 % , to $ 4,086,680 in 2013 compared to $ 2,706,322 in 2012 primarily due to the sale of additional software license arrangements , which typically include recurring maintenance contracts . cost of revenue cost of revenue includes the costs of royalties for third party products embedded in our products , the cost of reproduction of compact discs and other media devices and shipping costs , and personnel costs related to software support and billable professional services engagements . cost of revenue increased $ 339,679 , or 27 % , to $ 1,603,599 in 2013 compared to $ 1,263,920 in 2012. the increase in cost of revenue is primarily due to the increase in revenue and increased professional services activity on billable engagements . story_separator_special_tag as a percentage of revenue , cost of revenue decreased to 11 % in 2013 compared to 14 % in 2012 primarily due to a larger mix of higher margin mobile products . selling and marketing expenses selling and marketing expenses include payroll , employee benefits and other headcount-related costs associated with sales and marketing personnel , non-billable time for professional services personnel and advertising , promotions , trade shows , seminars and other programs . selling and marketing expenses increased 23 $ 2,402,394 , or 70 % , to $ 5,852,448 in 2013 compared to $ 3,450,054 in 2012. as a percentage of revenue , selling and marketing expenses increased to 40 % in 2013 compared to 38 % in 2012. the increase is primarily due to increased personnel-related costs , including stock-based and other incentive compensation expense and recruiting costs , totaling $ 2,026,832 related to an increase in headcount associated with the growth of our business , as well as increased travel expenses of $ 199,085 and depreciation of $ 69,349. research and development expenses research and development expenses include payroll , employee benefits , consultant expenses and other headcount-related costs associated with software engineering , mobile imaging science , and product management and support . these costs are incurred to develop new software products and to maintain and enhance existing products . we retain what we believe to be sufficient staff to sustain our existing product lines and develop new , feature-rich products . we also employ research personnel , whose efforts are instrumental in ensuring product development from current technologies to anticipated future generations of products within our markets . research and development expenses increased $ 129,382 , or 2 % , to $ 6,793,412 in 2013 compared to $ 6,664,030 in 2012. the increase is primarily due to higher personnel-related costs , including stock-based and other incentive compensation expense and recruiting costs , totaling $ 378,201 related to an increase in headcount associated with the growth of our business , partially offset by a decrease in outside contract services of $ 278,350. as a percentage of revenue , research and development expenses decreased to 46 % in 2013 , compared to 73 % in 2012 , primarily due to the increase in revenue . general and administrative expenses general and administrative expenses include payroll , employee benefits , and other headcount-related costs associated with finance , administration and information technology , as well as legal , accounting , and other administrative fees . general and administrative expenses increased $ 2,257,421 , or 40 % , to $ 7,853,264 in 2013 compared to $ 5,595,843 in 2012. the increase is primarily due to an increase in legal fees of $ 1,711,461 related to intellectual property litigation and patent prosecution activity , as well as increased personnel-related costs of $ 562,702 , including stock-based and other incentive compensation expenses related to an increase in headcount associated with the growth of our business . as a percentage of revenue , general and administrative expenses decreased to 53 % in 2013 compared to 62 % in 2012 , primarily due to the increase in revenue . other income ( expense ) , net interest and other expense , net was $ 6,862 in 2013 compared to $ 7,224 in 2012 , a decrease of $ 362 , or 5 % , primarily related to capital lease interest . interest income was $ 31,770 in 2013 compared to $ 44,384 in 2012 , a decrease of $ 12,614 , or 28 % , due to lower cash balances prior to the offering and a decrease in investment returns during 2013 . 24 story_separator_special_tag compensation expense , accretion and amortization on debt securities , and depreciation and amortization totaling $ 2,599,858 , $ 261,398 and $ 231,981 , respectively . these changes in cash used in operating activities were partially offset by a decrease in accounts receivable of $ 1,862,555 associated with decreased sales and the timing of customer billings and receipt of payments and an increase in deferred revenue of $ 758,855. net cash provided by investing activities net cash provided by investing activities was $ 570,888 during fiscal 2013 , which consisted of $ 6,090,734 related to the sale and maturity of investments , partially offset by investments of $ 4,058,975 , and $ 1,460,871 related to the purchase and sale of property and equipment . during fiscal 2012 , net cash provided by investing activities was $ 2,107,767 , which consisted of $ 14,635,005 related to the sale and maturity of investments , partially offset by investments of $ 12,187,523 , and $ 339,715 related to the purchase of property and equipment . net cash provided by financing activities net cash provided by financing activities was $ 16,636,539 during fiscal 2013 , which included net proceeds of $ 16,004,797 from the offering and net proceeds of $ 648,656 from the exercise of stock options , partially offset by principal payments on capital lease obligations of $ 16,914. during fiscal 2012 , net cash provided by financing activities was $ 717,371 , which included net proceeds of $ 732,287 from the exercise of stock options partially offset by principal payments on capital lease obligations of $ 14,916. other liquidity matters on september 30 , 2013 , we had investments of $ 5,730,872 , designated as available-for-sale marketable securities , which consisted of commercial paper and corporate issuances , carried at fair value as determined by quoted market prices for identical or similar assets , with unrealized gains and losses , net of tax , and reported as a separate component of stockholders ' equity . all securities whose maturity or sale is expected within one year are classified as current on the balance sheet . all other securities are classified as long-term on the balance sheet . at september 30 , 2013 , all of our available-for-sale securities were classified as current .
| selling and marketing expenses selling and marketing expenses increased $ 1,039,343 , or 43 % , to $ 3,450,054 in 2012 compared to $ 2,410,711 in 2011. as a percentage of revenue , selling and marketing expenses increased to 38 % in 2012 compared to 23 % in 2011. the increase is primarily due to increased personnel-related costs , including stock-based and other incentive compensation expense , totaling $ 482,024 related to an increase in headcount associated with the growth of our business , as well as increased marketing program expenses totaling $ 411,109 . 25 research and development expenses research and development expenses increased $ 3,667,921 , or 122 % , to $ 6,664,030 in 2012 compared to $ 2,996,109 in 2011. as a percentage of revenue , research and development expenses increased to 73 % in 2012 compared to 29 % in 2011.the increase is primarily due to higher personnel-related costs , including stock-based and other incentive compensation expense , totaling $ 2,671,638 related to an increase in headcount associated with the growth of our business , as well as an increase in outside contract services of $ 961,020. general and administrative expenses general and administrative expenses increased $ 2,164,820 , or 63 % , to $ 5,595,843 in 2012 compared to $ 3,431,023 in 2011. as a percentage of revenue , general and administrative expenses increased to 62 % in 2012 compared to 33 % in 2011. the increase is primarily due to increased personnel-related costs , including stock-based and other incentive compensation expenses , totaling $ 1,254,414 related to an increase in headcount associated with the growth of our business , and an increase in legal fees of $ 747,133 related to intellectual property litigation and patent prosecution activity . other income ( expense ) , net interest and other expense , net was $ 7,224 in 2012 compared to $ 389,494 in 2011 , a decrease of $ 382,270 , or 98 % . during 2011 , we incurred expenses associated with the accretion of the discount on our convertible debentures and accrued interest on the principal amount of those convertible debentures , including the remaining unamortized discount of $ 319,836 related to the beneficial conversion feature at the time of the conversion of the debentures . these expenses did not recur in 2012. interest income was $ 44,384 in 2012
| 11,091 |
29 white mountains 's portfolio of common equity securities and other long-term investments returned -3.6 % for 2018 , outperforming the s & p 500 index return of -4.4 % , driven primarily by a favorable fair value adjustment to white mountains 's investment in passportcard/davidshield and strong private equity fund returns , partially offset by weak returns from the non-u.s. actively managed common equity portfolios . white mountains 's portfolio of common equity securities and other long-term investments returned 12.7 % for 2017 , underperforming the s & p 500 index returns of 21.8 % , driven primarily by losses from foreign currency forward contracts and unconsolidated entities . white mountains 's fixed income portfolio returned 1.2 % for 2018 , outperforming the bloomberg barclays u.s. intermediate aggregate index return of 0.9 % . white mountains 's fixed income portfolio returned 3.5 % for 2017 , outperforming the bloomberg barclays u.s. intermediate aggregate index return of 2.3 % . overview—year ended december 31 , 2017 versus year ended december 31 , 2016 white mountains ended 2017 with book value per share of $ 931 and adjusted book value per share of $ 915 , an increase of 18.8 % and 16.1 % for the year , including dividends . the increases were driven primarily by the gain from the onebeacon transaction . comprehensive income attributable to common shareholders increased to $ 631 million in 2017 , compared to $ 547 million in 2016. comprehensive income attributable to common shareholders in both 2017 and 2016 was driven primarily by large transaction gains . in 2017 , onebeacon was acquired by intact financial corporation in an all-cash transaction for $ 18.10 per share , from which white mountains received $ 1.3 billion in proceeds and recorded a net gain of $ 557 million . in 2016 , white mountains recorded net gains of $ 477 million and $ 82 million from the sales of sirius group and tranzact . see note 2 — “ significant transactions ” on page f-16 for a description of each transaction . for the year ended december 31 , 2017 , white mountains repurchased and retired 832,725 of its common shares for $ 724 million at an average share price of $ 869.29. the average share price paid was approximately 93 % and 95 % , respectively , of white mountains 's december 31 , 2017 book value per share and adjusted book value per share . for the year ended december 31 , 2017 , white mountains returned a total of $ 728 million of capital to shareholders through share repurchases and dividends . gross written premiums and msc collected in the hg global/bam segment totaled $ 101 million in 2017 , compared to $ 77 million in 2016 , as higher pricing more than offset a decrease in issuance volume . bam insured municipal bonds with par value of $ 10.4 billion in 2017 , compared to $ 11.3 billion in 2016. total pricing was 99 basis points , up from 68 basis points in 2016. bam 's total claims paying resources were $ 708 million as of december 31 , 2017 , compared to $ 644 million as of december 31 , 2016. the increase in claims paying resources was driven by positive cash flow from operations . during 2017 , bam paid $ 5 million of principal and interest on the surplus notes held by hg global . beginning in the second quarter of 2017 , white mountains changed its calculation of adjusted book value per share ( i ) to include a discount for the time value of money arising from the expected timing of cash payments of principal and interest on the bam surplus notes and ( ii ) to add back the unearned premium reserve , net of deferred acquisition costs , at hg global . see “ non-gaap financial measures ” on page 55. mediaalpha reported break-even pre-tax income in 2017 , compared to pre-tax loss of $ 4 million in 2016. mediaalpha 's adjusted ebitda was $ 11 million in 2017 , compared to $ 7 million in 2016. the increases in pre-tax income and adjusted ebitda were driven primarily by growth in the hlm vertical and the p & c vertical . in october 2017 , mediaalpha acquired certain assets associated with the health , life and medicare insurance business of healthplans.com . the acquired assets included domain names , advertiser and publisher relationships , traffic acquisition accounts , and owned and operated websites . during the fourth quarter of 2017 , which includes the annual open enrollment period for health and medicare coverages , business from the acquired assets contributed $ 2 million of both pre-tax income and adjusted ebitda . white mountains 's pre-tax total return on invested assets was 5.6 % for 2017 , compared to 2.7 % for 2016. white mountains 's portfolio of common equity securities and other long-term investments returned 12.7 % for 2017 , underperforming the s & p 500 index return of 21.8 % , driven primarily by losses from foreign currency forward contracts and unconsolidated entities . white mountains 's portfolio of common equity securities and other long-term investments returned 4.3 % for 2016 , underperforming the s & p 500 index return of 12.0 % , driven primarily by losses from private equity funds and unconsolidated entities and weak returns from certain actively managed common equity portfolios . white mountains 's fixed income portfolio returned 3.5 % for 2017 , outperforming the bloomberg barclays u.s. intermediate aggregate index return of 2.3 % . white mountains 's fixed income portfolio returned 2.4 % for 2016 , outperforming the bloomberg barclays u.s. intermediate aggregate index return of 2.0 % . 30 adjusted book value per share the following table presents white mountains 's adjusted book value per share , a non-gaap financial measure , for the years ended december 31 , 2018 , 2017 and 2016 and reconciles this non-gaap measure to book value per share , the most comparable gaap measure . story_separator_special_tag see “ non-gaap financial measures ” on page 55. replace_table_token_13_th ( 1 ) adjusted book value per share at december 31 , 2016 includes the impact of 40,000 non-qualified stock options exercisable for $ 742 per common share . all non-qualified options were exercised prior to their expiration date of january 20 , 2017 . ( 2 ) amounts reflects white mountains 's preferred share ownership in hg global of 96.9 % . the following tables presents goodwill and other intangible assets that are included in white mountains 's adjusted book value as of december 31 , 2018 , 2017 and 2016 : replace_table_token_14_th ( 1 ) the relative fair values of goodwill and other intangible assets recognized in connection with the acquisition of kbk had not yet been determined at december 31 , 2018 . ( 2 ) see note 4 — “ goodwill and other intangible assets ” on page f-30 for details of other intangible assets . 31 story_separator_special_tag and 2017 : replace_table_token_21_th bam 's claims paying resources increased 23 % to $ 871 million as of december 31 , 2018 . the increase was driven primarily by the $ 100 million reinsurance agreement with fidus re , $ 54 million of msc collected and a $ 52 million increase in the invested assets of the hg re collateral trusts , partially offset by bam 's 2018 statutory net loss of $ 35 million . 36 the following table presents bam 's total claims paying resources as of december 31 , 2017 and 2016 : replace_table_token_22_th bam 's claims paying resources increased 10 % to $ 708 million as of december 31 , 2017. the increase was driven primarily by $ 37 million of msc collected and a $ 44 million increase in the invested assets of the hg re collateral trusts , partially offset by bam 's 2017 statutory net loss of $ 25 million . hg global/bam balance sheets the following table presents amounts from hg global , which includes hg re and its other wholly-owned subsidiaries , and bam that are contained within white mountains 's consolidated balance sheet as of december 31 , 2018 and 2017 : replace_table_token_23_th ( 1 ) under gaap , the bam surplus notes are classified as debt by the issuer . under u.s. statutory accounting , they are classified as policyholders ' surplus . ( 2 ) under gaap , interest accrues daily on the bam surplus notes . under u.s. statutory accounting , interest is not accrued on the bam surplus notes until it has been approved for payment by insurance regulators . ( 3 ) hg global preferred dividends payable to white mountains 's subsidiaries is eliminated in white mountains 's consolidated financial statements . for segment reporting , the hg global preferred dividends payable to white mountains 's subsidiaries included within the hg global/bam segment are eliminated against the offsetting receivable included within the other operations segment , and therefore are added back to white mountains 's common shareholders ' equity within the hg global/bam segment . 37 replace_table_token_24_th ( 1 ) under gaap , the bam surplus notes are classified as debt by the issuer . under u.s. statutory accounting , they are classified as policyholders ' surplus . ( 2 ) under gaap , interest accrues daily on the bam surplus notes . under u.s. statutory accounting , interest is not accrued on the bam surplus notes until it has been approved for payment by insurance regulators . ( 3 ) hg global preferred dividends payable to white mountains 's subsidiaries is eliminated in white mountains 's consolidated financial statements . for segment reporting , the hg global preferred dividends payable to white mountains 's subsidiaries included within the hg global/bam segment are eliminated against the offsetting receivable included within the other operations segment , and therefore are added back to white mountains 's common shareholders ' equity within the hg global/bam segment . par value of policies issued and priced by bam the following table presents the gross par value of policies issued and priced by bam for the years ended december 31 , 2018 and 2017 : replace_table_token_25_th 38 nsm during 2018 , white mountains acquired a 95.0 % equity interest in nsm for cash consideration of $ 276 million . nsm is a full-service mgu and program administrator for specialty property and casualty insurance . as part of the acquisition , white mountains assumed estimated contingent consideration earnout liabilities related to nsm 's previous acquisitions of its u.k.-based operations of $ 10 million . on may 18 , 2018 , nsm acquired 100 % of fresh insurance , an insurance broker that focuses on non-standard personal lines products in the united kingdom . nsm paid $ 50 million of upfront cash consideration for its equity interest in fresh insurance . the purchase price is subject to additional adjustments based upon growth in ebitda during two earnout periods ending in february 2020 and february 2022. in connection with the acquisition , nsm recorded a contingent consideration earnout liability of $ 8 million . on december 3 , 2018 , nsm acquired all of the net assets of kbk , a specialty mgu focused on the towing and transportation space . nsm paid $ 60 million of upfront cash consideration for the net assets of kbk . nsm recognized $ 59 million of goodwill and other intangible assets , reflecting estimated acquisition date fair values . the relative fair values of goodwill and other intangible assets recognized in connection with the acquisitions of kbk had not yet been determined as of december 31 , 2018. the purchase price is subject to additional adjustments based upon growth in ebitda during three earnout periods ending in december 2019 , december 2020 and december 2021. in connection with the acquisition , nsm expects to record a contingent consideration earnout liability in the first quarter of 2019. the contingent consideration earnout liabilities related to these acquisitions are subject to adjustment based upon reported ebitda , projected ebitda , and present value factors for the acquired entities .
| 34 hg global/bam results—year ended december 31 , 2018 versus year ended december 31 , 2017 bam charges an insurance premium on each municipal bond insurance policy it writes . a portion of the premium is an msc and the remainder is a risk premium . in the event of a municipal bond refunding , the msc from the original issuance can be reutilized , in effect serving as a credit against the total insurance premium on the refunding of the municipal bond . issuers of debt insured by bam are members of bam so long as any of their bam-insured debt is outstanding , and as members they have certain interests in bam , including the right to vote for bam 's directors and to receive dividends , if declared . gross written premiums and msc collected in the hg global/bam segment totaled $ 107 million in 2018 , compared to $ 101 million in 2017. in 2018 , bam insured $ 12.0 billion of municipal bonds , $ 11.0 billion of which were in the primary market , up 15 % from 2017. during the fourth quarter of 2018 , bam completed an assumed reinsurance transaction to insure municipal bonds with a par value of $ 2.2 billion for gross written premiums and msc collected of $ 20 million . total pricing , which is based on gross written premiums and msc from new business , was 93 basis points in 2018 , down from 99 basis points in 2017. see “ non-gaap financial measures ” on page 55. total pricing in the primary market , which includes assumed business , increased slightly to 75 basis points in 2018 , compared to 74 basis points in 2017. the following table presents the gross par value of primary and secondary market policies issued and a reconciliation of gaap gross written premiums to gross written premiums and msc from new business for the twelve months ended december 31 , 2018 and 2017 : replace_table_token_19_th ( 1 ) see “ non-gaap financial measures ” on page 55. hg global reported gaap pre-tax income of $ 32 million and $ 26 million in 2018
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we define cost of funds as interest expense as reported on our consolidated statements of income adjusted to exclude interest expense related to liabilities for transfers not considered sales and include the net interest expense component resulting from our hedging activities , which is currently included in net results from derivative transactions on our consolidated statements of income . see “ —reconciliation of non-gaap financial measures ” for our definition of cost of funds and a reconciliation to interest expense . interest spreads as of december 31 , 2018 , the weighted average yield on our mortgage loan receivables was 7.7 % , compared to 7.0 % as of december 31 , 2017 as the weighted average yield on new loans originated was higher than the weighted average yield on loans that were securitized or paid off . as of december 31 , 2018 , the weighted average interest rate on borrowings against our mortgage loan receivables was 4.1 % , compared to 3.1 % as of december 31 , 2017 . the increase in the rate on borrowings against our mortgage loan receivables from december 31 , 2017 to december 31 , 2018 was primarily due to higher prevailing market borrowing rates as of december 31 , 2018 compared to december 31 , 2017 . as of december 31 , 2018 , we had outstanding borrowings secured by our mortgage loan receivables equal to 43.3 % of the carrying value of our mortgage loan receivables , compared to 47.6 % as of december 31 , 2017 . as of december 31 , 2018 , the weighted average yield on our real estate securities was 3.2 % , compared to 2.9 % as of december 31 , 2017 . as of december 31 , 2018 , the weighted average interest rate on borrowings against our real estate securities was 2.8 % , compared to 1.7 % as of december 31 , 2017 . the increase in the rate on borrowings against our real estate securities from december 31 , 2017 to december 31 , 2018 was primarily due to higher prevailing market borrowing rates as of december 31 , 2018 versus december 31 , 2017 . as of december 31 , 2018 , we had outstanding borrowings secured by our real estate securities equal to 72.0 % of the carrying value of our real estate securities , compared to 72.8 % as of december 31 , 2017 . our real estate is comprised of non-interest bearing assets ; however , interest incurred on mortgage financing collateralized by such real estate is included in interest expense . as of december 31 , 2018 and 2017 , the weighted average interest rate on mortgage borrowings against our real estate was 5.1 % and 4.9 % , respectively . as of december 31 , 2018 , we had outstanding borrowings secured by our real estate equal to 74.5 % of the carrying value of our real estate , compared to 67.1 % as of december 31 , 2017 . provision for loan losses we had a $ 13.9 million provision for loan loss expense for the year ended december 31 , 2018 compared to no provision for loan losses for the year ended december 31 , 2017 . as discussed in “ critical accounting policies , ” the company assesses the adequacy of its provision for loan losses through both asset-specific reserves on particular loans and a portfolio-based general reserve . the asset-specific reserve may fluctuate significantly depending on the facts and circumstances of each loan . we estimate our general loan loss provision using our own historical loss experience ( limited historical losses ) as well industry loss experience . typically , our portfolio-based general reserve would increase with increases in the size of the loan portfolio or increases in the relative risk ( e.g. , more mezzanine loans ) . for the year ended december 31 , 2018 , we determined that we needed asset-specific provisions for three loans with two borrowers for an aggregate of $ 12.7 million and we increased our portfolio-based general reserve for the remaining loan portfolio by $ 1.2 million , largely driven by the increase in our loan portfolio . for additional information , refer to “ provision for loan losses and non-accrual status ” in note 4. mortgage loan receivables to the consolidated financial statements . operating lease income and tenant recoveries operating lease income totaled $ 96.5 million for the year ended december 31 , 2018 , compared to $ 89.5 million for the year ended december 31 , 2017 . the increase of $ 7.0 million was primarily attributable to income on properties acquired in 2018 and a full period of operations on properties acquired in 2017 . in addition , there was a $ 34.0 million decrease in our real estate balance from december 31 , 2017 to december 31 , 2018 resulting from dispositions , which occurred late in the year , and have not yet impacted operating lease income . 79 tenant recoveries totaled $ 9.7 million for the year ended december 31 , 2018 , compared to $ 7.2 million for the year ended december 31 , 2017 . the increase of $ 2.5 million primarily reflects additional recoveries on properties acquired in 2018 and a full period of recoveries on properties acquired in 2017 , partially offset by the decrease in recoveries on an existing office property due to a lease expiration . in addition , there was a $ 34.0 million decrease in our real estate balance from december 31 , 2017 to december 31 , 2018 resulting from dispositions , which occurred late in the year , and have not yet impacted tenant recoveries . story_separator_special_tag in addition , as discussed in “ out-of-period adjustments ” in note 2. significant accounting policies , during the first quarter of 2018 , the company recorded an out-of-period adjustment to increase tenant real estate tax recoveries on a net lease property by $ 1.1 million , which was not billed until the three month period ended march 31 , 2018 , but related to prior periods . sale of loans , net we recorded $ 16.5 million income ( loss ) from sale of loans , net , which includes all loan sales , whether by securitization , whole loan sales or other means , for the year ended december 31 , 2018 , compared to $ 54.0 million for the year ended december 31 , 2017 , a decrease of $ 37.5 million . income from sales of loans , net also includes realized losses on loans related to lower of cost or market adjustments . during the year ended december 31 , 2018 , we participated in nine separate securitization transactions , selling/transferring 103 loans with an aggregate outstanding principal balance of $ 1.3 billion . during the year ended december 31 , 2017 , we participated in seven separate securitization transactions , selling 114 loans with an aggregate outstanding principal balance of $ 1.5 billion . in june 2017 , we executed a ladder-only multi-borrower securitization from ladder 's cmbs shelf , recognizing a gain of $ 26.1 million , which is included in the seven separate securitization transactions mentioned above . income from sales of loans , net is subject to market conditions impacting timing , size and pricing and as such may vary significantly quarter to quarter . the decrease in income ( loss ) from sales of securitized loans , net of hedging of $ 29.7 million for the year ended december 31 , 2018 compared to $ 49.3 million for the year ended december 31 , 2017 was due to an decrease in the aggregate outstanding principal balance of loans sold , period over period and increasing competition in the market and lower prevailing lending credit spreads for conduit loans . income ( loss ) from sale of loans , net , represents gross proceeds received from the sale of loans , less the book value of those loans at the time they were sold , less any costs , such as legal and closing costs , associated with the sale . income from sales of securitized loans , net of hedging , a non-gaap financial measure , represents the portion of income ( loss ) from sale of loans , net related to the sale of loans into securitization trusts . see “ —reconciliation of non-gaap financial measures ” for our definition of income from sales of securitized loans , net of hedging and a reconciliation to income ( loss ) from sale of loans , net . realized gain ( loss ) on securities realized gain ( loss ) on securities totaled $ ( 5.8 ) million for the year ended december 31 , 2018 , compared to $ 17.2 million for the year ended december 31 , 2017 , a decrease of $ 23.0 million . other than temporary impairment on u.s. agency securities , which is included in realized gain ( loss ) on securities totaled $ ( 2.8 ) million for the year ended december 31 , 2018 , compared to $ ( 3.5 ) million for the year ended december 31 , 2017 , a reduction of $ 0.7 million in the impairment , which results in an increase in realized gain ( loss ) on securities . for the year ended december 31 , 2018 , we sold $ 324.8 million of securities , comprised of $ 322.4 million of cmbs , $ 0.6 million of u.s. agency securities and $ 1.8 million of equity securities . for the year ended december 31 , 2017 , we sold $ 1.0 billion of securities , comprised of $ 1.0 billion of cmbs and $ 7.6 million of u.s. agency securities . the decrease in sales of securities reflects lower transaction volume in 2018 as compared to 2017 . during the year ended december 31 , 2018 , the company sold $ 1.8 million of equity securities , resulting in a realized gain ( loss ) on sale of equity securities of $ 98.6 thousand which is included in realized gain ( loss ) on securities on the company 's consolidated statements of income . unrealized gain ( loss ) on equity securities unrealized gain ( loss ) on equity securities represented a loss of $ 1.6 million for the year ended december 31 , 2018 , compared to none for the year ended december 31 , 2017 . the company has elected the fair market value option for accounting for these equity securities and changes in fair value are recorded in current period earnings . unrealized gain ( loss ) on agency interest-only securities unrealized gain ( loss ) on agency interest-only securities represented a gain of $ 0.6 million for the year ended december 31 , 2018 , compared to a gain of $ 1.4 million for the year ended december 31 , 2017 . the negative change of $ 0.8 million in unrealized gain ( loss ) on agency interest-only securities was due to the increase in interest rates throughout 2017 and 2018 , partially offset by sales and amortization of the portfolio during the year ended december 31 , 2018 . agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings . 80 realized gain on sale of real estate , net for the year ended december 31 , 2018 , realized gain on sale of real estate , net totaled $ 95.9 million , compared to $ 11.4 million for the year ended december 31 , 2017 . the increase of $ 84.5 million was a result of the commercial real estate and residential condominium sales discussed below .
| the most significant drivers of the $ 84.7 million increase are as follows : an increase in net interest income of $ 33.0 million , primarily as a result of the increases in our balance sheet loan portfolio and our securities portfolio , as well as an increase in interest rates ; an increase of $ 13.9 million in provision for loan losses as more fully discussed in note 4 to our consolidated financial statements ; an increase in total other income ( loss ) of $ 63.8 million , primarily as a result of an $ 84.5 million increase in profits on sale of real estate , a $ 28.5 million increase in net results from derivative transactions , a $ 8.0 million increase in fee and other income , a $ 7.0 million increase in operating lease income , partially offset by , a decrease of $ 37.5 million in sale of loans , net , a decrease of $ 23.0 million in realized gain ( loss ) on securities , and a $ 4.3 million increase in loss on extinguishment of debt ; 77 a decrease in total costs and expenses of $ 11.8 million compared to the prior year , primarily as a result of a $ 10.4 million decrease in salaries and employee benefits and a $ 3.4 million decrease in real estate operating expenses , partially offset by a $ 1.7 million increase in depreciation and amortization expense ; a decrease in income tax expense ( benefit ) of $ 1.1 million compared to the prior year , primarily as a result of decreased income in our trss , the tax cuts and jobs act reducing the corporate tax rate ( from 35 % to 21 % ) and certain other one-time adjustments ; and a decrease in net income attributable to noncontrolling interest in operating partnership of $ 4.6 million due to exchanges of class b common stock for class a common stock during the year , partially offset by an
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note : this report is as of march 31 , 2017. subsequent to such date , due to the depressed oil prices , the business of the company has been determined to be unsustainable due to lack of capital , and the company is liquidating its assets and seeking a new business . plan of operations due to the significant reduction in oil prices we have suspended all production , rework and exploration operations as of october 2018. we are in a liquidation made from our assets as of year-end . we will require substantial additional capital to support any future operations . we have no committed source for any additional funds as of the date hereof . no representation is made that any funds will be available when needed . in the event funds can not be raised when needed , we may not be able to carry out our business plan , may never achieve sales or royalty income and could fail in business as a result of these uncertainties . story_separator_special_tag margin : 0 ; text-align : justify '' > promissory notes on february 28 , 2017 , the company borrowed $ 55,000 from the former operator of its cole creek properties in exchange for a promissory note including interest at the rate of 8 % per annum with accrued and unpaid interest due at august 31 , 2017. the proceeds from the loan were used to acquire a bond from the state of wyoming for purposes of the company to continue to operate the cole creek properties . on november 1 , 2018 , the company paid the note holder $ 58,000 in complete satisfaction of the debt . on november 3 , 2016 , the company borrowed $ 300,000 in exchange for a convertible promissory note at the rate of 12 % per annum with accrued and unpaid interest and principal due january 31 , 2017. the due date of the promissory note was extended to may 1 , 2017. the promissory note is convertible into shares of the company 's common stock at $ 0.80 per share . in addition , the company issued the holder of the promissory note 75,000 shares of the company 's common stock valued at $ 49,752 and a warrant to acquire 50,000 shares of nexfuels shares of common stock . at march 31 , 2017 , the company owes $ 300,000 on the promissory note plus accrued interest of $ 14,597. on november 1 , 2018 , the company paid the note holder $ 275,000 in complete satisfaction of the debt . on august 11 , 2016 , the company borrowed $ 100,000 from a former director of the company , who owns a 85.71 % interest in llc # 3 in exchange for a promissory note including interest at the rate of 15 % per annum with accrued and unpaid interest and principal due on august 11 , 2017. during the term of the promissory note the company agreed to pay the holder 30 % of the net revenues received from the sale of oil from the cole creek properties , starting august 2016. at march 31 , 2017 , the company owes $ 100,000 on the promissory note plus accrued interest of $ 7,459. on november 1 , 2018 , the company paid the note holder $ 1,600,000 as complete satisfaction of the debt including repayment of the $ 1,400,000 that the note holder contributed to llc # 3. on april 25 , 2016 , the company borrowed $ 50,000 from a director of the company in exchange for an unsecured promissory note including interest at the rate of 5 % per annum with accrued and unpaid interest and principal due at december 31 , 2016. on september 15 , 2016 , the holder of the note agreed to extend the due date of the promissory note to march 31 , 2017 , with all other terms remaining in effect . at march 31 , 2017 , the company owes $ 50,000 on the promissory note plus accrued interest of $ 5,573. on november 5 , 2018 , the company paid the note holder $ 68,000 in complete satisfaction of the debt . during the year ended march 31 , 2016 , the company paid $ 341,405 in principal towards the repayment of promissory notes relative to the repurchase of 18,717 shares of western interior common stock owned by dissident shareholders as part of agreements effective march 31 , 2015 to repurchase a total of 33,085 shares of western interior common stock . at march 31 , 2017 , the company owes $ 488,298 on a promissory note plus accrued interest at the rate of 3.5 % per annum of $ 29,873. the during the year ended march 31 , 2019 , the company transferred certain oil and gas properties in complete satisfaction of the debt . on january 14 , 2016 , the company borrowed $ 50,000 from a director and officer of the company who resigned from the company on september 14 , 2016 in exchange for a secured promissory note including interest at the rate of 5 % per annum with accrued and unpaid interest and principal due at september 30 , 2016. the note is currently in default . the default interest rate is 8 % . the promissory note is collateralized by certain oil and gas properties located in the state of wyoming . the holder may , at any time prior to payment of the promissory notes elect to convert all or any portion of the promissory note , including accrued interest , into common shares of the company at a price determined by the average ten consecutive day trading closing price less 30 % . story_separator_special_tag on october 2016 , the holder of the promissory note filed suit against the company for payment of the promissory . at march 31 , 2017 , the company owes $ 50,000 on the promissory note plus accrued interest of $ 3,026. in august 2017 , the company settled with the former director and officer of the company by transferring certain oil and gas properties in complete satisfaction of the debt . 29 on january 14 , 2016 , the company borrowed $ 50,000 from a then director , in exchange for a secured promissory note including interest at the rate of 5 % per annum with accrued and unpaid interest and principal due at september 30 , 2016. on september 15 , 2016 , the holder of the note agreed to extend the due date of the promissory note to december 31 , 2016 , with all other terms remaining in effect . the note is currently in default . the default interest rate is 8 % . the promissory note is collateralized by certain oil and gas properties located in the state of wyoming . the holder may , at any time prior to payment of the promissory notes elect to convert all or any portion of the promissory note , including accrued interest , into common shares of the company at a price determined by the average ten consecutive day trading closing price less 30 % . at march 31 , 2017 , the company owes $ 50,000 on the promissory note plus accrued interest of $ 3,206. on november 5 , 2018 , the company paid the note holder $ 50,000 in complete satisfaction of the debt . on august 1 , 2015 , the company , relative to the repurchase by the company on march 31 , 2015 of the remaining 14,368 shares of western interior common stock entered into an agreement with the note holder to settle the amount owed under the promissory note . as such , the parties agreed the amount owed on such promissory note by the company would be reduced from $ 768,715 to $ 393,795 and the difference of $ 374,920 be considered a reduction in the purchase price by the company of the 14,368 shares of western interior common stock . in addition , the $ 393,795 was paid in full effective august 1 , 2015 by the transfer to the note holder of certain oil and gas properties owned by western interior which resulted in the company reporting a gain on disposal of assets in the amount of $ 44,100. line-of-credit the company has a line-of-credit with a bank in the original amount of $ 350,000 collateralized by certain oil and gas properties of the company . annual interest is at prime plus 2.50 % with a floor of 7 % . at march 31 , 2017 , the company owes $ 111,914 plus accrued interest of $ 4,092. the line-of-credit matured in november 2016 and is in default . this note was acquired by one of our note holders and was settled in august 2017. short term on a short-term basis , we have not generated revenues sufficient to cover operations . based on prior history , we will continue to have insufficient revenue to satisfy current and recurring liabilities as the company continues exploration activities . capital resources the company has only equity as its capital resource . we have no material commitments for capital expenditures within the next year ; however , our plans to develop our existing oil properties are capital intensive and capital will be needed to pay for participation , investigation , exploration , acquisition and working capital . need for additional financing we do not have capital sufficient to meet our cash needs . the company will have to seek loans or equity placements to cover such cash needs . recompletions and re-works on existing wells , along with exploration activities will spur the need for additional financing is likely to increase substantially . no commitments to provide additional funds have been made by the company 's management or other shareholders . accordingly , there can be no assurance that any additional funds will be available to us to allow us to cover the company 's expenses as they may be incurred . the company will need substantial additional capital to support its proposed future energy operations . we have insufficient revenues to cover our corporate costs . the company has no committed source for any funds as of the date hereof . no representation is made that any funds will be available when needed . in the event funds can not be raised when needed , we may not be able to carry out our business plan , may never achieve sufficient sales or royalty income and could fail in business as a result of lack of capital . 30 decisions regarding future participation in exploration wells or geophysical studies or other activities will be made on a case-by-case basis . the company may , in any particular case , decide to participate or decline participation . if participating , we may pay the proportionate share of costs to maintain the company 's proportionate interest through cash flow or debt or equity financing . if participation is declined , the company may elect to farmout , non-consent , sell or otherwise negotiate a method of cost sharing in order to maintain some continuing interest in the prospect . critical accounting policies principles of consolidation the accompanying consolidated financial statements include the accounts of t-rex oil , inc. and its wholly owned subsidiaries . all intercompany balances have been eliminated during consolidation .
| at year end we had $ 53,210 in cash , accounts receivable of $ 83,595 , which might not be collected , and prepaid items of $ 205,637. on the other hand , we had $ 1,564,540 in current liabilities , current asset retirement obligations of $ 183,731 , and notes payable of $ 1,181,212 , for a total of current liabilities of $ 2,929,483 , vs. cash assets of $ 53,210. we have additional long-term asset retirement obligation liabilities of $ 1,236,516 for total liabilities of $ 4,165,999. these total liabilities of $ 4,165,999 compare to our total assets of $ 2,151,873. capital contributions and debt incurrence equity during the year ended march 31 , 2017 , the company sold 652,888 shares of its restricted common stock for $ 669,278 in cash . in addition , the company issued 50,000 shares of its common stock for services valued at $ 89,500 , issued 50,000 shares of its common stock for the exercise of an option in cash at $ 0.10 per share , issued 450,000 shares of its common stock for the exercise of options through the payment of debt at between $ 0.04 and $ 0.10 per share , and issued 75,000 shares of its common stock for consideration of a loan to the company valued at $ 49,752. also , the company issued 572,055 shares of its common stock in connection with the conversion of 409,019 shares of its series a preferred shares at a price of $ 1.43 per share . further , and as part of the company entering into put agreements in december 2014 with the members of t-rex oil , llc # 1 ( “ llc # 1 ) whereby the company granted a right to put the purchase of their interest of llc # 1 in the amount of $ 425,000 back to the company . thus , the company issued to the members of llc # 1 a total of 425,000 shares of its restricted common stock at an exercise price of $ 1 per share valued at $ 425,000. during the year ended march 31 , 2016 , the company as part of a private placement sold 680,536 shares of its restricted common stock for $ 509,133 in cash and 11,000 shares for $ 27,000 in cash . in april 2015 , the company entered into a subscription agreement to sell up to 2,800,000 shares of its restricted common stock pursuant to regulation s of
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pursuant to the settlement agreement , we agreed to pay an amount of $ 900,000 to tsg on or before december 31 , 2017 , which was recorded as an expense in 2017. we also agreed to pay to tsg commissions , at the rates in effect since february 7 , 2013 , on all orders for our products received and accepted from the states of arizona , california , nevada and hawaii from january 1 , 2018 through december 31 , 2018 , excluding ( i ) sales to federal government agencies , ( ii ) sales to other end-users , except state and local government agencies and offices , and ( iii ) sales of parts or service , including warranty service . these commissions were estimated to be $ 536,000 , which was recorded as an expense in 2017. actual commissions during 2018 totaled approximately $ 823,000. accordingly , $ 287,000 of additional commission was recorded as an expense in 2018. other expense for 2018 , we recognized other expenses totaling approximately $ 328,000 , compared with approximately $ 106,000 for 2017. these expenses were primarily attributed to exchange losses related to sales under a canadian dollar-denominated contract . during the first quarter of 2017 , we recorded a nonrecurring loss of approximately $ 104,000 on the disposal of assets related to a discontinued product initiative . income tax benefit we recorded a net income tax benefit for 2018 of approximately $ 277,000 , compared with a net benefit of approximately $ 1.2 million for the prior year . our income tax provision is based on the effective tax rate for the year . for 2018 , our effective tax rate declined compared to 2017 , primarily due to the implementation of the 2017 tax act enacted in december 2017 , which , among other things , reduced the u.s. federal corporate tax rate from 35 % to 21 % . as of december 31 , 2018 , our net deferred tax assets totaled approximately $ 3.5 million , and were primarily composed of general business credit carryovers and nols . these credits totaled approximately $ 1.6 million for federal purposes . in addition , the deferred tax assets related to the federal nols were completely used in 2018 , and total $ 7.2 million for state purposes , with expirations starting in 2019 through 2038. in order to fully utilize the net deferred tax assets , we will need to generate sufficient taxable income in future years to utilize our nols prior to their expiration . we analyze all positive and negative evidence to determine if , based on the weight of available evidence , we are more likely than not to realize the benefit of the net deferred tax assets . the recognition of the net deferred tax assets and related tax benefits is based upon our conclusions regarding , among other considerations , estimates of future earnings based on information currently available and current and anticipated customers , contracts and product introductions , as well as historical operating results and certain tax planning strategies . based on our analysis of all available evidence , both positive and negative , we have concluded that we have the ability to generate sufficient taxable income in the necessary period to utilize the entire benefit for the deferred tax asset . management estimated that , as of december 31 , 2018 , a valuation allowance related to our florida nols was no longer needed due to expected 2018 usage . we can not presently estimate what , if any , changes to the valuation of our deferred tax assets may be deemed appropriate in the future . if we incur future losses , it may be necessary to record a valuation allowance related to the deferred tax assets recognized as of december 31 , 2018 . 22 fiscal year 2017 compared with fiscal year 2016 sales , net for 2017 , net sales totaled approximately $ 39.4 million , compared with approximately $ 50.7 million for 2016. sales of p-25 digital products in 2017 totaled approximately $ 28.7 million ( 72.7 % of total sales ) , compared with approximately $ 33.2 million ( 65.5 % of total sales ) for 2016. sales for 2016 benefited from significant sales to one customer under our contract with the tsa , which were not fully replicated in 2017 , resulting in the year-over-year decrease . absent the impact of sales to the tsa , 2017 sales increased approximately 20.9 % from 2016. during 2017 , demand from other federal , state and international public safety agencies strengthened compared with the prior year , and we were awarded several multi-year contracts and blanket purchase orders from federal agencies . during the year , we added sales resources to capitalize on opportunities for potential sales growth . cost of products and gross profit margin cost of products as a percentage of sales for 2017 was 75.8 % , compared with 66.3 % in 2016. gross profit margin as a percentage of sales for 2017 was 24.2 % , compared with 33.7 % for 2016. our cost of products and gross profit margin are derived primarily from material , labor and overhead costs , product mix , manufacturing volumes and pricing . for 2017 , costs associated with the write-off of specific inventory and higher product service costs also adversely impacted costs of products and gross profit margin . in 2017 , the mix of product sales was more heavily weighted toward lower margin products , and certain products were sold using promotional pricing designed to drive sales growth . following leadership changes , in the third quarter of 2017 , we launched a comprehensive evaluation of our products , markets and strategies through the remainder of the year . as a result of this evaluation , we recognized a charge of $ 3.2 million to write-off inventory with limited customer market opportunities , primarily due to concerns regarding technology and production costs . story_separator_special_tag we also incurred approximately $ 1.8 million in incremental product costs associated with addressing customer requests for modification and upgrades . gross profit margins for the prior year reflected competitive factors associated with the tsa sales , which comprised a significant portion of our sales for 2016. selling , general and administrative expenses sg & a expenses consist of marketing , sales , commissions , engineering , product development , management information systems , accounting , headquarters expenses and non-cash , share-based employee compensation expense . for 2017 , sg & a expenses totaled approximately $ 14.6 million , or 37.0 % of sales , compared with approximately $ 12.8 million , or 25.3 % of sales , for 2016. engineering and product development expenses for 2017 totaled approximately $ 5.0 million ( 12.7 % of total sales ) , compared with approximately $ 4.1 million ( 8.1 % of total sales ) for the previous year . expenses related to new product development projects were the primary contributor to the increase in engineering expenses . marketing and selling expenses for 2017 totaled approximately $ 5.2 million ( 13.3 % of sales ) , compared with $ 5.4 million ( 10.6 % of sales ) for the prior year . the decrease was primarily attributed to decreases in commissions and incentive compensation directly related to sales performance , which were partially offset by expenses related to new sales staff . general and administrative expenses for 2017 totaled approximately $ 4.3 million ( 11.0 % of total sales ) , compared with approximately $ 3.3 million ( 6.5 % of total sales ) for 2016. the increase was primarily related to headquarters professional fees and expenses incurred in the first quarter associated with changes in senior management . 23 operating ( loss ) income the operating loss for 2017 totaled approximately $ 5.0 million ( 12.8 % of sales ) , compared with operating income of approximately $ 4.3 million ( 8.5 % of sales ) for 2016. the decrease in operating income was attributed to several factors , which included a ) higher costs of products , derived in large part from charges associated with the write-off of inventory , b ) product costs related to addressing customer-requested modifications and upgrade , c ) engineering expenses related to new product development , and d ) headquarters professional fees and expenses associated with senior management changes . other income ( expense ) interest income ( expense ) , net for 2017 , we realized interest income of approximately $ 46,000 on our cash balances , compared with approximately $ 9,000 for the prior year . we incurred no interest expense in 2017 or 2016. interest expense may be incurred from time to time on outstanding borrowings under our revolving credit facility . the interest rate on such revolving credit facility as of december 31 , 2017 was 4.00 % per annum . this rate was variable based on the wall street journal prime rate plus 25 basis points . effective as of december 27 , 2017 , we entered into a seventh amendment to our loan and security agreement with silicon valley bank primarily to extend the maturity date by approximately a year , to december 26 , 2018. our revolving credit facility was not utilized during 2017 or 2016. gain on sales of available-for-sale securities during the year ended december 31 , 2017 , we sold 460,546 shares of iteris , which generated proceeds of approximately $ 2.6 million and gains of approximately $ 1.8 million . there were no comparable gains recorded for 2016. legal settlement on december 19 , 2017 , we entered into an agreement to settle a dispute with tsg , a former sales representative ( see note 13 to the consolidated financial statements ) . pursuant to the settlement agreement , we agreed to pay an amount of $ 900,000 to tsg on or before december 31 , 2017 , which was recorded as an expense in 2017. we also agreed to pay to tsg commissions , at the rates in effect since february 7 , 2013 , on all orders for our products received and accepted from the states of arizona , california , nevada and hawaii from january 1 , 2018 through december 31 , 2018 , excluding ( i ) sales to federal government agencies , ( ii ) sales to other end-users , except state and local government agencies and offices , and ( iii ) sales of parts or service , including warranty service . these commissions were estimated to total approximately $ 536,000 , which was recorded as an expense in december 2017. other expense during 2017 , we incurred a loss on the disposal of assets related to a discontinued product initiative . we also recognized an exchange loss related to sales under a canadian-dollar-denominated contract . no comparable expenses were incurred in the prior year . income tax benefit ( expense ) we recorded an income tax benefit for 2017 of approximately $ 1.2 million , which is net of tax expense of approximately $ 665,000 derived from the impact of revaluing deferred tax assets in accordance with the 2017 tax act . in connection with our initial analysis of the impact of the 2017 tax act , we recorded a discrete net tax expense of $ 665,000 in the year ended december 31 , 2017 to account for the effect of the corporate rate reduction . the net tax expense primarily relates to a reduction in the deferred tax assets of approximately $ 1,524,000 and a reduction in the deferred tax liability related to unrealized gain on available-for-sale securities of approximately $ ( 859,000 ) . for 2016 , we recognized income tax expense of approximately $ 1.6 million . our income tax benefit and expense are primarily non-cash .
| net income tax benefit for 2018 totaled approximately $ 277,000 , compared with $ 1.2 million for 2017. our income tax benefit for both years is largely non-cash , as a result of deferred items partially derived from nols . we recognized a net loss for 2018 totaling approximately $ 195,000 ( $ 0.01 per basic and diluted share ) , compared with approximately $ 3.6 million ( $ 0.27 per basic and diluted share ) for 2017. as of december 31 , 2018 , working capital totaled approximately $ 21.0 million , of which $ 17.0 million was comprised of cash , cash equivalents and trade receivables . this compares with working capital totaling approximately $ 26.7 million at year end 2017 , which included $ 12.7 million of cash , cash equivalents and trade receivables . during 2018 , we repurchased 873,014 shares of our common stock , utilizing cash of approximately $ 3.3 million . we may experience fluctuations in our quarterly results , in part , due to governmental customer spending patterns that are influenced by government fiscal year-end budgets and appropriations . we may also experience fluctuations in our quarterly results , in part , due to our sales to federal and state agencies that participate in wildland fire-suppression efforts , which may be greater during the summer season when forest fire activity is heightened . in some years , these factors may cause an increase in sales for the second and third quarters , compared with the first and fourth quarters of the same fiscal year . such increases in sales may cause quarterly variances in our cash flow from operations and overall financial condition . in december 2017 , the tax cuts and jobs act ( the “ 2017 tax act ” ) was enacted . the 2017 tax act represents major tax reform legislation that , among other provisions , reduces the u.s. corporate tax rate . see note 8 to the consolidated financial statements for further information on the financial statement impact of the 2017 tax act . 19 results of operations as an aid to understanding our operating results , the following table shows
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as a result , management determined that the estimated fair value of certain indefinite lived intangibles and implied fair value of our goodwill were lower than their respective carrying value , and the company recorded an aggregate non-cash impairment charge of $ 69,796 in 2012. the non-cash impairment charge consisted of a write down of goodwill of $ 61,908 and a write down of a portion of intangible assets of $ 7,888. these charges affected our financial condition and results of operation for 2012 ; however , they have no impact on our day-to-day operations or liquidity and will not result in any future cash expenditures . cost reduction initiatives the company began implementing several cost reduction initiatives in the third quarter of 2012 designed to lower promotional costs and advertising expenses , reduce operating costs , and improve 15 margins . these initiatives have resulted in tighter controls of retailer programs costs , a reduction in worldwide headcount , a reduction in executive salaries in 2012 , voluntary reduction in board of director compensation , cuts in overhead spending relating to discontinuing various outside services , and negotiated lower professional service fees . new credit facility and term loan new bank of america credit facility . in february 2013 , we entered into a new loan and security agreement ( the `` bofa agreement '' ) with bank of america , n.a. , as agent , the financial institutions party to the agreement from time to time as lenders . the bofa agreement replaces our prior credit facility with bank of america that was set to expire in december 2013. the bofa agreement provides for an $ 80 million , asset-based revolving credit facility , with a $ 10 million letter of credit sub-line facility . the total borrowing capacity is based on a borrowing base , which is defined as 85 % of eligible receivables plus the lesser of ( i ) 70 % of the value of eligible inventory or ( ii ) 85 % of the net orderly liquidation value of eligible inventory and less reserves . total borrowing capacity under the bofa agreement at february 28 , 2013 was $ 62.4 million . the scheduled maturity date of loans under the bofa agreement is february 28 , 2018 ( subject to customary early termination provisions ) . all obligations under the bofa agreement are secured by substantially all the assets of the company , subject to the first priority lien on certain assets held by the term loan lender described below . proceeds from the loans will be used to satisfy existing debt , pay fees and transaction expenses associated with the closing of the bofa agreement , pay obligations under the bofa agreement , make payments on the term loan described below , and for lawful corporate purposes , including working capital . for additional information regarding the bofa agreement , please see `` liquidity and capital resources '' below . new term loan . in february 2013 , we entered into a new term loan agreement ( the `` term loan agreement '' ) with salus capital partners , llc , as administrative agent and collateral agent , and each lender from time to time a party to the term loan agreement providing for a $ 15 million term loan ( the `` term loan '' ) . proceeds from the term loan will be used to repay certain existing debt , to finance the acquisition of working capital assets in the ordinary course of business and capital expenditures , and for general corporate purposes . the term loan is secured by certain assets of the company , including a first priority lien on intellectual property , plant , property and equipment , and a pledge of 65 % of the ownership interests in certain subsidiaries of the company . the term loan matures on february 28 , 2018. for additional information regarding the term loan , please see `` liquidity and capital resources '' below . as of february 28 , 2013 , the effective date of the new credit facility , we had borrowings outstanding of $ 48.9 million and availability under the bofa agreement of $ 13.5 million . outlook our business , financial condition and results of operations have and may continue to be affected by various economic factors . although other factors will likely impact us , including some we do not foresee and those disclosed in item 1a . risk factors in this annual report on form 10-k for the year 16 ended december 31 , 2012 , we believe our performance in 2013 will continue to be affected by the following : economic climate . periods of global economic uncertainty , such as the recession experienced in 2008 and much of 2009 , as well as recent market disruptions , can lead to reduced consumer and business spending . the current economic climate continues to affect our business in direct and indirect ways , including reduced consumer demand for our products , tighter inventory management by retailers , reduced profit margins due to pricing pressures from mass merchant retailers and a sales mix favoring lower margin products . in addition , reduced access to credit has and may continue to adversely affect consumers who desire to purchase our products from retailers and the ability of our own customers to pay us . retail market conditions . our industry is very competitive , with increasing pressure from mass merchant retailers on pricing in reaction to perceived lack of consumer confidence . these customers continue to seek favorable pricing and increased promotional activity from us and we expect this trend will continue into 2013. we continue to seek to reduce pressure on gross margins through a variety of methods , including reducing manufacturing costs and locating lower-cost sources of supply . we have also begun raising prices on certain products and phasing out lower margin products . story_separator_special_tag however , we may not be able to increase prices or decline requests for mark-downs and or other allowances from some of our larger , retail customers due to market and competitive factors . in addition , as we focus on our business strategy of building our brands , we expect to move away from licensing arrangements with third parties to selling more summer branded products . summary of critical accounting policies and estimates this summary of our critical accounting policies is presented to assist in understanding our consolidated financial statements . the consolidated financial statements and notes are representations of our management , which is responsible for their integrity and objectivity . these accounting policies conform to accounting principles generally accepted in the united states of america and have been consistently applied in the preparation of the consolidated financial statements . we make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses . the accounting policies described below are those we consider critical in preparing our financial statements . some of these policies include significant estimates made by management using information available at the time the estimates were made . however , these estimates could change materially if different information or assumptions were used . revenue recognition we record revenue when all of the following occur : persuasive evidence of an arrangement exists , product delivery has occurred , the sales price to the customer is fixed or determinable and collectability is reasonably assured . sales are recorded net of provisions for returns and allowances , cash discounts and markdowns . we base our estimates for discounts , returns and allowances on negotiated customer terms , and historical experience . these estimates are subject to variability , as actual deductions taken by customers may be different from the estimates recorded . customers do not have the right to return products unless the products are defective . we record a reduction of sales for estimated future defective product deductions based on historical experience . sales incentives or other consideration given by us to customers that are considered adjustments of the selling price of its products , such as markdowns , are reflected as reductions of revenue . sales incentives and other consideration that represent costs incurred by us for assets or services received , 17 such as the appearance of our products in a customer 's national circular ad ( co-op advertising ) , are reflected as selling and marketing expenses in the accompanying statements of income . trade receivables trade receivables are reported at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts . on a periodic basis , we estimate doubtful accounts based on historical bad debt , factors related to specific customers ' ability to pay and current economic trends . we write off accounts receivable against the allowance when a balance is determined to be uncollectible . we do not accrue interest on trade receivables . a receivable is considered past due if payments have not been received within the credit terms on the account , typically 60 days for most customers . we will turn an account over for collection around 120 days past due . accounts are considered uncollectible if no payments are received 60 to 90 days after they have been turned over for collection . allowance for doubtful accounts the allowance for doubtful accounts represents adjustments to customer trade accounts receivable for amounts deemed uncollectible . the allowance for doubtful accounts reduces gross trade receivables to their estimated net realizable value . the allowance is based on our assessment of the business environment , customers ' financial condition , historical trends , customer payment practices , receivable aging and customer disputes . we will continue to proactively review our credit risks and adjust customer terms to reflect the current environment . inventory valuation inventory is comprised of finished goods and is stated at the lower of cost , inclusive of freight and duty , or market ( net realizable value ) using the first-in , first-out ( fifo ) method . our warehousing costs are charged to expense as incurred . we regularly review slow-moving and excess inventory , and write-down inventories as appropriate . management uses estimates to record write-downs based on its review of inventory by product category , including length of time on hand and estimates of future orders for each product . changes in consumer preferences , as well as demand for products , customer buying patterns and inventory management could impact the inventory valuation . impairment of long-lived assets with finite lives we review long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable . an asset is considered to be impaired when its carrying amount exceeds both the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition and the assets ' fair value . long-lived assets include property and equipment and finite-lived intangible assets . the amount of impairment loss , if any , is charged by the company to current operations . goodwill and indefinite-lived intangible assets the company accounts for goodwill and other intangible assets in accordance with accounting guidance that requires that goodwill and intangible assets with indefinite useful lives be tested annually for impairment and more frequently if events or changes in circumstances indicate that the asset might be impaired . the company 's annual impairment testing is conducted in the fourth quarter of every year . the company tests indefinite-lived intangible assets for impairment by comparing the asset 's fair value to its carrying amount . if the fair value is less than the carrying amount , the excess of the 18 carrying amount over fair value is recognized as an impairment charge and the adjusted carrying amount becomes the assets ' new accounting basis .
| general and administrative expenses decreased 7.2 % from $ 44,928 for the year ended december 31 , 2011 to $ 41,674 for the year ended december 31 , 2012. in 2011 , the company incurred a lawsuit settlement , acquisition related costs , as well as other one-time charges that did not repeat in 2012. in addition , the company began to benefit from overhead cost reductions initiated at the end of the second quarter of 2012. selling expenses increased 30.3 % from $ 22,259 for the year ended december 31 , 2011 to $ 29,009 for the year ended december 31 , 2012. this increase was primarily attributable to higher promotional costs related to customer cooperative advertising and placement of consumer ads , higher royalty payments under licensing agreements , and an increase in other variable selling costs associated with higher sales . depreciation and amortization increased 18.6 % from $ 6,377 in the year ended december 31 , 2011 to $ 7,566 for the year ended december 31 , 2012. the increase is attributable to the depreciation of a higher base of short-lived assets consisting primarily of new product prototypes added in 2011 and early 2012. due to the sustained decrease in our results of operations ( below forecasts ) and stock price during the third quarter of 2012 , we undertook a goodwill and intangible asset impairment analysis and engaged a third party to assist management in valuing goodwill and other intangible assets recorded on our balance sheet in the third quarter of 2012. as a result , management determined that the estimated fair value of certain indefinite lived intangibles and implied fair value of our goodwill were lower than their respective carrying value , and the company recorded an estimated aggregate non-cash impairment charge of $ 69,796 in 2012. the non-cash impairment charge consisted of a write down of goodwill of $ 61,908 and a write down of a portion of intangible assets of $ 7,888. these charges affected our financial condition and results of operations for 2012 ; however , they have no impact on our day-to-day operations or liquidity and will not result in any future cash expenditures . interest expense increased 48.7 % from $ 2,790 in the year ended december 31 , 2011 to $ 4,148 for the year ended december 31 , 2012. interest expense increased as a result of higher interest rates and higher average debt levels on our
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during the year ended december 31 , 2013 , our r & d expenses consisted primarily of clinical research organization , or cro fees ; fees paid to consultants ; salaries and related personnel costs ; stock-based compensation ; and facility costs . during the year ended december 31 , 2012 , our r & d expenses consisted primarily of transition costs , as clinical trial responsibilities shifted from the licensor to us and our outside clinical research organization , or cro ; fees paid to other consultants ; salaries and related personnel costs ; stock-based compensation ; and facility costs . we expense our r & d costs as they are incurred . story_separator_special_tag managing the licensor legacy clinical trials . the license agreement contained a cap on the external costs associated with the licensor legacy clinical trials for which we are responsible . we reached this cost cap in the fourth quarter of 2012 and the above table reflects the outside services incurred by us net of the excess cost billed back to the licensor . internal expenses , which include all employee-related costs such as payroll , benefits and travel , were approximately $ 4.8 million for regulatory affairs and quality assurance , approximately $ 3.7 million for clinical development , and approximately $ 0.3 million for internal chemical manufacturing for the year ended december 31 , 2012. employee stock-based compensation included in r & d expenses for the year ended december 31 , 2012 , was approximately $ 0.9 million compared to $ 38,000 in 2011 and increased as a result of the increase in the number of employees . while expenditures on current and future clinical development programs , particularly our pb272 program , are expected to be substantial and to increase in 2014 , they are subject to many uncertainties , including the results of our clinical trials and whether we develop any of our drug candidates with a partner or independently . as a result of such uncertainties , we can not predict with any significant degree of certainty the duration and completion costs of our r & d projects or whether , when and to what extent we will generate revenues from the commercialization and sale of any of our product candidates . the duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during clinical development and a variety of other factors , including : the number of trials and studies in a clinical program ; the number of patients who participate in the trials ; the number of sites included in the trials ; the rates of patient recruitment and enrollment ; the duration of patient treatment and follow-up ; the costs of manufacturing our drug candidates ; and the costs , requirements , timing of , and ability to secure regulatory approvals . 48 interest income : for the year ended december 31 , 2013 , we recognized approximately $ 172,000 in interest income compared to approximately $ 98,000 and $ 4,000 of interest income for the years ended december 31 , 2012 and 2011 , respectively . the increase in interest income reflects excess cash invested in money market accounts , marketable securities and high yield savings accounts for a full year and cash invested from a public offering of our common stock completed in october 2012 ( see note 6 in the accompanying notes to consolidated financial statements ) . adjusted statement of operations : the following tables present our operating results , as calculated in accordance the accounting principles generally accepted in the united states , or gaap , as adjusted to remove the impact of employee stock-based compensation and the outside cro/licensor services and outside clinical development costs associated with the licensor legacy clinical trials that we are in the process of completing . these non-gaap financial measures are not , and should not be viewed as , substitutes for gaap reporting measures . we believe these non-gaap measures enhance understanding of our financial performance , are more indicative of our operational performance and facilitate a better comparison among fiscal periods . for the year ended december 31 , 2013 , stock-based compensation represented approximately 13.7 % of our loss from operations . this cost is related to our employee hiring practice and the fair market value of the stock option grant on the day granted . the major component of the stock-based compensation for 2012 was the valuation of an anti-dilutive warrant issued to mr. auerbach , our president and chief executive officer . these non-gaap financial measures are not , and should not be viewed as , substitutes for gaap reporting measures . we believe these non-gaap measures enhance understanding of our financial performance , are more indicative of our operational performance and facilitate a better comparison among fiscal periods . we believe the issuance of the anti-dilutive warrant was a onetime occurrence and the full value of the warrant has been recorded in our consolidated financial statements . 49 the majority of the cost associated with the licensor legacy clinical trials during 2012 were related to external costs that we were responsible for but that were subject to a cap . having reached the cap , the licensor became responsible for all external costs associated with the licensor legacy clinical trials going forward and we had only limited costs associated with our managing these trials during 2013 and expect to have limited cost through to completion of these studies . reconciliation of gaap and non-gaap financial information ( in thousands except share and per share data ) replace_table_token_5_th 50 liquidity and capital resources operating activities we reported a net loss of approximately $ 54.7 million , $ 74.4 million , and $ 10.2 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . story_separator_special_tag we also reported negative cash flows from operating activities of approximately $ 55.0 million , $ 44.0 million and $ 1.8 million for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . our net loss from former puma 's date of inception , september 15 , 2010 , to december 31 , 2013 , amounted to approximately $ 139.3 million , while negative cash flows from operating activities amounted to approximately $ 100.9 million . net cash used in operating activities for the year ended december 31 , 2013 , includes a net loss of $ 54.7 million adjusted for non-cash items of approximately $ 7.5 million for stock option expense and $ 0.4 million for depreciation and amortization of property and equipment . further adjustments include a decrease in accounts payable and accrued expenses of approximately $ 2.4 million , a decrease of $ 0.8 million in licensor receivables , and an increase in prepaid expenses and other assets of approximately $ 6.7 million . at december 31 , 2012 , we had a large receivable from the licensor covering costs incurred in the fourth quarter of 2012. the decrease in both accounts payable and accrued expenses reflect the payment of this receivable and subsequent payments for ongoing costs associated with the licensor-initiated clinical trials . the increase in prepaid expenses and other assets reflects up-front payments made to various cros for company-initiated clinical trials and for various insurance policies . net cash used in operating activities for the year ended december 31 , 2012 , includes a net loss of approximately $ 74.4 million adjusted for non-cash items of approximately $ 18.2 million from the issuance of an anti-dilutive warrant , stock option expense of $ 1.4 million , $ 0.5 million resulting from an allowance received from the landlord , an increase in accounts payable and accrued expenses of approximately $ 21.1 million , an increase of $ 10.6 million in licensor receivables and an increase in prepaid expenses of approximately $ 0.7 million . the increase in accounts payable and accrued expenses , compared to 2011 , is a direct result of us assuming operational and financial responsibility for the clinical trials transferred from the licensor . these accruals and payables consist mainly of fees due to the licensor and cros for maintaining and managing our clinical trials . the licensor receivable represents costs in excess of a cap cost established in the license agreement . the license agreement allows us to bill back any external costs associated with the transferred trials in excess of the cap cost to the licensor . we reached the cap cost during the fourth quarter of 2012. net cash used in operating activities through december 31 , 2011 , includes a net loss of $ 10.2 million adjusted from non-cash items of approximately $ 7.6 million for the issuance of an anti-dilutive warrant , stock option expense of $ 0.1 million , $ 0.4 million resulting for an allowance received from the landlord , $ 0.6 million increase in accounts payable and accrued expenses , and $ 0.3 million increase in prepaid expenses and other assets . the increase in accounts payable and accrued expenses is a direct result of us commencing operations in the fourth quarter of 2011. investing activities net cash used in investing activities was approximately $ 41.5 million for the year ended december 31 , 2013. the major portion of this is comprised of cash used for the purchase of available-for-sale securities of approximately $ 49.3 million offset by the sale and maturity of available-for-sale securities of $ 8.4 million . we invest our excess cash in available-for-sale securities . additionally , approximately $ 0.6 million of cash used in investing activities was used for the purchase of property and equipment to support corporate growth . net cash used in investing activities was approximately $ 1.2 million for the year ended december 31 , 2012. the major portion for 2012 , $ 0.6 million , represents additional computer equipment and infrastructure , along with $ 0.5 million in leasehold improvements to support our growth in the number of employees and facilities . net cash used in investing activities was approximately $ 1.7 million for the year ended december 31 , 2011. the major investing activity for 2011 was the acquisition of a high yield savings account in the amount of $ 1.1 million , which was used to secure a stand-by letter of credit issued to our landlord as collateral for our office 51 lease and leasehold improvements . we also incurred $ 0.4 million for leasehold improvements and $ 0.3 million for computers and office furniture in 2011. financing activities february 2014 common stock offering . on february 14 , 2014 , we completed an underwritten public offering of 1,126,530 shares of our common stock ( including an additional 146,938 shares of our common stock issued and sold pursuant to the underwriters ' option to purchase additional shares ) , par value $ 0.0001 per share , at a price of $ 122.50 per share , less the underwriting discount . the net proceeds received by us were approximately $ 129.3 million after deducting the underwriting discount and estimated offering expenses payable by us . during the year ended december 31 , 2013 , the cash provided by financing activities was approximately $ 2.2 million . this represents proceeds to us from employee stock options exercised during 2013. october 2012 common stock offering . on october 18 , 2012 , we entered into an underwriting agreement with merrill lynch , pierce , fenner & smith incorporated and leerink swann llc , as representatives of several underwriters providing for the offer and sale in a firm-commitment underwritten public offering of 7,500,000 shares of our common stock , par value $ 0.0001 per share at a price of $ 16 per share , less the underwriting discount .
| year ended december 31 , 2012 compared to year ended december 31 , 2011 total g & a expenses increased approximately 166 % to $ 24.8 million for the year ended december 31 , 2012 from $ 9.3 million for the year ended december 31 , 2011. the increase was primarily related to increases in employee stock-based compensation expense , facility and equipment costs , payroll and related costs and professional fees and expenses . stock-based compensation increased to $ 18.7 million in 2012 compared to $ 7.6 million in 2011. this increase primarily related to the change in fair value of a warrant issued to our chief executive officer . in connection with the closing of a public offering on october 24 , 2012 , the exercise price and number of shares underlying the anti-dilutive warrant issued to our chief executive officer were established ( see note 6 in the accompanying notes to the consolidated financial statements ) , and accordingly , the final value of the warrant became fixed . the final valuation of the warrant based on the black-scholes option pricing method , was approximately $ 25.8 million and resulted in an adjustment to the fair value of the warrant of $ 18.2 million , which is included in g & a expenses for 2012 , compared to the $ 7.6 million estimated fair value of the warrant recorded in 2011. the remaining employee stock-based compensation expense represents the fair value of stock option grants to employees applicable to the reporting period . facility and equipment costs increased to approximately $ 0.8 million in 2012 from approximately $ 52,000 in 2011 , primarily due to our not having a physical office location until december 2011 , and therefore incurring minimal expense in 2011 versus having two office locations in 2012. payroll and related costs increased to approximately $ 2.1 million in 2012 from approximately $ 0.5 million in 2011 , due to our having eight fulltime employees at december 31 , 2012 versus four
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the company 's effective income tax rate was 12.0 % for 2016. see “ results of operations – fiscal year 2016 compared to fiscal year 2015 – income tax provision ” elsewhere in this item 7. net earnings the company 's net earnings for 2017 were $ 9.3 million , including pre-tax charges of $ 0.3 million related to the facility closure mentioned above , compared to $ 18.0 million for 2016 , including the pre-tax charges of $ 0.8 million related to deferred financing costs and the facility closures described above . the net impact of the items described above was to reduce net earnings by $ 0.2 million in 2017 and to reduce net earnings by $ 0.6 million in 2016. basic and diluted earnings per share basic and diluted earnings per share for 2017 were $ 0.46 , including the facility closure mentioned above , compared to basic and diluted earnings per share of $ 0.89 for 2016 , including the deferred financing costs and the facility closures described above . the net impact of the items described above was to reduce basic and diluted earnings per share by $ 0.01 and $ 0.02 in 2017 and 2016 , respectively . 28 fiscal year 201 6 compared to fiscal year 2015 replace_table_token_4_th net sales the company 's total net sales worldwide in 2016 decreased 10 % from 2015 primarily as a result of lower sales of the company 's printed circuit materials products in asia and north america , partially offset by higher sales of the company 's aerospace composite materials , parts and assemblies products . the lower sales in asia were primarily due to a slowdown in demand for the company 's products which are used by oems in the manufacture of equipment for the internet and telecommunications infrastructure in developing countries . the company 's higher sales in asia in 2015 were the result of a spike in demand for the company 's printed circuit materials products in asia caused by internet and telecommunications infrastructure build-out programs in developing countries . in addition , the oems which manufacture equipment for these programs rapidly increased their inventory levels in excess of program demands . the company 's total net sales of its printed circuit materials products were $ 106.7 million and $ 126.4 million in 2016 and 2015 , respectively , or 73 % and 78 % , respectively , of the company 's total net sales worldwide in such periods . the company 's total net sales of its aerospace composite materials , parts and assemblies products were $ 39.1 million and $ 35.6 million in 2016 and 2015 , respectively , or 27 % and 22 % , respectively , of the company 's total net sales worldwide in such periods . the company 's foreign sales were $ 70.6 million , or 48 % of the company 's total net sales worldwide , during 2016 compared to $ 86.7 million of sales , or 53 % of total net sales worldwide , during 2015. the decrease in 2016 was primarily due to the lower sales in asia for reasons described above . the company 's sales in north america , asia and europe were 52 % , 42 % and 6 % , respectively , of the company 's total net sales worldwide in 2016 compared to 46 % , 47 % and 7 % , respectively , in 2015. the company 's sales in north america remained relatively flat , while its sales in asia decreased 19 % and its sales in europe decreased 12 % in 2016 compared to 2015 . 29 during 2016 , 93 % of the company 's total net sales worldwide of printed circuit materials consisted of high performance printed circuit materials , compared to 92 % during 2015. the company 's high performance printed circuit materials ( non-fr4 printed circuit materials ) include high-speed , low-loss materials for digital and rf/microwave applications requiring lead-free compatibility and high bandwidth signal integrity , bismalimide triazine ( “ bt ” ) materials , polyimides for applications that demand extremely high thermal performance and reliability , cyanate esters , quartz reinforced materials , and polytetrafluoroethylene ( “ ptfe ” ) and modified epoxy materials for rf/microwave systems that operate at frequencies up to at least 79ghz . gross profit the company 's gross profit margin , measured as a percentage of sales , decreased to 29.3 % in 2016 from 30.2 % in 2015 due primarily to lower sales and production levels of the company 's printed circuit materials products in asia and north america in 2016 combined with the fixed nature of certain overhead costs , which were partially offset by higher sales of the company 's aerospace products , an improvement in its printed circuit materials production processes in north america , cost reduction initiatives in the united states and lower utility rates . the gross profit in 2016 also benefited from the higher percentage of sales of higher margin , high performance printed circuit materials products than in 2015 and the growing percentage of sales of the company 's more technically advanced high performance products . selling , general and administrative expenses selling , general and administrative expenses decreased by $ 3.2 million , or 13 % , during 2016 compared to 2015. such expenses measured as percentages of sales were 14.5 % during 2016 compared to 15.0 % during 2015. the decrease in such expenses in 2016 was primarily the result of cost reduction initiatives , lower shipping expenses commensurate with the sales reduction in 2016 , a decrease in legal and professional fees , lower incentive compensation expenses and favorable foreign exchange rates . during 2015 , the company recorded non-cash charges of $ 0.4 million related to the modification of previously issued employee stock options in connection with the $ 1.50 per share special cash dividend paid by the company in february 2015 and additional fees incurred in connection with the 2014 fiscal year-end audit . story_separator_special_tag selling , general and administrative expenses in 2016 included $ 1.5 million of stock option expenses compared to $ 1.4 million of such expenses in 2015. restructuring charges during 2016 , the company recorded pre-tax restructuring charges of $ 0.5 million in connection with the closures in prior years of its facilities located in zhuhai , china and newburgh , new york , compared to pre-tax restructuring charges of $ 1.2 million in 2015 in connection with cost reduction initiatives in the united states and the aforementioned facility closures . 30 earnings from operations for the reasons set forth above , the company 's earnings from operations were $ 21.0 million for 2016 , including pre-tax charges of $ 0.5 million associated with the closures in prior years of facilities in zhuhai , china and newburgh , new york , compared to $ 23.4 million for 2015 , including the non-cash pre-tax charges of $ 0.2 million associated with the modification of previously issued employee stock options , pre-tax restructuring charges of $ 1.2 million related to cost reduction initiatives in the united states and the closures in prior years of facilities in zhuhai , china and newburgh , new york and a pre-tax charge of $ 0.2 million for additional fees incurred in connection with the 2014 fiscal year-end audit . interest expense interest expense in 2016 was $ 1.7 million , compared to $ 1.4 million in 2015. the increase in interest expense in 2016 was primarily due to pre-tax deferred financing costs of $ 0.3 million related to the early termination of the pnc bank credit agreement . as previously reported , the company entered into a three-year revolving credit facility agreement with hsbc bank usa in january 2016 , which replaced the credit facility agreement that the company entered into with pnc bank in february 2014. see note 10 of the notes to consolidated financial statements included elsewhere in this report and “ liquidity and capital resources ” elsewhere in this item 7 for additional information . interest and other income interest and other income were $ 1.1 million and $ 0.8 million for 2016 and 2015 , respectively . the 39 % increase in 2016 was primarily the result of higher weighted average interest rates based on larger average balances of marketable securities held by the company in 2016 compared to last year 's comparable period . during 2016 and 2015 , the company earned interest income principally from its investments , which were primarily in short-term instruments and money market funds . income tax provision the company 's effective income tax rate of 12.0 % for 2016 was lower than the statutory u.s. federal income tax rate because portions of the company 's taxable income in 2016 were derived in foreign jurisdictions with lower effective income tax rates . the company 's effective income tax rate was 12.1 % for 2015. see “ results of operations – fiscal year 2015 compared to fiscal year 2014 – income tax provision ” elsewhere in this item 7. net earnings the company 's net earnings for 2016 were $ 18.0 million , including pre-tax charges of $ 0.8 million related to the facility closures and deferred financing costs mentioned above , compared to $ 20.0 million for 2015 , including the pre-tax charges of $ 1.6 million related to a modification of previously issued employee stock options , cost reduction initiatives in the united states and the facility closures and additional 2014 fiscal year-end audit fees described above . the net impact of the items described above was to reduce net earnings by $ 0.6 million in 2016 and to reduce net earnings by $ 1.0 million in 2015. basic and diluted earnings per share basic and diluted earnings per share for 2016 were $ 0.89 , including the facility closures and deferred financing costs mentioned above , compared to basic and diluted earnings per share of $ 0.96 for 2015 , including the additional non-cash charges related to the modification of previously issued employee stock options , cost reduction initiatives in the united states and the facility closures and the additional 2014 fiscal year-end audit fees described above . the net impact of the items described above was to reduce basic and diluted earnings per share by $ 0.02 and $ 0.04 in 2016 and 2015 , respectively . 31 liquidity and capital resources : replace_table_token_5_th replace_table_token_6_th cash , marketable securities and restricted cash of the $ 248.6 million of cash , restricted cash and marketable securities at february 26 , 2017 , approximately $ 237.7 million was owned by certain of the company 's wholly owned foreign subsidiaries . the company believes it has sufficient liquidity to fund its operating activities for the twelve months from the date of the filing of this form 10-k annual report and for the foreseeable future thereafter . the change in cash , restricted cash and marketable securities at february 26 , 2017 compared to february 28 , 2016 was the result of lower cash provided by operating activities and a number of additional factors . the significant changes in cash provided by operating activities were as follows : ● accounts receivable decreased by 24 % at february 26 , 2017 compared to february 28 , 2016 primarily due to the reductions in total net sales and production levels ; ● accounts payable decreased 32 % at february 26 , 2017 compared to february 28 , 2016 primarily due to lower production levels in the 2017 fiscal year fourth quarter compared to the 2016 fiscal year fourth quarter and to the timing of payments to vendors and raw material purchases from suppliers ; ● accrued liabilities decreased 25 % at february 26 , 2017 compared to february 28 , 2016 due to lower accruals for incentive compensation and profit sharing . in addition , the company paid $ 8.1 million and $ 8.2 million in cash dividends during 2017 and 2016 , respectively . during 2017 , the company made $ 3.0 million of principal payments on its long-term debt .
| the company 's sales in north america , asia and europe were 53 % , 39 % and 8 % , respectively , of the company 's total net sales worldwide in 2017 compared to 52 % , 42 % and 6 % , respectively , in 2016. the company 's sales in north america decreased 19 % , while its sales in asia decreased 27 % and its sales in europe decreased 4 % in 2017 compared to 2016 . 26 during both 2017 and 2016 , 93 % of the company 's total net sales worldwide of printed circuit materials consisted of high performance printed circuit materials . the company 's high performance printed circuit materials ( non-fr4 printed circuit materials ) include high-speed , low-loss materials for digital and rf/microwave applications requiring lead-free compatibility and high bandwidth signal integrity , allylated polyphenylene ether ( “ appe ” ) , bismalimide triazine ( “ bt ” ) materials , polyimides for applications that demand extremely high thermal performance and reliability , cyanate esters , quartz reinforced materials , and polytetrafluoroethylene ( “ ptfe ” ) and modified epoxy materials for rf/microwave systems that operate at frequencies up to at least 79ghz . gross profit the company 's gross profit margin , measured as a percentage of sales , decreased to 26.2 % in 2017 from 29.3 % in 2016 due primarily to lower sales and production levels of the company 's printed circuit materials products in asia and north america in 2017 and lower sales of the company 's aerospace products combined with the fixed nature of certain overhead costs , which were partially offset by an improvement in its printed circuit materials production processes in north america . the gross profit in 2017 also benefited from the growing percentage of sales of the company 's more technically advanced high performance printed circuit materials products . selling , general and administrative expenses selling , general and administrative expenses decreased by $ 1.5 million , or 7 % , during 2017 compared to 2016. such expenses measured as percentages of sales were 17.2 % during 2017 compared to 14.5 % during 2016. the decrease in such expenses in 2017 was primarily due to decreases in shipping expenses commensurate with the sales reduction in 2017 , and lower salary expenses , incentive compensation , stock option expenses and professional fees , partially offset by unfavorable foreign exchange rates . selling , general and administrative expenses in 2017 included $ 1.2 million of stock option expenses compared to $ 1.5 million
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they have concluded that , based on story_separator_special_tag introduction the following discussion should be read in conjunction with the financial statements and notes thereto . our fiscal year ends december 31. this document contains certain forward-looking statements including , among others , anticipated trends in our financial condition and results of operations and our business strategy . these forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties . ( see part i , item 1a , `` risk factors `` ) . actual results could differ materially from these forward-looking statements . important factors to consider in evaluating such forward-looking statements include ( i ) changes in external factors or in our internal budgeting process which might impact trends in our results of operations ; ( ii ) unanticipated working capital or other cash requirements ; ( iii ) changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the industries in which we operate ; and ( iv ) various competitive market factors that may prevent us from competing successfully in the marketplace . overview we design , manufacture and supply miniature displays , which we refer to as oled-on-silicon-microdisplays , and microdisplay modules for virtual imaging , primarily for incorporation into the products of other manufacturers . microdisplays are typically smaller than many postage stamps , but when viewed through a magnifier they can contain all of the information appearing on a high-resolution personal computer screen . our microdisplays use organic light emitting diodes , or oleds , which emit light themselves when a current is passed through the device . our technology permits oleds to be coated onto silicon chips to produce high resolution oled-on-silicon microdisplays . we believe that our oled-on-silicon microdisplays offer a number of advantages in near to the eye applications over other current microdisplay technologies , including lower power requirements , less weight , fast video speed without flicker , wide operating temperature and wider viewing angles . in addition , many computer and video electronic system functions can be built directly into the oled-on-silicon microdisplay , resulting in compact systems with lower expected overall system costs relative to alternate microdisplay technologies . we have devoted significant resources to the development and commercial launch of our oled microdisplay products into military , industrial and medical applications world-wide . first sales of our svga+ microdisplay began in may 2001 and we launched the svga-3d microdisplay in february 2002. in 2008 the sxga microdisplay became our first digital display , and in 2011 we introduced the vga oled-xl , our lowest powered microdisplay , and the wuxga oled-xl which exceeds 1080p hd resolution . as of january 31 , 2016 and 2015 , we had a backlog of approximately $ 6.9 and $ 8.5 mil lion , respectively , in products ordered for delivery through december 31 , 2016 and 2015 , respectively . this backlog consists of non-binding purchase orders and purchase agreements . these products are being applied or considered for near-eye and headset applications in products such as thermal imagers , night vision goggles , virtual reality and augmented reality devices to be manufactured by original equipment manufacturer ( oem ) customers . in addition to marketing oled-on-silicon microdisplays as components , we also offer microdisplays as an integrated package , which we call microviewer that includes a compact lens for viewing the microdisplay and electronic interfaces to convert the signal from our customer 's product into a viewable image on the microdisplay . we have developed a strong intellectual property portfolio that includes patents , manufacturing know-how and unique proprietary technologies to create high performance oled-on-silicon . we believe our technology , intellectual property portfolio and position in the marketplace , gives us a leadership position in oled and oled-on-silicon microdisplay technology . we are one of only a few companies in the world to market and produce significant quantities of high resolution full-color small molecule oled-on-silicon microdisplays . in 2015 , emagin introduced the high brightness oled platform for products termed as the oled-xls series . this set of products shows a lower voltage of operation and a higher luminance . the maximum luminance for the oled-xls based products can reach 1,000 nits in full color . in 2014 , emagin was awarded and began work on several new r & d contracts that have resulted in significant additional revenue beginning in 2014 and 2015 and work is expected to continue into 2016 and 2017. the awards total over $ 7 million . there are three government programs : 1 ) to improve the backplane ; 2 ) to increase the brightness of the oled display and 3 ) the mantech program , which was awarded to increase the efficiency of the oled microdisplay manufacturing process . these r & d contracts are on schedule . initial design work was completed for the improved backplane project . preliminary tests to fabricate very low voltage , high brightness , oled devices show encouraging results . following an initial upgrade to the existing direct patterning tool in 2014 a further upgrade is being ordered in 2016. this upgrade will significantly shorten the processing time and also allow device performance improvement . the expected delivery time of the tool upgrade is third quarter 2016 . 21 the sxga-096 microdisplay was redesigned in 2014 to improve system integration and extend its operating capabilities to take advantage of the new oled technology improvements being developed by us . this microdisplay was qualified in 2015 and customer shipments started in the third quarter . story_separator_special_tag also , a number of our customers are taking delivery of samples of our green xlt displays in a variety of formats for testing in avionics and other applications requiring very high brightness . our green xlt displays has a brightness up to 24,000 nits and is useful in applications with very high background lighting such as daytime viewing . in q3 2015 , we completed a redesign of the sxga120 microdisplay for improved producibility , electro-optical performance and the addition of features developed since the first inception of the sxga120 , the new display is completely backwards compatible with the original sxga120 , providing customers with a transparent upgrade path . in 2015 , we demonstrated a prototype vr headset with a field of view of > 100 that used a prototype 2k by 2k display . this display is being upgraded and is expected to be qualified and offered for sale in early 2017. company history as of january 1 , 2003 , we were no longer classified as a development stage company . we transitioned to manufacturing our product and have significantly increased our marketing , sales , and research and development efforts , and expanded our operating infrastructure . currently , most of our operating expenses are labor related and semi-fixed . if we are unable to generate significant revenues , our net income in any given period could be less than expected . critical accounting policies the sec defines `` critical accounting policies '' as those that require application of 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 and may change in subsequent periods . not all of the accounting policies require management to make difficult , subjective or complex judgments or estimates . however , the following policies could be deemed to be critical within the sec definition . revenue and cost recognition revenue on product sales is recognized when persuasive evidence of an arrangement exists , such as when a purchase order or contract is received from the customer ; the price is fixed ; title and risk of loss to the goods has changed and there is a reasonable assurance of collection of the sales proceeds . we obtain written purchase authorizations from our customers for a specified amount of product at a specified price and consider delivery to have occurred at the time of shipment . revenues from research and development activities relating to firm fixed-price contracts and cost-type contracts are generally recognized on the percentage-of-completion method of accounting as costs are incurred ( cost-to-cost basis ) . progress is generally based on a cost-to-cost approach ; however , an alternative method may be used such as physical progress , labor hours or others depending on the type of contract . physical progress is determined as a combination of input and output measures as deemed appropriate by the circumstances . contract costs include all direct material , labor and subcontractor costs and an allocation of allowable indirect costs as defined by each contract , as periodically adjusted to reflect revised agreed upon rates . these rates are subject to audit by the other party . product warranty we offer a one-year product replacement warranty . in general , our standard policy is to repair or replace the defective products . we accrue for estimated returns of defective products at the time revenue is recognized based on historical activity as well as for specific known product issues . the determination of these accruals requires us to make estimates of the frequency and extent of warranty activity and estimate future costs to replace the products under warranty . if the actual warranty activity and or repair and replacement costs differ significantly from these estimates , adjustments to cost of revenue may be required in future periods . use of estimates in accordance with accounting principles generally accepted in the united states of america , management utilizes certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments related to , among others , allowance for doubtful accounts , warranty reserves , inventory reserves , stock-based compensation expense , deferred tax asset valuation allowances , fair value of financial instruments , litigation and other loss contingencies . management bases its estimates and judgments on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from those estimates . 22 fair value of financial instruments emagin 's cash , cash equivalents , accounts receivable , short-term investments , and accounts payable are stated at cost which approximates fair value due to the short-term nature of these instruments . long-term investments are stated at cost which approximates fair value . stock-based compensation emagin maintains several stock equity incentive plans . the 2005 employee stock purchase plan ( the “ espp ” ) provides our employees with the opportunity to purchase common stock through payroll deductions . employees may purchase stock semi-annually at a price that is 85 % of the fair market value at certain plan-defined dates . as of december 31 , 2015 , the number of shares of common stock available for issuance was 300,000. as of december 31 , 2015 , the plan had not been implemented .
| cost of goods sold as a percentage of revenues was 72 % for the year ended december 31 , 2015 up slightly from 71 % for the year ended december 31 , 2014. the following table outlines product , contract and total gross profit and related gross margins for the years ended december 31 , 2015 and 2014 ( dollars in thousands ) : replace_table_token_7_th in 2015 , total gross profit decreased approximately $ 0.4 million or 6 % . total gross margin was 28 % for the year ended december 31 , 2015 down slightly from 29 % for the year ended december 31 , 2014. product gross profit decreased approximately $ 1.2 million as it was impacted by a 13 % decrease in 2015 revenues and the 2015 product cost of goods sold decreased 11 % due to a 13 % decrease in production costs offset by a $ 1.2 million write-down of inventory . product gross margin decreased from 28 % in 2014 to 26 % in 2015 due to a write-down of inventory and a higher cost per display partially offset by a higher average selling price in 2015. contract gross profit increased approximately $ 0.8 million as a result of an increase in 2015 revenues of $ 2.6 million offset by an increase of 2015 contract cost of goods sold of $ 1.8 million . contract gross margin decreased from 43 % in 2014 to 36 % in 2015. contract gross margin is dependent upon the mix of internal versus external third party costs , with the external third party costs causing a lower gross margin and reducing the contract gross profit . 25 operating expenses replace_table_token_8_th research and development expenses research and development expenses include salaries , development materials and other costs specifically allocated to the development of new microdisplay products , oled materials and subsystems . research and development expenses for the year ended december 31 , 2015 were approximately $ 4.1 million as compared to approximately $ 4.5 million for the year ended december 31 , 2014 , a decrease of approximately $ 0.4 million . the decrease in company-funded
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we expect our retail square footage will remain relatively flat in 2017 . 17 gross profit our cost of goods sold consists primarily of the purchase price of the merchandise together with inbound freight , handling within our distribution centers and transportation costs to the local markets we serve . our gross profit is primarily dependent upon vendor pricing , the mix of products sold and promotional pricing activity . substantially all of our occupancy and home delivery costs are included in selling , general and administrative expenses as is a portion of our warehousing expenses . accordingly , our gross profit may not be comparable to those entities that include some of these expenses in cost of goods sold . year-to-year comparisons gross profit as a percentage of net sales was 54.0 % in 2016 compared to 53.5 % in 2015. we use the lifo inventory valuation method and the impact of changes in the lifo reserve generated a $ 1.9 million or 23 basis points positive impact in 2016 over 2015. our execution on product mix and pricing yielded the rest of the total improvement . our havertys branded merchandise provides a strong value and fashion statement to consumers . the increasing sales generated by our in‑home designers have boosted higher margin mix opportunities through custom upholstery and accessories sales . gross profit as a percentage of net sales was 53.5 % in 2015 compared to 53.7 % in 2014. we had a larger than normal number of new merchandise group introductions over the last quarter of 2014 and the first quarter of 2015. the closeout sales of the replaced products , quality issues from certain new products and the related increased reserves contributed to slightly lower margins in 2015 . 2017 outlook our expectations for 2017 are for annual gross profit margins of approximately 53.6 % . this reduction is based on anticipated changes to product and transportation costs , a negative impact from lifo , and increased sales of markdown merchandise . we do not plan to increase the level of our promotional pricing . selling , general and administrative expenses sg & a expenses are comprised of five categories : selling , occupancy , delivery and certain warehousing costs , advertising , and administrative . selling expenses primarily are comprised of compensation of sales associates and sales support staff , and fees paid to credit card and third-party finance companies . occupancy costs include rents , depreciation charges , insurance and property taxes , repairs and maintenance expense and utility costs . delivery costs include personnel , fuel costs , and depreciation and rental charges for rolling stock . warehouse costs include supplies , depreciation , and rental charges for equipment . advertising expenses are primarily media production and space , direct mail costs , market research expenses and agency fees . administrative expenses are comprised of compensation costs for store personnel exclusive of sales associates , information systems , executive , accounting , merchandising , advertising , supply chain , real estate and human resource departments . we classify our sg & a expenses as either variable or fixed and discretionary . our variable expenses include the costs in the selling and delivery categories and certain warehouse expenses as these amounts will generally move in tandem with our level of sales . the remaining categories and expenses are classified as fixed and discretionary because these costs do not fluctuate with sales . the following table outlines our sg & a expenses by classification : replace_table_token_7_th 18 year-to-year comparisons our sg & a costs as a percent of sales increased 80 basis points to 48.6 % from 47.8 % in 2015. the fixed and discretionary expenses increased $ 9.0 million or 3.7 % in 2016 over 2015. this change was primarily due to a $ 6.5 million rise in administrative costs driven by increases in medical insurance and compensation expense . our depreciation expense increased $ 3.3 million offset partly by a reduction of $ 1.3 million in all other occupancy costs . our variable expenses increased 30 basis points as our in-home design business grew and due to slightly higher delivery costs . our sg & a costs as a percent of sales increased 30 basis points to 47.8 % for 2015 from 47.5 % in 2014. the fixed and discretionary expenses increased $ 10.5 million or 4.5 % in 2015 to $ 240.9 million from $ 230.5 million in 2014. this increase was driven by $ 4.7 million in additional administrative costs primarily from compensation expense , of which $ 1.4 million related to new stores . our new locations and improvements generated a $ 4.2 million increase in depreciation and other occupancy costs in 2015 compared to 2014. our variable expenses were higher as a percent of net sales in 2015 compared to 2014 primarily due to sales associates added in new locations and the expansion of our in-home design program . 2017 outlook fixed and discretionary type expenses within sg & a are expected to be in the $ 260.0 to $ 261.0 million range for 2017 , up approximately 4.0 % over those same costs in 2016. the increase is largely due to an expanded advertising budget , higher occupancy costs from new and relocated stores , staffing increases and inflation . fixed and discretionary type expenses in total should average approximately $ 64.0 million per quarter in the first half of 2017 and $ 66.0 million per quarter in the second half . for 2016 these expenses averaged $ 61.2 million per quarter in the first half and $ 63.7 million in the second half . variable costs within sg & a for 2017 are expected to be 18.1 % as a percent of sales , somewhat higher in the first half and lower in the second half due to efficiencies from the typical higher volume in the third and fourth quarters . story_separator_special_tag pension settlement we terminated our qualified defined benefit pension plan ( the `` plan '' ) in 2014 as reported more fully in note 10 to the notes to consolidated financial statements . the settlement of the plan 's obligations required the recognition of pension settlement expenses in the fourth quarter of 2014. we recognized termination and settlement expense of $ 21.6 million and a related tax benefit of $ 0.9 million for a total impact on consolidated net income of $ 20.7 million or $ 0.90 per diluted earnings per share . we had approximately $ 6.8 million of unamortized costs net of $ 4.2 million of tax related to the plan included on our balance sheet in accumulated other comprehensive income ( loss ) ( `` aoci '' ) prior to settlement . also included in aoci was a debit of $ 6.9 million resulting from the 'backward-tracing '' prohibition related to changes in a valuation allowance from previous periods . see additional discussion in `` provision for income taxes '' which follows . the settlement of the plan caused these amounts totaling $ 13.6 million to be reclassified from aoci to income . the termination and settlement of the plan did not impact cash flow and resulted in a net reduction of approximately $ 7.1 million in our total stockholders ' equity . 19 interest expense our interest expense for the years 2014 to 2016 is primarily driven by amounts related to our lease obligations . for leases accounted for as capital and financing lease obligations , we record straight-line rent expense for the land portion in occupancy costs in sg & a along with amortization on the additional asset recorded . rental payments are recognized as a reduction of the obligations and as interest expense . the number of stores , including those under construction , which are accounted for in this manner has increased from 16 in 2014 to 18 in 2016. we expect interest expense for lease obligations will be $ 2.3 million in 2017. provision for income taxes our effective tax rate was 38.1 % , 38.6 % and 66.0 % for 2016 , 2015 and 2014 , respectively . refer to note 7 of the notes to the consolidated financial statements for a reconciliation of our income tax expense to the federal income tax rate . our 2016 and 2015 rate varies from the 35 % u.s. federal statutory rate primarily due to state income taxes . our 2014 rate includes the reversal of $ 6.9 million from aoci to income tax expense . we established a valuation allowance in 2008 against virtually all of our deferred tax assets due to our operating loss in that year and projected loss in 2009. a portion of the allowance was charged to aoci and was increased in 2009. our profitability in 2011 was sufficient for us to release the valuation allowance . the `` backward-tracing '' prohibition in asc 740 , income taxes required us to record the total amount of the release as a tax benefit in net income including the portion originally charged to aoci . this resulted in a debit of $ 6.9 million remaining in aoci which would remain until the settlement of the plan 's pension obligations when it was reversed and included in total tax expense . the 2014 rate , excluding this reversal , varies from the 35 % u.s federal statutory rate primarily due to state income taxes . liquidity and capital resources overview of liquidity our primary cash requirements include working capital needs , contractual obligations , benefit plan contributions , income tax obligations and capital expenditures . we have funded these requirements exclusively through cash generated from operations and have not used our credit facility since 2008. we believe funds generated from our expected results of operations and available cash and cash equivalents will be sufficient to fund our primary obligations and complete projects that we have underway or currently contemplate for the next fiscal and foreseeable future years . at december 31 , 2016 , our cash and cash equivalents balance was $ 63.5 million , a decrease of $ 7.2 million compared to december 31 , 2015. this change in cash primarily resulted from strong operating results offset by purchases of property and equipment , the acquisition of treasury stock and dividends paid to stockholders . additional discussion of our cash flow results , including the comparison of 2016 activity to 2015 , is set forth in the analysis of cash flows section . at december 31 , 2016 , our outstanding indebtedness was $ 55.5 million in lease obligations required to be recorded on our balance sheet . we had no amounts outstanding and $ 53.4 million available under our revolving credit facility . capital expenditures our primary capital requirements have been focused on our stores and the development of both proprietary and purchased information systems . our capital expenditures were $ 29.8 million in 2016 , $ 2.7 million more than in 2015 . 20 our future capital requirements will depend in large part on the number of and timing for new stores we open within a given year , the investments we make to the improvement and maintenance of our existing stores , and our investment in distribution improvements and new information systems to support our key strategies . in 2017 , we anticipate that our capital expenditures will be approximately $ 26.9 million , refer to our store expansion and capital expenditures discussion below . analysis of cash flows the following table illustrates the main components of our cash flows ( in thousands ) : replace_table_token_8_th cash flows from operating activities . during 2016 , net cash provided by operating activities was $ 60.1 million . the primary components of the changes in operating assets and liabilities are listed below : · decrease in inventories of $ 6.9 million as we operated with leaner quantities in our distribution centers .
| the goal of utilizing these measurements is to provide tools in economic decision-making such as store growth , capital allocation and product pricing . we also employ metrics that are customer focused ( customer satisfaction score , on-time-delivery and quality ) , and internal effectiveness and efficiency metrics ( sales per employee , average sale per ticket , closing ratios per customer store visit , inventory out-of-stock , exceptions per deliveries , and lost time incident rate ) . these measurements aid us in determining areas of our operations that are in need of additional attention but are not evaluated in isolation from others , so as not to conflict with our company goals . 15 operating results the following table provides selected data for the periods indicated and reconciles the non-gaap financial measures to their comparable gaap measures . see the additional discussion contained in this item 7 ( in thousands , except per share data ) : year ended december 31 , 2016 2015 2014 statement of operations data : net sales $ 821,571 $ 804,870 $ 768,409 gross profit 443,337 430,776 412,366 selling , general and administrative expenses 399,236 384,801 364,654 pension settlement expense — — 21,623 income before interest and income taxes 48,054 47,564 26,308 income before income taxes 45,821 45,275 25,257 net income $ 28,356 $ 27,789 $ 8,589 other financial data : ebit $ 48,054 $ 47,564 $ 26,308 pension settlement expenses — — 21,623 adjusted ebit $ 48,054 $ 47,564 < td style= '' width : 1 % ; vertical-align : bottom ; padding-bottom : 4px ;
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recent accounting pronouncements – no recent accounting pronouncements are expected to have a significant impact on the corporation 's financial statements . accounting standards update 2010-20 ( asu 2010-20 ) , “ disclosures about the credit quality of financing receivables and the allowance for credit losses ” was issued by the financial accounting standards board ( fasb ) in july 2010. asu 2010-20 provides new authoritative accounting guidance under asc topic 310 , “ receivables , ” amending prior guidance to provide expanded disclosures focused around segments and classes of financing receivables ( loans ) . the additional disclosures will include details on our past due loans and credit quality indicators . for public entities , asu 2010-20 disclosures of period-end balances are effective for interim and annual reporting periods on or after december 15 , 2010. the new guidance did not have a material impact on the company 's statements of income and financial condition . the expanded disclosures required under asu 2010-20 are included in the note 5 to the company 's consolidated financial statements . disclosures related to activity that occurs during the reporting period are required for interim and annual reporting periods beginning on or after december 15 , 2010. the corporation will adopt the disclosures related to the activity that occurs during the reporting period beginning with out march 31 , 2011 consolidated financial statements . in january 2010 , the fasb issued asu no . 2010-06 “ fair value measurements and disclosures ( topic 820 ) — improving disclosures about fair value measurements. ” asu 2010-06 amends the fair value disclosure guidance . the amendments include new disclosures and changes to clarify existing disclosure requirements . asu 2010-06 was effective for interim and annual reporting periods beginning after december 15 , 2009 , except for the disclosures about purchases , sales , issuances , and settlements of level 3 fair value measurements . those disclosures are effective for fiscal years beginning after december 15 , 2010 , and for interim periods within those fiscal years . the impact of asu 2010-06 on the company 's disclosures is reflected in note 19 ( fair value disclosures ) of the consolidated financial statements . story_separator_special_tag block ; margin-left : 0pt ; text-indent : 0pt ; margin-right : 0pt '' > comparison of 2009 to 2008 - net income decreased from a profit of $ 1.7 million in 2008 to a loss of $ 34.2 million in 2009 due to significant increases in the provision for loan losses , increases in deposit insurance assessments by the fdic , losses on the sales and write downs of other real estate due to the overall decline in real estate values , and other expenses related to the decline in asset quality . in addition , the corporation experienced other than temporary impairment charges in its investment portfolio . the primary source of earnings for the bank is its net interest income , which decreased $ 1.4 million , or 3.2 % compared to 2008. net interest income decreased even though the net interest margin improved from 2.96 % to 3.06 % because the average earning assets decreased $ 89.3 million , or 6.1 % . economic conditions remained weak throughout southeast michigan even though the rest of the country began to see some improvement in 2009 , and loan demand decreased . as a result of the low loan demand and the low interest rate environment , we were able to decrease the amount of the bank 's funding from higher cost certificates of deposit and non deposit borrowings . this change in our funding structure enabled us to decrease our cost of funds more than our yield on earning assets , resulting in the increase in the net interest margin . interest income decreased $ 13.9 million during 2009 as the yield on earnings assets decreased from 5.94 % to 5.30 % , while the amount of earning assets was decreased from $ 1.43 billion to $ 1.34 billion . interest expense decreased $ 12.5 million compared to 2008 as the amount of interest bearing liabilities decreased $ 67.4 million and the cost of the interest bearing liabilities decreased from 3.33 % in 2008 to 2.48 % in 2009. the decrease in the average cost of funds was due to the historically low level of market interest rates throughout the year and because most of the reduction in the outstanding balances of interest bearing liabilities occurred in reduction in the balances of higher cost certificates of deposit and borrowed funds . 30 the provision for loan loss expense increased 100 % , from $ 18.0 million in 2008 to $ 36.0 million in 2009. the increase in the provision expense was required due to the continued deterioration of regional and national economic conditions . net charge offs increased from $ 19.7 million in 2008 to $ 30.5 million in 2009. the $ 5.5 million loan loss provision expense that was in excess of the net charge offs funded an increase in the allowance for loan losses that was necessitated by the declining quality of the loan portfolio . other income decreased to $ 10.5 million in 2009 from $ 16.0 million in 2008. the amount of wealth management assets under management declined due to lower market values of investments and a decrease in account balances . this caused the wealth management fee income to decrease 13.1 % from $ 4.3 million in 2008 to $ 3.8 million in 2009. service charges and other fees on deposit accounts decreased $ 0.6 million , or 9.2 % due to a significant decrease in the amount of nsf activity . the bank restructured its investment portfolio in 2009 , selling debt and mortgage backed securities issued by fannie mae and freddie mac and reinvesting most of the proceeds in mortgage backed securities issued by ginnie mae . story_separator_special_tag this activity reduced the regulatory risk weighting of these assets from 20 % to 0 % , and produced net gains on sales of $ 7.4 million , an increase of $ 7.0 million over the net gains realized in 2008. the corporation also recorded a charge to earnings of $ 11.8 million to recognize the otti of trup cdos held in the bank 's investment portfolio . income on bank owned life insurance policies increased $ 103,000 , or 7.4 % due to improved policy yields and lower policy costs resulting from changing carriers on some of the policies . other non interest income increased $ 257,000 , or 8.4 % primarily due to higher atm and debit card interchange income . other expenses increased $ 9.8 million , or 24.4 % compared to 2008 as the weak economic environment and declining real estate values resulted in a substantial increase in problem assets and therefore a corresponding increase in expenses associated with the monitoring , management , collection , and disposition of those problem assets . salaries and benefits increased $ 126,000 or 0.6 % even though the average number of full time equivalent employees decreased from 378 in 2008 to 369 in 2009. the cost savings from the staff reduction was offset by lower loan origination expense deferral and higher benefit costs . occupancy expense decreased $ 331,000 , or 9.2 % due to branch closings and a reduction in rent expense . marketing expense decreased $ 219,000 , or 17.5 % due to reductions in advertising , customer calling , and sponsorship programs . professional fees and collection expense , combined , increased $ 77,000 as a significant reduction in accounting and consulting fees was offset by higher legal and other credit related collection expenses . losses on other real estate owned ( oreo ) increased from $ 2.7 million in 2008 to $ 10.5 million in 2009 as the bank wrote down the values of several foreclosed properties and realized losses by selling a large number of properties at auctions in 2009. fdic deposit insurance assessments increased $ 2.3 million , or 364.6 % due to a special assessment of $ 663,000 to help replenish the insurance fund , an increase in our assessment rate , and because we utilized previously earned assessment credits in 2008. the company 's net loss for 2009 , before the provision for income taxes was $ 34.3 million , a decrease of $ 34.7 million from the reported net income of $ 375,000 in 2008. due to our allowance for loan losses , our write downs of oreo , and our otti charges , our deferred tax asset ( dta ) was $ 17 million at the end of 2009. we reviewed our deferred tax asset , considering both positive and negative evidence and analyzing changes in near term market conditions as well as other factors that may impact future operating results . significant negative evidence is our net operating losses for 2008 and 2009 , combined with a difficult economic environment and uncertainty in the timing of a meaningful economic recovery in southeast michigan . positive evidence includes our history of strong earnings prior to 2008 , our strong capital position , our improving net interest margin , and our non interest expense control initiatives . based on our analysis of the evidence , we established a $ 13.8 million valuation allowance for this dta . as a result , we recorded a total tax benefit of $ 102,000 in 2009 , compared to our tax benefit of $ 1.3 million in 2008. the company 's net loss for 2009 was $ 34.2 million , compared to a net income of $ 1.7 million in 2008 . 31 earnings for the bank are usually highly reflective of the net interest income . economic conditions deteriorated rapidly in 2008 , and the federal open market committee ( fomc ) of the federal reserve lowered the fed funds rate seven times , bringing it to 0-0.25 % , where it remained throughout 2009 and 2010. this caused the yield curve shape to move from inverted in 2008 to a very steep , positive slope in 2009 and through 2010. the fed extended its quantitative easing program in 2010 in an attempt to keep longer term market rates low and encourage borrowing and fight deflation . loan and investment yields follow long term market yields , and the yield on our loans decreased from 6.35 % in 2008 to 5.84 % in 2009 and 5.70 % in 2010. the yields on our investment securities also decreased each year , from 5.07 % in 2008 to 4.16 % in 2009 and 2.78 % in 2010. in the current environment of historically low interest rates , we have been reinvesting our investment portfolio cash flow into shorter maturity securities and maintaining large cash reserves , which contributed to the decline in the investment yield in 2010. the investment portfolio restructuring in 2009 , which reduced the risk weighting of our assets and prevented an increase in extension risk , caused the decline in investment yields in 2009. funding costs are more closely tied to the short term rates , and the average cost of our deposits decreased from 2.43 % % in 2008 to 1.70 % in 2009 and to 1.28 % in 2010. borrowed funds costs are primarily based on the 3 month libor , which also decreased sharply in 2008 and 2009 before leveling off in 2010. as a result our average cost of borrowed funds decreased from 5.08 % in 2008 to 4.30 % in 2009 and to 3.52 % in 2010. this caused our net interest margin to increase slightly from 2.96 % in 2008 to 3.06 % in 2009 and to 3.10 % in 2010. the average cost of interest bearing deposits was 1.49 % , 1.94 % , and 2.78 % , for 2010 , 2009 , and 2008 , respectively . the following table shows selected financial ratios for the same three years .
| interest expense decreased $ 10.2 million compared to 2009 as the average amount of interest bearing liabilities decreased $ 138.5 million and the cost of the interest bearing liabilities decreased from 2.48 % in 2009 to 1.85 % in 2010. the decrease in the average cost of funds was due to the historically low level of market interest rates throughout the year and because most of the reduction in the outstanding balances of interest bearing liabilities occurred in reduction in the balances of higher cost borrowed funds . 29 the provision for loan loss expense decreased 43.1 % , from $ 36.0 million in 2009 to $ 20.5 million in 2010. the decrease in the provision expense was possible because the credit quality of the loan portfolio stabilized and the amount of net charge offs decreased from $ 30.5 million in 2009 to $ 23.3 million in 2010. although the net charge offs exceeded the provision by $ 2.8 million , causing a reduction of that amount in the allowance for loan losses , the allowance as a percent of loans only decreased from 2.83 % as of december 31 , 2009 to 2.82 % as of december 31 , 2010. other income increased from $ 10.5 million in 2009 to $ 19.4 million in 2010. the amount of wealth management fee income increased 7.6 % from $ 3.8 million in 2009 to $ 4.0 million in 2010 , primarily due to estate settlement fees . service charges and other fees on deposit accounts decreased $ 0.5 million , or 8.5 % due to a significant decrease in the amount of nsf activity . the bank sold a large portion of its investment portfolio in 2010 to generate the cash needed to payoff its advances from the federal home loan bank of indianapolis . investment securities sales produced a gain of $ 3.3 million in 2010 , which was $ 4.2 million , or 56.1 % less than the gain produced by a portfolio restructuring in 2009. in 2009 , the company also recorded a charge to earnings of $ 11.8 million to recognize the other than temporary impairment ( otti ) of pooled trust preferred collateralized debt obligations ( trup cdos ) held in
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these organizations are also increasingly seeking artificial intelligence and other advanced data analysis tools such as predictive intelligence to gain intelligence faster with fewer analysts and data scientists , especially given the shortage of qualified personnel in today 's market . our growth will be impacted by our ability to leverage automation and predictive intelligence technologies to improve the quality and speed of investigations and intelligence production . see item 1 , “ business ” , of this report for more information on key trends that we believe are driving demand for our solutions and “ risk factors ” under item 1a of this report for a more complete description of risks that may impact future revenue and profitability . 34 critical accounting policies and estimates an appreciation of our critical accounting policies is necessary to understand our financial results . the accounting policies outlined below are considered to be critical because they can materially affect our operating results and financial condition , as these policies may require us to make difficult and subjective judgments regarding uncertainties . the accuracy of these estimates and the likelihood of future changes depend on a range of possible outcomes and a number of underlying variables , many of which are beyond our control , and there can be no assurance that our estimates are accurate . revenue recognition our revenue recognition policy is a critical component of determining our operating results and is based on a complex set of accounting rules that require us to make significant judgments and estimates . we derive and report our revenue in two categories : ( a ) product revenue , including licensing of software products and sale of hardware products ( which include software that works together with the hardware to deliver the product 's essential functionality ) , and ( b ) service and support revenue , including revenue from installation services , post-contract customer support ( “ pcs ” ) , project management , hosting services , saas , application managed services , product warranties , business advisory consulting and training services . we follow the appropriate revenue recognition rules for each of these revenue streams . for additional information , see note 1 , “ summary of significant accounting policies ” to our consolidated financial statements included under item 8 of this report . revenue recognition for a particular arrangement is dependent upon such factors as the level of customization within the solution and the contractual delivery , acceptance , payment , and support terms with the customer . significant judgment is often required to conclude on each of these factors , and if we were to change any of these assumptions or judgments , it could cause a material increase or decrease in the amount of revenue that we report in a particular period . we generally consider a purchase order or executed sales quote , when combined with a master license agreement , to constitute evidence of an arrangement . delivery occurs when the product is shipped or transmitted and title and risk of loss have transferred to the customers . our typical customer arrangements do not include substantive product acceptance provisions ; however , if such provisions are provided , delivery is deemed to occur upon acceptance . we consider the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within our standard payment terms . if the fee due from a customer is not fixed or determinable due to extended payment terms , revenue is recognized when payment becomes due or upon cash receipt , whichever is earlier . for multiple-element arrangements comprised only of tangible products containing software components and non-software components and related services , we allocate revenue to each element in an arrangement based on a selling price hierarchy . the selling price for a deliverable is based on its vendor-specific objective evidence ( “ vsoe ” ) , if available , third-party evidence ( “ tpe ” ) , if vsoe is not available , or estimated selling price ( “ esp ” ) , if neither vsoe nor tpe is available . the total transaction revenue is allocated to the multiple elements based on each element 's relative selling price compared to the total selling price . we account for multiple-element arrangements that contain only software and software-related elements by allocating a portion of the total purchase price to the undelivered elements , primarily installation services , pcs , consulting , and training , using vsoe of fair value of the undelivered elements . the remaining portion of the total transaction value is allocated to the delivered software , referred to as the residual method . if we are unable to establish vsoe for the undelivered elements of the arrangement , revenue recognition is deferred for the entire arrangement until all elements of the arrangement are delivered , unless the only undelivered element is pcs , in which case we recognize the arrangement fee ratably over the pcs period . for multiple-element arrangements that are comprised of a combination of software and non-software deliverables , the total transaction value is bifurcated between the software deliverables and non-software deliverables based on the relative selling prices of the software and non-software deliverables as a group . revenue is then recognized for the software and software-related services following the residual method or ratably over the pcs period if vsoe for pcs does not exist , and for the non-software deliverables following the revenue recognition methodology outlined above for multiple-element arrangements that contain tangible products and other non-software related services . our policy for establishing vsoe for installation , business advisory consulting , and training is based upon an analysis of separate sales of services . we utilize either the substantive renewal rate approach or the bell-shaped curve approach to establish vsoe for our pcs offerings , depending upon the business segment , geographical region , or product line . story_separator_special_tag the timing of revenue recognition on software licenses and other revenue could be significantly impacted if we are unable to maintain vsoe on one or more undelivered elements during any quarterly period . loss of vsoe could result in ( i ) the complete deferral of all revenue or ( ii ) ratable recognition of all revenue under a customer arrangement until such time as vsoe is re-established . 35 if we are unable to determine the selling price because vsoe or tpe does not exist , we determine esp for the purposes of allocating the arrangement by considering several external and internal factors including , but not limited to , pricing practices , similar product offerings , margin objectives , geographies in which we offer our products and services , internal costs , competition , and product lifecycle . the determination of esp is made through consultation with and approval by our management , taking into consideration our go-to-market strategies . we have established processes to update esp for each element , when appropriate , to ensure that it reflects recent pricing experience . pcs revenue is derived from providing technical software support services and unspecified software updates and upgrades to customers on a when-and-if-available basis . pcs revenue is recognized ratably over the term of the maintenance period which , in most cases , is one year . when pcs is included within a multiple-element arrangement , we utilize either the substantive renewal rate approach or the bell-shaped curve approach to establish vsoe of the pcs , depending upon the business operating segment , geographical region , or product line . under the substantive renewal rate approach , we believe it is necessary to evaluate whether both the support renewal rate and term are substantive , and whether the renewal rate is being consistently applied to subsequent renewals for a particular customer . we establish vsoe under this approach through analyzing the renewal rate stated in the customer agreement and determining whether that rate is above the minimum substantive vsoe renewal rate established for that particular pcs offering . the minimum substantive vsoe rate is determined based upon an analysis of renewal rates associated with historical pcs contracts . typically , renewal rates of 15 % for pcs plans that provide when-and-if-available upgrades , and 10 % for plans that do not provide for when-and-if-available upgrades , would be deemed to be minimum substantive renewal rates . under the bell-shaped curve approach of establishing vsoe , we perform a vsoe compliance test to ensure that a substantial majority ( 75 % or over ) of our actual pcs renewals are within a narrow range of plus or minus 15 % of the median pricing . some of our arrangements require significant customization of the product to meet the particular requirements of the customer . for these arrangements , revenue is recognized under contract accounting methods , typically using the percentage of completion ( “ poc ” ) method . under the poc method , revenue recognition is generally based upon the ratio of hours incurred to date to the total estimated hours required to complete the contract . profit estimates on long-term contracts are revised periodically based on changes in circumstances , and any losses on contracts are recognized in the period that such losses become evident . generally , the terms of long-term contracts provide for progress billings based on completion of milestones or other defined phases of work . significant judgment is often required when estimating total hours and progress to completion on these arrangements , as well as whether a loss is expected to be incurred on the contract due to several factors including the degree of customization required and the customer 's existing environment . we use historical experience , project plans , and an assessment of the risks and uncertainties inherent in the arrangement to establish these estimates . uncertainties in these arrangements include implementation delays or performance issues that may or may not be within our control . we extend customary trade payment terms to our customers in the normal course of conducting business . to assess the probability of collection for purposes of revenue recognition , we have established credit policies that establish prudent credit limits for our customers . these credit limits are based upon our risk assessment of the customer 's ability to pay , their payment history , geographic risk , and other factors , and are not contingent upon the resale of the product or upon the collection of payments from their customers . these credit limits are reviewed and revised periodically on the basis of updated customer financial statement information , payment performance , and other factors . when a customer is not deemed creditworthy , revenue is recognized when payment is received . we record provisions for estimated product returns in the same period in which the associated revenue is recognized . we base these estimates of product returns upon historical levels of sales returns and other known factors . actual product returns could be different from our estimates and current or future provisions for product returns may differ from historical provisions . concessions granted to customers are recorded as reductions to revenue in the period in which they were granted and have been minimal in both amount and frequency . product revenue derived from shipments to resellers and oems who purchase our products for resale are generally recognized when such products are shipped ( on a “ sell-in ” basis ) since we do not expect our resellers or oems to carry inventory of our products . this policy is predicated on our ability to estimate sales returns as well as other criteria regarding these customers . we are also required to evaluate whether our resellers and oems have the ability to honor their commitment to make fixed or determinable payments regardless of whether they collect payment from their customers .
| cost of revenue the following table sets forth cost of revenue by product and service and support , as well as amortization of acquired technology for the years ended january 31 , 2018 , 2017 , and 2016 : replace_table_token_8_th we exclude certain costs of both product revenue and service and support revenue , including shared support costs , stock-based compensation , and asset impairment charges , among others , when calculating our operating segment gross margins . cost of product revenue cost of product revenue primarily consists of hardware material costs and royalties due to third parties for software components that are embedded in our software solutions . when revenue is deferred , we also defer hardware material costs and third-party software royalties and recognize those costs over the same period that the product revenue is recognized . cost of product revenue also includes amortization of capitalized software development costs , employee compensation and related expenses associated with our global operations , facility costs , and other allocated overhead expenses . in our cyber intelligence segment , cost of product revenue also includes employee compensation and related expenses , contractor and consulting expenses , and travel expenses , in each case for resources dedicated to project management and associated product delivery . our product gross margins are impacted by the mix of products that we sell from period to period . as with many other technology companies , our software products tend to have higher gross margins than our hardware products . year ended january 31 , 2018 compared to year ended january 31 , 2017 . cost of product revenue increased approximately 7 % from $ 123.3 million for the year ended january 31 , 2017 to $ 132.0 million for the year ended january 31 , 2018 , primarily due to increased contractor expenses and , to a lesser extent , an increase in material costs in our cyber intelligence segment , driven primarily by increased revenue activity as discussed above . our overall product gross margins were 67 % in each of the years ended january 31 , 2018 and 2017. product gross margins in our customer engagement segment decreased slightly from 44 82 % in the year ended january 31 , 2017 to 81 % in the year ended
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( 2 ) based on average annual inventory and cost of goods sold for the respective year . changes in inventory turnover since december 31 , 2017 are also affected by the 2018 halyard acquisition . story_separator_special_tag summarizes our consolidated statements of cash flows , which relates to continuing operations and discontinued operations : replace_table_token_11_th cash provided by operating activities in 2019 and 2018 reflected fluctuations in net income along with favorable changes in working capital . cash used for investing activities in 2019 and 2018 included capital expenditures of $ 52.2 million and $ 65.7 million , respectively , for our strategic and operational efficiency initiatives , particularly initiatives relating to information technology enhancements and optimizing our distribution network . cash used for investing activities in 2018 included cash paid for the acquisition of halyard of $ 758 million . cash ( used for ) provided by financing activities for the year ended december 31 , 2019 included dividend payments of $ 5.2 million and repayments of $ 32.2 million under our revolving credit facility , compared to dividend payments of $ 48.2 million and proceeds from borrowings of $ 105.5 million for the same period of 2018. financing activities also included repayments of $ 85.6 million in 2019 compared to $ 16.3 million in the same period of 2018 on our term loans ( under the credit agreement ) and 2021 notes . we used $ 36.2 million of cash to repurchase $ 37.3 million aggregate principal amount of the 2021 notes during 2019. in 2018 , we used net proceeds of $ 695.8 million from term loans and $ 74.8 million under our revolving credit facility primarily to fund the halyard acquisition . we also paid $ 4.3 million in financing costs related to the fourth amendment to the credit agreement in february 2019 . 21 capital resources . our sources of liquidity include cash and cash equivalents and a revolving credit facility under our credit agreement with wells fargo bank , n.a. , jpmorgan chase bank , n.a. , bank of america , n.a . and a syndicate of financial institutions ( the credit agreement ) . the credit agreement provides a borrowing capacity of $ 400 million and $ 858 million outstanding in term loans . the interest rate on our revolving credit facility and term a loans is based on the eurocurrency rate , the federal funds rate or the prime rate , plus an adjustment based on our consolidated total leverage ratio as defined by the credit agreement . our credit spread at december 31 , 2019 was eurocurrency rate plus 3.5 % . our term b loan accrues interest based on the eurocurrency rate , the federal funds rate or the prime rate , plus interest rate margin of 3.50 % per annum with respect to base rate loans ( as defined in the credit agreement ) , and 4.50 % per annum with respect to eurocurrency rate loans ( as defined in the credit agreement ) . we are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the facility . the terms of the credit agreement requires us to maintain ratios for leverage and interest coverage , including on a pro forma basis in the event of an acquisition . we also have a security and pledge agreement ( the security agreement ) pursuant to which we granted collateral on behalf of the holders of the 2021 notes and the 2024 notes and parties secured on the credit agreement ( the secured parties ) including first priority liens and security interests in ( a ) all present and future shares of capital stock owned by the credit parties ( as defined ) in the credit parties ' present and future subsidiaries ( limited , in the case of controlled foreign corporations , to a pledge of 65 % of the voting capital stock of each first-tier foreign subsidiary of each credit party ) and ( b ) all present and future personal property and assets of the credit parties , subject to certain exceptions . our credit agreement has a “ springing maturity date ” with respect to the revolving loans and the term a loans and the term b loans . if as of the date 91 days prior to the maturity date of our 2021 notes all outstanding amounts under the 2021 notes have not been paid in full , then the termination date ( as defined in the credit agreement ) of the revolving credit facility and the term a loans shall be the date that is 91 days prior to the maturity date of the 2021 notes . likewise , if as of the date 91 days prior to the maturity date of our 2024 notes , all outstanding amounts under the 2024 notes have not been paid in full , the termination date of the term b loan shall be the date that is 91 days prior to the maturity date of the 2024 notes . at december 31 , 2019 and 2018 , we had borrowings of $ 177.9 million and $ 210.1 million , respectively , under the revolver and letters of credit of $ 11.7 million and $ 15.2 million , respectively , outstanding under the credit agreement along with $ 512.7 million and $ 550.0 million , respectively , in senior notes . we also had letters of credit and bank guarantees outstanding for $ 1.5 million and $ 4.4 million as of december 31 , 2019 and 2018 , respectively , which supports certain facilities leased as well as other normal business activities in the united states and europe . story_separator_special_tag from time to time , we may enter into transactions to repay , repurchase or redeem our outstanding indebtedness ( including by means of open market purchases , privately negotiated repurchases , tender or exchange offers and or repayments or redemptions pursuant to the debt 's terms ) . our ability to consummate any such transaction will depend on prevailing market conditions , our liquidity requirements , contractual restrictions and other factors . we can not provide any assurance as to if or when we will consummate any such transactions or the terms of any such transaction . we paid cash dividends on our outstanding common stock at the rate of $ 0.0025 per common share for each of the four quarters of 2019. in 2018 , we paid quarterly dividends of $ 0.26 per common share for the first three quarters and $ 0.075 for the fourth quarter dividend was accrued at december 31 , 2018 and paid in january 2019. in february 2020 , the board of directors approved the first quarter dividend of $ 0.0025 per common share . the payment of future dividends remains within the discretion of the board of directors and will depend upon our results of operations , financial condition , capital requirements , current and future limitations under our credit agreement ( as amended ) and other factors . in october 2016 , the board of directors authorized an up to three-year share repurchase program of up to $ 100 million of the company 's outstanding common stock to be executed at the discretion of management over a three-year period . the authorization took effect in december 2016 upon the completion of the previous authorization and ended in december 2019. we did not repurchase any shares during the years ended december 31 , 2019 and 2018. we believe available financing sources , including cash generated by operating activities and borrowings under the credit agreement , will be sufficient to fund our working capital needs , capital expenditures , long-term strategic growth , payments under long-term debt and lease arrangements , payments of quarterly cash dividends , share and debt repurchases and other cash requirements . while we believe that we will have the ability to meet our financing needs in the foreseeable future , changes in economic conditions may impact ( i ) the ability of financial institutions to meet their contractual commitments to us , ( ii ) the ability of our customers and suppliers to meet their obligations to us or ( iii ) our cost of borrowing . 22 we earn a portion of our operating income in foreign jurisdictions outside the united states . our cash and cash equivalents held by our foreign subsidiaries totaled $ 52.9 million and $ 27.9 million at december 31 , 2019 and 2018 , respectively . we continue to remain permanently reinvested in our foreign subsidiaries , with the exception of a subsidiary in thailand . we have no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiary located in thailand as of december 31 , 2019. as such , we have recorded withholding tax liabilities that would be incurred upon future distribution to the u.s. there are no unrecognized deferred taxes as there is no outside basis difference unrelated to unremitted earnings for thailand . we will continue to evaluate our foreign earnings repatriation policy in 2020 for all our foreign subsidiaries . off-balance sheet arrangements we do not have guarantees or other off-balance sheet financing arrangements , including variable interest entities , which we believe could have a material impact on financial condition or liquidity . critical accounting policies our consolidated financial statements and accompanying notes have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts and related disclosures . we continually evaluate the accounting policies and estimates used to prepare the financial statements . critical accounting policies are defined as those policies that relate to estimates that require us to make assumptions about matters that are highly uncertain at the time the estimate is made and could have a material impact on our results due to changes in the estimate or the use of different assumptions that could reasonably have been used . our estimates are generally based on historical experience and various other assumptions that are judged to be reasonable in light of the relevant facts and circumstances . because of the uncertainty inherent in such estimates , actual results may differ . we believe our critical accounting policies and estimates include accounting for goodwill and long-lived assets and business combinations . goodwill and long-lived assets . goodwill represents the excess of consideration paid over the fair value of identifiable net assets acquired . long-lived assets , which are a component of identifiable net assets , include intangible assets with finite useful lives , property and equipment , right-of-use assets , and computer software costs . intangible assets with finite useful lives consist primarily of customer relationships , tradenames , and other intangibles acquired through business combinations . certain assumptions and estimates are employed in determining the fair value of identifiable net assets acquired . we evaluate goodwill for impairment annually , as of october 1 , and whenever events occur or changes in circumstance indicate that the carrying amount of goodwill may not be recoverable . qualitative factors are first assessed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if it is determined that it is more likely than not that the fair value does not exceed the carrying amount , then a quantitative test is performed . the quantitative goodwill impairment test uses valuation techniques to determine fair value , including comparable multiples of reporting unit 's earnings before interest , taxes , depreciation and amortization (
| replace_table_token_5_th gross margin for the year reflected strong revenue growth with byram and overall improved sales mix , as the global products revenues constitute a higher percentage of revenue , which was partially offset by unfavorable impact from foreign currency translation of $ 4.8 million . we value distribution inventory held in the united states under the lifo method . had inventory been valued under the first-in , first-out ( fifo ) method , gross margin as a percentage of net revenue would have been 9 basis points higher in 2019 and 29 basis points higher in 2018. replace_table_token_6_th distribution , selling and administrative ( ds & a ) expenses include labor and warehousing costs associated with our distribution and outsourced logistics services and all costs associated with our fee-for-service arrangements . shipping and handling costs are primarily included in ds & a expenses and include costs to store , move , and prepare products for shipment , as well as costs to deliver products to customers . overall ds & a expenses compared to prior year reflected higher expenses to support a full year of halyard , higher transportation expenses , increased expenses incurred for the development of new customer solutions and increased expenses to support the sale of halyard products . these increases were partially offset by favorable impacts for foreign currency translation of $ 1.0 million . the change in other operating expense ( income ) , net was attributed primarily to higher software as a service implementation expenses and an adverse foreign currency impact compared to prior year . acquisition-related and charges were $ 15.7 million and $ 45.0 million in 2019 and 2018 , respectively , and consisted primarily of transition and transaction costs for the halyard acquisition . exit and realignment charges were $ 14.4 million and $ 14.1 million in 2019 and 2018 , respectively . exit and realignment charges in 2019 were associated with severance from reduction in force and other costs related to the reorganization of the u.s. commercial and operations and executive teams , along with facility closures in the u.s. and
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2018 2017 earnings before income taxes $ 9,067,000 $ 6,537,000 gain on sale of land ( 2,413,000 ) — adjusted earnings before income taxes $ 6,654,000 $ 6,537,000 our effective income tax rates for 2018 and 2017 were 24.0 % and ( 28.9 % ) , respectively . the 2018 rate was impacted by the passage of the tax cuts and jobs act in december of 2017 and deductions for additional contributions made to our pension plan in 2018. the 2017 rate was impacted by the passage of the tax cuts and jobs act in december which required us to revalue our net deferred federal tax liabilities at december 31 , 2017. net earnings were $ 6,889,000 in 2018 as compared to $ 8,426,000 in 2017. excluding the gain on sale of land in 2018 , and the impact of the tax cuts and jobs act in 2017 , our adjusted net earnings were $ 4,981,000 in 2018 as compared to $ 3,895,000 in 2017. replace_table_token_3_th the above financial information is presented using other than generally accepted accounting principles ( `` non-gaap '' ) and is reconciled to comparable information presented using gaap . non-gaap adjusted earnings before income taxes is derived by adjusting amounts determined in accordance with gaap for the gain on sale of land . non-gaap adjusted net earnings is derived by adjusting amounts determined in accordance with gaap for the gain on sale of land including the tax effect using our federal statutory tax rate as we had available state net operating losses and the impact of the tax cuts and jobs act . we believe such non-gaap information is useful and meaningful to investors , and is used by investors and us to assess core operations . this non-gaap financial information may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to net earnings which is determined in accordance with gaap . liquidity and capital resources our operations and cash flows from operating activities are seasonal in nature . net cash provided by operating activities was $ 6,775,000 in 2019 compared to $ 6,951,000 in 2018. the decrease was primarily from lower operating earnings in 2019 compared to 2018 , partially offset by the contributions to our defined benefit pension plan of $ 1,750,000 in 2018. net cash provided by investing activities was $ 1,267,000 in 2019 compared to $ 3,919,000 in 2018. capital expenditures of $ 6,446,000 in 2019 related primarily to costs associated with replacing our nascar cup series garage , and to a lesser extent , other improvements at our dover facility . capital expenditures of $ 992,000 in 2018 related primarily to improvements at our dover facility and equipment purchases . in 2019 , we closed on the sale of approximately 141 acres of land at our nashville superspeedway facility for proceeds of $ 6,664,000 , net of closing costs . also , in the first quarter of 2019 , we closed on the sale of a parcel of land we owned near st. louis for proceeds of $ 531,000 , net of closing costs . on march 2 , 2018 , we closed on the sale of approximately 147 acres of land at our nashville superspeedway facility for proceeds of $ 4,945,000 , net of closing costs . in june of 2019 , we extended an option to purchase land at our nashville facility and received a $ 500,000 non-refundable deposit in return – see further discussion below . 14 net cash used in financing activities was $ 4,416,000 in 2019 compared to $ 6,920,000 in 2018. during 2019 , we borrowed $ 4,180,000 from our revolving line of credit , all of which was repaid during the same period . we had net repayments on our outstanding line of credit of $ 3,240,000 in 2018. we paid $ 3,642,000 and $ 2,930,000 in cash dividends during 2019 and 2018 , respectively . during 2019 and 2018 , respectively , we purchased and retired 315,840 and 308,928 shares of our outstanding common stock for $ 643,000 and $ 656,000 from the open market . additionally , we purchased and retired 48,457 and 47,236 shares of our outstanding common stock for $ 96,000 and $ 94,000 during 2019 and 2018 , respectively , from employees in connection with the vesting of restricted stock awards under our stock incentive plan . as a result of amending our credit agreement in september 2019 , we paid $ 35,000 in bank fees . at december 31 , 2019 , dover motorsports , inc. and its wholly owned subsidiaries dover international speedway , inc. and nashville speedway , usa , inc. , as co-borrowers had a $ 30,000,000 credit agreement with a bank group . on september 24 , 2019 , we modified the credit agreement to : extend the maturity date to january 1 , 2022 ; and reduce the total available borrowings under the facility from $ 35,000,000 to $ 30,000,000. interest is based upon libor plus a margin that varies between 125 and 175 basis points depending on the leverage ratio . at december 31 , 2019 , there were no borrowings outstanding under the credit facility . the credit facility contains certain covenants including maximum funded debt to earnings before interest , taxes , depreciation and amortization ( “ leverage ratio ” ) and a minimum fixed charge coverage ratio . material adverse changes in our results of operations could impact our ability to maintain financial ratios necessary to satisfy these requirements . in addition , the credit agreement includes a material adverse change clause . the credit facility also provides that if we default under any other loan agreement , that would be a default under this facility . at december 31 , 2019 , we were in compliance with the terms of the credit facility . the credit facility provides for seasonal funding needs , capital improvements , letter of credit requirements and other general corporate purposes . story_separator_special_tag after consideration of stand-by letters of credit outstanding , the remaining maximum borrowings available pursuant to the credit facility were $ 16,375,000 at december 31 , 2019. we expect to be in compliance with the financial covenants , and all other covenants , for all measurement periods during the next twelve months . nashville superspeedway no longer promotes motorsports events and has not entered into sanction agreements with nascar since 2011. we lease the facility on a short term basis to third parties from time to time . on august 17 , 2017 , we entered into an agreement with an entity owned by panattoni development company ( “ buyer ” ) relative to the sale of approximately 147 acres of land at a purchase price of $ 35,000 per acre . on march 2 , 2018 , we closed on the sale of the property with proceeds , less closing costs , of $ 4,945,000. net proceeds after taxes were approximately $ 4,150,000 resulting in a gain of $ 2,512,000. on september 1 , 2017 , we also awarded to the buyer a three year option for 88.03 additional acres at a purchase price of $ 55,000 per acre . that option agreement has been amended twice since : first , on february 9 , 2018 , to extend its term and to add additional acreage ; and second , on june 25 , 2019 , in connection with the purchaser 's exercise of its option on two parcels , we adjusted the acreage and further extended the term of the option on a third parcel . on july 26 , 2019 , the purchaser closed on the first two parcels , comprising approximately 133 acres , which yielded to us proceeds , less closing costs , of $ 6,397,000. net proceeds after taxes were approximately $ 5,314,000 resulting in a gain of $ 4,186,000. one parcel of 97.17 acres remains under the option agreement with a purchase price of $ 66,685 per acre . the purchaser paid to us $ 500,000 for the extension of this option until march 1 , 2022 , and this non-refundable payment would be credited to the purchase price at the closing of that option parcel . assuming this option is exercised , the remaining nashville superspeedway property will consist of approximately 1,000 acres . at december 31 , 2019 and 2018 , $ 21,282,000 and $ 23,567,000 was reported as long term assets in our consolidated balance sheets , respectively . on february 28 , 2019 , we entered into an agreement to sell 7.63 acres of land at our nashville facility for proceeds , less closing costs , of $ 267,000. the sale closed in the first quarter of 2019 and resulted in a gain of $ 139,000 , which we have reported as gain on sale of land in our consolidated statement of earnings . 15 during september 2018 , we entered into negotiations to sell the last remaining parcel of land we owned near st. louis . the sale resulted in a loss of $ 99,000 , which we reported as loss on sale of land in our consolidated statement of earnings . the sale closed in the first quarter of 2019 with proceeds , less closing costs , of $ 531,000. at december 31 , 2018 , the fair value of the land was reported as assets held for sale in our consolidated balance sheet . we promoted six racing events in 2019 and 2018 ( five national series events and one regional series event ) , all of which were sanctioned by nascar and held at our dover international speedway facility . we have entered into five year sanction agreements with nascar for each of the five national series events for 2016-2020. nascar 's regional series events are sanctioned on an annual basis . broadcasting revenues continue to be a significant long-term revenue source for our business . management believes this long-term contracted revenue helps stabilize our financial strength , earnings and cash flows . also , nascar ratings can impact attendance at our events and sponsorship opportunities . a substantial portion of our profits in recent years has resulted from television revenues received from nascar under its agreements with various television networks , which is expected to continue for the foreseeable future . our share of these television broadcast revenues and purse and sanction fees are fixed under our nascar sanction agreements through the year 2020. we are obligated to conduct events in the manner stipulated under the terms and conditions of these sanctioning agreements . nascar is operating under a ten-year , multi-platform agreement with fox sports media group ( “ fox ” ) for the broadcasting and digital rights to 16 nascar cup series races , 14 xfinity series races and the entire gander rv & outdoors truck series ( along with practice and qualifying ) from 2015 through 2024. the agreement includes “ tv everywhere ” rights that allow live-streaming of all fox races , before and after race coverage , in-progress and finished race highlights , and replays of fox-televised races to a fox sports-affiliated website which began in 2013. the agreement also allows re-telecast of races on a fox network and via video-on-demand for 24 hours and other ancillary programming , including a nightly nascar news and information show and weekend at-track shows .
| we recorded $ 1,172,000 of accelerated depreciation expense on these assets in 2019. costs to remove long-lived assets in 2019 related to the removal and disposal of grandstand seating at our dover facility . we expect to incur approximately $ 300,000 of additional costs related to this project in the first quarter of 2020. gain on sale of land in 2019 and 2018 relates to the sales of approximately 141 and 147 acres of land at our nashville facility , respectively . the 2018 gain was partially offset by a loss on the sale of a parcel of land we owned near st. louis , missouri . net interest income was $ 22,000 in 2019 compared to net interest expense of $ 62,000 in 2018 and resulted from lower average outstanding borrowings and interest income on invested cash in 2019. provision for contingent obligation was $ 1,005,000 in 2019 compared to $ 424,000 in 2018 as a result of lower estimated future property taxes and a decrease in the discount rate . other income of $ 269,000 in 2019 primarily represents gains on equity investments of $ 161,000 and pension benefits of $ 62,000. other expense of $ 4,000 in 2018 primarily represents losses on equity investments of $ 90,000 partially offset by pension benefits of $ 85,000. earnings before income taxes were $ 7,286,000 in 2019 compared to $ 9,067,000 in 2018. excluding the gain on sale of land in both years , and the accelerated depreciation and cost to remove long-lived assets in 2019 , our adjusted earnings before income taxes were $ 5,303,000 in 2019 compared to $ 6,654,000 in 2018. replace_table_token_1_th 12 net earnings were $ 5,500,000 in 2019 compared to $ 6,889,000 in 2018. excluding the gain on sale of land in both years and the accelerated depreciation and cost to remove long-lived assets in 2019 , our adjusted net earnings were $ 3,772,000
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all of our product candidates are in the research and development phase . we have not generated any revenues from the sale of any products , and we do not expect to generate any such revenues for at least the next several years . we earn revenue from license fees and milestone revenue and collaborative research and development agreements . our product candidates will require significant additional research and development efforts , including extensive preclinical and clinical testing . all product candidates that we advance to clinical testing will require regulatory approval prior to commercial use , and will require significant costs for commercialization . we may not be successful in our research and development efforts , and we may never generate sufficient product revenue to be profitable . as of december 31 , 2020 , we had an accumulated deficit of $ 906.2 million . we expect to continue to incur substantial operating losses in the future due to our commitment to our research and development programs , the funding of preclinical studies , clinical trials and regulatory activities and the costs of general and administrative activities . impacts of covid-19 on our business the covid-19 pandemic has had a number of significant impacts on our business during 2020. most notably , in the united states , south korea and china , we have accelerated the clinical development of ino-4800 , our dna vaccine candidate matched to the outbreak strain of sars-cov-2 , the virus that causes covid-19 . in january , we received initial grant funding from cepi to advance ino-4800 into preclinical studies and clinical development through phase 1 human testing . we had previously been awarded grants from cepi for the development of other dna vaccines against lassa fever and middle east respiratory syndrome , mers , which is also caused by a coronavirus like covid-19 . we commenced a phase 1 clinical trial in the united states in april , and in june we reported positive interim data from the first two cohorts of the trial . in december 2020 , we dosed the first subject in the phase 2 segment of our phase 2/3 clinical trial called innovate ( in ovio ino -4800 va ccine t rial for e fficacy ) . we have fully enrolled approximately 400 participants in the phase 2 segment who are 18 years or older at 17 u.s. sites to evaluate safety and immunogenicity in order to confirm the dose ( s ) for the subsequent efficacy evaluation as part of the phase 3 segment of the trial , once the fda allows us to proceed . the phase 3 segment of the innovate remains on partial clinical hold until we satisfactorily resolve the fda 's remaining questions related to the cellectra ® 2000 device that will be used to deliver ino-4800 into the cells of the skin . we plan to satisfy the remaining device questions during the conduct of phase 2 segment and prior to the start of the phase 3 segment of innovate . in the phase 3 segment of the trial , we intend to enroll healthy men and non-pregnant women 18 years and older , to evaluate the efficacy of the proposed dosing level ( s ) for each age group based on the data from the phase 2 evaluation . participants will be enrolled in a one-to-one randomization to receive either ino-4800 or a placebo . the phase 3 segment will be case-driven with the final number of enrollees to be determined by the incidence of covid-19 during the phase 3 segment . the primary endpoint of the phase 3 segment will be virologically-confirmed covid-19 disease . we have also initiated clinical trials of ino-4800 in south korea and china . in april , cepi awarded us a grant of $ 6.9 million to work with international vaccine institute and the korea national institute of health to conduct a phase 1/2 trial , which was the first covid-19 vaccine clinical trial approved in south korea . in china , we are collaborating with advaccine and have dosed 640 subjects with the first vaccination in a phase 2 clinical trial in china . the phase 2 clinical trial of ino-4800 in china has enrolled both adults who are 18-59 years old and older adults ( 60 years and older ) with the primary endpoints of evaluating safety and immunogenicity within the chinese population . in parallel with our accelerated clinical development efforts , we have engaged a network of partners for the planned large-scale manufacturing of ino-4800 if it achieves regulatory approval . in march , the u.s. department of defense , or dod , awarded ology bioservices inc. a contract to manufacture ino-4800 for the dod to be used in upcoming clinical trials . in april , we entered into an agreement with the german contract manufacturer richter-helm biologics gmbh & co. kg and expanded our preexisting manufacturing partnership to support large-scale manufacturing of ino-4800 . in march , we also received a grant from the bill and melinda gates foundation for accelerated testing and scale up of our cellectra ® 3psp proprietary smart device for the intradermal delivery of ino-4800 . in june , the dod awarded us $ 71.1 million to support the large-scale manufacture of cellectra ® 3psp , production of doses and the procurement of cellectra ® 2000 devices that 68 are used to deliver ino-4800 intradermally . in the second half of 2020 , we added thermo fisher scientific and kaneka eurogentec s.a. , an affiliate of kaneka corporation , to our manufacturing consortium . operationally , we have not experienced significant disruptions to date as a result of the covid-19 pandemic . in response to the outbreak , a number of governmental orders and other public health guidance measures were implemented across much of the united states , including in the locations of our offices , laboratories , clinical trial sites and third parties on whom we rely . story_separator_special_tag we have implemented a work from home policy allowing employees who can work from home to do so , while those needing to work in laboratory facilities work in shifts to reduce the number of people gathered together at one time . business travel has been suspended , and online and teleconference technology is used to meet virtually rather than in person . we have taken measures to secure our research and development project activities , while work in laboratories has been organized to reduce risk of covid-19 transmission . to date , our liquidity has also not been negatively impacted by the pandemic . during the year ended december 31 , 2020 , we raised $ 454.5 million in net proceeds from the sale of shares of our common stock through our `` at-the-market '' equity offering program , which further enhanced our liquidity and capital resources . as of december 31 , 2020 , our cash and cash equivalents and short-term investments were $ 411.6 million , compared to $ 89.5 million as of december 31 , 2019. in addition , in january 2021 , we closed an underwritten public offering with net proceeds to us of $ 162.1 million . we are closely monitoring the impact of the covid-19 pandemic on our employees , collaborators and service providers . the extent to which the pandemic will impact our business and operations will depend on future developments , including the duration of the outbreak , travel restrictions and social distancing in the united states and other countries , and the effectiveness of actions taken in the united states and other countries to contain and treat the disease , including mass vaccination efforts , that are highly uncertain . for additional information on the potential effects of the covid-19 pandemic on our business , financial condition and results of operations , see the “ risk factors ” section above in part i , item 1a of this form 10-k. critical accounting policies the sec defines critical accounting policies as those that are , in management 's view , important to the portrayal of our financial condition and results of operations and require management 's judgment . our discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses . we base our estimates on experience and on various assumptions 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 those estimates . our critical accounting policies include : collaboration agreements we assess whether our collaboration agreements are subject to accounting standards codification ( `` asc '' ) topic 808 : collaborative arrangements ( “ topic 808 ” ) based on whether they involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards . to the extent that the arrangement falls within the scope of topic 808 , we assesses whether the payments between us and the collaboration partner are subject to other accounting literature . if payments from the collaboration partner to us represent consideration from a customer , then we account for those payments within the scope of accounting standards update ( “ asu ” ) 2014-09 , revenue from contracts with customers ( “ topic 606 ” ) . however , if we concludes that our collaboration partner is not a customer for certain activities , such as for certain collaborative research and development activities , we present such payments as a reduction of research and development expense . revenue recognition we recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services . to determine revenue recognition for contracts with customers , we perform the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) we satisfy our performance obligations . at contract inception , we assess the goods or services agreed upon within each contract and assess whether each good or service is distinct and determine those that are performance obligations . we then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) the performance obligation is satisfied . 69 collaborative arrangements we enter into collaborative arrangements with partners that typically include payment of one or more of the following : ( i ) license fees ; ( ii ) product supply services ; ( iii ) milestone payments related to the achievement of developmental , regulatory , or commercial goals ; and ( iv ) royalties on net sales of licensed products . where a portion of non-refundable , upfront fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative arrangement , they are recorded as deferred revenue and recognized as revenue when ( or as ) the underlying performance obligation is satisfied . as part of the accounting for these arrangements , we must develop estimates and assumptions that require judgment of management to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligation . the standalone selling price may include items such as forecasted revenues , development timelines , discount rates and probabilities of technical and regulatory success .
| contributions received from current grant agreements and recorded as contra-research and development expense were $ 45.4 million and $ 11.9 million for the years ended december 31 , 2020 and 2019 , respectively . the increase year over year was primarily due to increases of $ 21.2 million , $ 10.0 million and $ 4.1 million earned under grants from the dod , cepi and gates , respectively , related to ino-4800 and device development activities , partially offset by a decrease of $ 2.4 million earned from the gates grant and wistar sub-grant related to our dmab technology , among other variances . general and administrative expenses the $ 10.0 million increase in general and administrative expenses for the year ended december 31 , 2020 as compared to 2019 was primarily related to an increase in legal expenses of $ 5.2 million , an increase in expenses for work performed related to corporate marketing and communications of $ 3.1 million and higher employee and consultant stock-based compensation expense of $ 3.0 million , partially offset by a gain on foreign exchange of $ 2.2 million recorded as contra-general and administrative expense , among other variances . stock-based compensation employee stock-based compensation cost is measured at the grant date , based on the fair value of the award , and is recognized as expense over the employee 's requisite service period . total employee stock-based compensation cost for the years ended december 31 , 2020 and 2019 was $ 14.5 million and $ 9.8 million , of which $ 8.0 million and $ 5.9 million was included in research and development expenses and $ 6.5 million and $ 3.9 million was included in general and administrative expenses , respectively . the increase for 2020 compared to 2019 was primarily due to a higher weighted average grant date fair value for the awards granted in 2020 , offset in part by the reversal of previously recorded stock option expense due to a reduction in force in the third quarter of 2019 and an option modification expense recorded in the second quarter of
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in 2012 , 2011 , and 2010 , we repurchased 20 million , 29 million and 8 million of our common shares . 29 mckesson corporation financial review ( continued ) revenues : years ended march 31 , change ( dollars in millions ) 2012 2011 2010 2012 2011 distribution solutions direct distribution & services $ 85,523 $ 77,554 $ 72,210 10 % 7 % sales to customers ' warehouses 20,453 18,631 21,435 10 ( 13 ) total u.s. pharmaceutical distribution & services 105,976 96,185 93,645 10 3 canada pharmaceutical distribution & services 10,303 9,784 9,072 5 8 medical-surgical distribution & services 3,145 2,920 2,861 8 2 total distribution solutions 119,424 108,889 105,578 10 3 technology solutions services 2,594 2,483 2,439 4 2 software & software systems 596 590 571 1 3 hardware 120 122 114 ( 2 ) 7 total technology solutions 3,310 3,195 3,124 4 2 total revenues $ 122,734 $ 112,084 $ 108,702 10 3 revenues increased 10 % to $ 122.7 billion in 2012 and 3 % to $ 112.1 billion in 2011. the increase in revenues in each year primarily reflects market growth in our distribution solutions segment , which accounted for approximately 97 % of our consolidated revenues , and our acquisition of us oncology . direct distribution and services revenues increased in 2012 compared to 2011 primarily due to market growth , which includes growing drug utilization and price increases , and from our acquisition of us oncology . these increases were partially offset by price deflation associated with brand to generic drug conversions . direct distribution and services revenues increased in 2011 compared to 2010 primarily due to market growth , the effect of a shift of revenues from sales to customers ' warehouses to direct store delivery , the lapping of which was completed in the third quarter of 2011 , and due to our acquisition of us oncology . these increases were partially offset by a decline in demand associated with the flu season and the impact of price deflation associated with brand to generic drug conversions . sales to customers ' warehouses for 2012 increased compared to 2011 primarily due to a new customer and new business with existing customers . sales to customers ' warehouses for 2011 decreased compared to 2010 primarily reflecting reduced revenues associated with existing customers , the effect of a shift of revenues to direct store delivery , the lapping of which was completed in the third quarter of 2011 , and the impact of price deflation associated with brand to generic drug conversions . sales to retail customers ' warehouses represent large volume sales of pharmaceuticals primarily to a limited number of large self-warehousing retail chain customers whereby we order bulk product from the manufacturer , receive and process the product through our central distribution facility and subsequently deliver the bulk product ( generally in the same form as received from the manufacturer ) directly to our customers ' warehouses . this distribution method is typically not marketed or sold by the company as a stand-alone service ; rather , it is offered as an additional distribution method for our large retail chain customers that have an internal self-warehousing distribution network . sales to customers ' warehouses provide a benefit to these customers because they can utilize the company as one source for both their direct-to-store business and their warehouse business . we generally have significantly lower gross profit margins on sales to customers ' warehouses as we pass much of the efficiency of this low cost-to-serve model on to the customer . these sales do , however , contribute to our gross profit dollars . 30 mckesson corporation financial review ( continued ) the customer mix of revenues from our u.s. pharmaceutical distribution business was as follows : years ended march 31 , 2012 2011 2010 direct sales retail chains 34 % 33 % 32 % institutions 34 34 32 independents 11 12 12 subtotal 79 79 76 sales to retail customers ' warehouses 21 21 24 total 100 % 100 % 100 % as previously described , a limited number of our large retail chain customers purchase products through both our direct and warehouse distribution methods , the latter of which generally has a significantly lower gross profit margin due to the low cost-to-serve model . when evaluating and pricing customer contracts , we do so based on our assessment of total customer profitability . as a result , we do not evaluate our performance or allocate resources based on sales to customers ' warehouses or gross profit associated with such sales . canadian pharmaceutical distribution and services revenues increased 5 % in 2012 compared to 2011. excluding a favorable foreign currency exchange rate fluctuation of 2 % during 2012 , revenues increased primarily due to market growth , five additional sales days and a small acquisition in the second quarter of 2011 , partially offset by government-imposed price reduction for generic pharmaceuticals in certain provinces . canadian pharmaceutical distribution and services revenues increased 8 % in 2011 compared to 2010. excluding a favorable foreign currency exchange rate fluctuation of 7 % during 2011 , revenues increased 1 % in 2011. canadian revenues for 2011 increased due to market growth , offset by a government-imposed price reduction for generic pharmaceuticals in certain provinces and the impact of price deflation associated with brand to generic drug conversions . medical-surgical distribution and services revenues increased in 2012 compared to 2011 primarily due to market growth , new customers and five additional sales days . medical-surgical distribution and services revenues increased in 2011 compared to 2010 primarily due to market growth , partially offset by a decrease in demand associated with the flu season . story_separator_special_tag technology solutions revenues increased in 2012 compared to 2011 primarily due to higher revenues for claims processing , increased revenues associated with the sale and installation of our software products , an increase in maintenance revenues from new and existing customers and a number of small acquisitions made during 2012. technology solutions revenues increased slightly in 2011 compared to 2010 primarily due to an increase in maintenance revenues from new and existing customers , increased revenues associated with the sale and installation of our software products and higher revenues for claims processing , partially offset by the sale of map in july 2010. gross profit : years ended march 31 , change ( dollars in millions ) 2012 2011 2010 2012 2011 gross profit distribution solutions ( 1 ) $ 5,057 $ 4,565 $ 4,219 11 % 8 % technology solutions ( 2 ) 1,510 1,405 1,457 7 ( 4 ) total $ 6,567 $ 5,970 $ 5,676 10 5 gross profit margin distribution solutions 4.23 % 4.19 % 4.00 % 4bp 19bp technology solutions 45.62 43.97 46.64 165 ( 267 ) total 5.35 5.33 5.22 2 11 ( 1 ) gross profit of our distribution solutions segment for 2011 includes a credit of $ 51 million representing our share of a settlement of an antitrust class action lawsuit brought against a drug manufacturer , which was recorded as a reduction to cost of sales . ( 2 ) gross profit of our technology solutions segment for 2012 and 2011 includes a $ 31 million product alignment charge and a $ 72 million asset impairment charge for capitalized software held for sale . 31 mckesson corporation financial review ( continued ) gross profit increased 10 % to $ 6.6 billion in 2012 and 5 % to $ 6.0 billion in 2011. as a percentage of revenues , gross profit increased by 2 bp in 2012 and by 11 bp in 2011. gross profit margin increased in 2012 primarily reflecting higher gross profit margins from both of our operating segments and increased in 2011 primarily reflecting higher gross profit margin from our distribution solutions segment . distribution solutions segment 's gross profit margin increased in 2012 compared to 2011 primarily due to our acquisition of us oncology and increased sales of higher margin generic drugs , partially offset by a decline in sell margin and the receipt of $ 51 million in 2011 representing our share of a settlement of an antitrust class action lawsuit brought against a drug manufacturer . distribution solutions segment 's gross profit margin increased in 2011 compared to 2010 primarily due to higher buy margin , increased sales of higher margin generic drugs and due to our acquisition of us oncology , partially offset by a decline in demand associated with the flu season and a decrease in sell margin . our distribution solutions segment 's 2011 gross profit margin was also favorably affected by the receipt of $ 51 million representing our share of a settlement of an antitrust class action lawsuit brought against a drug manufacturer . buy margin primarily reflects volume and timing of compensation from branded pharmaceutical manufacturers . our last-in , first-out ( lifo ) net inventory expense was $ 11 million in 2012 , $ 3 million in 2011 and $ 8 million for 2010. our distribution solutions segment uses the lifo method of accounting for the majority of its inventories , which results in cost of sales that more closely reflects replacement cost than under other accounting methods . the practice in the distribution solutions segment 's distribution businesses is to pass on to customers published price changes from suppliers . manufacturers generally provide us with price protection , which limits price-related inventory losses . price declines on many generic pharmaceutical products in this segment over the last few years have moderated the effects of inflation in other product categories , which resulted in minimal overall price changes in those years . during 2012 , we experienced a decline in deflationary trends in generic pharmaceuticals as a result of a reduction in generic product launches as compared to the prior year . additional information regarding our lifo accounting is included under the caption critical accounting policies and estimates , included in this financial review . technology solutions segment 's gross profit margin increased in 2012 compared to 2011 , primarily due to an increase in higher margin revenues , a $ 72 million asset impairment charge related to our horizon enterprise management tm ( hzerm ) software product in 2011 and lower amortization expense related to hzerm . these increases were partially offset by product alignment charges of $ 31 million in 2012. technology solutions segment 's gross profit margin decreased in 2011 compared to 2010 primarily due to a $ 72 million asset impairment charge related to hzerm , the sale of map and continued investment in our clinical and enterprise revenue management solutions products , partially offset by a shift to higher margin revenue . during the third quarter of 2012 , we approved a plan to align our hospital clinical and revenue cycle healthcare software products within our technology solutions segment . as part of this alignment strategy , we will be converging our core clinical and revenue cycle horizon and paragon product lines onto paragon 's microsoft ® based platform over time . additionally , we have stopped development of our hzerm software product . the plan resulted in a pre-tax charge of $ 51 million in 2012 , of which $ 31 million was recorded to cost of sales and $ 20 million was recorded to operating expenses within our technology solutions segment .
| results of operations overview : years ended march 31 , change ( dollars in millions , except per share data ) 2012 2011 2010 2012 2011 revenues $ 122,734 $ 112,084 $ 108,702 10 % 3 % gross profit $ 6,567 $ 5,970 $ 5,676 10 % 5 % operating expenses 4,269 3,936 3,688 8 7 litigation charges ( credit ) , net 149 213 ( 20 ) ( 30 ) total operating expenses 4,418 4,149 3,668 6 13 other income , net 21 36 43 ( 42 ) ( 16 ) interest expense ( 251 ) ( 222 ) ( 187 ) 13 19 income from continuing operations before income taxes 1,919 1,635 1,864 17 ( 12 ) income tax expense ( 516 ) ( 505 ) ( 601 ) 2 ( 16 ) income from continuing operations 1,403 1,130 1,263 24 < font
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generic products , particularly in the u.s. , generally contribute most significantly to revenues and gross margins at the time of their launch , and even more so in periods of market exclusivity , or in periods of limited generic competition . as such , the timing of new product introductions can have a significant impact on the company 's financial results . the entrance into the market of additional competition generally has a negative impact on the volume and pricing of the affected products . additionally , pricing is often affected by factors outside of the company 's control . for specialty products , the majority of the product 's commercial value is usually realized during the period in which the product has market exclusivity . in the u.s. and some other countries , when market exclusivity expires and generic versions of a product are approved and marketed , there can often be very substantial and rapid declines in the branded product 's sales . our financial results in 2018 were impacted significantly by our combination with impax in may 2018. the historical financial results of the company for the periods prior the closing of the combination are the historical financial results of amneal , and thus the current year results , and balances , may not be comparable to prior years as the current year includes the results of impax from may 4 , 2018. our current year results have also been impacted by the integration of amneal and impax as a result of our continued actions to adjust our operations and cost structure . 44 story_separator_special_tag changes in our key valuation metrics , ( i.e . expected growth rates , market size , delayed launch date or unforeseen legal/regulatory risks ) . there were no in-process research and development impairment charges in 2017 or 2016. acquisition , transaction-related and integration expenses 2018 compared with 2017 acquisition , transaction-related and integration expenses were $ 222 million for the year ended december 31 , 2018 compared to $ 9 million for the year ended december 31 , 2017 . the $ 212 million increase is primarily attributable to a $ 159 million charge for the accelerated vesting of certain of amneal 's profit participation units that occurred prior to the closing of the combination , $ 35 million for professional services fees and other third-party expenses associated with the post closing integration of impax and gemini and $ 28 million for a transaction-related cash bonus for employees of amneal for service prior to the closing of the combination . for additional information , see note 7. acquisition , transaction-related and integration expenses . 2017 compared with 2016 acquisition , transaction-related and integration expenses of $ 9 million for the year ended december 31 , 2017 were comprised of professional fees and other third-party expenses incurred in preparation for the combination . acquisition , transaction-related and integration expenses were immaterial in 2016. restructuring and asset-related charges restructuring and asset-related charges of $ 56 million for the year ended december 31 , 2018 were comprised of $ 45 million in employee separation charges related to a reduction in workforce resulting from the combination and $ 11 million in asset-related charges associated with the closing of our hayward , california based operations . there were no restructuring and asset-related charges in 2017 or 2016. legal settlement gains legal settlement gains of $ 22 million and $ 11 million for the years ended december 31 , 2018 and december 31 , 2016 , respectively , primarily related to settlements with several innovators of branded pharmaceutical products . legal settlement gains of $ 29 million for the year ended december 31 , 2017 were primarily related to a settlement with the innovator of suboxone for $ 25 million , resulting in a net gain after legal fees of $ 22 million . intellectual property legal development expense 2018 compared with 2017 intellectual property legal development expenses for the year ended december 31 , 2018 were $ 16 million as compared to $ 21 million for the year ended december 31 , 2017 . the $ 5 million decrease was primarily due to reduced expenses related to trials on patent challenges during 2018. these costs include , but are not limited to , formulation assessments , patent challenge opinions and strategy , and litigation expenses to defend the intellectual property . 2017 compared with 2016 intellectual property legal development expenses for the year ended december 31 , 2017 were $ 21 million as compared to $ 26 million for the year ended december 31 , 2016 . the $ 5 million decrease was primarily due to reduced expenses related to trials on patent challenges during 2017 . 47 other expense , net 2018 compared with 2017 total other expense , net was $ 183 million for the year ended december 31 , 2018 , as compared to $ 74 million for the year ended december 31 , 2017 . the increase of $ 109 million was primarily attributable to $ 73 million of additional interest expense associated with an increase in long-term debt related to the combination and the acquisition of gemini , a net $ 20 million foreign exchange loss as compared to a net $ 29 million foreign exchange gain in the prior year , primarily as a result of the impact of fluctuations in the swiss franc , indian rupee and euro on intercompany loans , and a $ 20 million loss on extinguishment of debt arising from the debt refinancing executed in connection with the combination , partially offset by a $ 26 million reduction in the loss recognized on sale of certain international businesses . 2017 compared with 2016 total other expense , net was $ 74 million for the year ended december 31 , 2017 , as compared to $ 70 million for the year ended december 31 , 2016 . story_separator_special_tag the increase of $ 4 million was primarily attributable to a $ 29 million loss on sale of certain international businesses , $ 16 million of additional interest expense associated with increased borrowings which occurred in both april 2017 and may 2016 under amneal 's term and revolving credit facilities and a $ 3 million loss on extinguishment and modification of debt , partially offset by a net change of $ 43 million in foreign exchange . for the year ended december 31 , 2017 , foreign exchange gain was $ 29 million as compared to a foreign exchange loss of $ 14 million for the year ended december 31 , 2016 , primarily as a result of the impact of fluctuation in the swiss franc , indian rupee and euro on intercompany loans . ( benefit from ) provision for income taxes 2018 compared with 2017 the benefit from income taxes was $ 1 million for the year ended december 31 , 2018 as compared to a provision for income taxes of $ 2 million for the year ended december 31 , 2017 . prior to the combination , as a limited liability company , income taxes were only provided for the international subsidiaries as all domestic taxes flowed to the members . subsequent to may 4 , 2018 , domestic income taxes were also provided for our allocable share of income or losses from amneal at the prevailing u.s. federal , state , and local corporate income tax rates . the change in income tax expense is also associated with the year over year decline in pre-tax income . the decline in pre-tax income was primarily attributable to a $ 212 million increase in acquisition , transaction-related and integration expenses and $ 56 million in restructuring and asset-related charges associated with the combination . 2017 compared with 2016 the provision for income taxes for the years ended december 31 , 2017 and december 31 , 2016 was $ 2 million and $ 5 million , respectively , representing a decrease of $ 3 million . the decrease was primarily due to lower earnings in india from product sales to the united states and the effects of certain adjustments recorded in 2017. net ( loss ) income 2018 compared with 2017 we recognized a net loss of $ 201 million for the year ended december 31 , 2018 compared to net income of $ 169 million for the year ended december 31 , 2017 . our statements of operations for the year ended december 31 , 2018 include the results of operations of impax and gemini subsequent to may 4 , 2018 and may 7 , 2018 , respectively . for the year ended december 31 , 2018 , impax contributed an estimated pre-tax loss of $ 104 million and gemini contributed estimated pre-tax income of $ 10 million . our results for the year ended december 31 , 2018 were also impacted by the expenses related to the combination , which include a charge of $ 159 million for the accelerated vesting of profit participation units , $ 73 million of additional interest expense , $ 56 million of restructuring charges and asset-related charges , $ 35 million for acquisition , transaction-related and integration expenses , $ 28 million for a transaction-related cash bonus for employees and a $ 20 million for a loss on extinguishment of debt . 48 2017 compared with 2016 we recognized net income of $ 169 million for the year ended december 31 , 2017 , which was a decrease of $ 40 million compared to $ 209 million for the year ended december 31 , 2016 . the decrease was primarily attributable to a 2017 loss on the sale of certain international businesses of $ 29 million . generics the following table sets forth results of operations for our generics segment for the years ended december 31 , 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_3_th net revenue 2018 compared with 2017 net revenue for the generics segment for the year ended december 31 , 2018 increased by 39 % , or $ 405 million , to $ 1.44 billion , compared to $ 1.03 billion for the year ended december 31 , 2017 . the acquisition of impax contributed to revenue growth in 2018. also contributing to revenue growth in 2018 was approximately $ 150 million from strong new product launches in the united states ( `` u.s. '' ) , including methylphenidate hydrochloride extended release tablets , phytonadione tablets , levothyroxine tablets , potassium chloride oral solution , erythromycin instant release tablets and colesevelam hydrochloride tablets . these increases were offset by revenue declines in both price and volume in lidocaine gel , tobramycin inhalation solution , and omega-3 acid capsules . such revenue declines were partially offset by higher net revenue of spironolactone tablets , diclofenac sodium gel , and mometasone furoate nasal spray , all of which primarily benefited from volume growth . overall , growth in our existing u.s. base product portfolio , which excluded 2018 new product launches and the impact of the impax acquisition , was essentially flat , with volume growth of $ 29 million offset by price declines of $ 27 million . our international revenue declined by $ 16 million year over year , primarily as a result of the divestitures of our australian business in august 2017 and our spain and nordics business in september 2017 . 2017 compared with 2016 net revenue for the generics segment for the year ended december 31 , 2017 increased by 2 % , or $ 15 million , to $ 1.03 billion , compared to $ 1.02 billion for the year ended december 31 , 2016 . new product launches in the u.s. were responsible for a significant portion of our net revenue growth in 2017 , with such product launches contributing $ 193 million in net revenues led by aspirin-dipyridamole er , oseltamivir , tepadina injection , mometasone furoate nasal spray and capecitabine .
| cost of goods sold was also impacted by amortization of intangible assets and inventory fair value step-up arising in purchase accounting , excess capacity charges associated with the wind-down of our hayward , ca manufacturing plant , amortization of an up-front payment under a transition agreement , intangible asset impairment charges and write-offs of pre-launch inventory , primarily in our generics segment . accordingly , gross profit for the year ended december 31 , 2018 was $ 716 million , or 43 % of net revenue , compared to gross profit of $ 526 million , or 51 % of net revenue , for the year ended december 31 , 2017 . our gross profit as a percentage of net revenue declined primarily as a result of factors noted above as well as lower margin products in our generics segment contributed by the impax portfolio . 2017 compared with 2016 cost of goods sold for the year ended december 31 , 2017 increased by 21 % , or $ 87 million to $ 507 million compared to $ 421 million for the year ended december 31 , 2016 . the $ 87 million increase in cost of goods sold was primarily attributable to manufacturing optimization expenses , higher depreciation/ lease expense from equipment and capital expenditures and lower production of certain products in our generics segment . accordingly , gross profit for the year ended december 31 , 2017 was $ 526 million , or 51 % of net revenue , compared to gross profit for the year ended december 31 , 2016 of $ 597 million , or 59 % of net revenue . our gross profit as a percentage of net revenue declined primarily as a result of the factors that impacted our generic segment as noted above . selling , general and administrative 2018 compared with 2017 selling , general and administrative ( `` sg & a '' ) expenses for the year ended december 31 , 2018 were $ 230
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customers who want to develop their own implementation of our patented techniques for supporting secure domain names , or other techniques that are covered by our patent portfolio for establishing secure communication links , can purchase a patent license . these licenses will typically include an initial license fee , as well as an ongoing royalty . we have signed patent license agreements with avaya inc. , aastra usa , inc. , microsoft corporation , mitel networks corporation , nec corporation and nec corporation of america , siemens enterprise communications gmbh & co. kg , and siemens enterprise communications inc. to license certain of our patents , for a one-time payment and or an ongoing royalty for all future sales through the expiration of the licensed patents with respect to certain current and future ip-encrypted products . 32 we believe that the market opportunity for our software and technology solutions is large and expanding as secure domain names are now an integral part of securing the next generation 5g and 4g/lte advanced wireless networks and m2m communications in areas including smart city , connected car and connected home . we also believe that all 5g and 4g/lte advanced mobile devices will require unique secure domain names and become part of a secure domain name registry . we intend to continue to license our patent portfolio , technology and software , including our secure domain name registry service , to domain infrastructure providers , communication service providers as well as to system integrators . we intend to seek further license of our technology , including our gabriel connection technology to enterprise customers , developers and original equipment manufacturers , or oems , of chips , servers , smart phones , tablets , e-readers , laptops , net books and other devices , within the ip-telephony , mobility , fixed-mobile convergence and unified communications markets including 5g and 4g/lte . our employees include the core development team behind our patent portfolio , technology and software . this team has worked together for over ten years and is the same team that invented and developed this technology while working at leidos , inc. ( leidos ) . leidos is a fortune 500® scientific , engineering and technology applications company that uses its deep domain knowledge to solve problems of vital importance to the nation and the world , in national security , energy and the environment , critical infrastructure and health . the team has continued its research and development work started at leidos and expanded the set of patents we acquired in 2006 from leidos , into a larger portfolio of approximately 194 total patents and pending applications , including 70 u.s. patents/patent applications and 124 foreign patents/validations/pending applications this portfolio now serves as the foundation of our licensing business and planned service offerings and is expected to generate the majority of our future revenue in license fees and royalties . we intend to continue our research and development efforts to further strengthen and expand our patent portfolio . we intend to continue using a primarily outsourced and leveraged model to maintain efficiency and manage costs as we grow our licensing business by , for example , offering incentives to early licensing targets or asserting our rights for use of our patents . we also intend to expand our design pilot in participation with leading 5g and 4g/lte companies ( domain infrastructure providers , chipset manufacturers , service providers and others ) and build our secure domain name registry . litigation ( all dollar amounts in this section are expressed in thousands except for rates per device ) we have multiple intellectual property infringement lawsuits pending in the united states district court for the eastern district of texas , tyler division ( usdc ) , and united states court of appeals for the federal circuit ( uscafc ) . virnetx inc. v. cisco systems , inc. et al . ( case 6:10-cv-00417-led ) ( apple i ) on august 11 , 2010 , we filed a complaint against aastra usa . inc. ( aastra ) , apple inc. ( apple ) , cisco systems , inc. ( cisco ) , and nec corporation ( nec ) the usdc in which we alleged that these parties infringe on certain of our patents ( u.s. patent nos . 6,502,135 , 7,418,504 , 7,921,211 and 7,490,151 ) . we sought damages and injunctive relief . the cases against each defendant were separated by the judge . aastra and nec agreed to sign license agreements with us , and we dropped all accusations of infringement against them . a jury in usdc decided that our patents were not invalid and rendered a verdict of non-infringement by cisco on march 4 , 2013. our motion for a new cisco trial was denied and the case against cisco was closed . on november 6 , 2012 , a jury in the usdc awarded us over $ 368,000 for apple 's infringement of four of our patents , plus daily interest up to the final judgment . apple filed an appeal of the judgment to the uscafc . on september 16 , 2014 , uscafc affirmed the usdc jury 's finding that all four of our patents at issue are valid and confirmed the usdc jury 's finding of infringement of vpn on demand under many of the asserted claims of our ‘ 135 and ‘ 151 patents , and the usdc 's decision to allow evidence about our license and royalty rates regarding the determination of damages . however , the uscafc vacated the usdc jury 's damages award and some of the usdc 's claim construction with respect to parts of our ‘ 504 and ‘ 211 patents and remanded the damages award and determination of infringement with respect to facetime back to the usdc for further proceedings . on september 30 , 2016 , pursuant to the 2014 remand from the uscafc , a jury in the usdc awarded us $ 302,400 for apple 's infringement of four of our patents . story_separator_special_tag on september 29 , 2017 , the usdc entered its final judgement , 33 denied all of apple 's post-trial motions , granted all our post-trial motions , including our motion for willful infringement and enhanced the royalty rate during the willfulness period from $ 1.20 to $ 1.80 per device , and awarded us costs , certain attorneys ' fees , and prejudgment interest . the total amount in the final judgement was $ 439,700 , including $ 302,400 ( jury verdict ) , $ 41,300 ( enhanced damages ) and $ 96,000 ( costs , fees and interest ) . on october 27 , 2017 apple filed its notice of appeal of this final judgement to the uscafc . apple filed its opening brief on march 19 , 2018. we filed our response on april 4 , 2018. on april 11 , 2018 , uscafc designated cases 18-1197-cb , case 17-1368 and case 17-1591 as companion cases and assigned to the same merits panel . events and developments after this order are described below under virnetx inc. v. the mangrove partners ( uscafc case 17-1368 ) ( consolidated appeal ) . virnetx inc. v. apple , inc. ( case 6:12-cv-00855-led ) ( apple ii ) this case began on november 6 , 2012 , when we had filed a complaint against apple in usdc in which we alleged that apple infringed on certain of our patents , ( u.s. patent nos . 6,502,135 , 7,418,504 , 7,921,211 and 7,490,151 ) . we sought damages and injunctive relief . the accused products include the iphone 5 , ipod touch 5th generation , ipad 4 th generation , ipad mini , and the latest macintosh computers; these products were not included in the apple i case because they were released after the apple i case was initiated . post-trial motions hearing was held on july 18 , 2018. on august 31 , 2018 , the usdc entered a final judgment and issued its memorandum opinion and order regarding post-trial motions , affirming the jury 's verdict of $ 502,600 and granting virnetx motions for supplemental damages , a sunset royalty and the royalty rate of $ 1.20 per infringing iphone , ipad and mac products , pre-judgment and post-judgment interest and costs . on september 20 , 2018 , pursuant to a court 's order , attorneys from virnetx and apple conferred and agreed , without dispute , to add an amount totaling $ 93,300 for bill of costs and prejudgment interest to the $ 502,600 jury verdict . the total amount in the final judgement in the apple ii case is now $ 595,900. apple has filed a notice of appeal with the uscafc in the apple ii case . on october 9 , 2018 , uscafc accepted the notice and docketed it as case no . 19-1050 - virnetx inc. v. apple inc . all subsequent events and developments in this case are described below under virnetx inc. v. apple inc. ( uscafc case 19-1050 ) ( apple ii appeal ) . virnetx inc. v. the mangrove partners ( uscafc case 17-1368 ) ( consolidated appeal ) on april 11 , 2018 , the uscafc in an order designated the following appeals as companion cases and assigned to the same merits panel ; virnetx inc. v. the mangrove partners ( uscafc case 17-1368 ) on december 16 , 2016 , we filed appeals with the uscafc , appealing the invalidity findings by the patent trial and appeal board ( ptab ) in ipr2015-01046 , and on december 20 , 2016 for ipr2015-1047 , involving our u.s. patent nos . 6,502,135 , and 7,490,151. these appeals also involve apple , and one of them involves black swamp ip , llc . oral arguments in this case were argued on january 8 , 2019. on july 8 , 2019 , the uscafc issued its opinion vacating and remanding both decisions . the court agreed with us that the ptab misconstrued the patent claims , that many of the ptab 's invalidity findings lacked substantial evidence , and that the ptab board abused its discretion in denying us the opportunity to file a motion for additional discovery as to the real party-in-interest issues . the underlying inter partes review ( ipr ) proceedings are currently pending before the ptab . virnetx inc. v. cisco systems , inc. ( uscafc case 18-1197-cb ) ( appeal of apple i case ) on october 27 , 2017 apple appealed the final judgment entered on september 29 , 2017 to the uscafc . oral arguments in this case were held on january 8 , 2019. on january 15 , 2019 the court issued a rule 36 order affirming the district court judgement . apple filed a request for panel rehearing and rehearing en-banc in this matter on february 21 , 2019. on march 12 , 2019 , the court invited us to respond to apple 's petition on or before march 26 , 2019. we filed our response on march 22 , 2019. on july 1 , 2019 apple filed a motion for leave to file a supplemental brief regarding the impact of the uscafc 's decision in virnetx inc. v. cisco systems , inc. ( uscafc case 18-1751 ) , issued on june 28 , 2019 ( described below ) . we filed a response to apple 's motion and a contingent motion for leave to file a responsive supplemental brief on july 11 , 2019. on july 17 , 2019 , the uscafc granted both motions and ordered apple 's and our supplemental briefs filed . on august 1 , 2019 , uscafc issued an order 34 denying apple 's petition for panel and en banc rehearing . on august 7 , 2019 , apple filed a motion to vacate the august 1 , 2019 order and for leave to file a second request for panel rehearing and rehearing en-banc . on october 1 , 2019 , uscafc issued an order denying apple 's motion .
| legal fees were $ 5,898 and $ 9,706 in 2019 and 2018 , respectively and represent approximately 37 % of selling , general and administrative expenses for 2019 compared to 47 % for 2018. interest and other income , net 2019 2018 interest and other income $ 92 $ 54 interest and other income for the year ended december 31 , 2019 was $ 92 compared to december 31 , 2018 of $ 54 . 40 effective income tax rate a reconciliation of the united states federal statutory income tax rate to our effective income tax rate is as follows : replace_table_token_1_th in 2019 and 2018 we had pre-tax losses of $ 19,573 and $ 25,403 , respectively , which are available for carry forward to offset future taxable income . we made determinations to provide full valuation allowances for our net deferred tax assets at the end of 2019 and 2018 , including nol carryforwards generated during the years , based on our evaluation of positive and negative evidence , including our history of operating losses and the uncertainty of generating future taxable income that would enable us to realize our deferred tax . liquidity and capital resources for the year ended december 31 , 2019 , our cash and cash equivalents totaled $ 3,135 and our short-term investments totaled $ 2,394 compared to $ 7,611 and $ 1,803 , respectively , for the year ended december 31 , 2018. we expect that our cash and cash equivalents and short-term investments as of december 31 , 2019 , and the $ 4,489 in proceeds subsequent to december 31 , 2019 , from sales of our common shares under the atm , as well as the possibility of future sales of common shares under the atm and the universal shelf registration statement , described below , will be sufficient to fund our current level of selling , general and administration costs , including legal expenses and provide related working capital for the
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the unrealized losses associated with securities that management does not intend to sell , and more likely than not that we will be required to sell prior to maturity or market price recovery , are not considered to be other than temporary as of december 31 , 2012 and december 31 , 2011 , because the unrealized losses are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer . fair value . the fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties , other than in a forced or liquidation sale . management estimates the fair value of a financial instrument using a variety of valuation methods . where financial instruments are actively traded and have quoted market 41 prices , quoted market prices are used for fair value . when the financial instruments are not actively traded , other observable market inputs , such as quoted prices of securities with similar characteristics , may be used , if available , to determine fair value . when observable market prices do not exist , we estimate fair value . the valuation methods and inputs consider factors such as types of underlying assets or liabilities , rates of estimated credit losses , interest rate or discount rate and collateral . the best estimate of fair value involves assumptions including , but not limited to , various performance indicators , such as historical and projected default and recovery rates , credit ratings , current delinquency rates , loan-to-value ratios and the possibility of obligor refinancing . us gaap requires the use of fair values in determining the carrying values of certain assets and liabilities , as well as for specific disclosures . the most significant uses of fair values include impaired loans and foreclosed property and the net assets acquired in business combinations . purchased credit-impaired loans purchased credit-impaired ( pci ) loans are loans that were purchased in business combinations with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired . for certain acquired loans that have experienced a deterioration of credit quality , we follow the guidance contained in asc 310-30 , loans and debt securities acquired with deteriorated credit quality . evidence of credit quality deterioration as of purchase dates may include information such as past-due and non-accrual status , borrower credit scores and recent loan to value percentages . loans acquired through business combinations that do not meet the specific criteria of asc 310-30 , but for which a discount is attributable at least in part to credit quality , are also accounted for under this guidance unless the loan type is excluded from its scope . the fair value of loans with evidence of credit deterioration are recorded net of a nonaccretable difference and , if appropriate , an accretable yield . the difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is the nonaccretable difference , which is not included in the carrying amount of acquired loans . subsequent decreases to the expected cash flows will generally result in a provision for loan losses . subsequent to acquisition , estimates of cash flows expected to be collected are updated each reporting period based on updated assumptions regarding default rates , loss severities , and other factors that are reflective of current market conditions . subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges , or a reclassification of the difference from nonaccretable to accretable with a positive impact on accretion of interest income in future periods . further , any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of those cash flows . pci loans acquired in the same fiscal quarter may be aggregated into one or more pools , provided that the loans have common risk characteristics . a pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows . on a quarterly basis , the company re-estimates the total cash flows ( both principal and interest ) expected to be collected over the remaining life of each pool . these estimates incorporate assumptions regarding default rates , loss severities , the amounts and timing of prepayments and other factors that reflect then-current market conditions . if the timing and or amounts of expected cash flows on pci loans were determined not to be reasonably estimable , no interest would be accreted and the loans would be reported as non-accrual loans ; however , when the timing and amounts of expected cash flows for pci loans are reasonably estimable , interest is being accreted and the loans are being reported as performing loans . charge-offs are not recorded on pci loans until actual losses exceed the estimated losses that were recorded as purchase accounting adjustments at acquisition date . fdic receivable for loss share agreements . the majority of the loans and other real estate assets acquired in an fdic-assisted acquisition are covered under loss share agreements with the fdic in which the fdic has agreed to reimburse us for 80 % of all losses incurred in connection with those assets . we estimated the amount that we will receive from the fdic under the loss share agreements that will result from losses incurred as we dispose of covered loans and other real estate assets , and we recorded the estimate as a receivable from the fdic . story_separator_special_tag the fdic loss sharing receivable is measured separately from the related covered assets because it is not contractually embedded in the assets and is not transferable if we sell the assets . we estimated the fair value of the fdic loss sharing receivable using the present value of cash flows related to the loss share agreements based on the expected reimbursements for losses and the applicable loss share percentages . we review and update the fair value of the fdic receivable prospectively as loss estimates related to covered loans and other real estate owned change . the ultimate realization of the fdic loss sharing receivable depends on the performance of the underlying covered assets , the passage of time and claims paid by the fdic . deferred income taxes . the bancorp provides for deferred income taxes on the liability method whereby tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences . temporary differences are the differences between the reported amounts of assets and liabilities in the financial statements and their tax basis . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion or all of the deferred tax assets will not be realized . deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment . 42 accounting changes the fair value option we elected the fair value option for warehouse lending transactions documented under a master repurchase agreement originated after july 1 , 2012 in order to more accurately represent the short term nature of the transaction and its inherent credit risk . this adoption is in accordance with the parameters established by accounting standards codification ( asc ) 825-10-25 , financial instruments-overall-recognition : the fair value option . as a result of this election , new warehouse lending transactions are classified as loans held for sale on the balance sheet . the interest income from the warehouse lending transactions is classified in interest income loans receivable , taxable , including fees on the income statement . an allowance for loan losses is not recorded for the warehouse lending transactions when measured at fair value since under asc 825 , the exit price ( the repurchase price ) for warehouse lending transactions considers the effect of expected credit losses . change in accounting estimates estimates of cash flows from purchased credit-impaired ( pci ) loans were revised during the third quarter of 2012 due to conversion to a more sophisticated and precise loan valuation system . in accordance with the guidance in asc 310-30 , interest income is based on an acquired loan 's expected cash flows . complex models are needed to calculate loan-level and or pool level expected cash flows in accordance with asc 310-30. the loan data analysis provided by the new software is a more precise quantification of future cash flows than the analysis that was previously calculated manually . upon conversion to the new software , acquisition date loan values were loaded into the system and the new software calculated their fair values using its complex valuation model . conversion to the new system was completed in september 2012. to adjust the acquisition date loan balances recorded on customers bank 's books to the amounts calculated by the new software , approximately $ 4.4 million was recognized in other non-interest income in the third quarter of 2012. the revised valuation for the pci acquisition date loan balances due to the conversion to the new software is accounted for prospectively as a change in accounting estimate . when converting to the new software system , we were required to calculate the estimated cash flows from the various acquisition dates of the pci loans through the date the software was implemented as it was impracticable to perform these calculations on a monthly or quarterly basis . in the third quarter of 2012 , approximately $ 4.5 million was recognized in interest income related to this change . the impact of the revised valuation of cash flows for the pci loan activity due to the conversion to the new software is accounted for prospectively as a change in accounting estimate . also during the third quarter of 2012 , we re-estimated the cash flows for the pci loans using current data . the re-estimated expected cash flows decreased from prior estimated cash flows . consistent with asc 310-10 's fundamental premise that a decrease in expected cash flows results in accrual of a loss contingency and should not result in a change in yield , we evaluated the adequacy of the allowance for loan losses for pci loans and determined that an additional provision for loan losses of $ 7.5 million was appropriate . in the future , we will re-estimate the cash flows on the pci loans on a quarterly basis , and adjustments , if any , are not expected to have a material impact on future earnings . as a result of the changes in estimates , net income for the year ended december 31 , 2012 increased by $ 900,000 , net of tax , and basic and diluted earnings increased by $ 0.07 per share . background and reorganization customers bancorp was formed in april 2010 to facilitate a reorganization into a bank holding company structure pursuant to which customers bank became a wholly-owned subsidiary of customers bancorp ( the reorganization ) on september 17 , 2011. pursuant to the reorganization , all of the issued and outstanding shares of voting common stock and class b non-voting common stock of customers bank were exchanged on a three-to-one basis for shares of voting common stock and class b non-voting common stock , respectively , of customers bancorp . the bancorp is authorized to issue up to 100,000,000 shares of voting common stock , 100,000,000 shares of class b non-voting common stock and 100,000,000 shares of preferred stock .
| on a diluted per share basis , the net income was $ 1.73 per share for 2012 compared to a net income of $ 0.39 per share for 2011. our return on average assets was 1.02 % in 2012. our return on average equity was 12.69 % in 2012. for the years ended december 31 , 2011 and 2010 we had net income available to common shareholders of $ 4.0 million for the year ended december 31 , 2011 compared to $ 23.7 million for the year ended december 31 , 2010. net interest income increased $ 19.4 million for the year ended december 31 , 2011 to $ 38.8 million compared to $ 19.4 million for the year ended december 31 , 2010. non-interest expense increased $ 10.7 million to $ 36.9 million for the year ended december 31 , 2011 compared to $ 26.2 million for the year ended december 31 , 2010. non-interest income increased $ 8.0 million to $ 13.4 million for the year ended december 31 , 2011 compared to $ 5.4 million for the year ended december 31 , 2010 , excluding the bargain purchase gains on bank acquisitions of $ 40.3 million for the year ended december 31 , 2010. on a diluted per share basis , the net income was $ 0.39 per share for 2011 compared to a net income of $ 3.69 per share for 2010. our return on average assets was 0.24 % in 2011. our return on average equity was 3.06 % in 2011 . 46 net interest income net interest income ( the difference between the interest earned on loans , investments and interest-earning deposits with banks , and interest paid on deposits , borrowed funds and subordinated debt ) is the primary source of customers bancorp 's earnings . the following table summarizes the bancorp 's net interest income and related spread and margin for the periods indicated . replace_table_token_7_th ( a ) for presentation in this table , balances and the corresponding average rates for investment securities are based upon historical cost , adjusted for amortization of premiums and accretion of discounts . ( b ) includes non-accrual loans , the effect of which is to reduce the yield earned on loans , and deferred loan fees . ( c ) full tax equivalent basis , using a 35 % statutory tax rate to approximate interest income as a taxable asset . ( d ) excluding the adjustment to interest income for the change in accounting estimate on pci loans of $ 4.5 million , net interest margin and net interest margin tax equivalent are 3.05 % for the twelve months ended december 31 , 2012 . ( e ) certain amounts
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the two primary drivers of our revenue growth were product sales of the two companies we acquired in fiscal 2013 and subscription revenue due to the success of our cloud offering . excluding the effect of foreign exchange fluctuations , we expect that total revenue generally will continue to increase at a similar rate in fiscal 2015 due to continued demand for our software products , the high percentage of customers that renew their maintenance contracts and continued growth in cloud revenue . license revenue . license revenue is primarily derived from software license fees that customers pay for our core product , qad enterprise applications , and any add-on modules they purchase . in fiscal 2014 , license revenue increased by 16 % to $ 36.2 million . although our annual license billings decreased slightly , our license revenue benefited from the recognition of revenue related to deals closed in previous periods but deferred for accounting purposes . when we enter into a multi-element transaction with fixed fee services or when we sell licenses for additional users under a pricing model that does not satisfy vendor specific objective evidence ( “ vsoe ” ) requirements , we may be required to recognize license revenue ratably over the longer of the maintenance period or expected services implementation timeframe rather than recognizing license revenue at the time of sale . additionally , if at the time of the license sale we have not finalized the services agreement , we will defer the entire arrangement until the services agreement is signed . our success in closing license deals for existing customers , new customers that are affiliates of existing customers and customers that have employees with historical experience working with qad tends to be higher than with new customers that have no qad affiliations . as a result , we place increased focus on these opportunities . a majority of our license revenue is generated from existing customers and their affiliates . we believe global economic volatility will continue to shape customers ' and prospects ' buying decisions , making it difficult to forecast sales cycles for our products and the timing of large software license sales . in addition , as we focus on our cloud sales we may experience a correspondingly negative effect on license revenue . subscription revenue . growing our cloud model , which generates subscription revenue , and offering our products as saas continues to be a key strategic and growth initiative for us . in fiscal 2014 , subscription revenue increased by 32 % to $ 19.4 million . our cloud customers include a mix of existing customers who have converted from our on-premise model and new user implementations of our cloud product . subscription revenue is generally billed on a quarterly basis and recognized ratably over the term of the agreement , typically 12 to 36 months . we expect cloud revenue in fiscal 2015 will continue to grow at a rate of 30 % or more . 29 maintenance revenue . we offer support services 24 hours a day , seven days a week in addition to providing software upgrades , which include additional or improved functionality , when and if available . in fiscal 2014 , maintenance revenue increased by 1 % to $ 139.6 million . maintenance revenue fluctuations are influenced by : ( 1 ) new license revenue growth ; ( 2 ) annual renewal of support contracts ; ( 3 ) increase in customers through acquisitions ; ( 4 ) fluctuations in currency rates ; ( 5 ) adjustments to revenue as a result of revenue recognition rules ; and ( 6 ) customer conversions to qad cloud erp . the vast majority of our customers renew their annual support contracts . over the last three years , our annual revenue renewal rate of customers subscribing to maintenance has been greater than 90 % . maintenance revenue is generally billed on an annual basis and recognized ratably over the term of the agreement , typically twelve months . professional services revenue . our services business consists of professional services , including consulting and training related to our solutions . in fiscal 2014 , our services revenue increased by 5 % to $ 71.2 million . our professional services organization provides our customers with expertise and assistance in planning and implementing our solutions whether in the cloud or on-premise . consultants typically assist customers with the initial installation of a system , the conversion and transfer of the customer 's historical data into our software , and ongoing training , education , and system upgrades . we believe our professional services enable customers to implement our software efficiently , support a customer 's success with our solution , strengthen our customer relationships , and add to our industry-specific knowledge base for use in future implementations and product innovations . our services margins tend to range from about breakeven to 10 % . we believe we offer competitive rates and view our services organization as a department supporting the implementation and deployment of our products and improving the overall customer experience . services margins lower our overall operating margin as services margins are inherently lower than margins for our license , maintenance and subscription revenues . in fiscal 2015 we expect services revenue will grow in conjunction with overall revenue growth . although our professional services are optional , many of our customers use these services for some of their planning , implementation , or related needs . professional services are typically rendered under time and materials-based contracts with services typically billed on an hourly basis . professional services are sometimes rendered under fixed-fee based contracts with payments due on specific dates or milestones . professional services revenue growth is contingent upon license and subscription revenue growth and customer upgrade cycles , which are influenced by the strength of general economic and business conditions and the competitive position of our software products . we use our partners and subcontractors to supplement our internal resources . story_separator_special_tag this allows us to quickly respond to demand fluctuations while somewhat mitigating low utilization in slow times . we believe this also helps us extend our global reach by keeping a higher number of partners engaged and knowledgeable about our product . our professional services business has competitive exposure to offshore providers which could create the risk of pricing pressure , fewer customer orders and reduced gross margins . cash flow and financial condition . in fiscal 2014 , we generated cash flow from operating activities of $ 24.1 million . our cash and equivalents at january 31 , 2014 totaled $ 76.0 million , with the only debt on our balance sheet of $ 15.5 million related to the mortgage of our headquarters . our primary uses of cash have been funding investment in research and development and funding operations to drive revenue and earnings growth . in addition , we use cash for acquisitions , dividend payments , share repurchase programs and other equity related transactions . in fiscal 2015 , we anticipate that our priorities for use of cash will be developing sales and services resources and continued investment in research and development to drive and support growth and profitability . we will continue to evaluate acquisition opportunities that are complementary to our product footprint , solutions delivery and technology direction . we will also continue to assess share repurchases and dividend payments . we do not anticipate additional borrowing requirements in fiscal 2015 . 30 critical accounting policies the sec defines “ critical accounting policies ” as those that require application of management 's most difficult , subjective , or complex judgments . these policies often require us to make estimates about the effects of matters that are inherently uncertain and are subject to change in subsequent periods . we consider the following policies to be critical because of the significance of these items to our operating results and the estimation processes and management judgment involved in each : · revenue · accounts receivable allowances for doubtful accounts · capitalized software development costs · goodwill and intangible assets – impairment assessments · business combinations · valuation of deferred tax assets and tax contingency reserves · stock-based compensation our senior management has reviewed these critical accounting policies and related disclosures . historically , estimates described in our critical accounting policies that have required significant judgment and estimation on the part of management have been reasonably accurate . revenue . we offer our software using two models , a traditional on-premise licensing model and a cloud delivery model . the traditional model involves the sale or license of software on a perpetual basis to customers who take possession of the software and install and maintain the software on their own equipment . under the cloud delivery model we provide access to our software on a hosted basis as a service and customers generally do not have the contractual right to take possession of the software ; we sometimes refers to this as a “ saas model ” . we sell a majority of our software through our on-premise licensing model and recognize revenue associated with these offerings in accordance with the accounting guidance contained in asc 985-605 , software revenue . additionally , delivery of software and services under the saas model is typically over a contractual term of 12 to 36 months and we recognize revenue associated with these offerings , which we call subscription revenue in the accompanying consolidated statements of income and comprehensive income , in accordance with the accounting guidance contained in asc 605-25 , revenue recognition - multiple-deliverable revenue arrangements . whether sales are made via an on-premise model or a saas model , the arrangement typically consists of multiple elements , including revenue from one or more of the following elements : license of software products , support services , hosting , consulting , development , training , or other professional services . we evaluate each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting . an element constitutes a separate unit of accounting when the item has standalone value and delivery of any undelivered elements is probable and within our control . subscription and support services have standalone value because they are routinely sold separately by us . consulting services and other services have standalone value because we have sold consulting services separately and there are several third party vendors that routinely provide similar consulting services to our customers on a standalone basis . software license arrangements that do not require significant modification or customization of the underlying software do not have standalone value but are recognized using the residual method . software revenue recognition ( on-premise model ) the majority of our software is sold or licensed in multiple-element arrangements that include support services and often consulting services or other elements . for software license arrangements that do not require significant modification or customization of the underlying software , we recognize revenue when persuasive evidence of an arrangement exists including a signed statement of work for any related consulting services engagements , delivery has occurred , the fee is fixed or determinable , and collectability is probable . delivery is considered to have occurred upon electronic transfer of the license key that provides immediate availability of the product to the purchaser . determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report . revenue is presented net of sales , use and value-added taxes collected from our customers . 31 our typical payment terms vary by region . occasionally , payment terms of up to one year may be granted for software license fees to customers with an established history of collections without concessions .
| our products are sold to manufacturing companies that operate mainly in the following six industries : automotive , consumer products , food and beverage , high technology , industrial products and life sciences . given the similarities between consumer products and food and beverage as well as between high technology and industrial products , we aggregate them for management review . revenue by industry for fiscal 2014 was approximately 28 % in automotive , 22 % in consumer products and food and beverage , 34 % in high technology and industrial products and 16 % in life sciences . in comparison , revenue by industry for fiscal 2013 was approximately 28 % in automotive , 22 % in consumer products and food and beverage , 35 % in high technology and industrial products and 15 % in life sciences . 39 holding foreign currency exchange rates constant to fiscal 2012 , total revenue for fiscal 2013 would have been approximately $ 257.2 million , representing a $ 9.9 million , or 4 % , increase from the prior year . when comparing categories within total revenue at constant rates , our fiscal 2013 results included increases in our maintenance and other revenue , subscription fees , and professional services categories partially offset by a decrease in license revenue . our acquired company dynasys added $ 3.5 million to total revenue in our emea region during fiscal 2013 while cebos added $ 0.2 million to total revenue in our north america region during fiscal 2013. excluding revenue related to our acquisitions , total revenue increased in our north america , emea and asia pacific regions offset by a decrease in our latin america region during fiscal 2013 when compared to fiscal 2012. revenue by industry for fiscal 2013 was approximately 28 % in automotive , 22 % in consumer products and food and beverage , 35 % in high technology and industrial products and 15 % in life sciences . in comparison , revenue by industry for fiscal 2012 was approximately 28 % in automotive , 24 % in consumer products and food and beverage , 36 % in high technology
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condition ratio ( i ) tier 1 leverage ratio 15.90 % ( ii ) total risk-based capital ratio 23.69 % ( iii ) ratio of purchased loans to total loans 38.51 % ( iv ) ratio of loans to core deposits 92.14 % ( v ) ratio of commercial real estate loans to total risk-based capital 176.80 % as a result of the sale of the company 's insurance agency business in the first quarter of fiscal 2012 and discontinuation of further significant business activities in the insurance agency segment , the company has classified the results of its insurance agency division as discontinued operations in the company 's consolidated financial statements and discussion herein . the company concluded all investment brokerage activities in the second quarter of fiscal 2014. accordingly , operations associated with these activities have been classified as discontinued operations in all periods in the company 's consolidated financial statements and discussion herein . story_separator_special_tag compensation and occupancy expenses . 41 net interest income the following table sets forth average balance sheets , average yields and costs , and certain other information for the periods indicated : replace_table_token_14_th ( 1 ) includes loans held for sale . ( 2 ) nonaccrual loans are included in the computation of average , but unpaid interest has not been included for purposes of determining interest income . ( 3 ) short term investments include fhlb overnight deposits and other interest-bearing deposits . ( 4 ) net interest margin is calculated as net interest income divided by total interest-earning assets . 42 the following table presents the extent to which changes in volume and interest rates of interest earning assets and interest bearing liabilities have affected the company 's interest income and interest expense during the periods indicated . information is provided in each category with respect to ( i ) changes attributable to changes in volume ( changes in volume multiplied by prior period rate ) , ( ii ) changes attributable to changes in rates ( changes in rates multiplied by prior period volume ) and ( iii ) changes attributable to a combination of changes in rate and volume ( change in rates multiplied by the changes in volume ) . changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate . replace_table_token_15_th replace_table_token_16_th for the year ended june 30 , 2014 , the $ 8.6 million volume-related change in net interest income was mainly the result of the significant increase in loans , which grew by $ 110.8 million on average 43 compared to fiscal 2013. the unfavorable rate-related change in fiscal 2014 compared to fiscal 2013 was principally due to the lower level of transactional interest income realized on purchased loans , which declined by $ 3.1 million year over year . for fiscal 2014 , the 4.56 % net interest margin earned was 6 basis points lower than that earned for the year ended june 30 , 2013. the net interest margin decreased during fiscal 2014 principally due to decreased accelerated discount accretion from the early payoff of purchased loans . the following table summarizes the effects of accretion of fair value adjustments on the net interest margin , for the periods indicated : replace_table_token_17_th the company 's total cost of funds improved to 1.08 % in fiscal 2014 , down from 1.16 % in fiscal 2013 , principally due to a 12 basis point decrease in the cost of interest-bearing deposits . provision for loan losses quarterly , the company determines the amount of its allowance for loan losses adequate to provide for losses inherent in the company 's loan portfolios , with the provision for loan losses determined by the net periodic change in the allowance for loan losses . for acquired loans accounted for under asc 310-30 , a provision for loan loss is recorded when estimates of future cash flows decrease due to credit deterioration . the provision for loan losses for periods subsequent to the merger reflects the impact of adjusting loans to their then fair values , as well as the elimination of the allowance for loan losses in accordance with the acquisition method of accounting . subsequent to the merger , the provision for loan losses has been recorded based on estimates of inherent losses in newly originated loans and for incremental reserves required for pre-merger loans based on estimates of deteriorated credit quality post-merger . the provision for loan losses for the fiscal year ended june 30 , 2014 was $ 531 thousand . this compares to a provision for loan losses of $ 1.1 million for the year ended june 30 , 2013. at june 30 , 2014 and 2013 , the allowance for loan losses stood at $ 1.4 million and $ 1.1 million , respectively , and 44 the ratio of allowance for loan losses to total loans was 0.26 % at each fiscal year end . net charge-offs for the fiscal year ended june 30 , 2014 totaled $ 308 thousand , representing approximately 0.06 % of the company 's average portfolio loan balance during the fiscal year . this compares to $ 803 thousand , or 0.21 % , in fiscal 2013 , representing a decrease of $ 495 thousand in fiscal 2014 , the result of improved net charge-off trends in all loan segments . for additional information on the allowance for loan losses , see `` asset quality . '' noninterest income noninterest income for the fiscal year ended june 30 , 2014 totaled $ 4.9 million , a decrease of $ 4.4 million , or 47.7 % , from fiscal 2013. when compared to fiscal 2013 , the increase was principally due to the following : a $ 792 thousand decrease in securities gains . story_separator_special_tag there were no sales of available-for-sale securities in fiscal 2014 ; a $ 1.4 million decrease in gains on residential loans originated for sale , a decrease correlated to the volume of loans originated for portfolio in fiscal 2014 ; a $ 1.3 million decrease in gains on portfolio loan sales , due to fewer sales of purchased loans in fiscal 2014 ; a $ 683 thousand decrease in net gains on sales of other real estate owned . in fiscal 2013 , the company recognized gains of $ 684 thousand on the resolution of properties previously securing acquired loans , as compared to $ 100 thousand in fiscal 2014 ; a $ 267 thousand decrease in boli income , due to death benefits received in fiscal 2013. noninterest expense noninterest expense for the fiscal year ended june 30 , 2014 totaled $ 31.8 million , a decrease of $ 178 thousand , or 0.6 % , from fiscal 2013. when compared to fiscal 2013 , the increase was principally due to the following : an increase of $ 750 thousand in salaries and benefits , principally due to increased severance costs , partially offset by lower incentive compensation . severance expense totaled $ 1.3 million in fiscal 2014 , compared to $ 309 thousand in fiscal 2013. the company 's employees , excluding discontinued operations , and on a full-time equivalent basis , totaled 187 at june 30 , 2014 , compared to 205 at june 30 , 2013 ; an increase of $ 822 thousand in occupancy and equipment expense , principally due to increased rent associated with the relocation of the company 's office in boston , ma , and depreciation , principally related to the company 's core banking software ; a decrease of $ 165 thousand in professional fees , principally due to lower legal fees in fiscal 2014 ; an increase of $ 237 thousand in data processing , due to the conversion of the bank 's core software to an outsourced model during fiscal 2014 ; a decrease of $ 724 thousand in marketing expense , due to a reduction in deposit and residential mortgage marketing in fiscal 2014 ; a decrease of $ 227 thousand in loan acquisition and collection expense , principally due to lower loan acquisitions and work-out expenses ; 45 a decrease of $ 197 thousand in intangible asset amortization . the company 's core deposit intangible is amortized on an accelerated basis , therefore , the expense decreases annually ; a decrease of $ 1.2 million in legal settlement expense . in fiscal 2013 , the company recorded a charge of $ 1.0 million in connection with a dispute regarding certain deposit account activity occurring in 2005 and 2006. the company received an insurance recovery totaling $ 250 thousand in fiscal 2014 related to this settlement ; an increase in other noninterest expense of $ 530 thousand , principally related to nonrecurring expenses associated with the company 's core banking software conversion in fiscal 2014. non-capital expenses associated with the conversion totaled $ 466 thousand . income taxes income tax expense for the fiscal year ended june 30 , 2014 totaled $ 1.6 million , representing 36.9 % of pretax income , as compared to $ 1.9 million , or 30.5 % of pretax income , in fiscal 2013. the increase in the company 's effective tax rate was principally due to increased state income taxes resulting from year over year changes in state apportionment . in the current year , relatively less income was apportioned to maine , which has a lower financial institution income tax rate than the other states to which the company 's income was apportioned . results of operationsdiscontinued operations overview the company concluded all investment brokerage activities in the second quarter of fiscal 2014. accordingly , operations associated with these activities have been classified as discontinued operations for all periods shown in the accompanying consolidated statements of income . the company recorded a net loss from discontinued operations of $ 8 thousand in fiscal 2014 , compared to net income of $ 125 thousand in fiscal 2013. financial condition overview the company 's total assets grew to $ 761.9 million at june 30 , 2014 , representing an increase of $ 91.3 million , or 13.6 % , compared to $ 670.6 million at june 30 , 2013. significant changes in the company 's balance sheet components include : loans increased by $ 84.4 million , or 19.0 % , compared to june 30 , 2013 , principally due to net growth of $ 75.3 million in commercial loans purchased or originated by the lasg and $ 9.1 million of net growth in loans originated by the bank 's community banking division ; deposits and borrowings increased by $ 89.7 million and $ 1.9 million , respectively , from june 30 , 2013. non-maturity deposits increased by $ 10.6 million , or 4.8 % , for the year while time deposits grew by 30.1 % or $ 79.1 million . the latter was centered in deposits raised through deposit listing services , which the bank uses when advantageous to acquire term funding consistent with its asset/liability management objectives ; shareholders ' equity decreased by $ 1.7 million from june 30 , 2013 , in part due to common stock dividends of $ 2.9 million and $ 2.8 million of common stock repurchases ( representing 291,200 shares ) . 46 cash and cash equivalents cash and cash equivalents increased $ 16.3 million , or 24.8 % , to $ 82.3 million at june 30 , 2014 as compared to $ 65.9 million at june 30 , 2013. this increase was principally the result of deposit growth of $ 89.7 million and a net decrease in available-for-sale securities of $ 7.7 million , partially offset by loan growth of $ 84.4 million . investments securities the available-for-sale securities portfolio totaled $ 113.9 million and $ 121.6 million at june 30 , 2014 and 2013 , respectively .
| excluding these items , which the company considers to be non-core , net 39 operating earnings were $ 3.6 million , or $ 0.35 per share , for the year ended june 30 , 2014. a reconciliation of net operating earnings for the years ended june 30 , 2014 and 2013 follows . replace_table_token_11_th ( 1 ) management believes operating earnings , which exclude non-core items , provide a more meaningful representation of the company 's performance . items of significance affecting the company 's earnings included : an increase in net interest income and dividend income before provision for loan losses , which grew to $ 31.7 million compared to $ 29.9 million for the year ended june 30 , 2013 , principally due to an 18.6 % increase in loans , offset in part by reduced transactional interest income on purchased loans . the following table summarizes interest income and related yields recognized on the company 's loans . replace_table_token_12_th the yield on purchased loans in each period shown was increased by unscheduled loan payoffs , which resulted in immediate recognition of the prepaid loans ' discount in interest income . the 40 following table details the `` total return '' on purchased loans , which includes total transactional income of $ 5.4 million for the year ended june 30 , 2014 , a decrease of $ 5.2 million from the year ended june 30 , 2013. the following table summarizes the total return recognized on the purchased loan portfolio : replace_table_token_13_th ( 1 ) the total return represents scheduled interest and accretion , accelerated accretion , net gains on asset sales , and other noninterest income recorded during the period divided by the average invested balance , on an annualized basis . a decrease of $ 4.4 million in noninterest income , principally resulting from lower sales of residential and purchased loans in fiscal 2014. during fiscal 2014 , residential loans originated for sale decreased by $ 50.5 million , mainly the result of adding most residential production to portfolio during the first half of fiscal 2014 , in order
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to determine revenue recognition for arrangements that we determine are within the scope of accounting standards codification ( “ asc ” ) 606 , we perform the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) we satisfy a performance obligation . we only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer . at contract inception , once the contract is determined to be within the scope of asc 606 , we assess the goods or services promised within each contract and determine those that are performance obligations , and assess whether each promised good or service is distinct . we then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) the performance obligation is satisfied . product revenue , net we sell our product to a limited number of wholesalers and specialty distributors in the u.s. ( collectively , our “ customers ” ) . revenues from product sales are recognized when we have satisfied our performance obligation , which is the transfer of control of our product upon delivery to the customer . the timing between the recognition of revenue for product sales and the receipt of payment is not significant . because our standard credit terms are short-term and we expect to receive payment in less than one-year , there is no financing component on the related receivables . taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues . overall , product revenue , net , reflects our best estimates of the amount of consideration to which we are entitled based on the terms of the contract . the amount of variable consideration is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period . if our estimates differ significantly from actuals , we will record adjustments that would affect product revenue , net in the period of adjustment . reserves for variable consideration revenues from product sales are recorded at the net sales price , which includes estimates of variable consideration such as product returns , chargebacks , discounts , rebates and other fees that are offered within contracts between us and our customers , healthcare providers , pharmacies and others relating to our product sales . we estimate variable consideration using either the most likely amount method or the expected value method , depending on the type of variable consideration and what method better predicts the amount of consideration we expect to receive . we take into consideration relevant factors such as industry data , current contractual terms , available information about customers ' inventory , resale and chargeback data and forecasted customer buying and payment patterns , in estimating each variable consideration . the variable consideration is recorded at the time product sales is recognized , resulting in a reduction in product revenue and a reduction in accounts receivable ( if the customer offsets the amount against its accounts receivable ) or as an accrued liability ( if we pay the amount through our accounts payable process ) . variable consideration requires significant estimates , judgment and information obtained from external sources . the amount of variable consideration is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period . if our estimates differ significantly from actuals , we will record adjustments that would affect product revenue , net in the period of adjustment . if we were to change any of these judgments or estimates , it could cause a material increase or decrease in the amount of revenue that we report in a particular period . there have been no material adjustments to these estimates for the years ended december 31 , 2019 and 2018. product returns : consistent with industry practice , we offer our customers a limited right of return based on the product 's expiration date for product that has been purchased from us . we estimate the amount of our product sales that may be returned by our customers and record this estimate as a reduction of revenue in the period the related product revenue is recognized . we consider several factors in the estimation of potential product returns including expiration dates of the product shipped , the limited product return rights , available information about customers ' inventory , shelf life of the product and other relevant factors . 38 chargebacks : our customers subsequently resell our pro duct to healthcare providers , pharmacies and others . in addition to distribution agreements with customers , we enter into arrangements with qualified healthcare providers that provide for chargebacks and discounts with respect to the purchase of our product . chargebacks represent the estimated obligations resulting from contractual commitments to sell product to qualified healthcare providers at prices lower than the list prices charged to customers who directly purchase the product from us . customers charge us for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers . these reserves are established in the same period that the related revenue is recognized , resulting in a reduction of product re venue and accounts receivable . story_separator_special_tag chargeback amounts are determined at the time of resale to the qualified healthcare providers by customers , and we issue credits for such amounts generally within a few weeks of the customer 's notification to us of the resale . reserves for chargebacks consists of credits that we expect to issue for units that remain in the distribution channel inventories at each reporting period end that we expect will be sold to the qualified healthcare providers , and chargebacks for units that our customers have sold to the qualified healthcare providers , but for which credits have not been issued . trade discounts and allowances : we provide our customers with discounts which include early payment incentives that are explicitly stated in our contracts , and are recorded as a reduction of revenue in the period the related product revenue is recognized . distribution fees : distribution fees include fees paid to certain customers for sales order management , data and distribution services . distribution fees are recorded as a reduction of revenue in the period the related product revenue is recognized . rebates : under certain contracts , customers may obtain rebates for purchasing minimum volumes of our product . we estimate these rebates based upon the expected purchases and the contractual rebate rate and record this estimate as a reduction in revenue in the period the related revenue is recognized . collaboration and manufacturing service revenue we have entered into collaborative arrangements and arrangements to provide manufacturing services to other companies . such arrangements may include promises to customers which , if capable of being distinct , are accounted for as separate performance obligations . for agreements with multiple performance obligations , we allocate estimated revenue to each performance obligation at contract inception based on the estimated transaction price of each performance obligation . revenue allocated to each performance obligation is then recognized when we satisfy the performance obligation by transferring control of the promised good or service to the customer . manufacturing service revenue is included in other revenue in our consolidated statements of operations . research and development expenses and accruals research and development expenses include personnel and facility-related expenses , outside contracted services including clinical trial costs , manufacturing and process development costs , research costs and other consulting services and non-cash stock-based compensation . research and development costs are expensed as incurred . amounts due under contracts with third parties may be either fixed fee or fee for service , and may include upfront payments , monthly payments and payments upon the completion of milestones or receipt of deliverables . non-refundable advance payments under agreements are capitalized and expensed as the related goods are delivered or services are performed . we contract with third parties to perform various clinical trial activities in the on-going development of potential products . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows to our vendors . payments under the contracts depend on factors such as the achievement of certain events , successful enrollment of patients , and completion of portions of the clinical trial or similar conditions . our accrual for clinical trials is based on estimates of the services received and efforts expended pursuant to contracts with clinical trial centers and clinical research organizations . we may terminate these contracts upon written notice and we are generally only liable for actual effort expended by the organizations to the date of termination , although in certain instances we may be further responsible for termination fees and penalties . we estimate research and development expenses and the related accrual as of each balance sheet date based on the facts and circumstances known to us at that time . there have been no material adjustments to the prior period accrued estimates for clinical trial activities during the years presented . stock-based compensation stock-based compensation expense for restricted stock units and stock options is estimated at the grant date based on the award 's estimated fair value and is recognized on a straight-line basis over the award 's requisite service period , assuming estimated forfeiture rates . fair value of restricted stock units is determined at the date of grant using the company 's closing stock price . our determination of the fair value of stock options on the date of grant using an option-pricing model is affected by our stock price , as well as assumptions regarding a number of subjective variables . we selected the black-scholes option 39 pricing model as the most appropriate method for determining the estimated fair value-based measurement of our stock options . the black-scholes model requires the use of subjective assumptions which determine the fair value-based measurement of stock options . these assumptions include , but are not limited to , our expected stock price volatility over the term of the awards , and projected employee stock option exercise behaviors . in the future , as additional empirical evidence regarding these input estimates becomes available , we may change or refine our approach of deriving these input estimates . these changes could impact our fair value of stock options granted in the future . changes in the fair value of stock awards could materially impact our operating results . our current estimate of volatility is based on the historical volatility of our stock price . to the extent volatility in our stock price increases in the future , our estimates of the fair value of options granted in the future could increase , thereby increasing stock-based compensation cost recognized in future periods . we derive the expected term assumption primarily based on our historical settlement experience , while giving consideration to options that have not yet completed a full life cycle . stock-based compensation cost is recognized only for awards ultimately expected to vest . our estimate of the forfeiture rate is based primarily on our historical experience .
| ltd. other revenue includes manufacturing service revenue of $ 0.4 million . 2018 versus 2017 initial sales efforts during 2018 focused on ensuring market access to enable healthcare providers to purchase heplisav-b including obtaining payor coverage and securing contracts with distributors , group purchasing organizations , physician buying groups and federal government entities . sales efforts were focused on advancing heplisav-b through the complex approval and procurement processes in large institutional accounts across the country . collaboration revenue relates to services performed in 2018 under a collaboration agreement with serum institute of india pvt . ltd. 42 cost of sales – product the following is a summary of our cost of sales - product ( in thousands , except for percentages ) : replace_table_token_4_th 2019 versus 2018 cost of sales - product for the year ended december 31 , 2019 primarily includes certain fill , finish and overhead costs for pre-filled syringes ( “ pfs ” ) of heplisav-b and costs related to a terminated batch . our heplisav-b pfs finished goods inventory includes components for which a portion of the manufacturing costs were previously expensed to research and development prior to the approval of the pfs presentation by the fda in march 2018. we expect to use this heplisav-b pfs inventory over approximately the next six to nine months . we expect cost of sales of heplisav-b pfs , on a per unit basis , to increase as we produce and then sell inventory that reflects the full cost of manufacturing the product . at december 31 , 2019 , inventories , net increased to $ 41.3 million from $ 19.0 million at december 31 , 2018 to support increased projected sales . cost of sales - amortization of intangible assets the following is a summary of our cost of sales – amortization of intangible assets ( in thousands , except for percentages ) : replace_table_token_5_th cost of sales - amortization of intangible assets consists of amortization of the intangible asset recorded
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story_separator_special_tag headquarters/other group expenses are summarized below ( dollars in millions ) : replace_table_token_12_th · sg & a expenses for the smb segment increased in dollars and as a percentage of net sales . both increased due to incremental variable compensation associated with higher gross profits , the inclusion of softmart 's operating expenses , and greater usage of headquarter services . the increase in headquarter services was partly related to our investments in technical and engineering support provided to the smb segment . · sg & a expenses for the large account segment increased in dollars and as a percentage of net sales . the increase in sg & a dollars and as a percentage of net sales was due to the inclusion of softmart 's operating expenses , incremental variable compensation associated with higher gross profits , and higher usage of headquarter services . the increase in headquarter services was partly related to our investments in technical and engineering support provided to the large account segment . · sg & a expenses for the public sector segment increased in dollars and as a percentage of net sales . both increased due to incremental variable compensation associated with higher gross profits and greater usage of headquarter services . the increase in headquarter services was partly related to our investments technical and engineering support provided to the public sector segment . · sg & a expenses for the headquarters/other group decreased due to an increase in allocated personnel and related costs related to our investments in solution services . the headquarters/other group provides services to the three segments in areas such as finance , human resources , it , marketing , and product management . most of the operating costs associated with such corporate headquarters services are charged to the operating segments based on their estimated usage of the underlying services . the amounts shown above represent the remaining unallocated costs . income from operations increased by $ 2.0 million to $ 80.5 million in 2016 , compared to 2015. income from operations as a percentage of net sales remained unchanged at 3.0 % for 2016 and 2015. the increase in operating income resulted primarily from an increase in gross profits . income taxes . our effective tax rate was 40.2 % for the year ended december 31 , 2016 , compared to 40.3 % for the year ended december 31 , 2015. our tax rate will vary based on income apportionment to certain jurisdictions , valuation reserves , and accounting for uncertain tax positions . however , we do not expect these variations to be significant in 2017. net income increased by $ 1.3 million to $ 48.1 million in 2016 , from $ 46.8 million in 2015 , principally due to the increase in operating income . 25 year ended december 31 , 2015 compared to year ended december 31 , 2014 net sales increased by 4.5 % to $ 2,574.0 million in 2015 from $ 2,463.3 million in 2014. changes in net sales and gross profit by operating segment are shown in the following table ( dollars in millions ) : replace_table_token_13_th · net sales for the smb segment increased slightly due to higher notebooks/mobility sales . sales of desktops in 2014 were high due to the expiration of support for windows xp software in april 2014. increased sales of notebooks/mobility , servers/storage , and net/com products for this segment offset the year-over-year decline in desktops . · net sales for the large account segment increased due to our focus on growing advanced solution sales including software and servers/storage products . software and servers/storage product sales for this segment increased year over year by 27 % and 14 % , respectively , due to our investment in technical solution engineers and the completion of large software deals . servers sales increased in part due to the expiration in july 2015 of support for windows server 2003 software . · net sales to the public sector segment decreased by 0.4 % or $ 2.5 million . sales to the federal government increased by 8.7 % due to higher sales made under federal government contracts , while state and local government and educational institutions decreased by 4.0 % due to lower sales to k-12 customers . sales of notebooks/mobility increased in this segment , offset by decreased sales of net/com products . gross profit for 2015 increased year over year in dollars and as a percentage of net sales ( gross margin ) , as explained below : · gross profit for the smb segment increased due to an increase in net sales and gross margin . gross margin increased year over year due to higher invoice selling margins ( 29 basis points ) realized on increased sales of higher-margin net/com and storage products , as well as an increase in vendor early-payment discounts ( 9 basis points ) . · gross profit for the large account segment increased due to higher net sales . gross margin decreased due to lower invoice selling margins ( 41 basis points ) associated with increased sales of lower-margin notebooks/mobility products , offset by higher agency revenues ( 16 basis points ) . we receive agency fees from suppliers for certain software and hardware sales which are recorded as revenue with no corresponding cost of goods sold , and accordingly such fees have a positive impact on gross margin . · gross profit for the public sector segment increased despite lower net sales . invoice selling margins increased by 45 basis points due to increased demand for higher margin products such as software . 26 selling , general and administrative expenses in 2015 increased in dollars and remained unchanged as a percentage of net sales compared to the prior year . sg & a expenses attributable to our three operating segments and the remaining unallocated headquarters/other group expenses are summarized below ( dollars in millions ) : replace_table_token_14_th · sg & a expenses for the smb segment increased slightly in dollars and as a percentage of net sales . story_separator_special_tag both increased due to incremental variable compensation associated with higher gross profits and greater usage of headquarter services , but were partially offset by reduced advertising expense . the increase in headquarter services was partly related to additional technical and engineering support provided to the smb segment . · sg & a expenses for the large account segment increased in dollars and as a percentage of net sales . the increase in sg & a dollars and as a percentage of net sales was due to investments in solution sales and services , incremental variable compensation associated with higher gross profits , and higher usage of headquarter services . the increase in headquarter services was partly related to additional technical and engineering support provided to the large account segment . · sg & a expenses for the public sector segment decreased in dollars and as a percentage of net sales due to a reduction in advertising expense and credit card fees . · sg & a expenses for the headquarters/other group increased due to an increase in unallocated personnel and other related costs , including higher executive management oversight costs associated with our improved operating results in 2015. the headquarters/other group provides services to the three segments in areas such as finance , human resources , it , marketing , and product management . most of the operating costs associated with such corporate headquarters services are charged to the operating segments based on their estimated usage of the underlying services . the amounts shown above represent the remaining unallocated costs . income from operations increased by $ 7.1 million to $ 78.6 million in 2015 , from $ 71.5 million in 2014. income from operations as a percentage of net sales increased to 3.0 % for 2015 from 2.9 % in 2014. the increase in operating income resulted primarily from an increase in net sales . income taxes . our effective tax rate was 40.3 % for the year ended december 31 , 2015 , compared to 40.2 % for the year ended december 31 , 2014. net income increased by $ 4.1 million to $ 46.8 million in 2015 from $ 42.7 million in 2014 , principally due to the increase in operating income . liquidity and capital resources liquidity overview our primary sources of liquidity have historically been internally generated funds from operations and borrowings under our bank line of credit . we have used those funds to meet our capital requirements , which consist primarily of working capital for operational needs , capital expenditures for computer equipment and software used in our business , repurchases of common stock for treasury , dividend payments , and as opportunities arise , possible acquisitions of new businesses . 27 we believe that funds generated from operations , together with available credit under our bank line of credit , will be sufficient to finance our working capital , capital expenditures , and other requirements for at least the next twelve calendar months . we expect our capital needs for the next twelve months to consist primarily of capital expenditures of $ 10.0 to $ 12.0 million and payments on leases and other contractual obligations of approximately $ 4.5 million . we have undertaken a comprehensive review and assessment of our entire business software needs , including commercially available software that meets , or can be configured to meet , those needs better than our existing software . while we have not finalized our decisions regarding the areas of future investment in our it infrastructure , the incremental capital costs of such a project , if fully implemented , would likely exceed $ 20.0 million over the next one to three years . we expect to meet our cash requirements for 2017 through a combination of cash on hand , cash generated from operations , and borrowings on our bank line of credit , as follows : · cash on hand . at december 31 , 2016 , we had $ 49.2 million in cash and cash equivalents . · cash generated from operations . we expect to generate cash flows from operations in excess of operating cash needs by generating earnings and managing net changes in inventories and receivables with changes in payables to generate a positive cash flow . · credit facilities . as of december 31 , 2016 , no borrowings were outstanding against our $ 50.0 million bank line of credit , which is available until february 10 , 2022. accordingly , our entire line of credit was available for borrowing at december 31 , 2016. this line of credit can be increased , at our option , to $ 80.0 million for approved acquisitions or other uses authorized by the bank . borrowings are , however , limited by certain minimum collateral and earnings requirements , as described more fully below . our ability to continue funding our planned growth , both internally and externally , is dependent upon our ability to generate sufficient cash flow from operations or to obtain additional funds through equity or debt financing , or from other sources of financing , as may be required . while we do not anticipate needing any additional sources of financing to fund our operations at this time , if demand for it products declines , our cash flows from operations may be substantially affected . see also related risks listed under “ item 1a . risk factors. ” summary sources and uses of cash the following table summarizes our sources and uses of cash over the last three years ( in millions of dollars ) : replace_table_token_15_th cash provided by operating activities totaled $ 33.6 million in 2016. operating cash flow in 2016 resulted primarily from net income before depreciation and amortization and a decrease in inventory , offset partially by an increase in accounts receivable . accounts receivable increased year over year by $ 33.8 million primarily due to our $ 51.0 million increase in sales in the fourth quarter of 2016 compared to the prior year period .
| operating expenses the following table reflects our more significant operating expenses for the last three years ( in millions of dollars ) : replace_table_token_10_th personnel costs increased in 2016 compared to 2015 due to investments in our sales force and solution sales support , increased variable compensation associated with higher gross profits , and the inclusion of the personnel costs of softmart and globalserve since their respective 2016 acquisition dates . facilities operations increased year over year in 2016 due to the relocation of our chicago-area facility , as lease expense for the previous facility overlapped the new lease . we will not incur any lease expense in 2017 for the previous facility . 23 year-over-year comparisons year ended december 31 , 2016 compared to year ended december 31 , 2015 net sales increased by 4.6 % to $ 2,692.6 million in 2016 from $ 2,574.0 million in 2015. changes in net sales and gross profit by operating segment are shown in the following table ( dollars in millions ) : replace_table_token_11_th · net sales for the smb segment increased due to higher software and notebooks/mobility sales . software sales increased due to our 2016 acquisition of softmart as well as investments in additional security and software services technical specialists . net sales of notebooks/mobility products increased as mobility continues to be a strategic focus for smb customers . · net sales for the large account segment increased due to higher sales of software , accessories , and notebooks/mobility products . net sales of software for this segment increased year over year by double-digit percentages due to strong demand for security and office productivity tools as well as our 2016 acquisition of softmart . · net sales to the public sector segment increased due to increased sales to the federal government . sales to the federal government grew by 16.4 % due to higher sales of desktops and notebooks made under federal government contracts , while sales to state and local government and educational institutions decreased by 2.9 % due to lower sales to k-12 customers . sales of notebooks/mobility , desktops , and software increased in this segment , but were partly offset by decreased sales of server/storage
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the amount of the provisioning fee included in each contract is generally determined by marking up or passing through the corresponding charge from the company 's supplier , imposed pursuant to the company 's purchase agreement . non-recurring revenues earned for providing provisioning services in connection with the delivery of recurring communications services are recognized ratably over the contractual term of the recurring service starting upon commencement of the service contract term . fees recorded or billed from these provisioning services are initially recorded as deferred revenue then recognized ratably over the contractual term of the recurring service . installation costs related to provisioning incurred by the company from independent third party suppliers , directly attributable and necessary to fulfill a particular service contract , and which costs would not have been incurred but for the occurrence of that service contract , are recorded as deferred contract costs and expensed proportionally over the contractual term of service in the same manner as the deferred revenue arising from that contract . deferred costs do not exceed deferred upfront fees . the company believes the initial contractual term is the best estimate of the period of earnings . other revenue . from time to time , the company recognizes revenue in the form of fixed or determinable cancellation ( pre-installation ) or termination ( post-installation ) charges imposed pursuant to the service contract . these revenues are earned when a customer cancels or terminates a service agreement prior to the end of its committed term . these revenues are recognized when billed if collectability is reasonably assured . in addition , the company from time to time sells equipment in connection with data networking applications . the company recognizes revenue from the sale of equipment at the contracted selling price when title to the equipment passes to the customer ( generally f.o.b . origin ) and when collectability is reasonably assured . 20 the company does not use estimates in determining amounts of revenue to be recognized . each service contract has a fixed monthly cost and a fixed term , in addition to a fixed installation charge ( if applicable ) . at the end of the initial term of most service contracts , the contracts roll forward on a month-to-month or other periodic basis and the company continues to bill at the same fixed recurring rate . estimating allowances and accrued liabilities the company employs the allowance for bad debts method to account for bad debts . the company states its accounts receivable balances at amounts due from the customer net of an allowance for doubtful accounts . the company determines this allowance by considering a number of factors , including the length of time receivables are past due , previous loss history , and the customer 's current ability to pay . in the normal course of business from time to time , the company identifies errors by suppliers with respect to the billing of services . the company performs bill verification procedures to attempt to ensure that errors in its suppliers ' billed invoices are identified and resolved . the bill verification procedures include the examination of bills , comparison of billed rates to rates shown on the actual contract documentation and logged in the company 's operating systems , comparison of circuits billed to the company 's database of active circuits , and evaluation of the trend of invoiced amounts by suppliers , including the types of charges being assessed . if the company concludes by reference to such objective factors that it has been billed inaccurately , the company will record a liability for the amount that it believes is owed with reference to the applicable contractual rate and , in the instances where the billed amount exceeds the applicable contractual rate , the likelihood of prevailing with respect to any dispute . these disputes with suppliers generally fall into four categories : pricing errors , network design , start of service date or disconnection errors , and taxation and regulatory surcharge errors . in the instances where the billed amount exceeds the applicable contractual rate the company does not accrue the full face amount of obvious billing errors in accounts payable because to do so would present a misleading and confusing picture of the company 's current liabilities by accounting for liabilities that are erroneous based upon a detailed review of objective evidence . if the company ultimately pays less than the corresponding accrual in resolution of an erroneously over-billed amount , the company recognizes the resultant decrease in cost of revenue in the period in which the resolution is reached . if the company ultimately pays more than the corresponding accrual in resolution of an erroneously billed amount , the company recognizes the resultant cost of revenue increase in the period in which the resolution is reached and during which period the company makes payment to resolve such account . although the company disputes erroneously billed amounts in good faith and historically has prevailed in most cases , it recognizes that it may not prevail in all cases ( or in full ) with a particular supplier with respect to such billing errors or it may choose to settle the matter because of the quality of the supplier relationship or the cost and time associated with continuing the dispute . careful judgment is required in estimating the ultimate outcome of disputing each error , and each reserve is based upon a specific evaluation by management of the merits of each billing error ( based upon the bill verification process ) and the potential for loss with respect to that billing error . in making such a case-by-case evaluation , the company considers , among other things , the documentation available to support its assertions with respect to the billing errors , its past experience with the supplier in question , and its past experience with similar errors and disputes . story_separator_special_tag as of december 31 , 2010 , the company had $ 1.9 million in billing errors disputed with suppliers , for which we have accrued $ 0.7 million in liabilities . in instances where the company has been billed less than the applicable contractual rate , the accruals remain on the company 's consolidated financial statements until the vendor invoices for the under-billed amount or until such time as the obligations related to the under-billed amounts , based upon applicable contract terms and relevant statutory periods in accordance with the company 's internal policy , have passed . if the company ultimately determines it has no further obligation related to the under-billed amounts , the company recognizes a decrease in expense in the period in which the determination is made . goodwill and intangible assets goodwill is the excess purchase price paid over identified intangible and tangible net assets of acquired companies . goodwill is not amortized , and is tested for impairment at the reporting unit level annually or when there are any indications of impairment , as required by the financial accounting standards board ( fasb ) 21 accounting standards codification ( asc ) topic 350 , intangibles goodwill and other ( formerly statement of financial accounting standards sfas no . 142 ) . asc topic 350 provides guidance on financial accounting and reporting related to goodwill and other intangibles , other than the accounting at acquisition for goodwill and other intangibles . a reporting unit is an operating segment , or component of an operating segment , for which discrete financial information is available and is regularly reviewed by management . we have one reporting unit to which goodwill is assigned . a two-step approach is required to test goodwill for impairment . the first step tests for impairment by applying fair value-based tests . the second step , if deemed necessary , measures the impairment by applying fair value-based tests to specific assets and liabilities . application of the goodwill impairment test requires significant judgments including estimation of future cash flows , which is dependent on internal forecasts , estimation of the long-term rate of growth for the company , the useful life over which cash flows will occur , and determination of the company 's cost of capital . changes in these estimates and assumptions could materially affect the determination of fair value and conclusions on goodwill impairment . the company performs its annual goodwill impairment testing in the third quarter of each year , or more frequently if events or changes in circumstances indicate that goodwill may be impaired . the company tested its goodwill during the third quarter of 2010 and 2009 and concluded that no impairment existed . intangible assets are assets that lack physical substance , and are accounted for in accordance with asc topic 350 and asc topic 360 , impairment or disposal of long-lived assets ( formerly sfas 144 ) . asc topic 360 provides guidance for recognition and measurement of the impairment of long-lived assets to be held , used and disposed of by sale . intangible assets arose from business combinations and consist of customer contracts , acquired technology and restrictive covenants related to employment agreements that are amortized , on a straight-line basis , over periods of up to five years . intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . during the third quarter of 2010 and 2009 , the company tested their intangible assets and concluded that no impairment existed . income taxes the company accounts for income taxes in accordance with asc topic 740 , income taxes ( formerly sfas 109 ) . under asc topic 740 , deferred tax assets are recognized for future deductible temporary differences and for tax net operating loss and tax credit carry-forwards , and deferred tax liabilities are recognized for temporary differences that will result in taxable amounts in future years . deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled . a valuation allowance is provided to offset the net deferred tax asset if , based upon the available evidence , management determines that it is more likely than not that some or all of the deferred tax asset will not be realized . in june 2006 , the fasb issued interpretation no . 48 , accounting for uncertainty in income taxes ( fin 48 ) . fin 48 was codified into asc topic 740 , which clarifies the accounting for uncertainty in income taxes recognized in an enterprise 's financial statements , and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . asc topic 740 also provides guidance on de-recognition , classification , interest and penalties , accounting in interim periods , disclosure and transition . the adoption of the new fasb asc topic did not have a material effect on the company 's consolidated financial statements . we may from time to time be assessed interest and or penalties by taxing jurisdictions , although any such assessments historically have been minimal and immaterial to our financial results . the company 's federal tax returns for 2006 , 2007 , 2008 and 2009 are still open . in the event we have received an assessment for interest and or penalties , it has been classified in the statement of operations as other general and administrative costs . share-based compensation on october 16 , 2006 , the company adopted sfas no . 123 ( revised 2004 ) , share-based payment ( sfas 123 ( r ) ) which requires the measurement and recognition of compensation expense for all share-based 22 payment awards made to employees , directors , and consultants based on estimated fair values .
| sg & a increased $ 3.3 million , or 23 % for the year ended december 31 , 2010 compared to the year ended december 31 , 2009. the increase was due primarily to the wbs connect acquisition and new sales activities in the third quarter of 2010 , including sales novations , which resulted in an increase in agent commission expenses . depreciation and amortization . depreciation and amortization expense increased $ 1.1 million , or 61 % , to $ 2.8 million for the year ended december 31 , 2010 , compared to the year ended december 31 , 2009. the increase was due primarily to the wbs connect acquisition in which gtt added wbs connect 's network infrastructure assets with over 60 points of presence . interest expense . interest expense increased $ 0.6 million , or 66 % , to $ 1.4 million for the year ended december 31 , 2010 compared to the year ended december 31 , 2009. the increase was primarily due to additional debt assumed and incurred in connection with the wbs connect acquisition . liquidity and capital resources ( amounts in thousands ) replace_table_token_4_th management monitors cash flow and liquidity requirements . based on the company 's cash and cash equivalents , the silicon valley bank credit facility , and analysis of the anticipated working capital requirements , management believes the company has sufficient liquidity to fund the business and meet its contractual obligations for 2011. the company 's current planned cash requirements for 2011 are based upon certain assumptions , including its ability to manage expenses and the growth of revenue from services arrangements . in connection with the activities associated with the services , the company expects to incur expenses , including provider fees , employee compensation and consulting fees , professional fees , sales and marketing , insurance and interest expense . should the expected cash flows not be available , management believes it would have the ability to revise its operating plan and make reductions in expenses . the company believes that cash currently on hand , expected cash flows from future operations and existing borrowing capacity are sufficient to fund operations for at least the next twelve months , including the scheduled repayment of indebtedness pursuant to the silicon valley bank term loan . if our operating performance differs significantly from our forecasts , we may
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the company 's operating revenue increased by 8.0 percent in 2019 compared to 2018. the increase resulted primarily from increased shipments , tonnage , fuel surcharges and pricing actions , including a 5.9 percent general rate increase taken february 18 , 2019. continued expansion into the northeastern united states was also a contributing factor in the increased shipments and tonnage in 2019. consolidated operating income was $ 152.6 million for 2019 compared to $ 141.2 million in 2018. the increase in 2019 operating income resulted primarily from increases in shipments , tonnage and fuel surcharges and pricing actions , partially offset by salary and wage increases , higher fuel and purchase transportation costs , increased depreciation expense and costs associated with expansion into the northeastern united states . the company generated $ 272.9 million in net cash provided by operating activities in 2019 versus $ 256.4 million in 2018. the company used $ 281.0 million of net cash in investing activities during 2019 compared to $ 222.6 million during 2018 . 28 on february 5 , 2019 , the company entered into the sixth amended and restated credit agreement with its banking group ( as amended , the amended credit agreement ) . the amendment increased the amount of the revolver from $ 250 million to $ 300 million and extended the term until february 2024 . the amended credit agreement also has an accordion feature that allows for an additional $ 100 million availability , subject to lender approval compared to $ 75 million under the prior agreement . the amendment reduced the interest rate pricing grid compared to the prior agreement . the amended credit agreement provides for a libor rate margin range from 100 basis points to 200 basis points , base rate margins from minus 50 basis points to plus 50 basis points , an unused portion fee from 17.5 basis points to 30 basis points and letter of credit fees from 100 basis points to 200 basis points , in each case based on the company 's leverage ratio . the company had $ 6.2 million of net cash provided by financing activities during 2019 compared to $ 36.4 million of net cash used in financing activities during 2018. the company had a $ 48.9 million increase in net borrowings ( net of repayments ) under its revolving credit facility during 2019 and made scheduled principal payments for finance lease obligations of $ 18.5 million during 2019. outstanding letters of credit were $ 27.9 million and the cash and cash equivalents balance was $ 0.2 million as of december 31 , 2019. the company had $ 228.0 million in remaining availability under its revolving credit facility and $ 90.5 million in obligations under finance leases at december 31 , 2019. the company was in compliance with the debt covenants under its debt agreements at december 31 , 2019. see “ financial condition ” for a more complete discussion of these agreements . general the following management 's discussion and analysis describes the principal factors affecting the results of operations , liquidity and capital resources , as well as the critical accounting policies of saia , inc. and its wholly-owned subsidiaries ( together , the company or saia ) . this discussion should be read in conjunction with the accompanying audited consolidated financial statements which include additional information about our significant accounting policies , practices and the transactions that underlie our financial results . saia is a transportation company headquartered in johns creek , georgia that provides less-than-truckload ( ltl ) services through a single integrated organization . while more than 97 % of its revenue is derived from transporting ltl shipments across 43 states , the company also offers customers a wide range of other value-added services , including non-asset truckload , expedited and logistics services across the united states . the chief operating decision maker is the chief executive officer who manages the business , regularly reviews financial information and allocates resources . the company has one operating segment . our business is highly correlated to non-service sectors of the general economy . our business also is impacted by a number of other factors as discussed under “ forward-looking statements ” and part i , item 1a. , “ risk factors. ” the key factors that affect our operating results are the volumes of shipments transported through our network , as measured by our average daily shipments and tonnage ; the prices we obtain for our services , as measured by revenue per hundredweight ( a measure of yield ) and revenue per shipment ; our ability to manage our cost structure for capital expenditures and operating expenses such as salaries , wages and benefits ; purchased transportation ; claims and insurance expense ; fuel and maintenance ; and our ability to match operating costs to shifting volume levels . 29 story_separator_special_tag in 2019 compared to 2018 primarily due to increases in purchased transportation cost per mile and utilization of purchased transportation carriers to maintain service requirements while supporting increased shipments , tonnage and length of haul throughout 2019. other substantially all non-operating expenses represent interest expense . interest expense in 2019 was $ 1.3 million greater than 2018 due to increased average borrowings resulting from the $ 58.4 million increase in investing activities in 2019. the effective income tax rate was 22.5 percent and 22.7 percent for the years ended december 31 , 2019 and 2018 , respectively . the 2018 and 2019 effective income tax rates include the impact of the tax cuts and jobs act ( the tax act ) legislation enacted on december 22 , 2017 as well as the tax credits enacted in december 2019 for alternative fuel usage , resulting in an increase in earnings per share of $ 0.07 for 2019. see note 10 to the company 's audited consolidated financial statements for an analysis of the income tax provision , impacts of the tax act and the effective tax rate . story_separator_special_tag working capital/capital expenditures working capital at december 31 , 2019 was negative $ 8.9 million which decreased from working capital at december 31 , 2018 of $ 4.1 million . this decrease is primarily due to the adoption of asu 2016-02 , which requires the current portion of operating lease liability , $ 19.0 million at december 31 , 2019 , be recognized as a current liability at december 31 , 2019. additionally , the decrease in working capital was due to an increase in other current liabilities , mostly sales and use tax payables , partially offset by an increase in accounts receivable . cash flows from operating activities were $ 272.9 million for 2019 versus $ 256.4 million for 2018 largely driven by increased profitability . for 2019 , net cash used in investing activities was $ 281.0 million versus $ 222.6 million in 2018 primarily due to higher capital expenditures for real estate , technology and revenue equipment during 2019. net cash provided by financing activities was $ 6.2 million in 2019 versus $ 36.4 million in net cash used in financing 31 activities for 2018 primarily driven by a n increase in the net b orrowings ( net of repayments ) under our revolving credit facility of $ 48.9 million from 2019 compared to 2018 . year ended december 31 , 2018 as compared to year ended december 31 , 2017 revenue and volume consolidated revenue increased 17.7 percent to $ 1.65 billion as a result of increased shipments , tonnage , fuel surcharges and pricing actions , including a 5.9 percent general rate increase taken may 21 , 2018 and one more workday in 2018. expansion into the northeastern united states and the new canadian marketing arrangement which began during the second quarter of 2017 continued to be contributing factors in the increased shipments and tonnage in 2018. the economic environment over the last couple of years permitted the company to implement measured pricing actions to improve yield . saia 's ltl revenue per hundredweight ( a measure of yield ) increased 10.2 percent to $ 16.80 per hundredweight for 2018 primarily as a result of increased rates along with increased length of haul . saia 's ltl tonnage increased 6.6 percent per workday and ltl shipments increased 4.4 percent per workday for 2018. for 2018 and 2017 , approximately 75 to 80 percent of saia 's operating revenue was subject to specific customer price adjustment negotiations that occur throughout the year . the remaining 20 to 25 percent of operating revenue was subject to a general rate increase which is based on market conditions . for customers subject to general rate increases , saia implemented 5.9 percent and 4.9 percent general rate increases on may 21 , 2018 and july 17 , 2017 , respectively . competitive factors , customer turnover and mix changes , among other things , impact the extent to which customer rate increases are retained over time . operating revenue includes fuel surcharge revenue from the company 's fuel surcharge program . that program is designed to reduce the company 's exposure to fluctuations in fuel prices by adjusting total freight charges to account for changes in the price of fuel . the company 's fuel surcharge is generally based on the average national price for diesel fuel and is reset weekly . fuel surcharges have remained in effect for several years , are widely accepted in the industry and are a significant component of revenue and pricing . fuel surcharges are an integral part of customer contract negotiations but represent only one portion of overall customer price negotiations as customers may negotiate increases in base rates instead of increases in fuel surcharges or vice versa . fuel surcharge revenue increased to 13.6 percent of operating revenue for the year ended december 31 , 2018 compared to 11.3 percent for the year ended december 31 , 2017 primarily as a result of increases in the cost of fuel . operating expenses and margin consolidated operating income was $ 141.2 million in 2018 compared to $ 94.7 million in 2017. in summary , the operations were favorably impacted in 2018 by higher tonnage , shipments , fuel surcharges and yield , which were offset by salary and wage increases , higher fuel and purchase transportation costs , increased depreciation expense and costs associated with the company 's geographic expansion . the 2018 operating ratio ( operating expenses divided by operating revenue ) was 91.5 percent as compared to 93.3 percent for 2017. salaries , wages and benefit expense increased $ 105.9 million in 2018 compared to 2017 largely due to higher wages associated with increased headcount in 2018 , wage increases in july 2017 and 2018 and higher healthcare benefit costs . fuel , operating expenses and supplies increased $ 56.9 million during 2018 compared to 2017 largely due to higher fuel costs and increased costs of other operating expenses and supplies , including increased expenses related to the geographic expansion , partially offset by improved fuel efficiency and lower maintenance costs from a newer fleet . claims and insurance expense in 2018 was $ 1.3 million higher than 2017 largely due to increased premiums in 2018 and increased cargo claims . the company can experience volatility in accident expense as a result of its self-insurance structure , which provides for retention limits of $ 2 million to $ 10 million per occurrence . depreciation expense increased $ 15.1 million in 2018 compared to 2017 primarily due to revenue equipment , real estate and technology investments in late 2017 and 2018. purchased transportation expense increased $ 16.2 million in 2018 compared to 2017 primarily due to increases in purchased transportation cost per mile and utilization of purchased transportation carriers to maintain service requirements while supporting increased shipments , tonnage and length of haul throughout 2018 . 32 other substantially all non-operating expenses represent interest expense . interest expense in 2018 was $ 0.4 million greater than 2017 due to increased average borrowings resulting from the $ 41.1 million increase in investing activities in 2018.
| for customers subject to general rate increases , saia implemented a 5.9 percent general rate increase on february 18 , 2019. competitive factors , customer turnover and mix changes , among other things , impact the extent to which customer rate increases are retained over time . 30 operating revenue includes fuel surcharge revenue from the company 's fuel surcharge program . that program is designed to reduce the company 's exposure to fluctuations in fuel prices by adjusting total freight charges to account for changes in the price of fuel . the company 's fuel surcharge is generally based on the average national price for diesel fuel and is reset weekly . fuel surcharges are widely accepted in the industry and are a significant component of revenue and pricing . fuel surcharges are an integral part of customer contract negotiations but represent only one portion of overall customer price negotiations as customers may negotiate increases in base rates instead of increases in fuel surcharges or vice versa . fuel surcharge revenue decrease d to 13.0 percent of operating revenue for the year ended december 31 , 2019 compared to 13.6 percent for the year ended december 31 , 2018 primarily as a result of de creases in the cost of fuel . operating expenses and margin consolidated operating income was $ 152.6 million in 2019 compared to $ 141.2 million in 2018. in summary , the operations were favorably impacted in 2019 by higher tonnage , shipments , overall fuel surcharges and yield , which were offset by salary and wage increases , higher fuel and purchase transportation costs , increased depreciation expense and costs associated with the company 's geographic expansion . the 2019 operating ratio ( operating expenses divided by operating revenue ) was flat at 91.5 percent as compared to 2018. salaries , wages and benefit expense increased $ 75.2 million in 2019 compared to 2018 largely due to higher wages associated with increased headcount in 2019 , wage increases in july 2019 and 2018 and higher healthcare benefit costs . fuel , operating expenses and supplies increased $ 15.1 million during 2019 compared to 2018 largely due to increased costs of
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we believe presenting net sales in local currency is useful to investors because it allows a meaningful comparison of net sales of our foreign operations from period to period . however , net sales in local currency measures should not be considered in isolation or as an alternative to net sales in u.s. dollar measures that reflect current period exchange rates , or to other financial measures calculated and presented in accordance with u.s. gaap . our “ gross profit ” consists of net sales less “ cost of sales , ” which represents our manufacturing costs , the price we pay to our raw material suppliers and manufacturers of our products as well as shipping and handling costs including duties , tariffs , and similar expenses . while all members can potentially profit from their activities by reselling our products for amounts greater than the prices they pay us , members that develop , retain , and manage other members can earn additional compensation for those activities , which we refer to as “ royalty overrides. ” royalty overrides are our most significant operating expense and consist of : · royalty overrides and production bonuses ; · the mark hughes bonus payable to some of our most senior members ; and · other discretionary incentive cash bonuses to qualifying members . during 2015 , 2014 , and 2013 , total royalty overrides were 28.0 % , 29.7 % , and 31.0 % of our net sales , respectively . royalty overrides are compensation to members for the development , retention and improved productivity of their sales organizations and are paid to several levels of members on each sale . royalty overrides are compensation for services rendered to us and as such are recorded as an operating expense . due to restrictions on direct selling in china , our independent service providers in china are compensated with service fees instead of the distributor allowances and royalty overrides utilized in our worldwide marketing program . compensation to china independent service providers is included in selling , general and administrative expenses . because of local country regulatory constraints , we may be required to modify our member incentive plans as described above . we also pay reduced royalty overrides with respect to certain products worldwide . consequently , the total royalty override percentage may vary over time and from the percentages noted above . our “ contribution margins ” consist of net sales less cost of sales and royalty overrides . “ selling , general and administrative expenses ” represent our operating expenses , which include labor and benefits , service fees to china service providers , sales events , professional fees , travel and entertainment , member promotions , occupancy costs , communication costs , bank fees , depreciation and amortization , foreign exchange gains and losses and other miscellaneous operating expenses . our “ other expense , net ” consists of non-operating expenses such as impairments of available-for-sale investments . 42 most of our sales to members outside the united states are made in the respective local currencies . in preparing our financial statements , we translate revenues into u.s. dollars using average ex change rates . additionally , the majority of our purchases from our suppliers generally are made in u.s. dollars . consequently , a strengthening of the u.s. dollar versus a foreign currency can have a negative impact on our reported sales and contribution ma rgins and can generate foreign currency losses on intercompany transactions . foreign currency exchange rates can fluctuate significantly . from time to time , we enter into foreign currency derivatives to partially mitigate our foreign currency exchange risk as discussed in further detail in item 7a — quantitative and qualitative disclosures about market risk . results of operations our results of operations for the periods below are not necessarily indicative of results of operations for future periods , which depend upon numerous factors , including our ability to recruit new members and retain sales leaders , further penetrate existing markets , introduce new products and programs that will help our members increase their retail efforts and develop niche market segments . the following table sets forth selected results of our operations expressed as a percentage of net sales for the periods indicated : replace_table_token_12_th ( 1 ) service fees to our independent service providers in china are included in selling , general and administrative expenses while member compensation for all other countries is included in royalty overrides . changes in net sales are directly associated with the retailing of our products , recruitment of members , and retention of sales leaders . our strategies include providing quality products , improved dmos , including daily consumption approaches such as nutrition clubs , easier access to product , systemized training of members on our products and methods , and continued promotion and branding of herbalife products . management 's role , both in-country and at the region and corporate level , is to provide members with a competitive and broad product line , encourage strong teamwork and member leadership and offer leading edge business tools and technology services to make doing business with herbalife simple . management uses the member marketing program coupled with educational and motivational tools and promotions to encourage members to increase retailing , retention , and recruiting , which in turn affect net sales . such tools include company sponsored sales events such as extravaganzas , leadership development weekends and world team schools where large groups of members gather , thus allowing them to network with other members , learn retailing , retention , and recruiting techniques from our leading members and become more familiar with how to market and sell our products and business opportunities . accordingly , management believes that these development and motivation programs increase the productivity of the sales leader network . the expenses for such programs are included in selling , general and administrative expenses story_separator_special_tag we believe presenting net sales in local currency is useful to investors because it allows a meaningful comparison of net sales of our foreign operations from period to period . however , net sales in local currency measures should not be considered in isolation or as an alternative to net sales in u.s. dollar measures that reflect current period exchange rates , or to other financial measures calculated and presented in accordance with u.s. gaap . our “ gross profit ” consists of net sales less “ cost of sales , ” which represents our manufacturing costs , the price we pay to our raw material suppliers and manufacturers of our products as well as shipping and handling costs including duties , tariffs , and similar expenses . while all members can potentially profit from their activities by reselling our products for amounts greater than the prices they pay us , members that develop , retain , and manage other members can earn additional compensation for those activities , which we refer to as “ royalty overrides. ” royalty overrides are our most significant operating expense and consist of : · royalty overrides and production bonuses ; · the mark hughes bonus payable to some of our most senior members ; and · other discretionary incentive cash bonuses to qualifying members . during 2015 , 2014 , and 2013 , total royalty overrides were 28.0 % , 29.7 % , and 31.0 % of our net sales , respectively . royalty overrides are compensation to members for the development , retention and improved productivity of their sales organizations and are paid to several levels of members on each sale . royalty overrides are compensation for services rendered to us and as such are recorded as an operating expense . due to restrictions on direct selling in china , our independent service providers in china are compensated with service fees instead of the distributor allowances and royalty overrides utilized in our worldwide marketing program . compensation to china independent service providers is included in selling , general and administrative expenses . because of local country regulatory constraints , we may be required to modify our member incentive plans as described above . we also pay reduced royalty overrides with respect to certain products worldwide . consequently , the total royalty override percentage may vary over time and from the percentages noted above . our “ contribution margins ” consist of net sales less cost of sales and royalty overrides . “ selling , general and administrative expenses ” represent our operating expenses , which include labor and benefits , service fees to china service providers , sales events , professional fees , travel and entertainment , member promotions , occupancy costs , communication costs , bank fees , depreciation and amortization , foreign exchange gains and losses and other miscellaneous operating expenses . our “ other expense , net ” consists of non-operating expenses such as impairments of available-for-sale investments . 42 most of our sales to members outside the united states are made in the respective local currencies . in preparing our financial statements , we translate revenues into u.s. dollars using average ex change rates . additionally , the majority of our purchases from our suppliers generally are made in u.s. dollars . consequently , a strengthening of the u.s. dollar versus a foreign currency can have a negative impact on our reported sales and contribution ma rgins and can generate foreign currency losses on intercompany transactions . foreign currency exchange rates can fluctuate significantly . from time to time , we enter into foreign currency derivatives to partially mitigate our foreign currency exchange risk as discussed in further detail in item 7a — quantitative and qualitative disclosures about market risk . results of operations our results of operations for the periods below are not necessarily indicative of results of operations for future periods , which depend upon numerous factors , including our ability to recruit new members and retain sales leaders , further penetrate existing markets , introduce new products and programs that will help our members increase their retail efforts and develop niche market segments . the following table sets forth selected results of our operations expressed as a percentage of net sales for the periods indicated : replace_table_token_12_th ( 1 ) service fees to our independent service providers in china are included in selling , general and administrative expenses while member compensation for all other countries is included in royalty overrides . changes in net sales are directly associated with the retailing of our products , recruitment of members , and retention of sales leaders . our strategies include providing quality products , improved dmos , including daily consumption approaches such as nutrition clubs , easier access to product , systemized training of members on our products and methods , and continued promotion and branding of herbalife products . management 's role , both in-country and at the region and corporate level , is to provide members with a competitive and broad product line , encourage strong teamwork and member leadership and offer leading edge business tools and technology services to make doing business with herbalife simple . management uses the member marketing program coupled with educational and motivational tools and promotions to encourage members to increase retailing , retention , and recruiting , which in turn affect net sales . such tools include company sponsored sales events such as extravaganzas , leadership development weekends and world team schools where large groups of members gather , thus allowing them to network with other members , learn retailing , retention , and recruiting techniques from our leading members and become more familiar with how to market and sell our products and business opportunities . accordingly , management believes that these development and motivation programs increase the productivity of the sales leader network . the expenses for such programs are included in selling , general and administrative expenses
| the 40.9 % increase in china net sales for the year ended december 31 , 2014 was primarily due to an increase in sales volume , as measured by an increase in volume points , which increased net sales by approximately 34.4 % . see the discussion of net sales by geographic region below of the applicable region ( s ) comprising each segment for the underlying explanations of the changes in net sales for each reporting segment for the year ended december 31 , 2014 , as compared to the same period in 2013. contribution margin by reporting segment as discussed above under “ presentation , ” contribution margin consists of net sales less cost of sales and royalty overrides . the primary reporting segment reported contribution margin of $ 1,908.0 million for the year ended december 31 , 2014. contribution margin for the primary reporting segment decreased $ 33.7 million , or 1.7 % , for the year ended december 31 , 2014 , as compared to the same period in 2013. the 1.7 % decrease for the year ended december 31 , 2014 was primarily the result of fluctuations in the foreign currency rates and declines in volume , as measured by a decrease in volume points , which reduced contribution margin by approximately 8.7 % and 0.2 % , respectively , partially offset by the favorable impact of price increases and country mix , which increased contribution margin by approximately 6.5 % and 0.8 % , respectively . china reported contribution margin of $ 596.6 million for the year ended december 31 , 2014. contribution margin for china increased $ 173.9 million , or 41.1 % , for the year ended december 31 , 2014 , as compared to the same period in 2013. the 41.1 % increase for the year ended december 31 , 2014 was primarily the result of an increase in sales volume , as measured by an increase in volume points , which increased contribution margin by approximately 34.4 % . sales by geographic region the following chart reconciles retail sales to net sales : sales by geographic region replace_table_token_16_th 53 ( 1 ) during 2013 we simplified our pricing structure for most markets by increasing suggested retail prices
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pursuant to the asset sale agreement , ipsen will pay us $ 575.0 million in cash ( subject to a working capital adjustment as provided in the asset sale agreement ) and will assume certain related liabilities . following the closing of the asset sale , we may be entitled to up to $ 450.0 million of additional payments based on achievement by or on behalf of ipsen of certain milestone events related to fda approval of onivyde for certain indications as described in the asset sale agreement . the consummation of the transaction described in the asset sale agreement is subject to customary closing conditions , including , among others : ( i ) the receipt of the approval of our stockholders ; ( ii ) the expiration or termination of the required waiting periods under the hart-scott-rodino antitrust improvements act of 1976 , which waiting periods expired on february 22 , 2017 ; ( iii ) the absence of a breach of our representations and warranties that would cause a material adverse effect on the commercial business ; ( iv ) the absence of a business material adverse effect ; and ( v ) the performance of certain covenants in all material respects . the asset sale agreement contains certain termination rights for us and ipsen . upon termination of the asset sale agreement under specified circumstances , we would be required to pay ipsen a termination fee of $ 25.0 million , including if the asset sale agreement is terminated in connection with us accepting a superior proposal or because our board of directors has changed its recommendation of the sale to our stockholders . the termination fee will also be payable if the asset sale agreement is terminated because our stockholders did not vote to adopt the asset sale agreement and , prior to such termination , a proposal to acquire at least 75 50 % of our consolidated assets with respect to the commercial business or at least 50 % of our voting securities has been publicly disclosed and we enter into a definitive agreement with respect to such proposal within 12 months after such termination , which is subsequently consummated . in addition , we would be required to reimburse ipsen for up to $ 3.0 million of its out-of-pocket expenses incurred in connection with the transaction and the asset sale agreement if the asset sale agreement is terminated because our stockholders do not vote to approve it . in addition to the foregoing termination rights , and subject to certain limitations , we or ipsen may terminate the asset sale agreement if the asset sale is not consummated by june 30 , 2017. ipsen has also agreed to sublease 68,409 square feet of our manufacturing facility at the closing of the asset sale . in addition , at the closing of the asset sale , we and ipsen will enter into an intellectual property license agreement pursuant to which ipsen will grant us an exclusive license with respect to the portion of the transferred patents relating to certain liposomal technology and a non-exclusive license to the remainder of the transferred patents , in both cases for use outside of the field in which the commercial business will operate . in turn , we will grant ipsen a non-exclusive license with respect to the remaining patents owned by us at the closing for use in the field in which the commercial business will operate . on january 9 , 2017 , we announced that we will further reduce headcount in connection with the asset sale and the completion of our strategic pipeline review . upon the closing of the asset sale , we will focus our development efforts on our mm-121 , mm-141 and mm-310 programs . after the headcount reduction , we expect to have approximately 80 employees . our board of directors committed to this course of action on january 6 , 2017 , subject to the closing of the asset sale , which is contingent upon the closing conditions described above . the reduction in personnel is expected to be complete upon the later of the closing of the asset sale and march 10 , 2017. see note 23 , “ subsequent events , ” in the accompanying notes to the consolidated financial statements for additional information . on january 16 , 2017 , we announced the hiring of richard peters , m.d. , ph.d. , as our new ceo , effective as of february 6 , 2017. dr. peters was also elected as a member of our board of directors . we entered into an employment agreement with dr. peters commencing on february 6 , 2017 whereby dr. peters will receive an annual base salary of $ 700,000 and is eligible for an annual bonus of up to 65 % of his base salary . dr. peters also received a one-time signing bonus of $ 900,000. subject to the further approval of our board of directors , we will also grant dr. peters an option to purchase a number of shares of our common stock equal to the lesser of ( i ) such number of shares that has a target grant date fair value of $ 3.5 million and ( ii ) 2.0 million shares , with an exercise price per share equal to the fair market value of our common stock on the date of grant . the option will vest over four years at the rate of 25 % on february 6 , 2018 and the remainder in equal quarterly installments over the following three years . as of december 31 , 2016 , we had unrestricted cash and cash equivalents of $ 21.5 million . upon stockholder approval and the closing of the asset sale with ipsen , we will receive a $ 575.0 million upfront cash payment from ipsen ( subject to a working capital adjustment as provided in the asset sale agreement ) . story_separator_special_tag we expect to use these proceeds to declare and pay a special cash dividend of at least $ 200.0 million to stockholders and redeem the $ 175.0 million outstanding aggregate principal amount of 11.50 % senior secured notes due 2022 , or the 2022 notes , which will require an additional make-whole premium payment of approximately $ 20.1 million . additionally , if the asset sale is consummated and certain milestones under the baxalta agreement are met , we currently expect to receive up to an aggregate of $ 33.0 million in net milestone payments in 2017. we believe these potential net cash inflows , along with the completion of the headcount reduction and refocused research and development efforts that were announced in january 2017 , will provide financial resources sufficient to fund our operations into the second half of 2019. if we are unable to obtain stockholder approval of the asset sale and the transaction with ipsen is not consummated , or if we are unable to obtain other adequate financing or engage in another strategic transaction on acceptable terms and when needed , we will be required to implement further cost reduction strategies . as the consummation of the asset sale with ipsen is contingent upon approval by our stockholders as well as other customary closing conditions , we have concluded that there is substantial doubt as to our ability to continue as a going concern within one year after the filing date of this annual report on form 10-k. see note 22 , “ going concern , ” in the accompanying notes to the consolidated financial statements for additional information on our evaluation . we have never been profitable and , as of december 31 , 2016 , we had an accumulated deficit of $ 954.8 million . our net loss was $ 153.5 million for the year ended december 31 , 2016 , $ 147.8 million for the year ended december 31 , 2015 and $ 83.6 million for the year ended december 31 , 2014. we expect to continue to incur significant expenses and operating losses for at least the next several years . we expect to continue to incur significant research and development expenses in connection with our ongoing activities , 76 particularly as we continue the research , development and clinical trials of our product candidates , including multiple simultaneous clinical trials for certain product candidates , some of which have entered or we expect will be entering late stage clinical development . in addition , in connection with supporting commercial sales of onivyde through the time at which the asset sale is consummated , if ever , we expect to incur significant commercialization expenses for product sales , marketing , manufacturing and distribution . until such time , if ever , as we can generate substantial license and collaboration or product revenues , we expect to finance our cash needs through a combination of equity offerings , debt financings , collaborations , licensing arrangements and other marketing and distribution arrangements . we also could engage in discussions with third parties regarding partnerships , joint ventures , combinations or divestitures of one or more of our businesses as we seek to further the development of our research programs , improve our cash position and maximize stockholder value . there can be no assurance as to the timing , terms or consummation of any financing , collaboration , licensing arrangement or other marketing and distribution arrangement , partnership , joint venture , combination or divestiture . we may be unable to raise capital when needed or on attractive terms , which would force us to delay , limit , reduce or terminate our research and development programs or commercialization efforts . we will need to generate significant revenues to achieve profitability , and we may never do so . strategic partnerships , licenses and collaborations baxalta on september 23 , 2014 , we entered into the baxalta agreement for the development and commercialization of onivyde outside of the united states and taiwan , or the licensed territory . in connection with baxter international inc. 's separation of the baxalta business , the baxalta agreement was assigned to baxalta during the second quarter of 2015. as part of the baxalta agreement , we granted baxalta an exclusive , royalty-bearing right and license under our patent rights and know-how to develop and commercialize onivyde in the licensed territory . baxalta is responsible for using commercially reasonable efforts to develop , obtain regulatory approvals for and , following regulatory approval , commercialize onivyde in the licensed territory . a joint steering committee comprised of an equal number of representatives from each of baxalta and us is responsible for approving changes to the global development plan for onivyde , including all budgets , and overseeing the parties ' development and commercialization activities with respect to onivyde . unless otherwise agreed , we will be responsible for conducting all clinical trials contemplated by the global development plan for onivyde and manufacturing all clinical material needed for such trials . baxalta also has the option to manufacture onivyde , in which case we will perform a technology transfer of our manufacturing process to baxalta . under the terms of the baxalta agreement , we received a $ 100.0 million nonrefundable upfront cash payment in september 2014. in addition , we are eligible to receive from baxalta ( i ) up to an aggregate of $ 100.0 million upon the achievement of specified research and development milestones , of which we have received $ 62.5 million from baxalta through december 31 , 2016 , ( ii ) up to an aggregate of $ 520.0 million upon the achievement of specified regulatory milestones , of which we have received $ 60.0 million from baxalta through december 31 , 2016 , and ( iii ) up to an aggregate of $ 250.0 million upon the achievement of specified sales milestones .
| no other revenues were recognized during the year ended december 31 , 2015. cost of revenues we began recognizing cost of revenues in the fourth quarter of 2015 subsequent to the approval of onivyde by the fda . we recognized $ 6.9 million of cost of revenues during the year ended december 31 , 2016 , comprised of $ 3.6 million of costs related to excess and scrap inventory and excess manufacturing capacity , $ 2.4 million of costs related to onivyde sold to baxalta and pharmaengine , $ 0.5 million of costs related to net product revenues , $ 0.1 million of costs related to royalties owed to pharmaengine on baxalta 's net sales of onivyde in the licensed territory and $ 0.3 million of other costs , including the amortization of our definite-lived onivyde intangible asset . we recognized less than $ 0.1 million of cost of revenues during the year ended december 31 , 2015 . 90 research and development expenses research and development expenses were $ 160.9 million for the year ended december 31 , 2016 compared to $ 161.0 million for the year ended december 31 , 2015 , a decrease of $ 0.1 million , or less than 1 % . this decrease was primarily attributable to : $ 3.1 million of decreased mm-310 expenses primarily due to the timing of preclinical research activities and cost conservation measures implemented during 2016 ; $ 1.4 million of decreased mm-151 expenses primarily due to the completion of the phase 1 clinical trial of mm-151 as a monotherapy and in combination with irinotecan in patients with solid tumors during 2015 ; $ 11.7 million of decreased expenses related to preclinical , general research and discovery as a result of our cost management efforts and the timing of manufacturing campaigns for our preclinical programs ; and $ 1.8 million of decreased stock-based compensation expenses primarily due to a reduction in our headcount
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we intend to effectuate our business combination using cash from the proceeds of our initial public offering and a sale of warrants in a private placement that occurred simultaneously with the completion of our initial public offering , our capital stock , debt or a combination of cash , stock and debt . the issuance of additional shares of our stock in a business combination : may significantly dilute the equity interest of existing stockholders ; may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded our common stock ; could cause a change of control if a substantial number of shares of our common stock are issued , which may affect , among other things , our ability to use our net operating loss carry forwards , if any , and could result in the resignation or removal of our present officers and directors ; may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us ; and may adversely affect prevailing market prices for our common stock , rights and or warrants . similarly , if we issue debt securities , it could result in : default and foreclosure on our assets if our cash flows after an initial business combination are insufficient to repay our debt obligations ; acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of such covenants ; 49 our immediate repayment of all principal and accrued interest , if any , if the debt security is payable on demand ; our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt 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 . we expect to continue to incur significant costs in the pursuit of our acquisition plans . we can not assure you that our plans to raise capital or to complete our initial business combination will be successful . story_separator_special_tag margin-left : 0pt ; margin-bottom : 0pt '' > our macquarie sponsor has agreed to enter into a contingent forward purchase contract to purchase , in a private placement for gross proceeds of approximately $ 20,000,000 to occur concurrently with the consummation of our initial business combination , 2,000,000 units ( which includes 2,000,000 rights which will be exchanged for 200,000 shares of common stock ) on substantially the same terms as the sale of units in our initial public offering at $ 10.00 per unit ( which we call our private placement units ) and 500,000 shares of common stock on the same terms as the sale of shares of common stock to our sponsors prior to our initial public offering . the funds from the sale of the private placement units may be used as part of the consideration to the sellers in the initial business combination ; any excess funds from this private placement may be used for working capital in the post-transaction company . this commitment is independent of the percentage of stockholders electing to redeem their shares and provides us with an increased minimum funding level for the initial business combination . the contingent forward purchase contract is contingent upon , among other things , our macquarie sponsor approving the business combination , which approval can be withheld for any reason . in order to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination , each of our sponsors has committed $ 250,000 , for an aggregate of $ 500,000 , in accordance with unsecured promissory notes we will issue to our sponsors pursuant to the expense advance agreement between us and our sponsors , to be provided to us in the event that funds held outside of the trust are insufficient to fund our expenses prior to our initial business combination ( including investigating and selecting a target business and other working capital requirements ) and our sponsors may , but are not obligated to , loan us additional funds as may be required . if we complete our initial business combination , we expect to repay such loaned amounts out of the proceeds of the trust account released to us . otherwise , such loans would be repaid only out of funds held outside the trust account . in the event that our initial business combination does not close , we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment . story_separator_special_tag up to $ 1,000,000 of all loans made to us may be convertible into warrants of the post-business combination entity at a price of $ 0.50 per warrant at the option of the lender . the warrants would be identical to the private placement warrants . the terms of such loans , if any , by our officers and directors ( other than the $ 500,000 in 51 loans which our sponsors have committed to make in the aggregate ) have not been determined and no written agreements exist with respect to such loans . we do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business . however , if our estimates of the costs of identifying a target business , undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amounts necessary to do so , we may have insufficient funds available to operate our business prior to our business combination . moreover , we may need to obtain additional financing either to complete our business combination or because we become obligated to redeem a significant number of our public shares upon completion of our business combination , in which case we may issue additional securities or incur debt in connection with such business combination . subject to compliance with applicable securities laws , we would only complete such financing simultaneously with the completion of our business combination . if we are unable to complete our initial business combination because we do not have sufficient funds available to us , we will be forced to cease operations and liquidate the trust account . in addition , following our initial business combination , if cash on hand is insufficient , we may need to obtain additional financing in order to meet our obligations . off-balance sheet financing arrangements we have no obligations , assets or liabilities which would be considered off-balance sheet arrangements . we have not entered into any off-balance sheet financing arrangements , established any special purpose entities , guaranteed any debt or commitments of other entities , or purchased any non-financial assets . contractual obligations we do not have any long-term debt , capital lease obligations , operating lease obligations or long-term liabilities other than an agreement to pay an affiliate of our hydra sponsor a monthly fee of $ 10,000 for office space , utilities and administrative support provided to us . we began incurring these fees on october 24 , 2014 and will continue to incur these fees monthly until the earlier of the completion of the business combination or our company 's liquidation . significant accounting policies the preparation of financial statements and related disclosures in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and income and expenses during the periods reported . actual results could materially differ from those estimates . we have identified the following significant accounting policies : common stock subject to possible redemption we account for our common stock subject to possible conversion in accordance with the guidance in accounting standards codification ( asc ) topic 480 distinguishing liabilities from equity. common stock subject to mandatory redemption ( if any ) is classified as a liability instrument and is measured at fair value . conditionally redeemable common stock ( including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control ) is classified as temporary equity . at all other times , common stock is classified as stockholders ' equity . our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events . accordingly , at december 31 , 2014 , the common stock subject to possible redemption in the amount of $ 73,410,170 is presented as temporary equity , outside of the stockholders ' equity section of our balance sheet . income taxes we comply with the accounting and reporting requirements of asc topic 740 , income taxes , which requires an asset and liability approach to financial accounting and reporting for income taxes . deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts , based on enacted tax 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 . 52 asc topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return . for those benefits to be recognized , a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities . there were no unrecognized tax benefits as of december 31 , 2014. we are currently not aware of any issues under review that could result in significant payments , accruals or material deviation from its position . we may be subject to potential income tax examinations by federal or state authorities . these potential examinations may include questioning the timing and amount of deductions , the nexus of income among various tax jurisdictions and compliance with federal and state tax laws . our management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months . our policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense . there were no amounts accrued for penalties or interest as of december
| in addition , up to $ 2,800,000 of underwriting fees were deferred until the closing of a business combination . upon the closing of our initial public offering and the private placement , $ 80,000,000 was placed into a trust account , while the remaining funds of $ 1,326,704 were placed in an account outside of the trust account for working capital purposes . as of december 31 , 2014 , we had cash and securities held in the trust account of $ 80,005,240 ( including $ 5,240 of cash and accrued interest income ) consisting of u.s. treasury bills with a maturity of 180 days or less . interest income on the balance in the trust account may be available to us to pay taxes and up to $ 50,000 of our dissolution expenses . through december 31 , 2014 , we did not withdraw any funds from the interest earned on the trust account . other than deferred underwriting fees payable in the event of a business combination , no amounts are payable to the underwriters of our initial public offering . 50 as of december 31 , 2014 , we had cash of $ 1,123,278 held outside of the trust account , which is available for use by us to cover the costs associated with identifying a target business and negotiating a business combination and other general corporate uses . in addition , as of december 31 , 2014 , we had accounts payable and accrued expenses of $ 85,729. for the period from may 30 , 2014 ( inception ) through december 31 , 2014 , we used cash of $ 180,617 in operating activities , which was primarily attributable to a net loss for the period of $ 141,529 , fees prepaid to our transfer agent and the payment of the premium on our directors and officers insurance of $ 168,173. this was offset by an increase in our accounts payable and accrued expenses . we intend
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due to an increase in our installed base , the introduction and regulatory approval of a broader range of catheters and guidewires for use with the niobe system , and a softer market for capital sales in 2011 , recurring revenue has increased from 36 % of total revenues in 2009 to 42 % in 2010 and 63 % in 2011. we have alliances with each of siemens ag medical solutions , philips medical systems and biosense webster , inc. , through which we integrate our niobe system with market leading digital imaging and 3d catheter location sensing technology , as well as disposable interventional devices , in order to continue to develop new solutions in the interventional lab . each of these alliances provides for coordination of our sales and marketing activities with those of our partners . in addition , siemens is our product distributor in certain countries and has agreed to provide worldwide service for our integrated systems . since our inception , we have generated significant losses . as of december 31 , 2011 , we had incurred cumulative net losses of approximately $ 375 million . in may 2011 , the company introduced the niobe es robotic system . although the niobe es robotic system was not available to customers until december 2011 , it created a rapid shift away from sales of the niobe ii system , resulting in lower system revenue in 2011 compared to 2010. as of december 31 , 2011 , the company had performed six installations to upgrade niobe ii systems to niobe es systems and has received positive feedback from the physicians at these sites . during the quarter ended september 30 , 2011 , the company implemented a wide ranging plan to rebalance and reduce operating expenses by 15 % to 20 % on an annual run rate basis . as of december 31 , 2011 , the company has completed the operating expense declines through headcount reductions and discretionary spending cuts . we expect to incur additional losses into 2012 as we continue the development and commercialization of our products , conduct our research and development activities and advance new products into clinical development from our existing research programs and fund additional sales and marketing initiatives . the company 's independent registered public accounting firm 's report issued in this annual report on form 10-k included an explanatory paragraph describing the existence of conditions that raise substantial doubt about the company 's ability to continue as a going concern , including recent losses and working capital deficiency . the financial statements do not include any adjustments relating to the recoverability and classification of assets carrying amounts or the amount of and classification of liabilities that may result should the company be unable to continue as a going concern . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses and related disclosures . we review our estimates and judgments on an on-going basis . we base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from these estimates . we believe the following accounting policies are critical to the judgments and estimates we use in preparing our financial statements . 45 revenue recognition the company adopted accounting standards update 2009-13 , multiple-deliverable revenue arrangements ( asu 2009-13 ) in the fourth quarter of 2009 , effective as of january 1 , 2009. prior to the adoption of this guidance , the company followed previously issued guidance for general accounting principles for revenue arrangements with multiple deliverables . under this previously issued guidance , we were required to continually evaluate whether we had proper evidence to identify separate units of accounting for deliverables within certain contractual arrangements with customers . if we were unable to support the determination of vendor-specific objective evidence ( vsoe ) or third party evidence ( tpe ) of fair value on the undelivered element , we could not recognize revenue for the delivered elements . asu 2009-13 permits management to estimate the selling price of undelivered components of a bundled sale for which it is unable to establish vsoe or tpe . this requires management to record revenue for certain elements of a transaction even though it might not have delivered other elements of the transaction , for which it was unable to meet the requirements for establishing vsoe or tpe . the adoption of the new guidance did not materially impact revenue reported in prior periods . the company believes that the new guidance significantly improves the reporting of these types of transactions to more closely reflect the underlying economic circumstances . this guidance also prohibits the use of the residual method for allocating revenue to the various elements of a transaction and requires that the revenue be allocated proportionally based on the relative estimated selling prices . under our revenue recognition policy before and after the adoption of asu 2009-13 , a portion of revenue for most system sales is recognized upon delivery , provided that title has passed , there are no uncertainties regarding acceptance , persuasive evidence of an arrangement exists , the sales price is fixed and determinable , and collection of the related receivable is reasonably assured . beginning in the quarter ended march 31 , 2010 , revenue for odyssey vision standard hd systems was recognized upon delivery due to the fact that third parties became qualified to perform installations . story_separator_special_tag however , this change did not have a material impact on revenue recognition for the year ended december 31 , 2010. beginning in the quarter ended june 30 , 2010 , revenue for odyssey vision quad systems was recognized upon delivery due to the fact that third parties became qualified to perform installations . this change resulted in additional revenue of $ 2.6 million and additional gross margin of $ 1.3 million during the year ended december 31 , 2010. beginning in the quarter ended december 31 , 2010 , revenue for odyssey enterprise cinema systems was recognized upon delivery due to the fact that third parties became qualified to perform installations . this change resulted in additional revenue of $ 0.7 million and additional $ 0.4 million in gross margin . revenue is recognized for other types of odyssey systems upon completion of installation , since there are no qualified third party installers . when installation is the responsibility of the customer , revenue from system sales is recognized upon shipment since these arrangements do not include an installation element or right of return privileges . we do not recognize revenue in situations in which inventory remains at a stereotaxis warehouse or in situations in which title and risk of loss have not transferred to the customer . however , we may deliver systems to a non-hospital site at the customer 's request as outlined in the terms and conditions of the sales agreement , in which case we evaluate whether the substance of the transaction meets the delivery and performance requirements for revenue recognition under bill and hold guidance . amounts collected prior to satisfying the above revenue recognition criteria are reflected as deferred revenue . revenue from services and license fees , whether sold individually or as a separate unit of accounting in a multi-element arrangement , is deferred and amortized over the service or license fee period , which is typically one year . revenue from services is derived primarily from the sale of annual product maintenance plans . we recognize revenue from disposable device sales or accessories upon shipment and establish an appropriate reserve for returns . the return reserve , which is applicable only to disposable devices , is estimated based on historical experience which is periodically reviewed and updated as necessary . in the past , changes in estimate have had only a de minimus effect on revenue recognized in the period . we believe that the estimate is not likely to change significantly in the future . 46 stock-based compensation stock compensation expense , which is a non-cash charge , results from stock option and stock appreciation rights grants made to employees , and directors at the fair value of the option granted , and from grants of restricted shares and units to employees and directors . the fair value of options and stock appreciation rights granted was determined using the black-scholes valuation method which gives consideration to the estimated value of the underlying stock at the date of grant , the exercise price of the option , the expected dividend yield and volatility of the underlying stock , the expected life of the option and the corresponding risk-free interest rate . the fair value of the grants of restricted shares and units was determined based on the closing price of our stock on the date of grant . stock compensation expense for options , stock appreciation rights and for time-based restricted share grants is amortized on a straight-line basis over the vesting period of the underlying issue , generally over three years except for grants to directors which generally vest over one to two years and restricted stock units which generally vest over 18 months . stock compensation expense for performance-based restricted shares is amortized on a straight-line basis over the anticipated vesting period and is subject to adjustment based on the actual achievement of objectives . compensation expenses related to option grants to non-employees are remeasured quarterly through the vesting date . compensation expense is recognized only for those options expected to vest , net of estimated forfeitures . estimates of the expected life of options have been based on the average of the vesting and expiration periods , which is the simplified method under general accounting principles for share-based payments . estimates of volatility and forfeiture rates utilized in calculating stock-based compensation have been prepared based on historical data and future expectations . actual experience to date has been consistent with these estimates . the amount of compensation expense to be recorded in future periods may increase if we make additional grants of options , stock appreciation rights or restricted shares or if we determine that actual forfeiture rates are less than anticipated . the amount of expense to be recorded in future periods may decrease if we do not achieve the performance objectives by which certain restricted shares are contingent , if the requisite service periods are not completed or if the actual forfeiture rates are greater than anticipated . valuation of inventory we value our inventory at the lower of the actual cost of our inventory , as determined using the first-in , first-out ( fifo ) method , or its current estimated market value . we periodically review our physical inventory for excess , obsolete , and potentially impaired items and reserve accordingly . our reserve estimate for excess and obsolete is based on expected future use . our reserve estimates have historically been consistent with our actual experience as evidenced by actual sale or disposal of the goods . deferred income taxes deferred assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized .
| cost of revenue for systems sold decreased to $ 8.6 million for the year ended december 31 , 2011 from $ 12.7 million for the year ended december 31 , 2010 , a decrease of approximately 33 % . this decrease was primarily due to fewer niobe units sold in 2011 compared to 2010. gross margin for systems was 45 % for the year ended december 31 , 2011 , compared to 59 % for year ended december 31 , 2010. the decrease was primarily related to a charge related to the absorption of overhead costs based on normal production levels . cost of revenue for disposable interventional devices , service and accessories increased to $ 3.9 million for the year ended december 31 , 2011 from $ 2.9 million for the year ended december 31 , 2010 , resulting in a decrease in gross margin to 85 % from 88 % between these periods . research and development expense . research and development expense increased to $ 12.9 million for the year ended december 31 , 2011 from $ 12.2 million for the year ended december 31 , 2010 , an increase of approximately 5 % . the increase is primarily due to increased expenditures related to development of the niobe es robotic system and odyssey system upgrades . sales and marketing expense . sales and marketing expense increased to $ 31.6 million for the year ended december 31 , 2011 , from $ 30.2 million for the year ended december 31 , 2010 , an increase of approximately 5 % . the increase was primarily due to a rise in headcount to support higher utilization rates worldwide as well as increased marketing costs related to the launch of the niobe es robotic system . although headcount was reduced during the quarter ended september 30 , 2011 , as part of the company 's efforts to reduce operating expenses , the full year headcount expense was higher in 2011 than in 2010. general and administrative expense . general and administrative expenses include regulatory , clinical , general management and training expenses . general and administrative expense increased to $ 16.9 million for the year ended
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as a result of this increase in business volume and the realization of benefits from our previous restructuring actions , our net sales and gross profit increased significantly during 2010 and we had our first profitable year since 2001. we were also profitable in 2011 and 2012. the economic environment , however , became more challenging in 2012 due to high levels of unemployment , concerns about debt levels and possible recessions in certain countries , and other factors . these conditions have resulted in reduced demand for many of our customers ' products , causing these customers to reduce or reschedule their orders with us . we have experienced fluctuations in our results of operations in the past and may continue to experience such fluctuations in the future . during 2012 , we reduced our net long-term debt obligations by $ 360.0 million , which is expected to result in significant interest expense savings in future periods primarily due to our redemption of $ 400.0 million of notes due in 2016 which carried a fixed interest rate of 8.125 % . a relatively small number of customers have historically generated a significant portion of our net sales . sales to our ten largest customers represented approximately 50 % of our net sales for 2012 , 2011 and 2010 . for 2012 , 2011 and 2010 , one customer represented more than 10 % of our net sales in each period . we typically generate a significant portion of our net sales from international operations . net sales generated from non-u.s. operations were approximately 80 % of our total net sales for 2012 , 2011 and 2010 . the concentration of international operations has resulted primarily from a desire on the part of many of our customers to move production to lower cost locations in regions such as asia , latin america and eastern europe . we expect this trend to continue . historically , we have had substantial recurring sales from existing customers . we typically enter into supply agreements with our major oem customers . these agreements generally have terms ranging from three to five years and cover the manufacture of a range of products . under these agreements , a customer typically agrees to purchase its requirements for specific products in particular geographic areas from us . these agreements generally do not obligate the customer to purchase minimum quantities of products . in some circumstances , our supply agreements with customers provide for cost reduction objectives during the term of the agreement . 37 critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the united states . we review the accounting policies used 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 , net sales and expenses and related disclosure of contingent liabilities . on an ongoing basis , we evaluate the process used to develop estimates for certain reserves and contingent liabilities , including those related to product returns , accounts receivable , inventories , income taxes , warranty obligations , environmental matters , restructuring , and contingencies and litigation . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . our actual results may differ materially from these estimates . we believe the following critical accounting policies reflect the more significant judgments and estimates used by us in preparing our consolidated financial statements : accounts receivable and other related allowances— we estimate uncollectible accounts , product returns and other adjustments related to current period net sales to establish related allowances . in making these estimates , we analyze the creditworthiness of our customers , past experience , changes in customer demand , and the overall economic climate in the industries we serve . if actual uncollectible accounts , product returns or other adjustments differ significantly from our estimates , the amount of sales or operating expenses we report would be affected . one of our most significant credit risks is the ultimate realization of our accounts receivable . this risk is mitigated by ( i ) a significant portion of sales to financially sound companies , ( ii ) ongoing credit evaluation of our customers , ( iii ) frequent contact with our customers , especially our most significant customers , which enables us to monitor changes in their business operations and to respond accordingly and ( iv ) obtaining , in certain cases , a guaranty from the customer 's parent entity . to establish our allowance for doubtful accounts , we evaluate credit risk related to specific customers based on their financial condition and the current economic environment ; however , we are not able to predict the inability of our customers to meet their financial obligations to us . we believe the allowances we have established are adequate under the circumstances ; however , a change in the economic environment or a customer 's financial condition could cause our estimates of allowances , and consequently the provision for doubtful accounts , to change , which could have a significant adverse impact on our financial position and or results of operations . to establish the allowance for product returns and other adjustments , we primarily utilize historical data . inventories— we state inventories at the lower of cost ( first-in , first-out method ) or market value . cost includes raw materials , labor and manufacturing overhead . we regularly evaluate the carrying value of our inventories and make provisions to reduce excess and obsolete inventories to their estimated net realizable values . story_separator_special_tag the ultimate realization of inventory carrying amounts is affected by changes in customer demand for inventory that customers are not contractually obligated to purchase and inventory held for specific customers who are experiencing financial difficulties . inventory write-downs are recorded based on forecasted demand , past experience with specific customers , the ability to redistribute inventory to other programs or back to our suppliers , and whether customers are contractually obligated and have the ability to pay for the related inventory . certain payments received from customers for inventories that have not been shipped to customers or otherwise disposed of are netted against inventory . we procure inventory based on specific customer orders and forecasts . customers have limited rights of modification ( for example , cancellations ) with respect to these orders . customer modifications of orders affecting inventory previously procured by us and our purchases of inventory beyond customer needs may result in excess and obsolete inventory . although we may be able to use some excess inventory for other products we manufacture , a portion of the cost of this excess inventory may not be returned to the vendors or recovered from customers . write-offs or write-downs of inventory could relate to : declines in the market value of inventory ; inventory held for specific customers who are experiencing financial difficulties ; and changes in customer demand for inventory , such as cancellation of orders , and our purchases of inventory beyond customer needs that result in excess quantities on hand that we are not able to return to the vendor , use to fulfill orders from other customers or charge back to the customer . our practice is to dispose of excess and obsolete inventory as soon as practicable after such inventory has been identified as having no value to us . property , plant and equipment —we review property , plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable . an asset or asset 38 group is considered impaired if its carrying amount exceeds the undiscounted future net cash flows the asset or asset group is expected to generate . if an asset or asset group is considered impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the asset or asset group exceeds its fair value . an asset group is the unit of accounting for a long-lived asset or assets to be held and used , which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets . for vertically integrated plants , each individual plant , together with the other plants with which it is vertically integrated , is an asset group . for all other plants , each individual plant is an asset group . for asset groups for which a building is the primary asset , we estimate fair value primarily based on data provided by commercial real estate brokers . for other assets , we estimate fair value based on projected discounted future net cash flows . management applies significant judgment in estimating future cash flows . income taxes— we estimate our income tax provision or benefit in each of the jurisdictions in which we operate , including estimating exposures related to examinations by taxing authorities . we believe our accruals for tax liabilities are adequate for all open years , based on our assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter . although we believe our accruals for tax liabilities are adequate , tax regulations are subject to interpretation and the tax controversy process is inherently lengthy and uncertain ; therefore , our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions . to the extent the probable tax outcome of these matters changes , such changes in estimates will impact our income tax provision in the period in which such determination is made . we must also make judgments regarding the realizability of deferred tax assets . the carrying value of our net deferred tax assets is based on our belief that it is more likely than not that we will generate sufficient future taxable income in certain jurisdictions to realize these deferred tax assets . we evaluate positive and negative evidence each reporting period when assessing the need for a valuation allowance . a valuation allowance is established for deferred tax assets when we believe realization of such assets is not more likely than not . our judgments regarding future taxable income may change due to changes in market conditions , new or modified tax laws , tax planning strategies or other factors . if our assumptions , and consequently our estimates , change in the future , the valuation allowances we have established may be increased or decreased , resulting in a respective increase or decrease in income tax expense . as a result of our analysis of the positive and negative evidence available at the end of 2012 , we released $ 158.7 million of our valuation allowance against our u.s. deferred tax assets . we will continue to evaluate all evidence in future periods to determine if further release of the valuation allowance is warranted . our effective tax rate is highly dependent upon the amount and geographic distribution of our worldwide income or losses , the tax regulations and tax holidays in each geographic region , the utilization of net operating losses , the availability of tax credits and carryforwards , and the effectiveness of our tax planning strategies . we only recognize or continue to recognize tax positions that meet a “ more likely than not ” threshold of being upheld . interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense .
| sales to customers in our enterprise computing and storage end market decreased from 2010 to 2011 as a result of certain customer programs going end-of-life , the effect of which was not completely offset by new programs . sales to customers in our multimedia market decreased from 2010 to 2011 primarily as a result of reduced demand from one program . gross margin gross margin was 7.2 % , 7.7 % and 7.6 % in 2012 , 2011 and 2010 , respectively . the decrease from 2011 to 2012 was primarily attributable to decreased sales , especially for our components which typically have higher contribution margins than our integrated manufacturing solutions . the increase from 2010 to 2011 was primarily a result of the profit contribution from increased business volume and improved operational performance in our components operations . we have experienced fluctuations in gross margin in the past and may continue to do so in the future . fluctuations in our gross margins may be caused by a number of factors , including : changes in customer demand and sales volumes for our vertically integrated system components and subassemblies ; changes in the overall volume of our business ; changes in the mix of high and low margin products demanded by our customers ; parts shortages and operational disruption caused by natural disasters ; greater competition in the ems industry and pricing pressures from oems due to greater focus on cost reduction ; provisions for excess and obsolete inventory ; level of operational efficiency ; pricing pressure in the electronics industry resulting from economic conditions , with ems companies competing more aggressively on cost to obtain new or maintain existing business ; wage inflation and rising materials costs ; and our ability to transition manufacturing and assembly operations to lower cost regions in an efficient manner . selling , general and administrative selling , general and administrative expenses were $ 240.9 million , $ 247.1 million and $ 252.5 million in 2012 , 2011 and 2010 ,
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gross profit margin is computed as gross profit as a percentage of net revenues . gross profit is generally net revenues less costs of products sold , but also deducts certain other period costs , particularly losses on purchase commitments and inventory write-downs . losses on purchase commitments and inventory write-downs have the impact of reducing gross profit margin in the period of the charge , but result in improved gross profit margins in subsequent periods by reducing costs of products sold as inventory is used . gross profit margin is clearly a function of net revenues , but also reflects our cost management programs and our ability to contain fixed costs . operating margin is computed as gross profit less operating expenses as a percentage of net revenues . we evaluate business segment performance on segment operating margin . only dedicated , direct selling , general , and administrative expenses of the segments are included in the calculation of segment operating income . segment operating margin is computed as operating income less items such as restructuring and severance costs , asset write-downs , goodwill and indefinite-lived intangible asset impairments , inventory write-downs , gain or losses on purchase commitments , global operations , sales and marketing , information systems , finance and administrative groups , and other items , expressed as a percentage of net revenues . we believe that evaluating segment performance excluding such items is meaningful because it provides insight with respect to intrinsic operating results of the segment . operating margin is clearly a function of net revenues , but also reflects our cost management programs and our ability to contain fixed costs . end-of-period backlog is one indicator of future revenues . we include in our backlog only open orders that we expect to ship in the next twelve months . if demand falls below customers ' forecasts , or if customers do not control their inventory effectively , they may cancel or reschedule the shipments that are included in our backlog , in many instances without the payment of any penalty . therefore , the backlog is not necessarily indicative of the results to be expected for future periods . an important indicator of demand in our industry is the book-to-bill ratio , which is the ratio of the amount of product ordered during a period as compared with the product that we ship during that period . a book-to-bill ratio that is greater than one indicates that our backlog is building and that we are likely to see increasing revenues in future periods . conversely , a book-to-bill ratio that is less than one is an indicator of declining demand and may foretell declining revenues . we focus on our inventory turnover as a measure of how well we are managing our inventory . we define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory ( computed using each fiscal quarter-end balance ) for this same period . a higher level of inventory turnover reflects more efficient use of our capital . pricing in our industry can be volatile . we analyze trends and changes in average selling prices to evaluate likely future pricing . the erosion of average selling prices of established products is typical for semiconductor products . we attempt to offset this deterioration with ongoing cost reduction activities and new product introductions . our specialty passive components are more resistant to average selling price erosion . -39- the quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business . the following table shows net revenues , gross profit margin , operating margin , end-of-period backlog , book-to-bill ratio , inventory turnover , and changes in asp for our business as a whole during the five fiscal quarters beginning with the fourth fiscal quarter of 2012 through the fourth fiscal quarter of 2013 ( dollars in thousands ) : replace_table_token_7_th _ ( 1 ) operating margin for the second fiscal quarter of 2013 includes a $ 1.8 million stock compensation credit related to performance-based stock compensation for certain former executives , following a determination that achievement of the three-year performance targets was no longer probable ( see note 12 to our consolidated financial statements ) . operating margin for the fourth fiscal quarter of 2013 includes a $ 2.8 million restructuring and severance expense recorded in the fourth fiscal quarter of 2013 ( see note 4 to our consolidated financial statements ) . ( 2 ) end-of-period backlog for the second fiscal quarter of 2013 reflects a total of $ 15.5 million related to the backlog of mcb industrie s.a. as of the date of acquisition . see `` financial metrics by segment '' below for net revenues , book-to-bill ratio , and gross profit margin broken out by segment . following a period of low distributor demand and a deteriorating business environment experienced in the second half of 2012 , our results improved through the first half of 2013 , driven by the restocking of distributor inventory and improving customer demand . the third fiscal quarter of 2013 was burdened by a sudden decrease in orders from distributors and produced disappointing results , but orders from distributors increased in the fourth fiscal quarter , which led to an increase in revenues and backlog versus the prior fiscal quarter and prior year periods . average selling prices continue to decline primarily due to our commodity semiconductor products . gross margins were negatively impacted by additional depreciation associated with our cost reduction programs in the fourth fiscal quarter of 2013. gross margins improved versus the prior year periods due to the increased sales volume . story_separator_special_tag due to the increase in orders , the book-to-bill ratio increased to 0.99 in the fourth fiscal quarter of 2013 from 0.93 in the third fiscal quarter of 2013. the book-to-bill ratios for distributors and original equipment manufacturers ( `` oem '' ) were 0.98 and 0.99 , respectively , versus ratios of 0.91 and 0.96 , respectively , during the third fiscal quarter of 2013 . -40- financial metrics by segment the following table shows net revenues , book-to-bill ratio , gross profit margin , and segment operating margin broken out by segment for the five fiscal quarters beginning with the fourth fiscal quarter of 2012 through the fourth fiscal quarter of 2013 ( dollars in thousands ) : replace_table_token_8_th -41- acquisition and divestiture activity as part of our growth strategy , we seek to expand through targeted acquisitions of other manufacturers of electronic components that have established positions in major markets , reputations for product quality and reliability , and product lines with which we have substantial marketing and technical expertise . this includes exploring opportunities to acquire targets to gain market share , penetrate different geographic markets , enhance new product development , round out our existing product lines , or grow our high margin niche market businesses . acquisitions of passive components businesses would likely be made to strengthen and broaden our position as a specialty product supplier ; acquisitions of discrete semiconductor businesses would be made to increase market share and to generate synergies . to limit our financial exposure , we have implemented a policy not to pursue acquisitions if our post-acquisition debt would exceed 2.5x our pro forma earnings before interest , taxes , depreciation , and amortization ( `` ebitda '' ) . for these purposes , we calculate pro forma ebitda as the adjusted ebitda of vishay and the target for vishay 's four preceding fiscal quarters , with a pro forma adjustment for savings which management estimates would have been achieved had the target been acquired by vishay at the beginning of the four fiscal quarter period . our growth plan targets adding , through acquisitions , an average of approximately $ 100 million of revenues per year . depending on the opportunities available , we might make several smaller acquisitions or a few larger acquisitions . we intend to make such acquisitions using mainly cash , rather than debt or equity , although we do have capacity under our revolving credit facility if necessary . we are not currently targeting acquisitions with a purchase price larger than $ 500 million . there is no assurance that we will be able to identify and acquire additional suitable acquisition candidates at price levels and on terms and conditions we consider acceptable . 2013 activities on june 13 , 2013 , we acquired mcb industrie s.a. ( `` mcb industrie '' ) in france , a well-established manufacturer of specialty resistors and sensors , for $ 23.0 million , net of cash acquired . the products and technology portfolio acquired is expected to enable us to expand our presence in the european industrial market . for financial reporting purposes , the results of operations for this business have been included in the resistors & inductors segment from june 13 , 2013 . 2012 activities on january 13 , 2012 , we acquired hirel systems llc , a leading supplier of high reliability transformers , inductors , coils , and power conversion products , for approximately $ 85.5 million . the products and technology portfolio acquired further enhance our inductors portfolio , particularly in the field of custom magnetics for medical , military , aerospace and aviation , and applications in the industrial and commercial field such as renewable energy and test and measurement equipment . for financial reporting purposes , the results of operations for this business have been included in the resistors & inductors segment from january 13 , 2012 . 2011 activities on september 28 , 2011 , we acquired the resistor businesses of huntington electric , inc. , for approximately $ 19.3 million . the businesses acquired further enhance our broad resistor portfolio , particularly in the high power and high current ranges , as well as with resistor assemblies for industrial applications . for financial reporting purposes , the results of operations for these businesses have been included in the resistors & inductors segment from september 28 , 2011 . -42- cost management we place a strong emphasis on controlling our costs . the erosion of average selling prices of established products , particularly our semiconductor products , that is typical of our industry and inflation drive us to continually seek ways to reduce our variable costs . our variable cost reduction efforts include expending capital to increase automation and maximize the efficiency in our production facilities , consolidating materials purchasing across regions and divisions to achieve economies of scale , materials substitution , maintaining an appropriate mix of in-house production and subcontractor production , increasing wafer size and shrinking dies to maximize efficiency in our semiconductor production processes , and other yield improvement activities . our cost management strategy also includes a focus on controlling fixed costs . we seek to maintain selling , general , and administrative expenses at current quarterly levels , excluding foreign currency exchange effects and substantially independent of sales volume changes . our fixed cost control efforts include automating administrative processes through the expansion of it systems , gradually migrating to common it systems across our organization , streamlining our legal entity structure , and reducing our external resource needs by utilizing more cost-effective in-house personnel , while utilizing external resources when day-to-day expertise is not required in-house . historically , our primary cost reduction technique was through the transfer of production to the extent possible from high-labor-cost countries , such as the united states and western europe , to lower-labor-cost countries , such as the czech republic , hungary , israel , india , malaysia , mexico , the people 's republic of china , and the philippines .
| actual credits issued under the programs for the years ended december 31 , 2013 , 2012 , and 2011 were approximately $ 83.2 million , $ 76.9 million , and $ 82.3 million , respectively . increases and decreases in these incentives are largely attributable to the then-current business climate . royalty revenues , included in net revenues on the consolidated statements of operations , were $ 6.4 million , $ 7.1 million , and $ 6.6 million , for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . gross profit and margins gross profit margins for the year ended december 31 , 2013 were 23.9 % , as compared to 23.6 % for year ended december 31 , 2012. gross profit margins for the year ended december 31 , 2012 were 23.6 % , as compared to 27.8 % for year ended december 31 , 2011. this decrease in gross profit margin reflects significantly lower volume and lower average selling prices . -53- segments analysis of revenues and gross profit margins for our segments is provided below . mosfets net revenues of the mosfets segment were as follows ( dollars in thousands ) : replace_table_token_13_th changes in mosfets segment net revenues were attributable to the following : replace_table_token_14_th gross profit as a percentage of net revenues for the mosfets segment was as follows : replace_table_token_15_th the mosfets segment was positively affected by increased demand from oem customers in asia in 2013. the gross profit margin remained below expectations in 2013 as the increase in volume and lower materials prices were almost fully offset by the decrease in average selling prices and the negative effect of additional depreciation associated with our cost reduction program . the decrease in gross profit margin from 2011 to 2012 is primarily due to decreases in sales volume and average selling prices . also , a non-recurring manufacturing issue associated with purchased materials affected the 2012 results . we have experienced significant declines in average selling prices in 2013 and 2012 .
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currently in 2020 , we remain focused on ( i ) growing our esp product line in the u.s. unconventional markets , ( ii ) capitalizing on well conversions to rod lift systems as well production declines , particularly in the permian basin , ( iii ) further adoption of our “ fit-for-purpose ” digital products to improve our customers ' productivity and economics , ( iv ) continued innovation and advancement of our technology in diamond sciences , and ( v ) continued , albeit slower due to customer capital discipline , adoption of our diamond bearings offering for downhole applications . tariffs instituted by the u.s. government , and retaliatory tariffs and other trade restrictions by other countries , continue to introduce uncertainty to our business since some of our products are impacted by the tariffs imposed . we continue to work to mitigate the impacts of higher costs through various measures , including customer price increases , supplier price concessions and stronger supplier relationships , as well as continued cost discipline and operational productivity improvement initiatives . although risk remains that crude oil prices and activity levels could deteriorate further from current levels , we believe the long-term outlook for our businesses is favorable . increasing global demand for oil and gas , in combination with ongoing depletion of existing reservoirs , is expected to drive continued investment in the drilling and completion of new wells . in addition , productivity and efficiency are becoming increasingly important in the oil and gas industry as operators focus on improving per-well economics . average crude oil and natural gas prices , rig counts and well completions are summarized below : replace_table_token_2_th _ ( a ) source : u.s. energy information administration ( eia ) , as of january 21 , 2020 . ( b ) source : baker hughes rig count , as of january 21 , 2020. excludes ukraine rig count . 30 story_separator_special_tag drilling technologies replace_table_token_5_th _ * not meaningful 2019 compared with 2018 revenue . drilling technologies revenue decreased $ 38.7 million , or ( 13.5 ) % , in 2019 compared to the prior year primarily driven by the significant decline in u.s. drilling activity in the second half of 2019 and the related customer destocking of polycrystalline diamond cutter inventories and pricing pressure . partially offsetting the decrease in revenue was an increase driven by customer adoption of our diamond bearings technology . operating profit . drilling technologies operating profit decreased $ 25.1 million , or ( 25.5 ) % , in 2019 compared to the prior year primarily due to lower revenue , and to a lesser extent , higher professional fees associated with the defense of our patented technologies . partially offsetting the decrease in operating profit were increases associated with the benefits of productivity initiatives and a decrease in operational expenses primarily driven by lower employee costs related to a decline in headcount as part of our restructuring actions in 2019 and a decrease in annual incentive compensation expense . 2018 compared with 2017 revenue . drilling technologies revenue increased $ 57.9 million , or 25.4 % , in 2018 compared to the prior year . the increase in revenue was primarily driven by higher demand related to the growth in active drilling rigs in the united states and canada . operating profit . drilling technologies operating profit increased $ 24.3 million in 2018 compared to the prior year due to higher volumes driven by growing u.s. rig counts and overall operational productivity gains . 34 capital resources and liquidity as of december 31 , 2019 , approximately $ 13.5 million , or 38.2 % , of our cash balances were held outside the united states for the primary purpose of working capital and operational support needs . all of our cash held outside the united states could be repatriated ; however , we have not provided for foreign withholding taxes on our undistributed foreign earnings from jurisdictions which impose such taxes since we have determined that such earnings are indefinitely reinvested in those jurisdictions . our primary source of cash is from operating activities . we have historically generated , and expect to continue to generate , positive cash flow from operations . we expect to meet the continuing funding requirements of our u.s. operations with cash generated by our u.s. operations , which includes the collection of accounts receivable , as well as borrowings under our revolving credit facility . cash generated from operations is generally allocated to working capital requirements , investments in facilities and systems , acquisitions that create value with add-on capabilities that broaden our existing businesses and overall growth strategy , and debt repayments . cash flows replace_table_token_6_th operating cash flows cash provided by operating activities in 2019 decreased $ 8.0 million compared to 2018. the decrease in cash provided by operating activities was primarily driven by lower net income , adjusted for non-cash items . partially offsetting the decrease in cash provided by operating cash flows were increases from c hanges in our operating assets and liabilities in 2019 as compared to 2018 , primarily due to improved collections of accounts receivable and a reduction in our inventory balance due to strict adherence to cost and capital discipline . cash provided by operating activities in 2018 increased $ 87.9 million compared to 2017. the increase in cash provided by operating activities was primarily driven by higher net income adjusted for non-cash items . both our production & automation technologies and drilling technologies segments reported increased cash income year-over-year . additionally , we required less net cash investment in working capital in 2018 as compared to 2017 . “ leased assets ” in the operating cash flows section of our consolidated statement of cash flows include expenditures for cable and downhole equipment expected to be placed into our leased asset program as well as the recovery of net book value associated with the sale of damaged leased equipment during the period . story_separator_special_tag investing cash flows cash required by investing activities was $ 49.9 million in 2019 and was primarily comprised of capital expenditures of $ 39.8 million , a $ 12.5 million payment to acquire a provider of digital technology strategic to our artificial lift product offering , and a $ 2.2 million payment to dispose of our pressure vessel manufacturing business . refer to note 5 and note 6 to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for additional information related to these acquisitions and dispositions , respectively . these cash outflows were partially offset by $ 4.6 million of cash proceeds on sale of fixed assets , primarily due to the sale of two of our properties during 2019. cash required by investing activities was $ 54.2 million in 2018 and was primarily comprised of capital expenditures of $ 57.9 million , partially offset by net proceeds $ 2.5 million related to sale of our fisher pump business and related property , and proceeds of $ 1.2 million related to the sale of fixed assets . cash required by investing activities was $ 41.9 million in 2017 and was primarily comprised of capital expenditures and an $ 8.8 million payment to acquire a supplier of progressive cavity pump products and services . refer to note 5 to our 35 consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for additional information related to this acquisition . “ capital expenditures ” in the investing cash flows section of our consolidated statement of cash flows include expenditures for surface equipment expected to be placed into our leased asset program . during the year ended december 31 , 2019 , capital expenditures consisted mostly of infrastructure related capital spending and $ 16.0 million of investment in surface equipment for our leased asset program . during the year ended december 31 , 2018 , capital expenditures consisted mostly of infrastructure related capital spending and $ 26.7 million of investment in surface equipment for our leased asset program . financing cash flows cash required by financing activities of $ 112.4 million in 2019 was primarily the result of $ 105.0 million of debt repayment on the principal balance of our term loan and payments totaling $ 5.6 million for capital lease obligations . net borrowings under our revolving credit facility totaled zero in 2019. cash required by financing activities was $ 90.8 million in 2018 , and was the result of net transfers to dover of $ 736.6 million , primarily comprised of our $ 700.0 million payment to dover related to the separation , and $ 45.0 million of debt repayment on the principal balance of our term loan . these payments were partially offset by issuances of long-term debt , net of debt issuance costs and original issue discounts , of $ 698.0 million . net borrowings under our revolving credit facility totaled zero in 2018. cash required by financing activities of $ 36.7 million in 2017 was primarily due to net transfers to dover . debt and liquidity total borrowings were comprised of the following : replace_table_token_7_th senior notes on may 3 , 2018 , and in connection with the separation , we completed the offering of $ 300.0 million in aggregate principal amount of 6.375 % senior notes due may 2026 ( “ senior notes ” ) . interest on the senior notes is payable semi-annually in arrears on may 1 and november 1 of each year commencing on november 1 , 2018. net proceeds of $ 293.8 million from the offering were utilized to partially fund the cash payment to dover and to pay fees and expenses incurred in connection with the separation . senior secured credit facilities on may 9 , 2018 , we entered into a credit agreement ( “ credit agreement ” ) governing the terms of our senior secured credit facilities , consisting of ( i ) a seven-year senior secured term loan b facility ( “ term loan facility ” ) and ( ii ) a five-year senior secured revolving credit facility ( “ revolving credit facility , ” and together with the term loan facility , the “ senior secured credit facilities ” ) , with jpmorgan chase bank , n.a . as administrative agent . the net proceeds of the senior secured credit facilities were used to pay fees and expenses in connection with the separation , partially fund the cash payment to dover and provide for working capital and other general corporate purposes . term loan facility . the term loan facility had an initial commitment of $ 415.0 million . the full amount of the term loan facility was funded on may 9 , 2018. amounts borrowed under the term loan facility that are repaid or prepaid may not be re-borrowed . the term loan facility matures in may 2025. net proceeds of $ 408.7 million from the term loan facility were utilized to partially fund the cash payment to dover and to pay fees and expenses incurred in connection with the separation . during the year ended december 31 , 2019 , we repaid $ 105.0 million of our term loan facility . 36 revolving credit facility . the revolving credit facility consists of a five-year senior secured facility with aggregate commitments in an amount equal to $ 250.0 million , of which up to $ 50.0 million is available for the issuance of letters of credit . amounts repaid under the revolving credit facility may be re-borrowed . the revolving credit facility matures in may 2023. a summary of our revolving credit facility as of december 31 , 2019 was as follows : ( in millions ) amount debt outstanding letters of credit unused capacity maturity five-year revolving credit facility $ 250.0 $ — $ 6.2 $ 243.8 may 2023 as of december 31 , 2019 , we were in compliance with all restrictive covenants under our revolving credit facility .
| selling , general and administrative expense increased $ 11.1 million , or 4.2 % , in 2019 compared to the prior year primarily due to $ 10.1 million of acquisition costs associated with the planned merger with championx and other smaller acquisition-related spending , along with $ 3.0 million of increased bad debt expense , $ 2.8 million of increased professional fees related to material weaknesses identified in the fourth quarter of 2019 , $ 2.0 million of environmental remediation charges , as well as a full year of costs in 2019 associated with being a stand-alone company since may 9 , 2018. see “ risk factors ” in part 1 , item 1a , and “ controls and procedures ” in part ii , item 9a , for information related to the material weaknesses identified in our internal control over financial reporting . the increase in selling , general , and administrative expense was partially offset by a reduction in costs incurred related to the separation of $ 8.3 million as compared to 2018. interest expense , net . interest expense , net increased $ 11.7 million in 2019 compared to the prior year due to the full-year impact of issuances of our term loan facility and senior notes during the second quarter of 2018 related to the separation , partially offset by a decrease resulting from debt repayments totaling $ 105 million on our term loan facility in 2019. provision for income taxes . our provision for income taxes reflected effective tax rates of 10.5 % and 23.2 % in 2019 and 2018 , respectively . the year-over-year decrease in the effective tax rate was primarily driven by deferred tax benefits associated with the 2018 pre-separation tax return and a reduction in the combined state tax rate from 2018 to 2019 reflecting lower than estimated state income tax . 2018 compared with 2017 revenue . revenue increased $ 207.7 million , or 20.6 % , in 2018 compared to the prior year , driven by significant growth in u.s. and canadian rig counts and increased well completion activity . gross profit . gross profit increased $ 96.9 million , or 30.3 % , in 2018 compared to the prior year , primarily due to a significant increase in sales volume related to improving oil and gas markets . gross profit margin improved primarily due to the increase in sales volume , operating cost leverage , the benefits of prior year restructuring actions and lower restructuring cost . selling , general and administrative expense . selling , general and administrative expense increased $ 43.5 million , or 19.7 % , in 2018 compared to the prior year
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tnmp tnmp is providing transmission and distribution services at regulated rates to customers within its service area . senate bill 7 provides for recovery of stranded costs , the difference between the regulatory value of tnmp 's investment in generation assets and the market price for energy in a competitive market . any such stranded costs would be recoverable from tnmp 's texas transmission and distribution customers . the puct will conduct a proceeding in 2004 that will quantify and reconcile the amount of recoverable stranded costs , if any . the proceeding will consider a number of issues , including the sale of tnp one , the final fuel reconciliation and the amount of the clawback . notes 2 and 5 provide additional information regarding stranded costs and the clawback . while tnmp provides transmission and distribution services to individual consumers in its service area , its customers are the various retail electric providers that provide retail electric service within its service area . as of december 31 , 2002 , 21 retail electric providers served customers that receive transmission and distribution services from tnmp . first choice provides electric service to 94 percent of the customers for whom tnmp provides transmission and distribution services . the non-affiliated retail electric provider that provides electric service to the next highest number of tnmp transmission and distribution customers serves approximately 3 percent of tnmp 's transmission and distribution customers . critical accounting policies the accounting policies employed by tnp , tnmp and their respective subsidiaries in the preparation of the consolidated financial statements are discussed in note 1. tnp and tnmp are required to use estimates in order to prepare the consolidated financial statements in accordance with generally accepted accounting principles . those estimates include accruals for estimated revenues for electricity delivered from the latest billing date to the end of the accounting period and estimated purchased power expenses incurred but not billed at the end of the accounting period . the use of these estimates is customary in the electric utility industry . estimated revenues and purchased power expenses are adjusted to the actual amounts billed or incurred in the following month . tnp and tnmp also employ certain critical accounting policies that require use of judgments and assumptions that are subject to uncertainty . the amounts reported in the consolidated financial statements that are related to those critical accounting policies could be different if either different judgments were made or different assumptions were used . those critical accounting policies are discussed below . clawback . first choice is subject to a provision of senate bill 7 commonly known as the clawback. the clawback would require first choice to credit tnmp the difference between the price-to-beat and the market price of electricity during the years 2002 and 2003. additional details regarding the clawback are discussed in note 2. first choice recorded a pre-tax reserve of $ 12.7 million in the fourth quarter of 2002 related to its estimated clawback liability . first choice 's estimated clawback liability is based upon its current estimates of the number of competitive customers it will acquire and the number of price-to-beat customers it will lose through january 1 , 2004. to the extent first choice 's acquisition of competitive customers and loss of price-to-beat customers differs from current projections , the amount of the clawback liability would be different . first choice estimates that variations from its current projections could increase its clawback liability by an additional $ 4.9 million . goodwill and intangible assets . tnp has goodwill related to the merger that had a carrying value of $ 270.3 million as of december 31 , 2002. as discussed in note 10 , tnp has apportioned the carrying value of the goodwill between its regulated transmission and distribution segment and first choice . as of december 31 , 2002 , tnp had assigned approximately $ 178.7 million of goodwill to the regulated transmission and distribution segment and approximately $ 91.6 million to first choice . -17- statement of financial accounting standards ( sfas ) no . 142 , goodwill and other intangible assets requires tnp to test goodwill for impairment at least annually and more frequently when indicators of impairment exist . tnp performed its annual goodwill impairment test as of december 31 , 2002 , and concluded that the fair value of the goodwill related to the merger exceeded its carrying value . to determine the fair value of the goodwill , tnp estimated the fair value of the regulated transmission and distribution and first choice segments . tnp 's estimate was based on the present value of the projected cash flows of each segment . projected cash flows for the segments were derived from tnp 's five-year financial forecasts . the five-year forecast is subject to a number of estimates , including projections of customer growth and margins at first choice . to the extent the assumptions are not achieved , or can not be sustained , future assumptions may require modification , and such modifications would affect the estimates of expected cash flows contained in tnp 's annual goodwill impairment test . accordingly , tnp 's conclusion regarding the fair value of goodwill would be affected by changes in the five-year financial forecast . accounting for derivatives normal purchases and sales . in the normal course of business tnmp and first choice enter into commodity contracts , which include swing components for additional purchases of electricity , in order to meet customer requirements . in most circumstances , such contracts would be defined as derivatives under sfas 133 , accounting for derivative instruments and hedging activities. however , the financial accounting standards board ( fasb ) has defined criteria by which option-type and forward contracts for electricity could qualify for the normal purchase and sales exception provided by sfas 133. based on the fasb 's guidance , the management of tnmp and first choice has determined that their respective contracts for electricity qualify for the normal purchases and sales exception . story_separator_special_tag accordingly , tnmp and first choice do not account for their respective electricity contracts as derivatives . if tnmp and first choice were required to account for their respective electricity contracts as derivatives , the fair values of the contracts would be recorded on the balance sheet as assets . changes in the fair values of the contracts would be recognized in earnings . recoverable stranded costs sale of tnp one . tnmp sold tnp one in october 2002. based on the sale , the fair value of tnp one , less cost to sell , was $ 117.5 million . the book value of tnp one at december 31 , 2001 , was approximately $ 418.5 million . tnmp believes that the difference between the fair value of tnp one , net of selling costs , and its book value at december 31 , 2001 , is recoverable from tnmp 's texas transmission and distribution customers under the provisions of senate bill 7. accordingly , tnmp recorded a regulatory asset for recoverable stranded cost of approximately $ 301.0 million . under the provisions of senate bill 7 , the amount and manner of stranded cost recovery is subject to review and approval by the puct as part of the stranded cost true-up proceeding that will occur in 2004. accordingly , action taken by the puct in the true-up proceeding could affect the ultimate recovery of the amounts recorded as recoverable stranded costs . recovery of significantly less than the $ 301 million of estimated stranded costs currently recorded could have a material impact on the financial position and cash flows of tnmp and tnp . results of operations on april 7 , 2000 , pursuant to an agreement and plan of merger dated may 24 , 1999 , between tnp , st corp. and sw acquisition , the parent of st corp. , st corp. merged with and into tnp , the parent of tnmp . tnp is the surviving corporation in the merger . the merger was accounted for under the purchase method of accounting ; accordingly , purchase accounting adjustments have been reflected in the financial statements of tnp for all periods subsequent to march 31 , 2000. financial statements for periods prior to that date were prepared using tnp 's historical basis of accounting and are designated as predecessor. for purposes of the discussion of 2000 annual operating results provided herein , the pre-merger financial information of the predecessor has been combined with the post-merger financial information . the business operations of tnp were not significantly changed as a result of the merger and post-merger and pre-merger operating results , except as noted in the discussion , are comparable . amounts shown in the consolidated financial statements of tnmp continue to present the financial position and results of operations based on historical costs . -18- story_separator_special_tag december 31 , 2001 , compared with the amount incurred in the same period in 2000. pass-through expenses increased $ 19.2 million , reflecting higher energy prices in texas and new mexico , partially offset by reduced purchases due to lower sales . during 2001 , pass-through expenses included fuel and energy-related purchased power costs in texas and all purchased power costs in new mexico . the fuel adjustment clause under which tnmp recovered its fuel and energy-related purchased power costs in texas ended when retail competition began on january 1 , 2002. non-pass-through expenses increased $ 7.2 million in 2001 compared with 2000. the increase is attributable to first choice purchased power costs incurred during the competition pilot project and a $ 2.4 million credit to tnmp purchased power costs in 2000 , resulting from a puct order to defer and amortize previously incurred costs . tnmp had net transmission revenue of $ 6.4 million for the year ended december 31 , 2001 , compared with net transmission revenue of $ 6.7 million for the year ended december 31 , 2000. tnmp 's transmission revenues and expenses in 2001 reflected an updated allocation of transmission costs within ercot under a formula originally adopted by the puct in 1999. operating expenses tnp incurred operating expenses of $ 574.3 million for the year ended december 31 , 2002 , a decrease of $ 1.2 million from the amount incurred during the corresponding period of 2001. operating expenses include direct costs , which are discussed in tnp gross profit. direct costs increased $ 32.3 million . tnp incurred operating expenses of $ 575.5 million for the year ended december 31 , 2001 , an increase of $ 15.8 million over the amount incurred during the corresponding period of 2000. direct costs increased $ 28.8 million . the remaining components of the changes in operating expenses are discussed below . -21- other operating and maintenance other operating and maintenance expenses for the year ended december 31 , 2002 decreased $ 1.5 million compared with 2001. the decrease is partially attributable to payment of $ 3.6 million to the system benefit fund mandated by senate bill 7 in 2001. in 2002 , the costs of the system benefit fund are passed through to customers , and are not recorded in operating and maintenance expense . the termination of tnmp 's factoring arrangement discussed in note 8 contributed approximately $ 3.0 million to the decrease . the decreases are partially offset by increased reserves for uncollectible accounts receivable related to the beginning of competition in texas , customer acquisition costs at first choice and increased personnel costs in first choice 's customer service organization . other operating and maintenance expenses in 2001 and 2000 were comparable .
| -19- 2002 gross profit compared with 2001 the following table summarizes the components of the change in tnp 's gross profit for the year ended december 31 , 2002 , compared with the same period in 2001 ( in thousands ) : increase ( decrease ) 2002 v. 2001 reduction due to loss of former tnmp industrial customers to competition $ ( 20,358 ) reduction due to loss of former tnmp residential and commercial customers to competition ( 4,538 ) increase due to competitive customers acquired by first choice 10,518 increased gross profit attributable to price-to-beat customers 11,465 transmission revenue , net of expense ( 9,794 ) clawback accrual ( 12,725 ) sale of tnp one output to third parties 14,357 all other 7,263 gross profit decrease $ ( 3,812 ) gross profit for the year ended december 31 , 2002 , decreased $ 3.8 million , or 1.4 percent compared with the corresponding 2001 period . the decrease resulted from the loss of former tnmp customers to competing retail electric providers , the clawback accrual and the change in tnmp 's transmission revenue and expenses resulting from the annual puct allocation of transmission costs . these decreases were offset in part by higher gross profit from price-to-beat customers due primarily to lower purchased power prices and the increase in the price-to-beat fuel factor . other factors that partially offset the gross profit decrease were the acquisition of new first choice customers in the competitive market and the sale of the output from tnp one to third parties from april 2002 until the sale of tnp one in october 2002. during the first quarter of 2002 , the output of tnp one was sold on an intercompany basis , and gross profit from the sale was eliminated in consolidation . purchased power and fuel expenses decreased $ 40.3 million for the year ended december 31 , 2002 , compared with the amount incurred in the same period in 2001. the decrease was caused by reduced purchases resulting from the gains and losses of customers due to competition described above and lower prices in texas and new mexico . the decrease was partially offset by the sale of the output from tnp one to
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the company 's senior debt obligations are rated four levels below investment grade by moody 's investors services , two levels below investment grade by fitch ratings and one level below investment grade by standard & poor 's . ratings issued by bond rating agencies are subject to change at any time . in march 2011 , the company invested an additional $ 50,000,000 in sangart , which increased its ownership interest to approximately 96 % . in june 2011 , a subsidiary of the company purchased the assets of seghesio family vineyards , the owner and operator of premium estate vineyards and a winery located in healdsburg , california . the cash purchase price was $ 86,018,000 , which was primarily allocated as follows : $ 48,503,000 to property , equipment and leasehold improvements , $ 22,250,000 to amortizable intangible assets , $ 1,053,000 to goodwill and $ 12,962,000 to prepaids and other current assets ( principally inventory ) . 38 during 2009 , a subsidiary of berkshire hathaway provided berkadia with a five-year , $ 1 billion secured credit facility , which was used to fund outstanding mortgage loans and servicer advances , purchase mortgage servicing rights and for working capital needs . in 2010 , berkadia 's secured credit facility was amended to increase the size of the credit facility to $ 1.5 billion , with the company agreeing to provide the increased funds under the facility . in 2011 , berkadia fully repaid the amount outstanding under its secured credit facility , including $ 250,000,000 that was loaned by the company , with funds generated by commercial paper sales of an affiliate of berkadia . effective as of december 31 , 2011 , the secured credit facility was terminated . all of the proceeds from the commercial paper sales are used by berkadia to fund new mortgage loans , servicer advances , investments and other working capital requirements . repayment of the commercial paper is supported by a $ 2,500,000,000 surety policy issued by a berkshire hathaway insurance subsidiary and corporate guaranty , and the company has agreed to reimburse berkshire hathaway for one-half of any losses incurred . as of december 31 , 2011 , the aggregate amount of commercial paper outstanding was $ 2,000,000,000. during 2011 , the company sold 117,400,000 common shares of fortescue for net cash proceeds of $ 732,217,000 , which resulted in the recognition of a net securities gain of $ 628,197,000. in january 2012 , the company sold 100,000,000 fortescue common shares for net cash proceeds of $ 506,490,000 , and will record a net securities gain of $ 417,887,000 during the three month period ending march 31 , 2012. during 2011 , the company received $ 171,718,000 from fmg ( net of $ 19,080,000 in withholding taxes ) in payment of interest due on the fmg note for the twelve month period ended june 30 , 2011. in january 2012 , the company received $ 97,093,000 ( net of $ 10,788,000 in withholding taxes ) from fmg in payment of interest due for the second half of 2011. future interest payments under the fmg note will be dependent upon the physical volume of iron ore sold and the selling price , which can fluctuate widely , as well as the outcome of the litigation as described below . as a result , it is not possible to predict whether interest earned in the most recent year will continue at the same level in future years . in august 2010 , the company was advised that fortescue is asserting that fmg is entitled to issue additional notes identical to the fmg note in an unlimited amount . fortescue further claims that any interest to be paid on additional notes can dilute , on a pro rata basis , the company 's entitlement to the stated interest of 4 % of net revenue . the company does not believe that fmg has the right to issue additional notes which affect the company 's interest or that the interpretation by fortescue of the terms of the fmg note , as currently claimed by fortescue , reflects the agreement between the parties . in september 2010 , the company filed a writ of summons against fortescue , fmg and fortescue 's then chief executive officer in the supreme court of western australia . the writ of summons seeks , among other things , an injunction restraining the issuance of any additional notes identical to the fmg note and damages . if the litigation is ultimately determined adversely to the company and additional notes are issued , the company 's future cash flows from the fmg note and future results of operations would be significantly and adversely affected to the extent of the dilution resulting from the issuance of such additional notes . during 2011 , the company purchased an aggregate of 8,654,639 jefferies common shares through a public offering , in private transactions and in the open market for total cash consideration of $ 167,753,000. during 2011 , the company acquired 10,422,859 common shares of mueller , representing approximately 27.3 % of the outstanding common shares of mueller , for aggregate cash consideration of $ 408,558,000. the company has entered into a standstill agreement with mueller for the two year period ending september 1 , 2013 , pursuant to which , among other things , the company has agreed not to sell its shares if the buyer would own more than 4.9 % of the outstanding shares . 39 on december 30 , 2011 , the company acquired 78.9 % of national beef for aggregate net cash consideration of $ 867,869,000 , and national beef became a consolidated subsidiary of the company . story_separator_special_tag at december 31 , 2011 , national beef 's credit facility consisted of a $ 323,750,000 outstanding term loan and a revolving credit line of up to $ 250,000,000 ; amounts outstanding under the facility mature in june 2016. the term loan requires quarterly principal payments of $ 9,250,000. the term loan and the revolving credit facility bear interest at the base rate or the libor rate ( as defined in the credit facility ) , plus a margin ranging from .75 % to 2.50 % depending upon certain financial ratios and the rate selected . at december 31 , 2011 , the interest rate on the term loan was 2.1 % and the interest rate in the revolving credit facility was 2.2 % . the credit facility is secured by a first priority lien on substantially all of the assets of national beef and its subsidiaries , which aggregated $ 1,786,855,000 at december 31 , 2011. the company has not guaranteed any of national beef 's liabilities . for more information on the allocation of the purchase price to national beef 's individual assets and liabilities , see critical accounting estimates below . in february 2009 , the board of directors authorized the company , from time to time , to purchase its outstanding debt securities through cash purchases in open market transactions , privately negotiated transactions or otherwise . such repurchases , if any , depend upon prevailing market conditions , the company 's liquidity requirements and other factors ; such purchases may be commenced or suspended at any time without notice . in march 2007 , the board of directors increased the number of the company 's common shares that the company is authorized to purchase . such purchases may be made from time to time in the open market , through block trades or otherwise . depending on market conditions and other factors , such purchases may be commenced or suspended at any time without notice . during the three year period ended december 31 , 2011 , the only common shares acquired by the company were in connection with the exercise of stock options . as of february 16 , 2012 , the company is authorized to repurchase 11,987,880 common shares . the company and certain of its subsidiaries have substantial nols and other tax attributes . the amount and availability of the nols and other tax attributes are subject to certain qualifications , limitations and uncertainties . in order to reduce the possibility that certain changes in ownership could impose limitations on the use of the nols , the company 's certificate of incorporation contains provisions which generally restrict the ability of a person or entity from acquiring ownership ( including through attribution under the tax law ) of five percent or more of the common shares and the ability of persons or entities now owning five percent or more of the common shares from acquiring additional common shares . the restrictions will remain in effect until the earliest of ( a ) december 31 , 2024 , ( b ) the repeal of section 382 of the internal revenue code ( or any comparable successor provision ) or ( c ) the beginning of a taxable year to which certain tax benefits may no longer be carried forward . for more information about the nols and other tax attributes , see note 19 of notes to consolidated financial statements . consolidated statements of cash flows as discussed above , the company has historically relied on its available liquidity to meet its short-term and long-term needs , and to make acquisitions of new businesses and investments . except as otherwise disclosed herein , the company 's operating businesses do not generally require significant funds to support their operating activities , and the company does not depend on positive cash flow from its operating segments to meet its liquidity needs . the components of the company 's operating businesses and investments change frequently as a result of acquisitions or divestitures , the timing of which is impossible to predict but which often have a significant impact on the company 's consolidated statements of cash flows in any one period . further , the timing and amounts of distributions from investments in associated companies may be outside the control of the company . as a result , reported cash flows from operating , investing and financing activities do not generally follow any particular pattern or trend , and reported results in the most recent period should not be expected to recur in any subsequent period . 40 net cash of $ 9,084,000 and $ 431,266,000 was provided by operating activities in 2011 and 2010 , respectively , the change in operating cash flows reflects interest payments received from fmg ( $ 171,718,000 in 2011 and $ 154,930,000 in 2010 , net of withholding taxes ) , greater income tax payments , lower interest payments and the proceeds received from the sale of acf in excess of the cost of the investment in 2010 ( $ 404,700,000 ) . keen generated funds of $ 23,446,000 and $ 7,311,000 during 2011 and 2010 , respectively ; premier generated funds of $ 26,516,000 and $ 26,524,000 during 2011 and 2010 , respectively ; and the company 's manufacturing segments generated funds of $ 12,819,000 and $ 28,333,000 during 2011 and 2010 , respectively . funds used by sangart , a development stage company , increased to $ 39,396,000 during 2011 from $ 23,757,000 during 2010. during 2011 , distributions from associated companies principally include earnings distributed by berkadia ( $ 23,636,000 ) , jefferies ( $ 7,789,000 ) and garcadia ( $ 5,654,000 ) . in 2010 , distributions from associated companies principally include acf , earnings distributed by berkadia ( $ 29,000,000 ) and jefferies ( $ 14,575,000 ) . net gains related to real estate , property and equipment , and other assets in 2011 include a gain of $ 81,848,000 on forgiveness of debt related to the myrtle beach project .
| 51 idaho timber 's revenues for 2010 increased as compared to 2009 ; shipment volume and average selling prices increased approximately 3 % and 17 % , respectively . idaho timber believes that the increase in revenues for 2010 primarily reflected customers replenishing dimension lumber inventory levels during the first half of the year that had been reduced during the recession , an increase in housing starts in the first half of 2010 prior to the expiration of the federal government 's home buyers ' tax credits program , a more balanced supply of lumber in the marketplace relative to demand and an increase in demand for certain of idaho timber 's products . raw material costs , the largest component of cost of sales ( approximately 81 % of cost of sales ) , reflect the lower shipment volume in 2011 as compared to 2010. raw material cost per thousand board feet was largely unchanged in 2011 as compared to 2010. raw material costs reflect the greater shipment volume and increased costs in 2010 as compared to 2009. raw material cost per thousand board feet increased approximately 15 % in 2010 as compared to 2009 , which was caused by reduced supply due to increased low-grade lumber exports and greater demand . the difference between idaho timber 's selling price and raw material cost per thousand board feet ( spread ) is closely monitored , and the rate of change in pricing and cost is not necessarily the same . idaho timber 's spread decreased approximately 14 % in 2011 as compared to the prior year ; the spread in 2010 increased by 29 % as compared to the prior year . cost of sales during 2009 also included charges of $ 1,427,000 to reduce the carrying value of certain timber deed contracts . manufacturing – conwed plastics a summary of results of operations for conwed plastics for the three years in the period ended december 31 , 2011 is as follows ( in thousands ) : replace_table_token_10_th conwed plastics ' revenues decreased in 2011 as compared to 2010 , primarily reflecting declines in
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under the multi-year agreement , ipvalue is expected to originate and assist us with negotiating transactions related to patent licensing worldwide with respect to certain third parties . we believe that the market opportunity for our software and technology solutions is large and expanding as secure domain names are now an integral part of securing the next generation 5g and 4g/lte advanced wireless networks and m2m communications in areas including smart city , connected car and connected home . we also believe that all 5g and 4g/lte advanced mobile devices will require unique secure domain names and become part of a secure domain name registry . we intend to continue to license our patent portfolio , technology and software , including our secure domain name registry service , to domain infrastructure providers , communication service providers as well as to system integrators . we intend to seek further license of our technology , including our gabriel connection technology to enterprise customers , developers and original equipment manufacturers , or oems , of chips , servers , smart phones , tablets , e-readers , laptops , net books and other devices , within the ip-telephony , mobility , fixed-mobile convergence and unified communications markets including 5g and 4g/lte . our employees include the core development team behind our patent portfolio , technology and software . this team has worked together for over ten years and is the same team that invented and developed this technology while working at leidos , inc. ( leidos ) . leidos is a fortune 500® scientific , engineering and technology applications company that uses its deep domain knowledge to solve problems of vital importance to the nation and the world , in national security , energy and the environment , critical infrastructure and health . the team has continued its research and development work started at leidos and expanded the set of patents we acquired in 2006 from leidos , into a larger portfolio of approximately 185 total patents and pending applications , including 70 u.s. patents/patent applications and 115 foreign patents/validations/pending applications this portfolio now serves as the foundation of our licensing business and planned service offerings and is expected to generate the majority of our future revenue in license fees and royalties . we intend to continue our research and development efforts to further strengthen and expand our patent portfolio . we intend to continue using a primarily outsourced and leveraged model to maintain efficiency and manage costs as we grow our licensing business by , for example , offering incentives to early licensing targets or asserting our rights for use of our patents . we also intend to expand our design pilot in participation with leading 5g and 4g/lte companies ( domain infrastructure providers , chipset manufacturers , service providers and others ) and build our secure domain name registry . litigation we have multiple intellectual property infringement lawsuits pending in the united states district court for the eastern district of texas , tyler division ( usdc ) , and united states court of appeals for the federal circuit ( uscafc ) . virnetx inc. v. cisco systems , inc. et al . ( case 6:10-cv-00417-led ) ( apple i ) on august 11 , 2010 , we filed a complaint against aastra usa . inc. ( aastra ) , apple inc. ( apple ) , cisco systems , inc. ( cisco ) , and nec corporation ( nec ) the usdc in which we alleged that these parties infringe on certain of our patents ( u.s. patent nos . 6,502,135 , 7,418,504 , 7,921,211 and 7,490,151 ) . we sought damages and injunctive relief . the cases against each defendant were separated by the judge . aastra and nec agreed to sign license agreements with us and we dropped all accusations of infringement against them . a jury in usdc decided that our patents were not invalid and rendered a verdict of non-infringement by cisco on march 4 , 2013. our motion for a new cisco trial was denied and the case against cisco was closed . 32 on november 6 , 2012 , a jury the usdc awarded us over $ 368,000 for apple 's infringement of four of our patents , plus daily interest up to the final judgment . apple filed an appeal of the judgment to the uscafc . on september 16 , 2014 , uscafc affirmed the usdc jury 's finding that all four of our patents at issue are valid and confirmed the usdc jury 's finding of infringement of vpn on demand under many of the asserted claims of our ‘ 135 and ‘ 151 patents , and the usdc 's decision to allow evidence about our license and royalty rates regarding the determination of damages . however , the uscafc vacated the usdc jury 's damages award and some of the usdc 's claim construction with respect to parts of our ‘ 504 and ‘ 211 patents and remanded the damages award and determination of infringement with respect to facetime back to the usdc for further proceedings . on september 30 , 2016 , pursuant to the 2014 remand from the uscafc , a jury in the usdc awarded us $ 302,400 for apple 's infringement of four of our patents . on september 29 , 2017 , the usdc entered its final judgement , denied all of apple 's post-trial motions , granted all our post-trial motions , including our motion for willful infringement and enhanced the royalty rate during the willfulness period from $ 1.20 to $ 1.80 per device , and awarded us costs , certain attorneys ' fees , and prejudgment interest . the total amount in the final judgement was $ 439,700 , including $ 302,400 ( jury verdict ) , $ 41,300 ( enhanced damages ) and $ 96,000 ( costs , fees and interest ) . on october 27 , 2017 apple filed its notice of appeal of this final judgement to the uscafc . apple filed its opening brief on march 19 , 2018. we filed our response on april 4 , 2018. story_separator_special_tag on april 11 , 2018 , uscafc designated cases 18-1197-cb , case 17-1368 and case 17-1591 as companion cases and assigned to the same merits panel . events and developments after this order are described below under virnetx inc. v. the mangrove partners ( uscafc case 17-1368 ) ( consolidated appeal ) . virnetx inc. v. apple , inc. ( case 6:12-cv-00855-led ) ( apple ii ) this case began on november 6 , 2012 , when we had filed a complaint against apple in usdc in which we alleged that apple infringed on certain of our patents , ( u.s. patent nos . 6,502,135 , 7,418,504 , 7,921,211 and 7,490,151 ) . we sought damages and injunctive relief . the accused products include the iphone 5 , ipod touch 5th generation , ipad 4 th generation , ipad mini , and the latest macintosh computers; these products were not included in the apple i case because they were released after the apple i case was initiated . post-trial motions hearing was held on july 18 , 2018. on august 31 , 2018 , the usdc entered a final judgment and issued its memorandum opinion and order regarding post-trial motions , affirming the jury 's verdict of $ 502,600 and granting virnetx 's motions for supplemental damages , a sunset royalty and the royalty rate of $ 1.20 per infringing iphone , ipad and mac products , pre-judgment and post-judgment interest and costs . on september 20 , 2018 , pursuant to a court 's order , attorneys from virnetx and apple conferred and agreed , without dispute , to add an amount totaling $ 93,300 for bill of costs and prejudgment interest to the $ 502,600 jury verdict . the total amount in the final judgement in the apple ii case is now $ 595,900. apple has filed a notice of appeal with the uscafc in the apple ii case . on october 9 , 2018 , uscafc accepted the notice and docketed it as case no . 19-1050 - virnetx inc. v. apple inc . all subsequent events and developments in this case are described below under virnetx inc. v. apple inc . ( uscafc case 19-1050 ) ( apple ii appeal ) . virnetx inc. v. the mangrove partners ( uscafc case 17-1368 ) ( consolidated appeal ) on april 11 , 2018 , the uscafc in an order designated the following appeals as companion cases and assigned to the same merits panel ; virnetx inc. v. the mangrove partners ( uscafc case 17-1368 ) on december 16 , 2016 , we filed appeals with the uscafc , appealing the invalidity findings by the patent trial and appeal board ( ptab ) in ipr2015-01046 , and on december 20 , 2016 for ipr2015-1047 , involving our u.s. patent nos . 6,502,135 , and 7,490,151. these appeals also involve apple , inc. and one of them involves black swamp ip , llc . oral arguments in this case were argued on january 8 , 2019. we are awaiting the court 's decision in this matter . 33 virnetx inc. v. cisco systems , inc. ( uscafc case 18-1197-cb ) ( appeal of apple i case ) on october 27 , 2017 apple filed its notice of appeal of the final judgment entered on september 29 , 2017 to the united states court of appeals for the federal circuit . oral arguments in this case were held on january 8 , 2019. on january 15 , 2019 the court 's issued a rule 36 order affirming the district court judgement . apple filed a request for panel rehearing and rehearing en-banc in this matter on february 21 , 2019. on march 12 , 2019 , the court invited us to respond to apple 's petition on or before march 26 , 2019. we are currently preparing our response . virnetx inc. v. apple inc. , cisco systems , inc. ( uscafc case 17-1591 ) on february 7 , 2017 , we filed appeals with the uscafc , appealing the invalidity findings by the ptab in inter-parties ' reexamination nos . 95/001,788 , 95/001,789 , and 95/001,856 related to our u.s. patent nos . 7,921,211 and 7,418,504 . oral arguments in this case were argued on january 8 , 2019. we are awaiting the court 's decision in this matter . virnetx inc. v. apple inc. ( uscafc case 19-1050 ) ( apple ii appeal ) on january 24 , 2019 apple filed opening brief . we filed our response on march 1 , 2019. apple 's next response is due on april 5 , 2019. the oral arguments have not yet been scheduled . virnetx inc. v. apple inc. ( case 17-2490 ) on august 23 , 2017 , we filed with the uscafc appeals of the invalidity findings by the ptab in ipr2016-00331 and ipr2016-00332 involving our u.s. patent no . 8,504,696. on december 10 , 2018 , the uscafc issued an opinion affirming the ptab 's invalidity findings . virnetx inc. ( case 17-2593 ) on september 22 , 2017 , we filed with the uscafc , appeals of the invalidity findings by the ptab in ipr2016-00693 and ipr2016-00957 involving our u.s. patent nos . 7,418,504 and 7,921,211. the briefing in these appeals has not taken place . the entity that initiated the iprs , black swamp ip , llc , indicated on october 18 , 2017 , that it would not participate in the appeals . on november 27 , 2017 , the uspto indicated that it would intervene in the appeals . on january 19 , 2018 , the uscafc stayed these appeals pending the uscafc 's decision in case 17-1591. virnetx inc. ( case 18-1751 ) on march 30 , 2018 , we filed with the uscafc an appeal of the invalidity findings by the ptab in inter-partes reexamination no . 95/001,851 involving our u.s. patent no . 7,418,504. the briefing in this appeal has been concluded ; the oral argument has not yet been scheduled .
| our research and development expenses for the year ended december 31 , 2018 were $ 4,815 compared to december 31 , 2017 of $ 4,159 and $ 4,155 for the year ended december 31 , 2016. the increase in 2018 compared to 2017 was primarily due to the increase in wages and bonuses . selling , general and administrative expenses 2018 2017 2016 selling , general and administrative $ 20,705 $ 14,709 $ 25,016 selling , general and administrative expenses include compensation expense for management and administrative personnel , as well as expenses for outside legal , accounting , and consulting services . our selling , general and administrative expenses for the year ended december 31 , 2018 was $ 20,705 compared to december 31 , 2017 of $ 14,709 and $ 25,016 for the year ended december 31 , 2016. the volatility within selling , general and administrative expenses was primarily due to legal fees related to cases involving the defense of our patents . legal fees were $ 9,706 , $ 3,657 and $ 13,002 in 2018 , 2017 and 2016 , respectively and represent approximately 47 % of general and administrative expenses for 2018 compared to 25 % for 2017 and 52 % for 2016 . 39 also included in selling , general and administrative expense is royalty expense of $ 884 for the year ended december 31 , 2016 , paid to leidos , in connection with the settlement with microsoft , avaya and mitel et al . other income and expenses 2018 2017 2016 interest and other income $ 54 $ 46 $ 69 interest and other income for the year ended december 31 , 2018 was $ 54 , compared to december 31 , 2017 of $ 46 and $ 69 for the year ended december 31 , 2016. effective income tax rate < p class= '' fpara '' style= '' color : # 000000 ; font-family : times new roman , times , serif ; font-size : 13.33px ; line-height :
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tripadvisor seeks to maximize revenue per hotel shopper generated in its hotel businesses . revenue per hotel shopper performance improved throughout 2018 and increased 14 % for the three months ended december 31 , 2018 , when compared to the same period in 2017 , primarily due to metasearch auction stability throughout 2018 and progress along the aforementioned product enhancements and also marketing efforts , partially offset by the continued hotel shopper growth on mobile phones , which has a significantly lower revenue per hotel shopper compared to desktop and tablet . tripadvisor looks to acquire hotel shoppers that meet or exceed tripadvisor 's desired marketing return on investment targets on paid online marketing channels . since mid-2017 , tripadvisor progressively increased profits from its hotel businesses by significantly reducing investments in direct selling and marketing channels and re-investing some of the savings into brand advertising , or television advertising , in pursuit of tripadvisor 's long-term strategic growth objectives . as expected , the optimized marketing , as well as product enhancements focused on increasing traffic quality , ii-4 has caused hotel shopper growth to slow and decline in recent periods ; however , tripadvisor 's marketing portfolio optimizations reduced its total marketing expenses . consumers are increasingly using mobile phones to conduct ecommerce activity and mobile average monthly unique visitor growth continues to drive overall user growth on tripadvisor 's platform . tripadvisor continues to support investments and product enhancements that improve the consumer experience , as opposed to maximizing the number of display advertising impressions it can sell in a given period . historically , this preference has limited the number and type of display advertising opportunities tripadvisor makes available to customers , which , in turn , has hampered tripadvisor-branded display-based advertising revenue growth , particularly on mobile phones . however , tripadvisor continues to explore product enhancements and media advertising products in order to deliver increased value to both consumers and travel partners , as well as generate more revenue for its business . other hotel revenue , which consists primarily of hotel revenue from non-tripadvisor branded sites , has decreased in recent periods primarily due to increased marketing efficiency from paid online marketing channels , which has reduced revenue and improved profit at its hotel businesses . tripadvisor has also taken certain steps to re-align operations within some of these other hotel brands which have had a material adverse impact to revenue performance during 2018 , while increasing hotel profitability . non-hotel tripadvisor 's non-hotel businesses – experiences , restaurants and rentals – enable consumers to discover and book great travel experiences across a diversified spectrum of travel offerings . tripadvisor 's key priority in its non-hotel businesses remain revenue growth . to achieve this , tripadvisor continues to invest in product , supply and marketing to improve the experience for consumers and suppliers on its platform . tripadvisor believes scaling and presenting a greater selection of offerings will drive more bookings and marketing opportunities for more travel partners and will increase monetization on its platform . during 2018 , non-hotel revenue growth was driven by growth in consumer demand , bookable supply and bookings in tripadvisor 's experiences and restaurants businesses . rentals revenue declined primarily due to competition in the alternative accommodations marketplace , as well as tripadvisor 's strategic resource re-allocation within non-hotel to experiences and restaurants . results of operations—consolidated general . we provide in the tables below information regarding our historical consolidated operating results and other income and expense , as well as information regarding the contribution to those items from our reportable segment . the “ corporate and other ” category consists of those assets or businesses which we do not disclose separately , ii-5 such as buyseasons ( through june 30 , 2017 ) . for a more detailed discussion and analysis of the financial results of the principal reporting segment , see “ results of operations—tripadvisor ” below . story_separator_special_tag style= '' display : inline ; font-weight : bold ; font-style : italic ; '' > gain ( loss ) on dispositions , net . on june 30 , 2017 , tripco sold buyseasons . the sale resulted in an $ 18 million loss . other , net . the primary components of other , net are income and interest earned on money market funds and marketable securities offset by net foreign exchange losses . other , net income increased $ 4 million and $ 6 million for the ii-7 years ended december 31 , 2018 and 2017 , respectively , when compared to the corresponding prior year periods , primarily due to transactions gains and losses at tripadvisor as a result of the fluctuation of foreign exchanges rates . income taxes . the company had income tax expense of $ 57 million and income tax benefits of $ 229 million and $ 1 million for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . during 2018 , the company recognized additional tax expense related to the recognition of deferred tax liabilities for basis differences in the stock of a consolidated subsidiary and changes in unrecognized tax benefits . these expense items were partially offset by a net income tax benefit from earnings in foreign jurisdictions taxed at rates other than the 21 % u.s. federal tax rate . the company recorded a discrete net tax benefit in the period ending december 31 , 2017. this net benefit primarily consists of a net benefit for the corporate rate reduction , offset partially by a net tax expense related to a transition tax on the deemed repatriation of foreign earnings . during 2016 , the company had income tax benefits from earnings in foreign jurisdictions taxed at rates other than the 35 % u.s. federal tax rate , partially offset by changes in unrecognized tax benefits and changes in valuation allowance . net earnings ( loss ) attributable to liberty tripadvisor holdings , inc. shareholders . story_separator_special_tag we had net losses attributable to liberty tripadvisor holdings , inc. shareholders of $ 64 million , $ 397 million and net earnings of $ 21 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . the changes in net earnings ( loss ) attributable to liberty tripadvisor holdings , inc. shareholders were the result of the above-described fluctuations in our revenue , expenses and other gains and losses . losses attributable to the noncontrolling interests increased during the year ended december 31 , 2017 as a result of the goodwill and trademark impairment losses . liquidity and capital resources as of december 31 , 2018 , substantially all of our cash and cash equivalents consist of cash on hand in global financial institutions , money market funds and marketable securities , with maturities of 90 days or less at the date purchased . the following are potential sources of liquidity : available cash balances , proceeds from asset sales , monetization of our investments , outstanding or anticipated debt facilities , debt and equity issuances , and dividend and interest receipts . as of december 31 , 2018 , tripco had a cash balance of $ 672 million . approximately $ 655 million of the cash balance is held at tripadvisor . although tripco has a 58 % voting interest in tripadvisor , tripadvisor is a separate public company with a significant non-controlling interest , as tripco has only a 22 % economic interest in tripadvisor . even though tripco controls tripadvisor through its voting interest and board representation , decision making with respect to using tripadvisor 's cash balances must consider tripadvisor 's minority holders . accordingly , any potential distributions of cash from tripadvisor to tripco would generally be on a pro rata basis based on economic ownership interests . covenants in tripadvisor 's debt instruments also restrict the payment of dividends and cash distributions to stockholders . see note 7 to the accompanying consolidated financial statements . as of december 31 , 2018 , approximately $ 237 million of tripco cash is held by tripadvisor foreign subsidiaries . cumulative undistributed earnings of foreign subsidiaries totaled approximately $ 651 million as of december 31 , 2018. during the year ended december 31 , 2018 , tripadvisor made a one-time repatriation of $ 325 million of foreign earnings to the united states primarily to repay its remaining outstanding debt under the 2015 credit facility . tripadvisor intends to indefinitely reinvest the remaining foreign undistributed earnings . should tripadvisor distribute , or be treated under certain u.s. tax rules as having distributed , the earnings of foreign subsidiaries in the form of dividends or otherwise , tripadvisor may be subject to u.s. income taxes or tax benefits . the amount of any unrecognized deferred income tax on this temporary difference is not material . ii-8 historically , tripadvisor 's operating cash flows have been sufficient to fund its working capital requirements , capital expenditures and long term debt obligations and other financial commitments and are expected to be sufficient in future periods . replace_table_token_6_th during the year ended december 31 , 2018 , tripco 's primary use of cash was net debt repayments of $ 238 million . this use of cash was funded primarily with cash on hand , cash provided by operations and approximately $ 64 million in sales and maturities of short term investments and other marketable securities . during the year ended december 31 , 2017 , tripco 's primary use of cash was approximately $ 250 million of share repurchases under tripadvisor 's authorized share repurchase program , as well as $ 369 million in debt repayments , $ 63 million in purchases of short term investments and other marketable securities and $ 65 million of capital expenditures . these uses of cash were funded primarily with cash provided by operations , proceeds from sales and maturities of short term investments and other marketable securities and borrowings of debt . during the year ended december 31 , 2016 , tripco 's primary uses of cash were $ 439 million in debt repayments , $ 166 million in purchases of short term investments and other marketable securities , $ 105 million of subsidiary share repurchases and $ 73 million of capital expenditures . these uses of cash were funded primarily with cash provided by operations , proceeds from sales and maturities of short term investments and other marketable securities and borrowings of debt . the projected use of tripco 's corporate cash will primarily be to pay fees ( not expected to exceed $ 4 million annually ) to liberty media for providing certain services pursuant to the services agreement and the facilities sharing agreement , and to pay any other corporate level expenses and may also include repayment of the margin loans ( discussed below ) . we anticipate that tripco 's corporate cash balance ( without other financial resources potentially available as discussed above ) to be sufficient to maintain operations through a refinancing arrangement on the margin loans and the variable postpaid forward . the debt service costs of two margin loan agreements ( the “ margin loan agreements ” ) entered into by our bankruptcy remote wholly-owned subsidiary are paid in kind and become outstanding principal . in addition , debt service costs accrue on the variable postpaid forward borrowing described in note 7 to the accompanying consolidated financial statements . at maturity , the accreted loan amount due is approximately $ 272 million . at the maturity of the margin loan agreements , in june 2019 , a number of options are available to satisfy the obligation as discussed above in potential sources of liquidity .
| these changes are primarily due to buyseasons , which was sold on june 30 , 2017. adjusted oibda . we define adjusted oibda as revenue less operating expenses , and selling , general and administrative ( “ sg & a ” ) expenses ( excluding stock-based compensation ) , adjusted for specifically identified non-recurring transactions . our chief operating decision maker and management team use this measure of performance in conjunction with other measures to evaluate our business and make decisions about our resources . we believe this is an important indicator of the operational strength and performance of our businesses , including each business 's ability to service debt and fund capital expenditures . in addition , this measure allows us to view operating results , perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance . this measure of performance excludes such costs as depreciation and amortization , stock-based compensation , separately identified legal settlements and restructuring and impairment charges that are included in the measurement of operating income pursuant to gaap . accordingly , adjusted oibda should be considered in addition to , but not as a substitute for , operating income , net income , cash flow provided by operating activities and other measures of financial performance prepared in accordance ii-6 with gaap . see note 13 to the accompanying december 31 , 2018 consolidated financial statements for a reconciliation of adjusted oibda to operating income and earnings ( loss ) before income taxes . consolidated adjusted oibda increased approximately $ 94 million and decreased $ 14 million for the years ended december 31 , 2018 and 2017 , respectively , as compared to the corresponding prior year periods . adjusted oibda at tripadvisor increased $ 91 million and decreased $ 21 million during the years ended december 31 , 2018 and 2017 , respectively , as compared to the corresponding prior year periods . adjusted oibda at corporate and other increased $ 3 million and $ 7 million during the years ended december 31 , 2018
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while our methodology in establishing the reserve for credit losses attributes portions of the allowance and unfunded reserve to the commercial and consumer portfolio segments , the entire allowance and unfunded reserve is available to absorb credit losses inherent in the total loan and lease portfolio and total amount of unfunded credit commitments , respectively . the reserve for credit losses related to our commercial portfolio segment is generally most sensitive to the accuracy of credit risk ratings assigned to each borrower . commercial loan risk ratings are evaluated based on each situation by experienced senior credit officers and are subject to periodic review by an independent internal team of credit specialists . the reserve for credit losses related to our consumer portfolio segment is generally most sensitive to economic assumptions and delinquency trends . the reserve for credit losses attributable to each portfolio segment also includes an amount for inherent risks not reflected in the historical analyses . relevant factors include , but are not limited to , concentrations of credit risk ( geographic , large borrower , and industry ) , economic trends and conditions , changes in underwriting standards , experience and depth of lending staff , trends in delinquencies , and the level of criticized and classified loans . see note 4 to the consolidated financial statements and the `` corporate risk profile – credit risk '' section in management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) for more information on the allowance and the unfunded reserve . fair value measurements fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date . the degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market inputs . for financial instruments that are traded actively and have quoted market prices or observable market inputs , there is minimal subjectivity involved in measuring fair value . however , when quoted market prices or observable market inputs are not fully available , significant management judgment may be necessary to estimate fair value . in developing our fair value measurements , we maximize the use of observable inputs and minimize the use of unobservable inputs . the fair value hierarchy defines level 1 and 2 valuations as those that are based on quoted prices for identical instruments traded in active markets and quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , and model-based valuation techniques for which all significant assumptions are observable in the market . level 3 valuations are based on model-based techniques that use at least one significant assumption not observable in the market . these unobservable assumptions reflect estimates of assumptions that we believe market participants would use in pricing the asset or liability . financial assets that are recorded at fair value on a recurring basis include available-for-sale investment securities , loans held for sale , mortgage servicing rights , investments related to deferred compensation arrangements , and derivative financial instruments . as of december 31 , 2012 and 2011 , $ 3.4 billion or 25 % and $ 3.5 billion or 25 % , respectively , of our total assets consisted of financial assets recorded at fair value on a recurring basis and most of these financial assets consisted of available-for-sale investment securities measured using information from a third-party pricing service . these investments in debt securities and mortgage-backed securities were all classified in either levels 1 or 2 of the fair value hierarchy . financial liabilities that are recorded at fair value on a recurring basis are comprised of derivative financial instruments . as of december 31 , 2012 and 2011 , $ 33.6 million and $ 36.8 million , respectively , of our total liabilities consisted of financial liabilities recorded at fair value on a recurring basis . as of december 31 , 2012 and 2011 , level 3 financial assets recorded at fair value on a recurring basis were $ 47.1 million and $ 45.0 million , respectively , or less than 1 % of our total assets , and was comprised of mortgage servicing rights and derivative financial instruments . as of december 31 , 2012 and 2011 , level 3 financial liabilities recorded at fair value on a recurring basis were $ 32.4 million and $ 35.8 million , respectively , or less than 1 % of our total liabilities , and was comprised of derivative financial instruments . our third-party pricing service makes no representations or warranties that the pricing data provided to us is complete or free from errors , omissions , or defects . as a result , we have processes in place to monitor and periodically review the information provided to us by our third-party pricing service such as : 1 ) our third-party pricing service provides us with documentation by asset class of inputs and methodologies used to value securities . we review this documentation to evaluate the inputs and valuation methodologies used to place securities into the appropriate level of the fair value hierarchy . this documentation is periodically updated by our third-party pricing service . accordingly , transfers of securities within the fair value hierarchy are made if deemed necessary . 2 ) on a quarterly basis , management reviews the pricing information received from our third-party 20 pricing service . this review process includes a comparison to non-binding third-party broker quotes , as well as a review of market-related conditions impacting the information provided by our third-party pricing service . story_separator_special_tag we also identify investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades relative to historic levels , as well as instances of a significant widening of the bid-ask spread in the brokered markets . as of december 31 , 2012 and 2011 , management did not make adjustments to prices provided by our third-party pricing service as a result of illiquid or inactive markets . 3 ) on a quarterly basis , management also reviews a sample of securities priced by the company 's third-party pricing service to review significant assumptions and valuation methodologies used . based on this review , management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted . 4 ) on an annual basis , to the extent available , we obtain and review independent auditor 's reports from our third-party pricing service related to controls placed in operation and tests of operating effectiveness . we did not note any significant control deficiencies in our review of the independent auditor 's reports related to services rendered by our third-party pricing service . 5 ) our third-party pricing service has also established processes for us to submit inquiries regarding quoted prices . periodically , we will challenge the quoted prices provided by our third-party pricing service . our third-party pricing service will review the inputs to the evaluation in light of the new market data presented by us . our third-party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis . based on the composition of our investment securities portfolio , we believe that we have developed appropriate internal controls and performed appropriate due diligence procedures to prevent or detect material misstatements . see note 19 to the consolidated financial statements for more information on our fair value measurements . leased asset residual values lease financing receivables include a residual value component , which represents the estimated value of leased assets upon lease expiration . our determination of residual value is derived from a variety of sources , including equipment valuation services , appraisals , and publicly available market data on recent sales transactions on similar equipment . the length of time until lease termination , the cyclical nature of equipment values , and the limited marketplace for re-sale of certain leased assets , are important variables considered in making this determination . we update our valuation analysis on an annual basis , or more frequently as warranted by events or circumstances . when we determine that the fair value is lower than the expected residual value at lease expiration , the difference is recognized as an asset impairment in the period in which the analysis is completed . income taxes we determine our liabilities for income taxes based on current tax regulation and interpretations in tax jurisdictions where our income is subject to taxation . currently , we file tax returns in nine federal , state and local domestic jurisdictions , and four foreign jurisdictions . in estimating income taxes payable or receivable , we assess the relative merits and risks of the appropriate tax treatment considering statutory , judicial , and regulatory guidance in the context of each tax position . accordingly , previously estimated liabilities are regularly reevaluated and adjusted , through the provision for income taxes . changes in the estimate of income taxes payable or receivable occur periodically due to changes in tax rates , interpretations of tax law , the status of examinations being conducted by various taxing authorities , and newly enacted statutory , judicial and regulatory guidance that impact the relative merits and risks of each tax position . these changes , when they occur , may affect the provision for income taxes as well as current and deferred income taxes , and may be significant to our statements of income and condition . management 's determination of the realization of net deferred tax assets is based upon management 's judgment of various future events and uncertainties , including the timing and amount of future income , as well as the implementation of various tax planning strategies to maximize realization of the deferred tax assets . a valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized . as of december 31 , 2012 and 2011 , we carried a valuation allowance of $ 5.1 million and $ 4.4 million , respectively , related to our deferred tax assets established in connection with our low-income housing investments . we are also required to record a liability , referred to as an unrecognized tax benefit ( `` utb '' ) , for the entire amount of benefit taken in a prior or future income tax return when we determine that a tax position has a less than 50 % likelihood of being accepted by the taxing authority . as of december 31 , 2012 and 2011 , our liabilities for utbs were $ 15.4 million and $ 13.6 million , respectively . see note 16 to the consolidated financial statements for more information on income taxes . 21 overview we are a regional financial services company serving businesses , consumers , and governments in hawaii , guam , and other pacific islands . our main operating subsidiary , the bank , was founded in 1897 and is the largest independent financial institution in hawaii . exceptional people working together are the foundation for our success and enable us to build exceptional value for our customers , communities , shareholders , and each other . excellence , integrity , respect , innovation , commitment , and teamwork are the core values for the way we do business . in striving to achieve our governing objective , our business plan is balanced between growth and risk management , including the flexibility to adjust , given the uncertainties of a slow economic recovery .
| our financial results for 2011 included a $ 9.0 million accrual related to the settlement of overdraft litigation recorded in the second quarter of 2011 . also contributing to the decrease in other noninterest expense in 2012 was a $ 2.2 million decrease in mileage program travel expenses , a $ 1.5 million credit for the reduction in insurance reserves , and a $ 1.5 million decrease in operational losses . these items were partially offset by the following : net interest income was $ 377.3 million in 2012 , a decrease of $ 12.9 million or 3 % compared to 2011 . this decrease was primarily due to lower yields on loans and investment securities . during this period of low interest rates over the past several years , we have maintained discipline in our loan underwriting and have also invested conservatively . 22 debit card income , recorded as a component of fees , exchange , and other services charges in the consolidated statements of income , was $ 14.9 million in 2012 , a decrease of $ 10.9 million or 42 % compared to 2011 . this decrease was primarily due to changes in debit card interchange rules as a result of the pricing restrictions imposed by the durbin amendment which was effective october 1 , 2011. we recorded a nominal amount of net investment securities losses in 2012 , while net investment securities gains were $ 6.4 million in 2011 . the amount and timing of our sale of investment securities are dependent on a number of factors , including our efforts to preserve capital levels while managing duration and extension risk . the provision for income taxes was $ 76.2 million in 2012 , an increase of $ 9.3 million or 14 % compared to 2011 . we recorded credits to the provision for income taxes of $ 10.5 million in 2011 related to the reversal of liabilities for unrecognized state tax benefits , the release of general reserves due to the closing of
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upon closing the quincy transaction , and net of divestitures required to meet regulatory requirements , we will own television stations serving 102 television markets that collectively will reach over 25 % of us television households , including the number-one ranked television station in 77 markets and the first and or second highest ranked television station in 93 markets according to comscore 's average all-day ratings for calendar year 2020. the completion of the quincy transaction is subject to the satisfaction or waiver of certain customary conditions , including , among others : ( i ) the receipt of approval from the fcc and the expiration or early termination of the waiting period applicable to the quincy transaction under the hart-scott-rodino antitrust improvements act of 1976 , as amended , and ( ii ) the absence of certain legal impediments to the consummation of the quincy transaction . we believe that the quincy transaction will be completed during the second or third quarter of 2021. either party may terminate the quincy purchase agreement if the quincy transaction is not consummated on or before january 31 , 2022 , with an automatic extension to may 1 , 2022 , if necessary , to obtain regulatory approval under the circumstances specified in the quincy purchase agreement . the purchase agreement includes a provision that we must pay a termination fee of $ 25 million if the purchase agreement is terminated as a result of a failure to satisfy certain regulatory approvals . revenues , operations , cyclicality and seasonality . broadcast advertising is sold for placement generally preceding or following a television station 's network programming and within local and syndicated programming . broadcast advertising is sold in time increments and is priced primarily on the basis of a program 's popularity among the specific audience an advertiser desires to reach . in addition , broadcast advertising rates are affected by the number of advertisers competing for the available time , the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area . broadcast advertising rates are generally the highest during the most desirable viewing hours , with corresponding reductions during other hours . the ratings of a local station affiliated with a major network can be affected by ratings of network programming . most advertising contracts are short-term , and generally run only for a few weeks . 40 we also sell internet advertising on our stations ' websites and mobile apps . these advertisements may be sold as banner advertisements , video advertisements and other types of advertisements or sponsorships . our broadcast and internet advertising revenues are affected by several factors that we consider to be seasonal in nature . these factors include : ● spending by political candidates , political parties and special interest groups increases during the even-numbered “ on-year ” of the two-year election cycle . this political spending typically is heaviest during the fourth quarter of such years ; ● broadcast advertising revenue is generally highest in the second and fourth quarters each year . this seasonality results partly from increases in advertising in the spring and in the period leading up to , and including , the holiday season ; ● local and national advertising revenue on our nbc-affiliated stations increases in certain years as a result of broadcasts of the olympic games ; and ● because our stations and markets are not evenly divided among the big four broadcast networks , our local and national advertising revenue can fluctuate between years related to which network broadcasts the super bowl . automotive advertisers have traditionally accounted for a significant portion of our revenue . during the years ended december 31 , 2020 and 2019 , we derived approximately 21 % and 25 % respectively , of our total broadcast advertising revenue ( excluding political advertising revenue ) from customers in the automotive industry . strong demand for our advertising inventory from political advertisers can require significant use of available inventory , which in turn can lower our advertising revenue from our non-political advertising revenue categories in the even numbered “ on-year ” of the two-year election cycle . these temporary declines are expected to reverse in the following “ off-year ” of the two-year election cycle . while our total revenues have increased in recent years as a result of our acquisitions , our revenue remains under pressure from the impact on the advertising market as a result of the covid-19 global pandemic and from the internet as a competitor for advertising spending . we have been taking steps to mitigate the impacts of covid-19 and we continue to enhance and market our internet websites in an effort to generate additional revenue . our aggregate internet revenue is derived from both advertising and sponsorship opportunities directly on our websites . our primary broadcasting operating expenses are employee compensation , related benefits and programming costs . in addition , the broadcasting operations incur overhead expenses , such as maintenance , supplies , insurance , rent and utilities . a large portion of the operating expenses of our broadcasting operations is fixed . we continue to monitor our operating expenses and seek opportunities to reduce them where possible . please see our “ results of operations ” and “ liquidity and capital resources ” sections below for further discussion of our operating results . 41 risk factors . the broadcast television industry relies primarily on advertising revenue and faces significant competition . for a discussion of certain other presently known , significant risk factors that may affect our business , see “ item 1a . risk factors ” included elsewhere herein . revenue set forth below are the principal types of revenue , less agency commissions , and the percentage contribution of each to our total revenue ( dollars in millions ) : replace_table_token_8_th story_separator_special_tag acquisitions and for general corporate purposes , which could include the repayment of outstanding debt from time to time . the interest rate and yield on the 2030 notes is 4.75 % . story_separator_special_tag the 2030 notes rank equally with the 2027 notes and the 2026 notes . the 2030 notes mature on october 15 , 2030 and interest is payable semiannually , on april 15 and october 15 of each year . income taxes . we file a consolidated federal income tax return and such state or local tax returns as are required based on our current forecasts . we estimate that these income tax payments , net of refunds , will be within a range of $ 21 million to $ 23 million in 2021. dividend on common stock and class a common stock . on february 24 , 2021 , the board declared a quarterly cash dividend of $ 0.08 per share of its common stock and class a common stock . the first dividend is payable on march 31 , 2021 , to stockholders of record on march 15 , 2021. net cash provided by ( used in ) operating , investing and financing activities – 2020 compared to 2019 net cash provided by operating activities increased $ 267 million to $ 652 million in 2020 compared to net cash provided by operating activities of $ 385 million in 2019. the increase in cash provided by operating activities was due primarily to the net impact of several factors including : an increase in net income of $ 231 million ; a net increase of $ 71 million in non-cash expenses ; and a decrease of $ 35 million due to changes in working capital balances . net cash used in investing activities decreased $ 2.4 billion to $ 211 million for 2020 compared to $ 2.7 billion for 2019. the net decrease was due primarily to $ 2.8 billion of cash used to finance our acquisitions of businesses in 2019. in 2020 , we completed only $ 91 million of acquisition transactions . other significant changes in 2020 compared to 2019 included the receipt in 2019 of $ 253 million in proceeds from the divestiture of television stations to facilitate regulatory approval of our acquisitions of businesses in 2019 . 44 net cash provided by financing activities was $ 120 million in 2020 compared to $ 1.1 billion in 2019. this decrease of $ 944 million was due primarily to the borrowings of $ 1.4 billion in term loan financing to fund a portion of the cash consideration of the raycom merger in 2019 compared to issuance of $ 800 million of our 2030 notes in 2020. during 2020 , we redeemed our 2024 notes in the amount of $ 525 million . during 2019 , we made total payments of $ 211 million to reduce the balance outstanding of our 2019 term loan . also during 2020 , we used $ 75 million of cash to repurchase shares of our common stock compared to $ 32 million in 2019. during 2020 , we used $ 52 million of cash to pay dividends on our series a perpetual preferred stock , compared to $ 39 million in 2019. during 2020 , we paid $ 14 million of deferred loan costs related to the 2030 notes compared to $ 50 million related the refinancing of our 2019 senior credit facility and 2027 notes in 2019. retirement plan s we sponsor and contribute to defined benefit and defined contribution retirement plans . our defined benefit pension plan is the gray television , inc. retirement plan ( the “ gray pension plan ” ) . benefits under the gray pension plan are frozen and can no longer increase , and no new participants can be added to the plan . our funding policy is consistent with the funding requirements of existing federal laws and regulations under the employee retirement income security act of 1974. a discount rate is selected annually to measure the present value of the benefit obligations . in determining the selection of a discount rate , we estimated the timing and amounts of expected future benefit payments and applied a yield curve developed to reflect yields available on high-quality bonds . the yield curve is based on an externally published index specifically designed to meet the criteria of united states generally accepted accounting principles ( “ u.s . gaap ” ) . the discount rate selected for determining benefit obligations as of december 31 , 2020 was 2.38 % , which reflects the results of this yield curve analysis . the discount rate used for determining benefit obligations as of december 31 , 2019 was 3.14 % . our assumptions regarding expected return on plan assets reflects asset allocations , the investment strategy and the views of investment managers , as well as historical experience . in 2020 , we use an assumed rate of return of 6.50 % for our assets invested in the gray pension plan . the estimated asset returns for this plan , calculated on a mean market value assuming mid-year contributions and benefit payments , were a gain of 11.1 % for the year ended december 31 , 2020 , and a loss of 17.6 % for the year ended december 31 , 2019. other significant assumptions relate to inflation , retirement and mortality rates . our inflation assumption is based on an evaluation of external market indicators . retirement rates are based on actual plan experience and mortality rates are based on the pri-2012 total mortality table and the mp-2020 projection scale published by the society of actuaries . during each of the years ended december 31 , 2020 and 2019 , we contributed an aggregate of $ 3 million to the gray pension plan , and we anticipate making an aggregate contribution of approximately $ 4 million to the gray pension plan in 2021. the use of significantly different assumptions , or if actual experienced results differ significantly from those assumed , could result in our funding obligations being materially different .
| bad debt expense decreased by approximately $ 8 million in 2020 , due to consistency of the balance of accounts receivable and the related reserves , compared to the significant increase in 2019 related to balances acquired in the raycom merger . broadcast transaction related expenses were not significant in 2020 , compared to $ 45 million in 2019. we recorded broadcast non-cash stock-based amortization expense of $ 5 million in each of 2020 and 2019 . 42 production company operating expenses . production company operating expenses ( before depreciation , amortization and gain on disposal of assets ) decreased by approximately $ 22 million in 2020 to $ 52 million , compared to $ 74 million 2019. compensation expenses decreased by $ 4 million , and non-compensation expenses decreased by $ 18 million in 2020. these decreases were primarily due to the effects of the covid-19 global pandemic . corporate and administrative expenses . corporate and administrative expenses ( before depreciation , amortization and gain or loss on disposal of assets ) decreased by $ 39 million , or 38 % , to $ 65 million in 2020 compared to 2019. these decreases were the result of a decrease of $ 33 million of transaction related expenses incurred in 2019 that did not re-occur in the current year . in addition , other corporate expenses decreased by a further $ 6 million in 2020. we recorded corporate non-cash stock-based amortization expense of $ 11 million in each of 2020 and 2019. depreciation . depreciation of property and equipment totaled $ 96 million and $ 80 million for 2020 and 2019 , respectively . depreciation expense increased due to purchases of property and equipment at our existing stations . amortization of intangible assets . amortization of intangible assets totaled $ 105 million and $ 115 million for 2020 and 2019 , respectively . amortization expense decreased primarily due to finite-lived intangible assets acquired in prior years becoming fully amortized . gain on disposal of assets , net . we reported gains on disposals of assets of $ 29 million in 2020 and $ 54 million in 2019. these gains were primarily
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the company currently pays the health network , inc. $ 0.00 per month as a general operating fee , which covers use of the office space , use of certain equipment , and various other services . consulting agreements the company has entered into a consulting agreement with mr. howell whereby the company agreed to pay mr. howell $ 10,000 per month . the consulting agreement may be terminated at will by the company . the company intends to continue to engage mr. howell as a consultant until his consulting services are no longer required . director independence the company is not listed on any national exchange , or quoted on any inter-dealer quotation service , that imposes independence requirements on any committee of the company 's directors , such as an audit , nominating or compensation committee . the company 's board of directors consists of ron howell , who is not independent . page 24 item 14. principal accounting fees and services the following is a summary of the fees paid to sadler , gibb & associates llc , the company 's independent public accounting firm , during the fiscal years ended december 31 , 2015 and 2016 . 2016 2015 audit fees $ 13,500 $ 13,500 audit-related fees - - tax fees - - all other fees - - total $ 13,500 $ 13,500 audit committee pre-approval of services of principal accountants we do not currently have an audit committee appointed by the board of directors and the full board of directors did not vote on whether any non-audit services impacted our auditor 's independence . we currently do not have any policy for approval of audit and permitted non-audit services by our independent auditor . we plan to appoint an audit committee by our board of directors and adopt procedures for approval of audit and non-audit services . page 25 part iv item 16. exhibits and financial statement schedules financial statements and schedules . the following consolidated financial statements of hst global , inc. are included herein beginning on page f-9 : · report of independent registered public accounting firm · consolidated balance sheets as of december 31 , 2016 and 2015 · consolidated statements of operations for the years ended december 31 , 2016 , and 2015 · consolidated statements of changes in stockholders ' interest for the years ended december 31 , 2016 and 2015 · consolidated statements of cash flows for the years ended december 31 , 2016 and 2015 · notes to consolidated financial statements exhibits the following exhibits are included herein : exhibit no . description 31.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 31.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 32.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 32.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 101 interactive data files signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . hst global , inc. ( the registrant ) by : \s\ ron howell ron howell chief executive officer date : march 31 , 2017 page 26 story_separator_special_tag forward-looking statements statements about our future expectations are `` forward-looking statements '' within the meaning of applicable federal securities laws , and are not guarantees of future performance . when used herein , the words `` may , '' `` will , '' `` should , '' `` anticipate , '' `` believe , '' `` appear , '' `` intend , '' `` plan , '' `` expect , '' `` estimate , '' `` approximate , '' and similar expressions are intended to identify such forward-looking statements . these statements involve risks and uncertainties inherent in our business , including those set forth in item 1a under the caption `` risk factors , '' in this annual report on form 10-k for the year ended december 31 , 2016 , and other filings with the sec , and are subject to change at any time . our actual results could differ materially from these forward-looking statements . we undertake no obligation to update publicly any forward-looking statement . overview hst global , inc. is an integrated health and wellness biotechnology company that is developing and /or acquiring a network of wellness centers worldwide that are primarily focused on the homeopathic and alternative treatment of late stage cancer . in addition , the company intends to acquire innovative products for the treatment of individual health challenges . in this regard , the company primarily focuses on homeopathic and alternative product candidates that are undergoing or have already completed significant clinical testing . the company has identified the growing acceptance of alternative treatments worldwide which has placed us in a perfect position to open our own brand of treatment centers . this strategy will enable the company to address the challenges individuals face in the treatment challenging and in some cases life threatening diseases . plan of operation general and administrative expenses consist primarily of salaries and related personnel costs , professional fees , business insurance , rent , general legal activities , and other corporate expenses . we have never been profitable and do not anticipate having net income unless and until we develop and or acquire our wellness centers and story_separator_special_tag the company currently pays the health network , inc. $ 0.00 per month as a general operating fee , which covers use of the office space , use of certain equipment , and various other services . consulting agreements the company has entered into a consulting agreement with mr. howell whereby the company agreed to pay mr. howell $ 10,000 per month . the consulting agreement may be terminated at will by the company . the company intends to continue to engage mr. howell as a consultant until his consulting services are no longer required . director independence the company is not listed on any national exchange , or quoted on any inter-dealer quotation service , that imposes independence requirements on any committee of the company 's directors , such as an audit , nominating or compensation committee . the company 's board of directors consists of ron howell , who is not independent . page 24 item 14. principal accounting fees and services the following is a summary of the fees paid to sadler , gibb & associates llc , the company 's independent public accounting firm , during the fiscal years ended december 31 , 2015 and 2016 . 2016 2015 audit fees $ 13,500 $ 13,500 audit-related fees - - tax fees - - all other fees - - total $ 13,500 $ 13,500 audit committee pre-approval of services of principal accountants we do not currently have an audit committee appointed by the board of directors and the full board of directors did not vote on whether any non-audit services impacted our auditor 's independence . we currently do not have any policy for approval of audit and permitted non-audit services by our independent auditor . we plan to appoint an audit committee by our board of directors and adopt procedures for approval of audit and non-audit services . page 25 part iv item 16. exhibits and financial statement schedules financial statements and schedules . the following consolidated financial statements of hst global , inc. are included herein beginning on page f-9 : · report of independent registered public accounting firm · consolidated balance sheets as of december 31 , 2016 and 2015 · consolidated statements of operations for the years ended december 31 , 2016 , and 2015 · consolidated statements of changes in stockholders ' interest for the years ended december 31 , 2016 and 2015 · consolidated statements of cash flows for the years ended december 31 , 2016 and 2015 · notes to consolidated financial statements exhibits the following exhibits are included herein : exhibit no . description 31.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 31.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 302 of the sarbanes-oxley act of 2002 ( rule 13a-14 ( a ) or rule 15d-14 ( a ) ) . 32.1 certification by the chief executive officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 32.2 certification by the chief financial officer of competitive technologies , inc. pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . 1350 ) . 101 interactive data files signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . hst global , inc. ( the registrant ) by : \s\ ron howell ron howell chief executive officer date : march 31 , 2017 page 26 story_separator_special_tag forward-looking statements statements about our future expectations are `` forward-looking statements '' within the meaning of applicable federal securities laws , and are not guarantees of future performance . when used herein , the words `` may , '' `` will , '' `` should , '' `` anticipate , '' `` believe , '' `` appear , '' `` intend , '' `` plan , '' `` expect , '' `` estimate , '' `` approximate , '' and similar expressions are intended to identify such forward-looking statements . these statements involve risks and uncertainties inherent in our business , including those set forth in item 1a under the caption `` risk factors , '' in this annual report on form 10-k for the year ended december 31 , 2016 , and other filings with the sec , and are subject to change at any time . our actual results could differ materially from these forward-looking statements . we undertake no obligation to update publicly any forward-looking statement . overview hst global , inc. is an integrated health and wellness biotechnology company that is developing and /or acquiring a network of wellness centers worldwide that are primarily focused on the homeopathic and alternative treatment of late stage cancer . in addition , the company intends to acquire innovative products for the treatment of individual health challenges . in this regard , the company primarily focuses on homeopathic and alternative product candidates that are undergoing or have already completed significant clinical testing . the company has identified the growing acceptance of alternative treatments worldwide which has placed us in a perfect position to open our own brand of treatment centers . this strategy will enable the company to address the challenges individuals face in the treatment challenging and in some cases life threatening diseases . plan of operation general and administrative expenses consist primarily of salaries and related personnel costs , professional fees , business insurance , rent , general legal activities , and other corporate expenses . we have never been profitable and do not anticipate having net income unless and until we develop and or acquire our wellness centers and
| results of operations the company had no revenues and no cost of revenues for the years ended december 31 , 2016 and 2015. the company incurred operating expenses of $ 137,274 for the year ended december 31 , 2016 , compared to $ 160,047 in 2015. the decrease in expenses in 2016 was primarily a result of an decrease in administrative expenses . we do not believe these costs are indicative of future years , and we can not at this time predict our costs if and when we begin earning revenues and exit the development stage . the company had a net loss of $ 173,022 in the year ended december 31 , 2016 compared to $ 195,795 in 2015. this is primarily a result of decrease in administrative expenses . we believe the net profits of the company are the result of being in the development stage , and are not indicative of future earnings once we exit the development stage . liquidity and capital resources our capital requirements are principally related to our efforts to implement our business plan . our cash balance as of december 31 , 2016 was $ 465. cash flows replace_table_token_0_th the company does not currently have sufficient capital in its accounts , nor sufficient firm commitments for capital to assure its ability to meet its current obligations or to continue its planned operations . the company is continuing to pursue working capital and additional revenue through the seeking of the capital it needs to carry on its planned operations . there is no assurance that any of the planned activities will be successful . off-balance sheet arrangements
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we also have a research and dev elopment program focused on technology enhancements , novel platform development , and evaluating clinical applications for our cancer diagnostic tests in different cancer types and clinical settings . to facilitate market adoption of our products and assays , we anticipate having to successfully complete additional clinical utility studies with clinical samples to generate clinical utility data and then publish our results in peer-reviewed scientific journals . our ability to complete such clinical studies is dependent upon our ability to leverage our collaborative relationships with leading institutions to facilitate our research , to conduct the appropriate clinical studies and to obtain favorable clinical data . we collaborate with physicians and researchers at sarah cannon research institute , university of colorado , the university of california , san diego , the john wayne cancer institute , columbia university , johns hopkins medical institute , vanderbilt university , university of texas southwestern medical center , and georgetown university and plan to expand our collaborative relationships to include other key thought leaders at other institutions for the cancer types we target with our target-selector commercialized assays and our planned future assays , as well as for our current and planned future products . such relationships help us develop and validate the effectiveness and utility of our products , commercialized assays and our planned future assays in specific , clinical settings and provide us access to patient samples and data . we believe that the factors discussed in the following paragraphs have had and are expected to continue to have a material impact on our results of operations and financial condition . revenues our revenues are generated from diagnostic services provided to physicians and billed to third-party insurance payers such as managed care organizations , medicare and medicaid and patients for any deductibles , coinsurance or copayments that may be due . commencing on january 1 , 2018 , we recognize revenue in accordance with accounting standards codification , or asc , revenue from contracts with customers , or asc 606 , which requires that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services . we bill third-party payers on a fee-for-service basis at our list price and third-party commercial revenue is recorded net of contractual discounts , payer-specific allowances and other reserves . our development services revenues are supported by contractual agreements and generated from assay development services provided to entities , as well as certain other diagnostic services provided to physicians . diagnostic services are completed upon the delivery of assay results to the prescribing physician , at which time we bill for the service . our gross commercial revenues billed are subject to estimated deductions for such contractual discounts , payer-specific allowances and other reserves to arrive at reported net revenues , which relate to differences between amounts billed and corresponding amounts estimated to be subsequently collected . these third-party payer discounts and sales allowances are estimated based on a number of assumptions and factors , including historical payment trends , seasonality associated with the annual reset of patient deductible limits on january 1 of each year , and current and estimated future payments . the estimates of amounts that will ultimately be realized from commercial diagnostic services require significant judgment by us . patients do not enter into direct agreements with us that commit them to pay any portion of the cost of the tests in the event that they have not met their annual deductible limit under their insurance policy , if any , or if their insurance otherwise declines to reimburse us . adjustments to the estimated payment amounts are recorded at the time of final collection and settlement of each transaction as an adjustment to commercial revenue . costs and expenses we classify our costs and expenses into four categories : cost of revenues , research and development , sales and marketing , and general and administrative . our costs and expenses principally consist of facility costs and overhead , personnel costs , outside services and consulting costs , laboratory consumables , development costs , and legal fees . 68 cost of revenues . our cost of revenues consists principally of facility costs and overhead , personnel costs , and laboratory and manufacturing supplies and materials . we are pursuing various strategies to reduce and control our cost of revenues , including automating aspects of our processes , developing more efficien t technology and methods , attempting to negotiate improved terms and volume discounts with our suppliers and exploring relocating our operations to a lower-cost facility . research and development expenses . we incur research and development expenses principally in connection with our efforts to develop and improve our tests . our primary research and development expenses consist of direct personnel costs , laboratory equipment and consumables , and overhead expenses . we anticipate that research and development expenses will remain consistent in the near-term , principally to develop and validate tests in our pipeline and to perform work associated with clinical utility studies and development collaborations . in addition , we expect that our costs related to collaborations with research and academic institutions will increase . all research and development expenses are charged to operations in the periods in which they are incurred . sales and marketing expenses . our sales and marketing expenses consist principally of personnel and related overhead costs for our sales team and their support personnel , travel and entertainment expenses , and other selling costs including sales collaterals and trade shows . we anticipate sales and marketing expenses to increase as we work on generating higher revenues and marketing additional offerings . general and administrative expenses . general and administrative expenses consist principally of personnel-related expenses , professional fees , such as legal , accounting and business consultants , insurance costs , and other general expenses . story_separator_special_tag we expect that our general and administrative expenses will increase as we expand our business operations . we further expect that general and administrative expenses will increase due to increased information technology , legal , insurance , accounting and financial reporting expenses associated with expanded commercial activities . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates based on historical experience and make various assumptions , which management believes to be reasonable under the circumstances , which form the basis for judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the notes to our audited financial statements , which are included elsewhere in this annual report , contain a summary of our significant accounting policies . we consider the following accounting policies critical to the understanding of the results of our operations : revenue recognition ; stock-based compensation ; and going concern . revenue recognition and related reserves our commercial revenues are generated from diagnostic services provided to patient 's physicians and billed to third-party insurance payers such as managed care organizations , medicare and medicaid and patients for any deductibles , coinsurance or copayments that may be due . commencing on january 1 , 2018 , we recognize revenue in accordance with asc 606 , revenue from contracts with customers , or asc 606 , which requires that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services . we adopted the provisions of asc 606 using the modified retrospective application method applied to all contracts , which did not impact amounts previously reported by us , nor did it require a cumulative effect adjustment upon adoption , as our method of recognizing revenue under asc 606 was analogous to the method utilized immediately prior to adoption . 69 contracts for our commercial revenues , while we market directly to physicians , our customer is the patient . patients do not enter into direct agreements with us , however , a patient 's insurance coverage requirements would dictate whether or not any portion of the cost of the tests would be patient responsibility . accordingly , we establish a contract with a commercial patient in accordance with other customary business practices , as follows : approval of a contract is established via the order and accession , which are submitted by the patient 's physician . we are obligated to perform our diagnostic services upon receipt of a sample from a physician , and the patient and or applicable payer are obligated to reimburse us for services rendered based on the patient 's insurance benefits . payment terms are a function of a patient 's existing insurance benefits , including the impact of coverage decisions with cms and applicable reimbursement contracts established between us and payers , unless the patient is a self-pay patient , whereby we bill the patient directly after the services are provided . once we deliver a patient 's assay result to the ordering physician , the contract with a patient has commercial substance , as we are legally able to collect payment and bill an insurer and or patient , regardless of payer contract status or patient insurance benefit status . consideration associated with commercial revenues is considered variable and constrained until fully adjudicated , with net revenues recorded to the extent that it is probable that a significant reversal will not occur . our development services revenues are supported by contractual agreements and generated from assay development services provided to entities , as well as certain other diagnostic services provided to physicians , and revenues are recognized upon delivery of the performance obligations in the contract . performance obligations a performance obligation is a promise in a contract to transfer a distinct good or service , or a bundle of goods or services , to the customer . for commercial and development services revenues , our contracts have a single performance obligation , which is satisfied upon rendering of services , which culminates in the delivery of a patient 's assay result ( s ) to the ordering physician or entity . the duration of time between accession receipt and delivery of a valid assay result to the ordering physician or entity is typically less than two weeks . accordingly , we elected the practical expedient and therefore , we do not disclose the value of unsatisfied performance obligations . transaction price the transaction price is the amount of consideration that we expect to collect in exchange for transferring promised goods or services to a customer , excluding amounts collected on behalf of third parties , such as sales taxes . the consideration expected from a contract with a customer may include fixed amounts , variable amounts , or both . our gross commercial revenues billed , and corresponding gross accounts receivable , are subject to estimated deductions for such allowances and reserves to arrive at reported net revenues , which relate to differences between amounts billed and corresponding amounts estimated to be subsequently collected , and is deemed to be variable although the variability is not explicitly stated in any contract .
| because of our history of losses and the uncertainty as to the realization of those deferred tax assets , a full valuation allowance has been recognized . 74 we do not expect to report a provision for income taxes until we have a history of earnings , if ever , tha t would support the realization of our deferred tax assets . we have not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation , due to the complexity and cost associated with such a study , and the fact that there may be additional ownership changes in the future , however , we believe ownership changes likely occurred in each year from 2015 through 2019. as a result , we have estimated that the use of our net operating los s and research and development tax credit carryforwards that can be used in the future remain fully offset by a valuation allowance to reduce the net asset to zero . inflation we do not believe that inflation has had a material adverse impact on our business or operating results during the periods presented . liquidity and capital resources we are actively working to improve our financial position and enable the growth of our business , by raising new capital and generating revenues . cash flows our net cash flow from operating , investing and financing activities for the periods below were as follows : replace_table_token_6_th cash used in operating activities . net cash used in operating activities was $ 23.0 million for the year ended december 31 , 2019 , compared to net cash used in operating activities of $ 22.4 million for the year ended december 31 , 2018. the net increase of $ 694,000 in cash used was primarily related to an increase in our accounts receivable balance of approximately $ 1.6 million . during the year ended december 31 , 2019 we recorded a non-cash warrant inducement expense of $ 1.8 million related to the may 2019 warrant inducement transaction . cash used in investing activities
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the financial information contained within our 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 . we use historical loss data and the economic environment as factors , among others , in determining the inherent loss that may be present in our loan and lease portfolio . actual losses could differ significantly from the factors that we use . in addition , gaap itself may change from one previously acceptable method to another method . although the economics of our transactions would be the same , the timing of events that would impact our transactions could change . allowance for loan and lease losses the allowance for loan and lease losses is an estimate of the credit loss risk in our loan and lease portfolio . the allowance is based on two basic principles of accounting : ( 1 ) “ accounting for contingencies , ” which requires that losses be accrued when it is probable that a loss has occurred at the balance sheet date and such loss can be reasonably estimated ; and ( 2 ) the “ receivables ” topic , which requires that losses be accrued on impaired loans based on the differences between the value of collateral , present value of future cash flows or values that are observable in the secondary market and the loan balance . the allowance for loan and lease losses is determined based upon estimates that can and do change when the actual risk , loss events , or changes in other factors , occur . the analysis of the allowance uses an historical loss view as an indicator of future losses and as a result could differ from the actual losses incurred in the future . if the allowance for loan and lease losses falls below that deemed adequate ( by reason of loan and lease growth , actual losses , the effect of changes in risk factors , or some combination of these ) , the company has a strategy for supplementing the allowance for loan and lease losses , over the short-term . for further information regarding our allowance for loan and lease losses , see “ allowance for loan and lease losses activity. ” stock-based compensation the company recognizes compensation expense over the service period in an amount equal to the fair value of all share-based payments which consist of stock options and restricted stock awarded to directors and employees . the fair value of each stock option award is estimated on the date of grant and amortized over the service period using a black-scholes-merton based option valuation model that requires the use of assumptions . critical assumptions that affect the estimated fair value of each award include expected stock price volatility , dividend yields , option life and the risk-free interest rate . the fair value of each restricted award is estimated on the date of award and amortized over the service period . goodwill business combinations involving the company 's acquisition of equity interests or net assets of another enterprise or the assumption of net liabilities in an acquisition of branches constituting a business may give rise to goodwill . goodwill represents the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed . the value of goodwill is ultimately derived from the company 's ability to generate net earnings after the acquisition and is not deductible for tax purposes . a decline in net earnings could be indicative of a decline in the fair value of goodwill and result in impairment . for that reason , goodwill is assessed for impairment at least annually . impairment exists when a reporting unit 's carrying value of goodwill exceeds its fair value . at december 31 , 2012 , the company 's reporting unit had positive equity and the company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value , including goodwill . the qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value , resulting in no impairment . income taxes the company files its income taxes on a consolidated basis with its subsidiaries . the allocation of income tax expense ( benefit ) represents each entity 's proportionate share of the consolidated provision for income taxes . 36 the company accounts for income taxes using the balance sheet method , under which deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amounts of assets and liabilities and their tax bases . deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment . on the consolidated balance sheet , net deferred tax assets are included in accrued interest receivable and other assets . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some or all of the deferred tax assets will not be realized . the company conducted an analysis to assess the need for a valuation allowance at december 31 , 2012 , and determined that no valuation allowance was required . as part of this assessment , all available evidence , including both positive and negative , was considered to determine whether based on the weight of such evidence , a valuation allowance on the company 's deferred tax assets was needed . a valuation allowance is deemed to be needed when , based on the weight of the available evidence , it is more likely than not ( a likelihood of more than 50 percent ) that some portion or all of a deferred tax asset will not be realized . story_separator_special_tag the future realization of the deferred tax asset depends on the existence of sufficient taxable income within the carryback and carry forward periods . the benefit of a tax position is recognized in the financial statements in the period during which , based on all available evidence , management believes it is more likely than not that the position will be sustained upon examination , including the resolution of appeals or litigation processes , if any . tax positions taken are not offset or aggregated with other positions . tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority . the portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination . only tax positions that meet the more-likely-than-not recognition threshold are recognized . the election has been made to record interest expense related to tax exposures in tax expense , if applicable , and the exposure for penalties related to tax exposures in tax expense , if applicable . overview the company recorded net income in 2012 of $ 3,207,000 , an increase of $ 703,000 ( 28.1 % ) from $ 2,504,000 in 2011. diluted earnings per share for 2012 were $ 0.34 , an increase of $ 0.09 from the $ 0.25 recorded in 2011. for 2012 , the company realized a return on average equity of 3.42 % and a return on average assets of 0.55 % , as compared to 2.74 % and 0.43 % for 2011. net income for 2011 was $ 2,028,000 ( 426.1 % ) higher than the $ 476,000 recorded in 2010. in 2010 , diluted earnings per share were $ 0.05 , return on average assets was 0.08 % and return on average equity was 0.53 % . table one below provides a summary of the components of net income for the years indicated ( dollars in thousands ) : table one : components of net income replace_table_token_4_th * fully taxable equivalent basis ( fte ) under accounting principles generally accepted in the united states of america all share and per share data is adjusted for stock dividends and stock splits . there were no stock dividends or stock splits in 2012 , 2011 or 2010. during 2012 , total assets of the company increased $ 14,871,000 ( 2.6 % ) to a total of $ 596,389,000 at year-end . at december 31 , 2012 , net loans totaled $ 252,118,000 , down $ 41,613,000 ( 14.2 % ) from the ending balance on december 31 , 2011. deposits increased $ 15,971,000 or 3.5 % during 2012 resulting in ending deposit balances of $ 478,256,000. shareholders ' equity decreased $ 105,000 or 0.1 % during 2012 , to end the year at $ 93,994,000. the company ended 2012 with a leverage capital ratio of 12.8 % and a total risk-based capital ratio of 25.1 % compared to a leverage capital ratio of 13.1 % and a total risk-based capital ratio of 22.8 % at the end of 2011 . 37 story_separator_special_tag times new roman , times , serif ; margin : 0 ; text-indent : 0.5in '' > 39 table two : analysis of net interest margin on earning assets replace_table_token_5_th ( 1 ) loan and lease interest includes loan and lease fees of $ 174,000 , $ 95,000 and $ 45,000 in 2012 , 2011 and 2010 , respectively . ( 2 ) includes taxable-equivalent adjustments that primarily relate to income on certain securities that is exempt from federal income taxes . the effective federal statutory tax rate was 34 % in 2012 , 2011 and 2010 . ( 3 ) net interest margin is computed by dividing net interest income by total average earning assets . 40 table three : analysis of volume and rate changes on net interest income and expenses replace_table_token_6_th replace_table_token_7_th ( 1 ) the average balance of non-accruing loans and leases is immaterial as a percentage of total loans and leases and has been included in net loans and leases . ( 2 ) loan and lease fees of $ 174,000 , $ 95,000 and $ 66,000 for the years ended december 31 , 2012 , 2011 and 2010 , respectively , have been included in the interest income computation . ( 3 ) includes taxable-equivalent adjustments that primarily relate to income on certain securities that is exempt from federal income taxes . the effective federal statutory tax rate was 34 % in 2012 , 2011 and 2010 . ( 4 ) the rate/volume variance has been included in the rate variance . provision for loan and lease losses the company provided $ 1,365,000 for loan and lease losses in 2012 as compared to $ 3,625,000 for 2011. net loan and lease losses for 2012 were $ 2,625,000 as compared to $ 4,168,000 in 2011. in 2012 , net loan and lease losses as a percentage of average loans outstanding were 0.93 % compared to 1.29 % in 2011. in 2010 , the company provided $ 7,365,000 for loan and lease losses and net charge-offs were $ 7,689,000. the company has continued to provide amounts to the allowance for loan and lease losses in 2012 because of a continued high level of non-performing loans and leases . the level of non-performing loans and leases , which began to increase during the recent economic cycle , reached a high of $ 22,571,000 at december 31 , 2010 but has decreased to $ 5,474,000 at december 31 , 2012. while this figure has decreased it remains above the company 's historical average . the high level of non-performing loans and leases is due to the impact that the overall challenging economy in the company 's market areas and in the united states has had on the company 's borrowers .
| % ) to $ 282,136,000 for 2012 and average investment securities were up $ 46,461,000 ( 26.6 % ) to $ 221,396,000 for 2012. the overall low interest rate environment , the negative effect of the foregone interest on loans , and the change in the asset mix ( lower loan totals and higher investment security totals ) resulted in a 61 basis point decrease in the yield on average earning assets from 4.89 % for 2011 to 4.28 % for 2012. the volume decrease of $ 976,000 occurred mainly as a result of the decrease in average loans . the market in which the company operates continues to see a slowdown in new loan volume as existing and potential new borrowers continue to pay down debt and delay expansion plans . the fully taxable equivalent interest income component decreased from $ 25,915,000 in 2010 to $ 24,438,000 in 2011 , representing a 5.7 % decrease . the decrease in the fully taxable equivalent interest income for 2011 compared to the same period in 2010 is comprised of two components - rate ( down $ 72,000 ) and volume ( down $ 1,405,000 ) . the rate decrease can be attributed to the overall lower interest rate environment , forgone interest on nonaccrual loans , and lower average loan balances replaced with higher average investment securities . during 2011 , foregone interest income on nonaccrual loans was approximately $ 1,706,000 , compared to foregone interest of $ 1,736,000 during 2010. the average balance of earning assets decreased slightly from $ 500,882,000 in 2010 to $ 500,200,000 in 2011 ; however , there was a significant change in the average earning asset mix in 2011. there was an increase in investment securities , offset by a decrease in loan balances . when compared to 2010 , average loan balances were down $ 39,135,000 ( 10.8 % ) to $ 323,310,000 for 2011 and average investment securities were up $ 36,926,000 ( 26.8 % ) to $ 174,935,000 for 2011 .
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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 was 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 2019 , taxable equivalent net interest income increased $ 4.2 million , or 5.2 % , from 2018. interest-earning assets averaged $ 2.212 billion during 2019 , increasing $ 137.8 million compared to 2018. the company 's interest-bearing liabilities increased 6.7 % from $ 1.553 billion in 2018 to $ 1.656 billion in 2019. 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 2019 was 3.53 % , decreasing from 3.66 % in 2018. the net interest margin represents the overall profit margin – net interest income as a percentage of total interest-earning assets . this performance indicator gives effect to interest earned for all investable funds including the substantial volume of interest-free funds . for 2019 , the net interest margin , measured on a fully taxable equivalent basis , decreased to 3.82 % , compared to 3.87 % in 2018. the net interest margin , excluding the impact of amortization and accretion from acquisitions , decreased 5 basis point to 3.78 % for the year ended december 31 , 2019. the accretion added $ 75.9 thousand per month during 2019 and will continue over the next several years . 29 the decrease in net interest margin is mainly due to pressure on decreasing rates as the federal reserve bank continued to cut the fed eral funds interest rate in 2019 . th e federal funds interest rate decreased 3 times for a total of 75 basis points during the year . total taxable equi valent interest income was $ 104.1 million for 2019 , wh ich is $ 10.5 million more than the $ 93.6 million reported in 2018 . in comparing the year s ending december 31 , 2019 and 2018 , yield s on earning assets increased 20 basis points while the cost of interest bearing liabilities increased 33 basis points . avera ge loans increased $ 125.3 million , or 7.7 % , in 2019 , and t he loan yield increased 18 bas is points to 5.09 % . tax equated income from securities , federa l funds and other increased $ 1.2 million , or 8.9 % , in 2019 . farmers s aw its yields on these assets in cr ease from 3.04 % in 2018 to 3.22 % in 2019 and the average balance of investment securities and federal funds sold also increased from $ 442.0 million in 2018 to $ 454.5 million in 2019 . the decrease in the federal funds interest rate as mentioned above reduced the cost of short-term borrowings and interest-bearing deposits during 2019. total interest expense amounted to $ 19.6 million for 2019 , a 47.8 % increase from $ 13.3 million reported in 2018. interest-bearing deposits increased $ 271.6 million or 21.5 % and increases in interest rates paid on deposits resulted in a $ 8.7 million or 107.1 % increase in interest expense on deposit balances . other borrowings balances decreased $ 168.1 million or 58.4 % and the interest expense related to these borrowings decreased $ 2.4 million or 46.4 % . the total cost of interest-bearing deposits and borrowings increased from 0.85 % in 2018 to 1.18 % in 2019. management will continue to evaluate future changes in interest rates and the shape of the treasury yield curve so that assets and liabilities may be priced accordingly to minimize the impact on the net interest margin . noninterest income total noninterest income increased by $ 3.1 million or 12.2 % in 2019. the increase in noninterest income is due to several factors . trust fee income increased from $ 7.1 million to $ 7.5 million , representing an increase of $ 349 thousand or 4.9 % , resulting from growth in new customers and an increase in market value of trust assets . commissions from the sale of investment products increased $ 303 thousand or 27.5 % during 2019. net gains on the sale of loans increased from $ 2.7 million in 2018 to $ 4.4 million in 2019 , or 63.0 % , and insurance agency commissions increased to $ 2.9 million compared to $ 2.6 million in 2018. these increases were offset by a decrease in income from retirement plan consulting fees of $ 195 thousand and a decrease in security gains of $ 229 thousand . story_separator_special_tag the bank and the company expect noninterest income to increase during 2020 as management continues to focus on growing the various sources of noninterest income . noninterest expenses noninterest expense for 2019 was $ 65.5 million , compared to $ 62.7 million in 2018 , representing an increase of $ 2.7 million , or 4.4 % . most of the increase was from salaries and employee benefits , which grew $ 1.2 million or 3.3 % , mainly due to merit increases in salaries . other operating expenses increased by $ 628 thousand and merger related expenses increased by $ 352 thousand . the company also incurred $ 505 thousand in litigation expense that is not expected in future years . these increases were offset by a drop in fdic insurance of $ 568 thousand and telephone and data expense of $ 113 thousand . excluding expenses related to acquisition activities , noninterest expenses measured as a percentage of average assets decreased from 2.82 % in 2018 to 2.75 % in 2019. the company 's tax equivalent efficiency ratio for the twelve-month period ended december 31 , 2019 was 56.59 % , compared to 57.93 % for the same period in 2018. 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 . 30 income taxes income tax expense totaled $ 7.3 million for 2019 and $ 5.7 million in 2018. income taxes are computed using the appropriate effective tax rates for each period . 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 17.0 % for 2019 and 14.9 % for 2018. the increased effective tax rate is due to income tax liability adjustments . we anticipate that the effective rate in 2020 will be in the range of 15 % to 17 % . refer to note 18 to the consolidated financial statements for additional information regarding the effective tax rate . comparison of operating results for the years ended december 31 , 2018 and 2017. the company 's net income totaled $ 32.6 million during 2018 , compared to $ 22.7 million for 2017. on a per share basis , diluted earnings per share were $ 1.16 as compared to $ 0.82 diluted earnings per share for 2017. return on average assets and return on average equity were 1.46 % and 13.13 % , respectively , for the year ending december 31 , 2018 , compared to 1.09 % and 9.92 % for 2017. the return on average tangible equity increased from 13.48 % in 2017 to 15.95 % in 2018. on december 22 , 2017 , h.r.1 , known as the “ tax cuts and jobs act , ” was signed into law . h.r.1 , among other things , reduced the corporate income tax rate to 21 % effective january 1 , 2018. as a result of passage of the new tax law , farmers ' effective tax rate decreased from 30.72 % for the year ended december 31 , 2017 to 14.92 % for the year ended december 31 , 2018. it is important to note that also as a result of the new tax law , farmers determined that its net deferred tax assets needed to be reduced in the fourth quarter of 2017 by approximately $ 1.8 million , representing an impact on earnings per share of approximately $ 0.06 per diluted share for that fourth quarter , based on that quarter 's weighted average diluted shares outstanding of approximately 28 million . on august 15 , 2017 , the company completed the acquisition of monitor , the holding company for monitor bank . the transaction involved both cash and 465,787 shares of stock totaling $ 7.5 million . 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 .
| nonperforming loans to total lo ans decreased from 0.45 % at december 31 , 2018 to 0.35 % at december 31 , 2019 . with the adoption of asu 2016-13 : financial instruments - credit losses ( topic 326 ) : measurement of credit losses on financial instruments , on january 1 , 2020 the company had completed the process of implementation and the process of testing the system . the company then recorded the onetime adjustment to equity , on january 1 , 2020 , to comply with the asu adoption , in the amount of $ 2.5 million which increased the allowance for loan losses by 17 % . management does not expect this amount to change during the first quarter of 2020 but retains the option to make adjustments if new information becomes available . the provision for loan losses charged to operating expense is based on management 's judgment after taking into consideration all factors connected with the collectability of the existing loan portfolio . management evaluates the loan portfolio in light of economic conditions , changes in the nature and volume of the loan portfolio , industry standards and other relevant factors . specific factors considered by management in determining the amounts charged to operating expenses include previous charge-off experience , the status of past due interest and principal payments , the quality of financial information supplied by loan customers and the general condition of the industries in the community to which loans have been made . the allowance for loan losses increased $ 895 thousand during the year . aside from the various credit quality metrics discussed above , another reason for the increase in the current year allowance for loan losses was an increase in the size of the loan portfolio . loan growth in 2019 amounted to 4.4 % . at december 31 , 2019 , commercial loans collectively evaluated for impairment totaled $ 290.0 million with an allowance allocation of $ 2.3 million compared to commercial loans collectively evaluated for impairment of $ 264.2 million
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we believe many of these bonds will meet our investment criteria and that we have a unique ability to analyze and close on these opportunities while maintaining our ability and willingness to also participate in primary market transactions . current credit and real estate market conditions also create opportunities to acquire quality mf properties from distressed owners and lenders . our ability to restructure existing debt together with the ability to improve the operations of the apartment properties through our affiliated property management company can position these mf properties for an eventual financing with tax-exempt mortgage revenue bonds meeting our investment criteria and that will be supported by a valuable and well-run apartment property . we believe we can selectively acquire mf properties , restructure debt and improve operations in order to create value to our unitholders in the form of a strong tax-exempt bond investment . on the other hand , continued economic weakness in some markets may limit our ability to access additional debt financing that the partnership uses to partially finance its investment portfolio or otherwise meet its liquidity requirements . in addition , the economic conditions including a slow job growth and low home mortgage interest rates have had a negative effect on some of the apartment properties which collateralize our tax-exempt bond investments and our mf properties in the form of lower occupancy . while some properties have been negatively effected , overall economic occupancy ( which is adjusted to reflect rental concessions , delinquent rents and non-revenue units such as model units and employee units ) of the apartment properties that the partnership has financed with tax-exempt mortgage revenue bonds was approximately at 86 % during 2012 as compared to 85 % during 2011 . overall economic occupancy of the mf properties has remained the same at approximately 76 % during 2012 and 2011 . based on the growth statistics in the market , we expect to see continued improvement in property operations and profitability . we expect that property operations will improve in 2013 and that rental rate and occupancy trends will be continue to be positive . 27 discussion of the apartment properties securing the partnership bond holdings and mf properties as of december 31 , 2012 the following discussion describes the operations and financial results of the individual apartment properties financed by the tax-exempt mortgage revenue bonds held by the partnership and the mf properties in which it holds an ownership . the discussion also outlines the bond holdings of the partnership , discusses the significant terms of the bonds and identifies those ownership entities which are consolidated vies of the company . replace_table_token_7_th ( 1 ) economic occupancy is presented for the twelve months ended december 31 , 2012 and 2011 , and is defined as the net rental income received divided by the maximum amount of rental income to be derived from each property . this statistic is reflective of rental concessions , delinquent rents and non-revenue units such as model units and employee units . actual occupancy is a point in time measure while economic occupancy is a measurement over the period presented , therefore , economic occupancy for a period may exceed the actual occupancy at any point in time . ( 2 ) previous period occupancy numbers are not available , as this is a new investment . ( 3 ) construction on these properties has been completed and the properties are in a lease up and stabilization period . 28 non-consolidated properties the owners of the following properties do not meet the definition of a vie and or the partnership has evaluated and determined it is not the primary beneficiary of the vie , as a result , the company does not report the assets , liabilities and results of operations of these properties on a consolidated basis . arbors of hickory ridge - arbors of hickory ridge apartments is located in memphis , tennessee and contains 348 units . the tax-exempt mortgage revenue bond owned by the partnership was sponsored by the 501 ( c ) 3 not-for-profit owner of arbors of hickory ridge . the tax-exempt mortgage revenue bond has an outstanding principal amount of $ 11.5 million and has a base interest rate of 6.25 % per annum . the bond does not provide for contingent interest . this bond was purchased at par in december 2012. arbors of hickory ridge 's operations resulted in net operating income of $ 568,000 before payment of bond debt service on net revenue of approximately $ 1.23 million in 2012. the property is current on the payment of principal and interest on the partnership 's bond as of december 31 , 2012. ashley square - ashley square apartments is located in des moines , iowa and contains 144 units . the tax-exempt mortgage revenue bond owned by the partnership is a traditional “ 80/20 ” bond issued prior to the tax reform act of 1986. this bond requires that 20 % of the rental units be set aside for tenants whose income does not exceed 80 % of the area median income , without adjustment for household size . the bond has an outstanding principal amount of $ 5.3 million and has a base interest rate of 6.25 % per annum . the bond also provides for contingent interest payable from excess cash flow generated by the underlying property through the potential payment of contingent interest . the bond accrues contingent interest at a rate of 3.0 % annually and such contingent interest is payable only if the underlying property generates excess operating cash flows or realizes excess cash through capital appreciation and a related sale or refinancing of the property . to date , the property has not paid any contingent interest and the partnership has not recognized any contingent interest income related to this bond . story_separator_special_tag ashley square 's operations resulted in net operating income of $ 644,000 and $ 663,000 before payment of bond debt service on net revenue of approximately $ 1.36 million and $ 1.38 million in 2012 and 2011 , respectively . the decrease in net operating income is the result of an increase in administrative expenses and an increase in real estate taxes . the property is current on the payment of principal and base interest on the partnership 's bond as of december 31 , 2012. autumn pines - autumn pines is located in humble , texas and contains 250 units . the tax-exempt mortgage revenue bond owned by the partnership is a private activity housing bond issued in conjunction with the syndication of lihtcs . the bond has an outstanding principal amount of $ 13.2 million and has a base interest rate of 5.8 % per annum . the bond does not provide for contingent interest . the bond was purchased in november 2010 at a discount from par for approximately $ 12.3 million providing an approximate effective yield to maturity of 7.0 % . autumn pines ' operations resulted in net operating income of $ 1.24 million and $ 1.19 million before payment of bond debt service on net revenue of approximately $ 2.39 million and $ 2.38 million in 2012 and 2011 , respectively . the improvement in net operating income from 2011 is primarily the result of an increase in economic occupancy . the property is current on principal and interest payments on the partnership 's bond as of december 31 , 2012 . bella vista - bella vista apartments is located in gainesville , texas and contains 144 units . the tax-exempt mortgage revenue bond owned by the partnership is a private activity housing bond issued in conjunction with the syndication of lihtcs . the bond has an outstanding principal amount of $ 6.6 million and has a base interest rate of 6.15 % per annum . the bond does not provide for contingent interest . bella vista 's operations resulted in net operating income of $ 639,000 and $ 583,000 before payment of debt service on net revenue of approximately $ 1.17 million and $ 1.12 million in 2012 and 2011 , respectively . the increases in net operating income is due to a decrease in utility and repair and maintenance expenses and the increase in revenue is due to higher average rents . the property is current on principal and interest payments on the partnership 's bond as of december 31 , 2012 . bridle ridge - bridle ridge apartments is located in greer , south carolina and contains 152 units . the tax-exempt mortgage revenue bond owned by the partnership is a private activity housing bond issued in conjunction with the syndication of lihtcs . the bond has an outstanding principal amount of $ 7.8 million and a base interest rate of 6.0 % per annum . the bond does not provide for contingent interest . bridle ridge 's operations resulted in net operating income of approximately $ 717,000 and $ 702,000 before payment of bond debt service on net revenue of approximately $ 1.14 million and $ 1.06 million in 2012 and 2011 , respectively . the increase in net operating income is due to an increase in economic occupancy . the property is current on principal and interest payments on the partnership 's bond as of december 31 , 2012 . 29 brookstone - brookstone apartments is located in waukegan , illinois and contains 168 units . the tax-exempt mortgage revenue bond owned by the partnership is a private activity housing bond issued in conjunction with the syndication of lihtcs . the bond has an outstanding principal amount of $ 9.4 million and a base interest rate of 5.45 % per annum . the bond does not provide for contingent interest . these bonds were purchased in october 2009 at a discount from par for approximately $ 7.3 million providing an approximate yield to maturity of 7.5 % . brookstone 's operations resulted in net operating income of $ 895,000 and $ 905,000 before payment of bond debt service on net revenue of approximately $ 1.35 million and $ 1.33 million in 2012 and 2011 , respectively . the decrease in net operating income is due to an increase in utility and salary expenses . the property is current on principal and interest payments on the partnership 's bond as of december 31 , 2012 . cross creek - cross creek apartments is located in beaufort , south carolina and contains 144 units . the tax-exempt mortgage revenue bond owned by the partnership is a private activity housing bond issued in conjunction with the syndication of lihtcs . the bond has an outstanding principal amount of $ 8.6 million and has a base interest rate of 6.15 % per annum . the bond does not provide for contingent interest . these bonds were purchased in april 2009 at a discount from par for approximately $ 5.9 million providing an approximate yield to maturity of 7.4 % . cross creek 's operations resulted in net operating income of $ 453,000 and $ 411,000 before payment of bond debt service on net revenue of approximately $ 1.12 million and $ 1.17 million in 2012 and 2011 , respectively . this increase in net operating income is due to a decrease in real estate taxes offset by a decrease in economic occupancy . the property is current on the payment of principal and base interest on the partnership 's bond as of december 31 , 2012. iona lakes - iona lakes apartments is located in fort myers , florida and contains 350 units . the tax-exempt mortgage revenue bond owned by the partnership is a traditional “ 80/20 ” bond issued prior to the tax reform act of 1986. the bond has an outstanding principal amount of $ 15.5 million and has a base interest rate of 6.9 % per annum .
| the tax-exempt bond segment reported revenue of approximately $ 12.2 million , interest expense of approximately $ 3.5 million and income from continuing operations of approximately $ 4.1 million for the year ended december 31 , 2012. the tax-exempt bond investments segment reported revenue of approximately $ 12.6 million and $ 11.1 million , interest expense of approximately $ 4.5 million and $ 1.8 million and loss from continuing operations of approximately $ 0.4 million versus income from continuing operations of approximately $ 2.4 million for the years ended december 31 , 2011 and 2010. the majority of the increase in income from continuing operations between 2011 to 2012 resulted from a $ 4.2 million impairment of the iona lakes taxable loan in 2011 and no taxable loan impairments in 2012. the remaining reason for the increase is due to the non-cash change in the fair value of the interest rate derivatives ; which was a loss of $ 2.1 million and approximately $ 945,000 in 2011 and 2012 , respectively . the approximately $ 2.7 million change in income from operations between 2011 versus 2010 can also be attributed to the $ 4.2 million impairment of the iona lakes taxable loan in 2011 versus an approximately $ 560,000 impairment of the woodland park and ashley square/cross creek cross-collateralized loans offset by the additional $ 1.5 million of revenue attributed to additional bonds purchased in 2011. consolidated vies . the three consolidated vie multifamily apartment properties as of december 31 , 2012 and 2011 , contained a total of 650 rental units . other tax-exempt securities . during 2012 , the company invested in other types of tax-exempt securities . in accordance with the terms of the agreement of limited partners , these tax-exempt securities must be rated in one of the four highest rating categories by at least one nationally recognized securities rating agency and may not represent more than 25 % of the partnership 's assets at the time of acquisition . 25 public housing capital fund trusts ' certificates ( `` phc certificates '' ) . the phc certificates , acquired during 2012 , consist of custodial receipts evidencing loans made to a number of public housing authorities . principal and interest on these loans are payable by the respective public housing authorities out of annual appropriations to be made to the public housing authorities by hud under hud 's capital fund program . at december 31 , 2012 , the company owns phc certificates with
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impairments : · the u.s. economic and market conditions stabilized throughout 2011 and capitalization rates , discount rates and vacancies had improved ; however , overall declines in market conditions continued to have a negative effect on certain transactional activity as it related to select real estate assets and certain marketable securities . as such , the company recognized impairment charges of approximately $ 32.8 million ( including approximately $ 16.9 million which is classified within discontinued operations ) , before income taxes and noncontrolling interests , relating to adjustments to property carrying values , investments in other real estate joint ventures , investments in real estate joint ventures and marketable securities and other investments . potential future adverse market and economic conditions could cause the company to recognize additional impairments in the future ( see footnote 2 of the notes to consolidated financial statements included in this annual report on form 10-k ) . · in addition to the impairment charges above , various unconsolidated joint ventures in which the company holds noncontrolling interests recognized impairment charges relating to certain properties during 2011. the company 's share of these charges was approximately $ 14.1 million , before income taxes ( see footnotes 2 , 8 and 9 of the notes to consolidated financial statements included in this annual report on form 10-k ) . critical accounting policies the consolidated financial statements of the company include the accounts of the company , its wholly-owned subsidiaries and all entities in which the company has a controlling interest , including where the company has been determined to be a primary beneficiary of a variable interest entity in accordance with the consolidation guidance of the financial accounting standards board 's ( fasb ) accounting standards codification ( asc ) . the company applies these provisions to each of its joint venture investments to determine whether the cost , equity or consolidation method of accounting is appropriate . the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes . in preparing these financial statements , management has made its best estimates and assumptions that affect the reported amounts of assets and liabilities . these estimates are based on , but not limited to , historical results , industry standards and current economic conditions , giving due consideration to materiality . the most significant assumptions and estimates relate to revenue recognition and the recoverability of trade accounts receivable , depreciable lives , valuation of real estate and intangible assets and liabilities , valuation of joint venture investments , marketable securities and other investments , realizability of deferred tax assets and uncertain tax positions . application of these assumptions requires the exercise of judgment as to future uncertainties , and , as a result , actual results could materially differ from these estimates . the company is required to make subjective assessments as to whether there are impairments in the value of its real estate properties , investments in joint ventures , marketable securities and other investments . the company 's reported net earnings are directly affected by management 's estimate of impairments and or valuation allowances . revenue recognition and accounts receivable base rental revenues from rental property are recognized on a straight-line basis over the terms of the related leases . certain of these leases also provide for percentage rents based upon the level of sales achieved by the lessee . these percentage rents are recorded once the required sales level is achieved . operating expense reimbursements are recognized as earned . rental income may also include payments received in connection with lease termination agreements . in addition , leases typically provide for reimbursement to the company of common area maintenance , real estate taxes and other operating expenses . 16 the company makes estimates of the uncollectability of its accounts receivable related to base rents , straight-line rent , expense reimbursements and other revenues . the company analyzes accounts receivable and historical bad debt levels , customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts . in addition , tenants in bankruptcy are analyzed and estimates are made in connection with the expected recovery of pre-petition and post-petition claims . the company 's reported net earnings are directly affected by management 's estimate of the collectability of accounts receivable . real estate the company 's investments in real estate properties are stated at cost , less accumulated depreciation and amortization . expenditures for maintenance and repairs are charged to operations as incurred . significant renovations and replacements , which improve and extend the life of the asset , are capitalized . upon acquisition of real estate operating properties , the company estimates the fair value of acquired tangible assets ( consisting of land , building , building improvements and tenant improvements ) and identified intangible assets and liabilities ( consisting of above and below-market leases , in-place leases and tenant relationships ) , assumed debt and redeemable units issued at the date of acquisition , based on evaluation of information and estimates available at that date . based on these estimates , the company allocates the estimated fair value to the applicable assets and liabilities . fair value is determined based on an exit price approach , which contemplates the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . if , up to one year from the acquisition date , information regarding fair value of the assets acquired and liabilities assumed is received and estimates are refined , appropriate adjustments are made to the purchase price allocation on a retrospective basis . the company expenses transaction costs associated with business combinations in the period incurred . story_separator_special_tag depreciation and amortization are provided on the straight-line method over the estimated useful lives of the assets , as follows : buildings and building improvements 15 to 50 years fixtures , leasehold and tenant improvements terms of leases or useful ( including certain identified intangible assets ) lives , whichever is shorter the company is required to make subjective assessments as to the useful lives of its properties for purposes of determining the amount of depreciation to reflect on an annual basis with respect to those properties . these assessments have a direct impact on the company 's net earnings . real estate under development on the company 's consolidated balance sheets represents ground-up development of neighborhood and community shopping center projects which may be subsequently sold upon completion or which the company may hold as long-term investments . these assets are carried at cost . the cost of land and buildings under development includes specifically identifiable costs . the capitalized costs include pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs of personnel directly involved and other costs incurred during the period of development . the company ceases cost capitalization when the property is held available for occupancy upon substantial completion of tenant improvements , but no later than one year from the completion of major construction activity . a gain on the sale of these assets is generally recognized using the full accrual method in accordance with the provisions of the fasb 's real estate sales guidance provided that various criteria relating to terms of the sale and subsequent involvement by the company with the property are met . on a continuous basis , management assesses whether there are any indicators , including property operating performance and general market conditions , that the value of the real estate properties ( including any related amortizable intangible assets or liabilities ) may be impaired . a property value is considered impaired only if management 's estimate of current and projected operating cash flows ( undiscounted and unleveraged ) of the property over its remaining useful life is less than the net carrying value of the property . such cash flow projections consider factors such as expected future operating income , trends and prospects , as well as the effects of demand , competition and other factors . to the extent impairment has occurred , the carrying value of the property would be adjusted to reflect the estimated fair value of the property . when a real estate asset is identified by management as held-for-sale , the company ceases depreciation of the asset and estimates the sales price of such asset net of selling costs . if , in management 's opinion , the net sales price of the asset is less than the net book value of such asset , an adjustment to the carrying value would be recorded to reflect the estimated fair value of the property . investments in unconsolidated joint ventures the company accounts for its investments in unconsolidated joint ventures under the equity method of accounting as the company exercises significant influence , but does not control , these entities . these investments are recorded initially at cost and are subsequently adjusted for cash contributions and distributions . earnings for each investment are recognized in accordance with each respective investment agreement and , where applicable , are based upon an allocation of the investment 's net assets at book value as if the investment was hypothetically liquidated at the end of each reporting period . 17 the company 's joint ventures and other real estate investments primarily consist of co-investments with institutional and other joint venture partners in neighborhood and community shopping center properties , consistent with its core business . these joint ventures typically obtain non-recourse third-party financing on their property investments , thus contractually limiting the company 's exposure to losses to the amount of its equity investment , and , due to the lender 's exposure to losses , a lender typically will require a minimum level of equity in order to mitigate its risk . the company 's exposure to losses associated with its unconsolidated joint ventures is primarily limited to its carrying value in these investments . the company , on a limited selective basis , obtained unsecured financing for certain joint ventures . these unsecured financings are guaranteed by the company with guarantees from the joint venture partners for their proportionate amounts of any guaranty payment the company is obligated to make . on a continuous basis , management assesses whether there are any indicators , including property operating performance and general market conditions , that the value of the company 's investments in unconsolidated joint ventures may be impaired . an investment 's value is impaired only if management 's estimate of the fair value of the investment is less than the carrying value of the investment and such difference is deemed to be other-than-temporary . to the extent impairment has occurred , the loss shall be measured as the excess of the carrying amount of the investment over the estimated fair value of the investment . the company 's estimated fair values are based upon a discounted cash flow model for each specific property that includes all estimated cash inflows and outflows over a specified holding period and , where applicable , any estimated debt premiums . capitalization rates , discount rates and credit spreads utilized in these models are based upon rates that the company believes to be within a reasonable range of current market rates for each respective property . marketable securities the company classifies its marketable equity securities as available-for-sale in accordance with the fasb 's investments-debt and equity securities guidance . these securities are carried at fair market value with unrealized gains and losses reported in stockholders ' equity as a component of accumulated other comprehensive income ( oci ) . gains or losses on securities sold are based on the specific identification method .
| this decrease is primarily due to a decrease in property management fees of approximately $ 2.4 million recognized during 2011 , as compared to 2010 , primarily due to the disposition of properties during 2011 and 2010 and a decrease in transaction related fees of approximately $ 2.2 million recognized during 2011 , as compared to 2010 . 19 general and administrative expenses increased approximately $ 9.7 million to $ 118.9 million for the year ended december 31 , 2011 , as compared to $ 109.2 million for the corresponding period in 2010. this change is primarily a result of an increase in equity awards expense related to grants issued during 2011 and 2010 and an increase in other personnel related costs during 2011 , as compared to the corresponding periods in 2010. interest , dividends and other investment income decreased approximately $ 4.6 million to $ 16.6 million for the year ended december 31 , 2011 , as compared to $ 21.2 million for the corresponding period in 2010. this decrease is primarily due to the sale of the valad notes resulting in a decrease in interest income of approximately $ 13.5 million , partially offset by ( i ) an increase in bank interest income of approximately $ 1.1 million during 2011 , as compared to the corresponding period in 2010 , primarily resulting from the change in cash balances during 2011 and ( ii ) an income distribution of approximately $ 7.4 million from a cost method investment during 2011. during the year ended december 31 , 2010 , the company incurred early extinguishment of debt charges aggregating approximately $ 10.8 million in connection with the optional make-whole provisions of notes that were repaid prior to maturity and prepayment penalties on five mortgages that the company paid prior to their maturity . during 2011 , the company sold a merchant building property to an unconsolidated joint venture in which the company has a noncontrolling interest for a sales price of
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globe net wireless corp. dated : december 14 , 2020 by : gustavo americo folcarelli gustavo americo folcarelli , president , chief executive officer and chief financial officer pursuant to the requirements of the securities exchange act of 1934 , the following persons on behalf of globe net wireless corp. and in the capacities and on the dates indicated have signed this report below . signature title date gustavo americo folcarelli president , chief executive officer , december 14 , 2020 gustavo americo folcarelli principal executive officer , treasurer , corporate secretary , chief financial officer , principal financial officer , and principal accounting officer member of the board of directors gntw - form 10-k - 2020 page 24 story_separator_special_tag the following discussion should be read in conjunction with our financial statements , including the notes thereto , appearing elsewhere in this annual report . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . globe net 's actual results could differ materially from those discussed in the forward looking statements . factors that could cause or contribute to such differences include , but are not limited to those discussed below and elsewhere in this annual report . globe net 's audited financial statements are stated in united states dollars and are prepared in accordance with united states generally accepted accounting principles . story_separator_special_tag subsidiaries in various businesses or acquire existing businesses as subsidiaries ; though no such opportunities have been identified at the time of this filing . we expect that the selection of a business opportunity will be complex and risky . due to general economic conditions , rapid technological advances being made in some industries and shortages of available capital , we believe that there are numerous firms seeking the benefits of an issuer who has complied with the 1934 act . such benefits may include facilitating or improving the terms on which additional equity financing may be sought , providing liquidity for incentive stock options or similar benefits to key employees , providing liquidity ( subject to restrictions of applicable statutes ) for all stockholders and other factors . potentially , available business opportunities may occur in many different industries and at various stages of development , all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex . we have , and will continue to have , essentially no assets to provide the owners of business opportunities . however , we will be able to offer owners of acquisition candidates the opportunity to acquire a controlling ownership interest in an issuer who has complied with the 1934 act without incurring the cost and time required to conduct an initial public offering . gntw - form 10-k - 2020 page 10 the analysis of new business opportunities will be undertaken by , or under the supervision of , our board of directors . we intend to concentrate on identifying preliminary prospective business opportunities which may be brought to our attention through present associations of our director , professional advisors or by our stockholders . in analyzing prospective business opportunities , we will consider such matters as ( i ) available technical , financial and managerial resources ; ( ii ) working capital and other financial requirements ; ( iii ) history of operations , if any , and prospects for the future ; ( iv ) nature of present and expected competition ; ( v ) quality , experience and depth of management services ; ( vi ) potential for further research , development or exploration ; ( vii ) specific risk factors not now foreseeable but that may be anticipated to impact the proposed activities of the company ; ( viii ) potential for growth or expansion ; ( ix ) potential for profit ; ( x ) public recognition and acceptance of products , services or trades ; ( xi ) name identification ; and ( xii ) other factors that we consider relevant . as part of our investigation of the business opportunity , we expect to meet personally with management and key personnel . to the extent possible , we intend to utilize written reports and personal investigation to evaluate the above factors . we will not acquire or merge with any company for which audited financial statements can not be obtained within a reasonable period of time after closing of the proposed transaction . in addition , management anticipates incurring the following expenses during the next 12 month period : accounting and audit plan globe net intends to continue to have its outside consultant assist in the preparation of globe net 's quarterly and annual financial statements and have these financial statements reviewed or audited by globe net 's independent auditor . globe net 's outside consultant is expected to charge globe net approximately $ 700 to prepare globe net 's quarterly financial statements and approximately $ 2,000 to prepare globe net 's annual financial statements . globe net 's independent auditor is expected to charge approximately $ 1,000 to review each of globe net 's quarterly financial statements and approximately $ 7,500 to audit globe net 's annual financial statements . in the next twelve months , globe net anticipates spending approximately $ 12,000 to pay for its accounting and audit requirements . off-balance sheet arrangements as of the date of this annual report , globe net does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . material commitments for capital expenditures globe net had no contingencies or long-term commitments at august 31 , 2020. tabular disclosure of contractual obligations globe net is a smaller reporting company as defined by rule 12b-2 of the exchange story_separator_special_tag globe net wireless corp. dated : december 14 , 2020 by : gustavo americo folcarelli gustavo americo folcarelli , president , chief executive officer and chief financial officer pursuant to the requirements of the securities exchange act of 1934 , the following persons on behalf of globe net wireless corp. and in the capacities and on the dates indicated have signed this report below . signature title date gustavo americo folcarelli president , chief executive officer , december 14 , 2020 gustavo americo folcarelli principal executive officer , treasurer , corporate secretary , chief financial officer , principal financial officer , and principal accounting officer member of the board of directors gntw - form 10-k - 2020 page 24 story_separator_special_tag the following discussion should be read in conjunction with our financial statements , including the notes thereto , appearing elsewhere in this annual report . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . globe net 's actual results could differ materially from those discussed in the forward looking statements . factors that could cause or contribute to such differences include , but are not limited to those discussed below and elsewhere in this annual report . globe net 's audited financial statements are stated in united states dollars and are prepared in accordance with united states generally accepted accounting principles . story_separator_special_tag subsidiaries in various businesses or acquire existing businesses as subsidiaries ; though no such opportunities have been identified at the time of this filing . we expect that the selection of a business opportunity will be complex and risky . due to general economic conditions , rapid technological advances being made in some industries and shortages of available capital , we believe that there are numerous firms seeking the benefits of an issuer who has complied with the 1934 act . such benefits may include facilitating or improving the terms on which additional equity financing may be sought , providing liquidity for incentive stock options or similar benefits to key employees , providing liquidity ( subject to restrictions of applicable statutes ) for all stockholders and other factors . potentially , available business opportunities may occur in many different industries and at various stages of development , all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex . we have , and will continue to have , essentially no assets to provide the owners of business opportunities . however , we will be able to offer owners of acquisition candidates the opportunity to acquire a controlling ownership interest in an issuer who has complied with the 1934 act without incurring the cost and time required to conduct an initial public offering . gntw - form 10-k - 2020 page 10 the analysis of new business opportunities will be undertaken by , or under the supervision of , our board of directors . we intend to concentrate on identifying preliminary prospective business opportunities which may be brought to our attention through present associations of our director , professional advisors or by our stockholders . in analyzing prospective business opportunities , we will consider such matters as ( i ) available technical , financial and managerial resources ; ( ii ) working capital and other financial requirements ; ( iii ) history of operations , if any , and prospects for the future ; ( iv ) nature of present and expected competition ; ( v ) quality , experience and depth of management services ; ( vi ) potential for further research , development or exploration ; ( vii ) specific risk factors not now foreseeable but that may be anticipated to impact the proposed activities of the company ; ( viii ) potential for growth or expansion ; ( ix ) potential for profit ; ( x ) public recognition and acceptance of products , services or trades ; ( xi ) name identification ; and ( xii ) other factors that we consider relevant . as part of our investigation of the business opportunity , we expect to meet personally with management and key personnel . to the extent possible , we intend to utilize written reports and personal investigation to evaluate the above factors . we will not acquire or merge with any company for which audited financial statements can not be obtained within a reasonable period of time after closing of the proposed transaction . in addition , management anticipates incurring the following expenses during the next 12 month period : accounting and audit plan globe net intends to continue to have its outside consultant assist in the preparation of globe net 's quarterly and annual financial statements and have these financial statements reviewed or audited by globe net 's independent auditor . globe net 's outside consultant is expected to charge globe net approximately $ 700 to prepare globe net 's quarterly financial statements and approximately $ 2,000 to prepare globe net 's annual financial statements . globe net 's independent auditor is expected to charge approximately $ 1,000 to review each of globe net 's quarterly financial statements and approximately $ 7,500 to audit globe net 's annual financial statements . in the next twelve months , globe net anticipates spending approximately $ 12,000 to pay for its accounting and audit requirements . off-balance sheet arrangements as of the date of this annual report , globe net does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . material commitments for capital expenditures globe net had no contingencies or long-term commitments at august 31 , 2020. tabular disclosure of contractual obligations globe net is a smaller reporting company as defined by rule 12b-2 of the exchange
| for the fiscal year ended august 31 , 2020 , net cash flows used in operating activities were ( $ 65,991 ) consisting of our net loss for the period , adjusted for payments for prepaid expenses and payment of accounts payable and accrued liabilities . cash flows from financing activities globe net has financed its operations primarily from either advancements or the issuance of equity and debt instruments . for the fiscal year ended august 31 , 2020 , net cash from financing activities was $ 67,500. plan of operation our plan of operations is to raise debt and , or , equity to meet our ongoing operating expenses and attempt to merge with another entity with experienced management and opportunities for growth in return for shares of our common stock to create value for our shareholders . there can be no assurance that we will successfully complete these transactions . in particular there is no assurance that any such business will be located or that any stockholder will realize any return on their shares after such a transaction . any merger or acquisition completed by us can be expected to have a significant dilutive effect on the percentage of shares held by our current stockholders . we believe we are an insignificant participant among the firms which engage in the acquisition of business opportunities . there are many established venture capital and financial concerns that have significantly greater financial and personnel resources and technical expertise than we have . in view of our limited financial resources and limited management availability , we will continue to be at a significant competitive disadvantage compared to our competitors . we intend to seek , investigate and , if such investigation warrants , acquire an interest in business opportunities presented to us by persons or firms which desire to seek the advantages of an issuer who has complied with the securities act of 1934 ( the “ 1934 act ” ) . we will not restrict our search to any specific business , industry or geographical location , and we may participate in business ventures of virtually any nature . this discussion of our proposed business is purposefully general and is not meant to be
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virtually all of this increase was attributable to strong revenue growth during 2011. approximately 19 % of the increase was offset by increased efficiencies of new wireless recording technology and a decrease in higher cost shot-hole contracts . as a percentage of revenues , cost of services was 68.9 % for the year ended december 31 , 2011 , compared to 79.3 % for the same period of 2010. selling , general , and administrative expenses . sg & a expenses were $ 9,626,679 for the year ended december 31 , 2011 , compared to $ 6,894,500 for the same period of 2010 , an increase of 39.6 % . this increase was primarily attributable to $ 2,117,950 of transaction costs related to the terminated merger discussions with dawson geophysical company . sg & a expense as a percentage of revenues was 6.4 % for each of the years ended december 31 , 2011 , and december 31 , 2010. depreciation and amortization expense . depreciation and amortization expense was $ 19,214,069 for the year ended december 31 , 2011 , compared to $ 15,343,804 for the same period of 2010 , an increase of 25.2 % . this increase was primarily attributable to capital expenditures of approximately $ 30,730,000 for the 12 months ended december 31 , 2011. depreciation and amortization expense as a percentage of revenues was 12.7 % for the year ended december 31 , 2011 , compared to 14.2 % for the same period of 2010. income from operations . income from operations was $ 18,164,890 for the year ended december 31 , 2011 , compared to $ 147,635 for the same period of 2010. the increase was attributable to several factors including strengthening demand , better contract terms with the continued improvement in the north american land seismic acquisition market , and the items previously discussed . ebitda increased $ 21,887,520 to $ 37,378,959 for the 12 months ended december 31 , 2011 , from $ 15,491,439 for the same period of 2010 , an increase of 141.3 % . this increase was a result of factors discussed above . for a definition of ebitda , a reconciliation of ebitda to net income , and discussion of ebitda , refer to the section entitled ebitda found below . interest expense . interest expense was $ 784,425 for the year ended december 31 , 2011 , compared to $ 790,417 for the same period of 2010 , a decrease of less than 1.0 % . this decrease was primarily attributable to our continuing principal payments on notes payable and capital lease obligations partially offset by additional debt incurred during the first and third quarters of 2011 for the purchase of additional gsr channels and equipment . income tax expense . income tax expense was $ 6,547,250 for the year ended december 31 , 2011 , compared to $ 579,900 for the same period of 2010. this increase was primarily attributable to the substantial increase in pre-tax income in 2011 as compared to a pre-tax loss in 2010. income tax expense for the year ended december 31 , 2010 reflects the impact of state taxes , net of federal benefit , and permanent tax differences , including share based compensation . see note h of notes to financial statements . 15 non-gaap financial measure we define ebitda as net income plus expenses of interest , income taxes , depreciation , and amortization . we use ebitda as a supplemental financial measure to assess : · the financial performance of our assets without regard to financing methods , capital structures , taxes , or historical cost basis ; · our liquidity and operating performance over time and in relation to other companies that own similar assets and that we believe calculate ebitda in a manner similar to us ; and · the ability of our assets to generate cash sufficient for us to pay potential interest expenses . we also understand that such data is used by investors to assess our performance . however , ebitda is not a measure of operating income , operating performance , or liquidity presented in accordance with u.s. generally accepted accounting principles ( gaap ) . when assessing our operating performance or our liquidity , you should not consider this data in isolation or as a substitute for our net income , cash flow from operating activities , or other cash flow data calculated in accordance with gaap . ebitda excludes some , but not all , items that affect net income and operating income , and these measures may vary among other companies . therefore , ebitda as presented below may not be comparable to similarly titled measures of other companies . further , the results presented by ebitda can not be achieved without incurring the costs that the measure excludes : interest , taxes , depreciation , and amortization . the following table reconciles our ebitda to our net income : replace_table_token_2_th liquidity and capital resources liquidity cash flows from operating activities . net cash provided by operating activities was $ 39,283,062 for the year ended december 31 , 2012 , compared to $ 34,174,167 for the same period of 2011. the $ 5,108,895 increase was principally attributable to an increase in net income of $ 4,838,664 in 2012. the timing of billings and revenue recognition , the collections of accounts receivable , the timing of receipt and payment of invoices , federal and state income taxes payable , depreciation and amortization , and the mix of contracts account for the remainder of the increase . story_separator_special_tag working capital decreased $ 7,640,436 to $ 12,216,093 as of december 31 , 2012 , from the december 31 , 2011 , working capital of $ 19,856,529. this decrease was due primarily to a decrease in cash and cash equivalents of $ 7,131,315 , increases of $ 4,424,146 in trade accounts payable , $ 2,945,945 in accrued liabilities , $ 2,819,594 in billings in excess of costs and estimated earnings on uncompleted contracts , $ 2,552,247 in federal and state income taxes payable , and $ 4,812,766 in current maturities of notes payable , partially offset by increases in trade accounts receivable of $ 16,289,735 and in costs and estimated earnings in excess of billings on uncompleted contracts of $ 1,162,465. cash flows used in investing activities . net cash used in investing activities was $ 30,265,696 for the year ended december 31 , 2012 , and $ 21,270,845 for the year ended december 31 , 2011. this $ 8,994,851 increase was due to an increase in capital expenditures of $ 9,958,915 offset by an increase in proceeds from the sale of property and equipment of $ 964,064. cash flows used in financing activities . net cash used in financing activities was $ 16,140,906 for the year ended december 31 , 2012 , and $ 10,172,831 for the year ended december 31 , 2011. the $ 5,968,075 increase was due primarily to an increase in principal payments on notes payable of $ 2,331,996 and the payment of cash dividends of $ 3,099,014 . 16 capital expenditures . during the year ended december 31 , 2012 , capital expenditures of $ 57,107,732 were used to acquire seismic equipment and vehicles , replace similar equipment and vehicles , and to purchase our fourth and fifth gsr systems consisting of a total of 14,200 channels and related equipment , our sixth gsr system with 13,000 channels , our first next-generation 3-channel gsx system with 8,000 stations , and seven new inova vibration vehicles . cash of $ 31,970,418 , notes of $ 22,201,800 from a commercial bank , and capital lease obligations from a vehicle leasing company of $ 2,935,514 were used to finance these acquisitions . this major investment should continue to bring us the benefits of these new technologies and allow us to be in a cash building mode in 2013. we may , however , purchase additional equipment during 2013 as the demand for our services warrants . capital resources historically , we have relied on cash generated from operations , short-term borrowings from commercial banks and equipment lenders , and loans from directors to fund our working capital requirements and capital expenditures . the company has a revolving line of credit agreement with a commercial bank . the borrowing limit under the revolving line of credit agreement is $ 5,000,000 and was renewed on september 16 , 2011 , and again on september 16 , 2012. the revolving line of credit agreement does not expire until september 16 , 2013. our obligations under this agreement are secured by a security interest in our accounts receivable . interest on the outstanding amount under the line of credit loan agreement is payable monthly at the greater of the prime rate of interest or five percent . as of december 31 , 2012 , and since its inception , we have had no borrowings outstanding under the line of credit loan agreement . at december 31 , 2012 , the company had seven outstanding notes payable to commercial banks for equipment purchases . the notes have interest rates between 3.50 % and 6.35 % , are due in monthly installments between $ 50,170 and $ 223,437 plus interest , have a total outstanding balance of $ 24,553,291 and are collateralized by equipment . three notes payable with interest rates between 5.33 % and 6.00 % and monthly payments between $ 23,740 and $ 61,997 plus interest were paid off in 2012. these notes were collateralized by equipment . the company had , at december 31 , 2011 , three outstanding notes payable to equipment finance companies for equipment purchases . the notes have interest rates between 5.33 % and 6.00 % , were due in monthly installments between $ 23,740 and $ 61,997 plus interest , and were collateralized by equipment . all of these notes were paid off in 2012. the company had , at december 31 , 2012 , two outstanding notes payable to finance companies for corporate insurance . the notes have interest rates between 4.16 % and 4.95 % , are due in monthly installments between $ 16,861 and $ 302,892 including interest , and have a total outstanding balance of $ 474,587. our houston sales office is in a 1,711-square foot facility . the monthly rent is currently $ 3,279. our corporate offices in plano , texas were increased from 8,523 square feet to 10,137 square feet of office space in march of 2012. the monthly rent is currently $ 14,784. we lease an 800-square foot facility in oklahoma city , oklahoma , as a sales office on a month-to-month basis , and the current monthly rent is $ 665. we lease a 400-square foot facility in pratt , kansas , as a permit office on a month-to-month basis , and the current monthly rent is $ 500. in october 2012 , we expanded our denison , texas , repair warehouse facility with the addition of a third 10,000-square foot building . the denison , texas , facility consists of one 5,000-square foot building , three 10,000-square foot adjacent buildings , and an outdoor storage area of approximately 60,500 square feet . the monthly rent is currently $ 16,547. we lease a 915-square foot office facility in midland , texas , as a sales office with a monthly rent of $ 915. upon the acquisition of eagle canada , we assumed a lease entered into in august of 2008 for 3,030 square feet of office space located in calgary , alberta .
| sg & a expenses were $ 8,755,270 for the year ended december 31 , 2012 , compared to $ 9,626,679 for the same period of 2011 , a decrease of 9.0 % . this decrease was primarily attributable to $ 2,117,950 of transaction costs incurred in 2011 related to terminated merger discussions , partially offset by increased compensation costs and recent staff additions to handle increased business activity . sg & a expense as a percentage of revenues was 4.5 % for the year ended december 31 , 2012 , and 6.4 % for the year ended december 31 , 2011. depreciation and amortization expense . depreciation and amortization expense was $ 25,502,597 for the year ended december 31 , 2012 , compared to $ 19,214,069 for the same period of 2011 , an increase of 32.7 % . this increase was primarily attributable to capital expenditures of approximately $ 57,108,000 for the 12 months ended december 31 , 2012. depreciation and amortization expense as a percentage of revenues was 13.0 % for the year ended december 31 , 2012 , compared to 12.7 % for the same period of 2011. income from operations . income from operations was $ 26,779,411 for the year ended december 31 , 2012 , compared to $ 18,164,890 for the same period of 2011. the increase was attributable to an increase in revenues , partially offset by increases in cost of services and depreciation expenses discussed above . ebitda increased $ 14,903,049 to $ 52,282,008 for the 12 months ended december 31 , 2012 , from $ 37,378,959 for the same period of 2011 , an increase of 39.9 % . this increase was primarily a result of a $ 4,838,664 increase in net income , a $ 6,288,528 increase in depreciation , and a $ 3,337,828 increase in income tax expense . for a definition of ebitda , a reconciliation of ebitda to net income , and discussion of ebitda , refer to the section entitled ebitda found below . interest expense . interest expense was $ 1,222,454 for the
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this discussion of our financial condition is presented for the fiscal year ended january 1 , 2017 ( the “ 2016 fiscal year ” , which included 52 weeks and 253 selling days ) , the fiscal year ended january 3 , 2016 ( the “ 2015 fiscal year , ” which included 53 weeks and 256 selling days ) , and the fiscal year ended december 28 , 2014 ( the “ 2014 fiscal year , ” which includes 52 weeks and 252 selling days ) . “ selling days ” are defined below within the key business and performance metrics section . we manage our business as a single reportable segment . within our organizational framework , the same operational resources support multiple geographic regions and performance is evaluated at a consolidated level . we also evaluate performance based on discrete financial information on a regional basis . since all of our regions have similar operations and share similar economic characteristics , we aggregate regions into a single operating and reportable segment . these similarities include ( 1 ) long-term financial performance , ( 2 ) the nature of products and services , ( 3 ) the types of customers we sell to and ( 4 ) the distribution methods used . key business and performance metrics we focus on a variety of indicators and key operating and financial metrics to monitor the financial condition and performance of our business . these metrics include : net sales . we generate net sales primarily through the sale of landscape supplies , including irrigation systems , fertilizer & control products , landscape accessories , nursery goods , hardscapes and outdoor lighting to our customers who are primarily landscape contractors serving the residential and commercial construction sectors . our net sales include billings for freight and handling charges , and commissions on the sale of control products that we sell as an agent . net sales are presented net of any discounts , returns , customer rebates , and sales or other revenue-based tax . non-gaap organic sales . in managing our business , we consider all growth , including the opening of new greenfield branches , to be organic growth unless it results from an acquisition . when we refer to organic sales growth , we include increases in growth from newly-opened greenfield branches and decreases in growth from closing existing branches but exclude increases in growth from acquired branches until they have been under our ownership for at least four full fiscal quarters at the start of the fiscal reporting period . non-gaap selling days . selling days are defined as business days , excluding saturdays , sundays and holidays , that our branches are open during the year . depending upon the location and the season , our branches may be open on saturdays and sundays ; however for consistency , those days have been excluded from the calculation of selling days . non-gaap organic daily sales . we define organic daily sales as organic sales divided by the number of selling days in the relevant reporting period . we believe organic sales growth and organic daily sales growth are useful measures for evaluating our performance as we may choose to open or close branches in any given market depending upon the needs of our customers or our strategic growth opportunities . cost of goods sold . our cost of goods sold includes all inventory costs , such as purchase price paid to suppliers , net of any rebates received , as well as inbound freight and handling , and other costs associated with inventory . our cost of goods sold excludes the cost to deliver the products to our customers through our branches , which is included in selling , general and administrative expenses . cost of goods sold is recognized primarily using the first-in first-out method of accounting for the inventory sold . 42 gross profit and gross margin . we believe that gross profit and gross margin are useful for evaluating our operating performance . we define gross profit as net sales less cost of goods sold , exclusive of depreciation . we define gross margin as gross profit divided by net sales . selling , general and administrative expenses ( operating expenses ) . our operating expenses are primarily comprised of selling , general and administrative costs , which include personnel expenses ( salaries , wages , employee benefits , payroll taxes , stock compensation and bonuses ) , rent , fuel , vehicle maintenance costs , insurance , utilities , repairs and maintenance and professional fees . operating expenses also include depreciation and amortization . non-gaap adjusted ebitda . in addition to the metrics discussed above , we believe that adjusted ebitda is useful for evaluating our operating performance and efficiency of our business . ebitda represents our net income ( loss ) plus the sum of income tax ( benefit ) , depreciation and amortization and interest expense , net of interest income . adjusted ebitda represents ebitda as further adjusted for items such as stock-based compensation expense , related party advisory fees , loss ( gain ) on sale of assets , other non-cash items , other non-recurring ( income ) and loss . see “ -results of operations-quarterly results of operations data ” for more information about how we calculate ebitda and adjusted ebitda and the limitations of those metrics . key factors affecting our operating results in addition to the metrics described above , a number of other important factors may affect our results of operations in any given period . weather conditions and seasonality in a typical year , our operating results are impacted by seasonality . historically , our net sales and net income have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these quarters . story_separator_special_tag our net sales have been significantly lower in the first and fourth quarters due to lower landscaping , irrigation and turf maintenance activities ; and additionally , we have historically incurred net losses in these quarters . seasonal variations in operating results may also be significantly impacted by inclement weather conditions , such as snow or rain , which not only impact the demand for certain products like fertilizer and ice melt , but also may delay construction projects where our products are used . industry and key economic conditions our business depends on demand from customers for landscape products and services . the landscape supply industry includes a significant amount of landscape products , such as irrigation systems , outdoor lighting , lawn care supplies , nursery goods and landscape accessories , for use in the construction of newly built homes , commercial buildings and recreational spaces . the landscape distribution industry has historically grown in line with rates of growth in residential housing and commercial building . the industry is also affected by trends in home prices , home sales and consumer spending . as general economic conditions improve or deteriorate , consumption of these products and services also tends to fluctuate . the landscape distribution industry also includes a significant amount of landscape products such as fertilizer , herbicides and ice melt for use in maintaining existing landscapes or facilities . the use of these products is also tied to general economic activity , but levels of sales are not as closely correlated to construction markets . popular consumer trends preferences in housing , lifestyle and environmental awareness can also impact the overall level of demand and mix for the products we offer . examples of current trends we believe are important to our business include a heightened interest in professional landscape services inspired by the popularity of home and garden television shows and magazines ; the increasingly popular concept of “ outdoor living , ” which has been a key driver of sales growth for our hardscapes and outdoor lighting products ; and the social focus on eco-friendly products that promote water conservation , energy efficiency and the adoption of “ green ” standards . 43 acquisitions in addition to our organic growth we continue to grow our business through acquisitions in an effort to better service our existing customers and to attract new customers . these acquisitions have allowed us to further broaden our product lines and extend our geographic reach and leadership positions in local markets . in accordance with gaap , the results of the acquisitions we have completed are reflected in our financial statements from the date of acquisition forward . we incur transaction costs in connection with identifying and completing acquisitions and ongoing integration costs as we integrate acquired companies and seek to achieve synergies . as of january 1 , 2017 , we have invested over $ 190 million in 14 acquisitions since december 2013 , with the largest being the shemin nurseries investment of $ 57.7 million . the following is a summary of the acquisitions completed during the 2016 , 2015 and 2014 fiscal years : on december 19 , 2016 , we acquired the assets of east haven landscape products , headquartered in east haven , connecticut , adding a full-service landscape supply location along the southeastern connecticut coast and extending our network of existing full-service locations in greenwich , connecticut , bedford hills , new york and windsor , connecticut . the acquisition gives siteone a leading position for nursery , hardscapes and landscape supplies in the east haven area . on november 4 , 2016 , we acquired the assets of the landscape distribution business of loma vista nursery , inc. , which includes two locations serving customers in missouri and kansas . the acquisition gives siteone a leading position for nursery products in the kansas city market and bolsters our position in hardscapes . on september 12 , 2016 , we acquired the assets of glen allen nursery & garden center , inc. , which includes one branch location in richmond , virginia . the acquisition gives siteone a leading position for nursery products in the richmond area . on august 1 , 2016 , we acquired the assets of bissett nursery corp. and acquired all of the outstanding stock of bissett equipment corp. , which together comprise bissett . bissett includes three branch locations serving customers throughout the new york city metropolitan area . the acquisition gives siteone a leading position for nursery products in the new york city metropolitan market and a strong position in equipment and hardscapes . on april 4 , 2016 , we acquired the assets of blue max materials , inc. , blue max materials of charleston , inc. , blue max materials of columbia , inc. and blue max materials of the grand strand , inc. , which together comprise blue max materials . blue max materials includes five locations serving both north and south carolina . the acquisition creates a leading position for siteone in the north and south carolina hardscapes and landscape accessories markets . on january 4 , 2016 , we acquired the outstanding stock of hydro-scape products , inc. , which includes 17 locations serving southern california . the acquisition creates a leading position for siteone in the southern california irrigation and landscape accessories markets . on august 31 , 2015 , we acquired the assets of tieco , inc. , which includes six branch locations serving alabama and florida with irrigation , lighting , pump and well products . the acquisition creates a leading position for siteone in alabama and the florida panhandle irrigation markets . on august 5 , 2015 , we acquired all of the outstanding stock of green resource , llc , which includes five branch locations serving north and south carolina with chemicals , seed , fertilizer and erosion control products . the acquisition creates a leading position for siteone in north and south carolina across all of our product lines .
| gross profit growth was driven by the net sales increase resulting from organic sales growth and acquisitions in addition to margin expansion resulting from our operational initiatives . gross margin increased 170 basis points to 31.3 % in the 2016 fiscal year as compared to 29.6 % in the 2015 fiscal year . operational improvements in pricing and category management were the primary contributors , each accounting for approximately half of the increase . product mix did not have a significant impact on gross margins . acquisitions contributed approximately 20 basis points to the margin improvement . selling , general and administrative expenses ( operating expenses ) operating expenses for the 2016 fiscal year increased 20 % to $ 447 million from $ 373 million for the 2015 fiscal year . the increase in operating expenses was primarily driven by our growth from acquisitions . in addition , we incurred approximately $ 12 million in transition expenses related to our stock offerings , debt refinancing and subsequent amendment , and the termination of our consulting agreements with cd & r and deere . operating expenses expressed as a percentage of net sales increased to 27.1 % for the 2016 fiscal year compared to 25.7 % for the 2015 fiscal year . the increase was driven primarily by the transition expenses discussed above , in 46 addition to acquisitions and higher personnel costs to support our growth . depreciation and amortization increased $ 6 million to $ 37 million primarily as result of our acquisitions . interest expense and other non-operating ( income ) expense interest expense and other non-operating ( income ) expense increased $ 11 million to $ 22 million in the 2016 fiscal year from $ 11 million in the 2015 fiscal year . the increase in interest expense was principally driven by the higher debt levels , a higher blended interest rate on our debt , and the write-off of unamortized debt discounts and issuance costs in connection with the refinancing and subsequent amendment transaction . income tax ( benefit ) expense income tax expense was $ 21.3 million during the 2016 fiscal year as compared to
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following these reported results , we and astrazeneca are preparing to move into a phase 2a study in moderate-to-severe asthmatics in the second half of 2020. we presented interim data from our phase 1 dose escalation study at the sitc annual meeting on november 9 , 2019. we reported that prs-343 was well tolerated and had a favorable safety profile at all doses and schedules tested , demonstrated anti-tumor activity in a heavily pre-treated patient population across multiple tumor types and showed a potent increase in cd8+ t-cell numbers in the tumor microenvironment of responders , indicative of 4-1bb agonism on t-cells . pieris continues to enroll patients in that study at higher dose cohorts and plans to initiate the next stage of clinical development in gastric cancer this year . we also continue to enroll the dose-escalation phase 1 study of prs-343 in combination with atezolizumab and reported initial data from the study at our r & d day on november 19 , 2019 in new york . for our other io drug candidates and programs , we are conducting activities relating to candidate identification , optimization and preclinical evaluation . we achieved two preclinical milestones in connection with the prs-344 program , one in december 2018 and another in february 2019 , triggering two milestone payments from servier , and intend to file an ind for the drug candidate in the first half of 2020. we also executed our option to opt-into co-development and united states commercialization of prs-344 during the first quarter of 2019. in september 2019 , servier notified us of its decision to discontinue co-development of prs-332 , a pd-1-lag-3 bispecific for strategic reasons . we do not presently intend to continue development of prs-332 but retain full rights to advance the development and commercialization of the product on a world-wide basis . servier 's termination of the co-development of the prs-332 program does not impact the remainder of the pieris-servier alliance and the parties continue to advance prs-344 through ind-enabling activities . the pieris-servier alliance includes three additional programs beyond prs-344 , all of which are in active preclinical development . 88 our core anticalin technology and platform were developed in germany and we have collaborations with major multi-national pharmaceutical companies . in particular , we have an alliance with astrazeneca to treat respiratory diseases and partnerships with servier and seattle genetics , both in io . since inception , we have devoted nearly all of our efforts and resources to our research and development activities and have incurred significant net losses . for the years ended december 31 , 2019 and 2018 , we reported net losses of $ 25.5 million and $ 26.8 million , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 174.2 million . we expect to continue incurring substantial losses for the next several years as we continue to develop our clinical and preclinical drug candidates and programs . our operating expenses are comprised of research and development expenses and general and administrative expenses . we have not generated any revenues from product sales to date , and we do not expect to generate revenues from product sales for the foreseeable future . our revenues for the fiscal years ended december 31 , 2019 and 2018 were from license and collaboration agreements with our partners . a significant portion of our operations are conducted in countries other than the united states . since we conduct our business in u.s. dollars , our main exposure , if any , results from changes in the exchange rates between the euro and the u.s. dollar . at each period end , we remeasure assets and liabilities to the functional currency of that entity ( for example , u.s. dollar payables recorded by pieris pharmaceuticals gmbh ) . remeasurement gains and losses are recorded in the statement of operations line item 'other income ( expense ) , net ' . all assets and liabilities denominated in euros are translated into u.s. dollars at the exchange rate on the balance sheet date . revenues and expenses are translated at the weighted average rate during the period . equity transactions are translated using historical exchange rates . all adjustments resulting from translating foreign currency financial statements into u.s. dollars are included in accumulated other comprehensive loss . key financial terms and metrics the following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements . revenues we have not generated any revenues from product sales to date and we do not expect to generate revenues from product sales for the foreseeable future . our revenues for the last two years have been primarily from the license and collaboration agreements with astrazeneca , servier , and seattle genetics . the revenues from astrazeneca , servier , and seattle genetics have been comprised primarily of upfront payments , research and development services , and milestone payments . for additional information about our revenue recognition policy , see “ note 2-summary of significant accounting policies ” . research and development expenses the process of researching and developing drugs for human use is lengthy , unpredictable , and subject to many risks . we expect to continue incurring substantial expenses for the next several years as we continue to develop our clinical and preclinical drug candidates and programs . we are unable , with any certainty , to estimate either the costs or the timelines in which those expenses will be incurred . our current development plans focus on the following programs : our lead respiratory program , prs-060/azd1402 and our other respiratory programs , our io programs , currently comprised of prs-343 as well as multiple additional proprietary and partnered programs , including prs-344 . these programs consume a large proportion of our current , as well as projected , resources . story_separator_special_tag our research and development costs include costs that are directly attributable to the creation of certain of our anticalin drug candidates and are comprised of : internal recurring costs , such as personnel-related costs ( salaries , employee benefits , equity compensation , and other costs ) , materials and supplies , facilities and maintenance costs attributable to research and development functions ; and fees paid to external parties who provide us with contract services , such as preclinical testing , manufacturing and related testing , and clinical trial activities . 89 general and administrative expenses general and administrative expenses consist primarily of salaries , employee benefits , equity compensation , and other personnel-related costs associated with executive , administrative and other support staff . other significant general and administrative expenses include the costs associated with professional fees for accounting , auditing , insurance costs , consulting and legal services , along with facility and maintenance costs attributable to general and administrative functions . story_separator_special_tag seattle genetics and an increase in net working capital of $ 0.4 million . the change in net cash provided by investing activities for the year ended december 31 , 2019 compared to net cash used in the year ended december 31 , 2018 is mainly attributable to less investment purchases than investment maturities in the current year compared to 2018. financing activities for the year ended december 31 , 2019 were $ 32.2 million due primarily to proceeds from the 2019 private placement ( described below ) , along with exercises of options and warrants and proceeds from the employee stock purchase plan . net cash provided by financing activities in 2018 consisted of $ 47.2 million in proceeds due to the issuance of common stock under our february 2018 underwritten public offering along with $ 1.3 million of proceeds from the exercise of warrants and stock options for the year ended december 31 , 2018 . in august 2019 , the company entered into a sale agreement pursuant to which the company may offer and sell shares of its common stock , from time to time , up to an aggregate gross sales proceeds of $ 50.0 million through an “ at the market offering ” program under a shelf registration statement on form s-3 . to date , the company has not sold any shares under this agreement . in november 2019 , we entered into a securities purchase agreement for a private placement with a select group of institutional investors . the private placement , referred to as the pipe , consisted of 9,014,960 units , at a price of $ 3.55 per unit , for gross proceeds of approximately $ 32.0 million , and net proceeds to the company of approximately $ 31.0 million , after deducting placement agent fees and estimated offering expenses payable by us . each unit consists of ( i ) one share of our common stock or 0.001 shares of non-voting series c convertible preferred stock , and ( ii ) one immediately-exercisable warrant to purchase one share of our common stock with an exercise price of $ 7.10. we expect that our existing cash , cash equivalents , and investments will enable us to fund our operational and capital expenditure requirements for at least twelve months from the issuance date of these financial statements . any requirements for additional capital will depend on many factors , including the following : the scope , rate of progress , results and cost of our clinical studies , preclinical testing and other related activities ; the cost of manufacturing clinical supplies , and establishing commercial supplies , of our drug candidates and any products that we may develop ; the number and characteristics of drug candidates that we pursue ; 92 the cost , timing and outcomes of regulatory approvals ; the cost and timing of establishing sales , marketing and distribution capabilities ; the terms and timing of any collaborative , licensing and other arrangements that we may establish ; the timing , receipt and amount of sales , profit sharing or royalties , if any , from our potential products ; the cost of preparing , filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights ; and the extent to which we acquire or invest in businesses , products or technologies , although we currently have no commitments or agreements relating to any of these types of transactions . due to the often-volatile nature of the financial markets , equity and debt financing ( s ) may be difficult to obtain . in addition , any unfavorable development or delay in the progress of our core clinical-stage programs including prs-343 and prs-060/azd1402 could have a material adverse impact on our ability to raise additional capital . we may seek to raise any necessary additional capital through a combination of private or public equity offerings , debt financings , collaborations , strategic alliances , licensing arrangements and other marketing and distribution arrangements . to the extent that we raise additional capital through marketing and distribution arrangements or other collaborations , strategic alliances or licensing arrangements with third parties , we may have to relinquish valuable rights to our drug candidates , future revenue streams , research programs or product candidates or to grant licenses on terms that may not be favorable to us . if we raise additional capital through private or public equity offerings , the ownership interest of our existing stockholders will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders ' rights . if we raise additional capital through debt financing , we may be subject to covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends . contractual obligations leases we lease office space in boston , massachusetts . in august 2015 , we entered into a sublease to lease approximately 3,950 square feet .
| research and development expenses the following table provides a comparison of the research and development expenses for the years ended december 31 , 2019 and 2018 ( in thousands ) : 90 replace_table_token_2_th the $ 6.0 million increase in our immuno-oncology program spending period-over-period is due primarily to an increase in clinical trials costs incurred for prs-343 and drug product manufacturing for prs-343 , prs-344 and other proprietary programs ; the $ 3.0 million increase for our respiratory programs period-over-period is due primarily to increases to our ongoing cmc costs incurred for phase 2a readiness for prs-060/azd1402 offset by slightly lower clinical costs as the phase 1 sad study that was completed earlier in 2019. we also incurred higher pre-clinical and lab supply expenses as we initiated and were working on more proprietary and partnered respiratory programs in 2019 as compared to 2018 ; the $ 1.5 million decrease for our anemia program , prs-080 , period-over-period is mainly due to lower clinical costs as the phase 2a study ended in 2019 compared to being active during the same period in 2018 ; and the $ 6.0 million increase in other research and development activities expenses is mainly due to higher personnel expenses , including bonus and stock compensation , due to an overall increase in headcount ; an increase in recruiting costs ; and an increase in allocated facility costs due to higher non-cash rent charges for the new hallbergmoos facility that we took occupancy of in february 2020. general and administrative expenses general and administrative expenses were $ 18.4 million for both fiscal years ended december 31 , 2019 and december 31 , 2018 . the period over period consistency is due to decreases in investor relations , third party legal and recruiting as we have better leveraged internal resources , offset completely by increases in audit and tax due to new accounting regulations and internal control requirements and hardware and software costs to support growth and efficiency . non-operating income ( expense ) , net our non-operating income was $ 1.7 million for the year ended december 31 , 2019 as compared to a $ 3.8 million for the year ended december 31 , 2018 . this decrease is due to lower interest income as a result of lower invested amounts throughout 2019 and a strengthening of the u.s. dollar against the euro for the majority of 2019. in 2018 , a larger foreign currency gain was recorded in u.s. dollars due to a large receivable related to the
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the guaranties will be full recourse guaranties under identified circumstances , including failure to maintain “ single purpose ” status which is a factor in a consolidation of operating or mezzanine in a bankruptcy of another person , transfer or encumbrance of the property in violation of the applicable loan documents , operating or mezzanine incurring debts that are not permitted , and the property becoming subject to a bankruptcy proceeding . pursuant to the guaranties , the partnership is required to maintain a certain minimum net worth and liquidity . as of june 30 , 2015 and 2014 , the partnership is in compliance with both requirements . each of the loan agreements contains customary representations and warranties , events of default , reporting requirements , affirmative covenants and negative covenants , which impose restrictions on , among other things , organizational changes of the respective borrower , operations of the property , agreements with affiliates and third parties . each of the loan agreements also provides for mandatory prepayments under certain circumstances story_separator_special_tag story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 '' > operating expenses increased by $ 6,211,000 compared to the prior year primarily due to higher legal fees and higher operating expenses which include employee related expenses , room occupancy related expenses and food and beverage related expenses , franchise and credit card fees as the result in the increase in revenues and higher property taxes as the result of the redemption the limited partners and the refinancing of the hotel . legal expenses increased as the result of the current litigation . mortgage interest increased as the result of having one full year of interest expense on the new mortgage loans versus only six months in the prior year . the following table sets forth the average daily room rate , average occupancy percentage and room revenue per available room ( “ revpar ” ) of the hotel for the year ended june 30 , 2015 and 2014 . 22 replace_table_token_5_th room revenues remained strong as the san francisco market continued to have good demand for higher rated business . the hotel 's average daily rate increased by $ 17 for the year ended june 30 , 2015 compared to the year ended june 30 , 2014 , while occupancy percentages increased to 93 % from 92 % . as a result , the hotel was able to achieve a revpar number that was $ 20 higher than the prior year . our highest priority is guest satisfaction . we believe that enhancing the guest experience differentiates the hotel from our competition by building the most sustainable guest loyalty . in addition to the recent completion of “ the cloud ” ( technology lounge ) , three new premium executive meeting rooms and the karaoke lounge , the hotel has enhanced the arrival experience of the guests by renovating and upgrading the entrance and the lobby . the lobby , the porte cochere and the second floor furniture have been modernized . the carpet flooring in the lobby has been replaced by oak wood creating an open and welcoming environment . the wellness center on the fifth floor features a new spa with two treatment rooms and a room for manicure and pedicure treatments . the fitness center has also been expanded with state of the art equipment . in order to further the client experience , the hotel plans to renovate the fourth floor meeting space which will help modernize and attract key clientele . additionally , we have installed new carpet on the third floor including the ballroom . guestrooms are also being remodeled with modern shower amenities and granite countertops that will span over the next three years . and finally , the hotel in conjunction with the chinese cultural center is developing a landscape area on the pedestrian bridge that connects the hotel to portsmouth square . as we continue to take steps that further develop our ties with the local chinese community and the city of san francisco , we are also able to promote important new business ideas that represent good corporate citizenship . with the high demand in guest rooms and the adr increasing , the hotel 's strategies of obtaining group clients have been streamlined in order to ensure that length and pattern of stay benefits the hotel overall . the hotel is also focusing on high end clients with more banquet and meeting room requirements . moving forward , we will continue to focus on cultivating international business , especially from china , and capturing a greater percentage of the higher rated business , leisure and group travel . we will also continue in our efforts to upgrade our guest rooms and facilities and explore new and innovative ways to differentiate the hotel from its competition , as well as focusing on returning our food and beverage operations to profitability . during the last twelve months , we have seen steady improvement in business and leisure travel . if that trend in the san francisco market and the hotel industry continues , it should translate into an increase in room revenues and profitability . however , like all hotels , it will remain subject to the uncertain domestic and global economic environment and other risk factors beyond our control , such as the effect of natural disasters . story_separator_special_tag revenue from real estate operations decreased to $ 15,926,000 for the year ended june 30 , 2015 from $ 16,332,000 for the year ended june 30 , 2014. the decrease in real estate revenues is primarily due to the sale of its 249 unit apartment complex located in austin , texas ( see below for further discussion on sale ) , partially offset by increased rents at our remaining properties . real estate operating expenses decreased to $ 8,237,000 for the year ended june 30 , 2015 from $ 8,982,000 for the year ended june 30 , 2014 primarily as the result of eliminating the third party property management expense related to the management of our properties located outside of california , the sale of the austin , texas property and to a lesser extent the decrease in repairs and maintenance expense . in august 2015 , the company terminated its third party property management agreement for the management of the company 's properties located in california and will manage the properties in-house going forward . as of september 2015 , all of the company 's properties are being managed in house . in february 2014 , the company entered into a contract to sell its 249 unit apartment complex located in austin , texas and the adjacent unimproved land for $ 15,800,000. the purchase/sale agreement provides that purchaser can terminate the agreement with or without cause , however , the potential purchaser would forfeit the earnest money ( $ 208,000 ) and additional consideration ( $ 250,000 ) totaling $ 458,000. the purchaser also had the option to extend the agreement . during the quarter ended september 30 , 2014 , the company received the $ 458,000 and recognized it as income as the result of the potential buyer not extending the purchase agreement . in december 2014 , the company entered into a new contract with a different buyer to sell the same property for $ 16,300,000. in march 2015 , the company sold this property for $ 16,300,000 and realized a gain on the sale of real estate of $ 9,358,000. the company received net proceeds of $ 7,890,000 after selling costs and the repayment of the mortgage of $ 6,356,000 and the early prepayment of debt penalty of $ 1,634,000 . 23 in november 2014 , the company sold its 5,900 square foot commercial property for $ 3,450,000 and realized a gain on the sale of real estate of $ 1,742,000. the company received net proceeds of $ 2,163,000 after selling costs and the repayment of the related mortgage of $ 1,100,000. prior to its sale , this property was being leased by the buyer . management continues to review and analyze the company 's real estate operations to improve occupancy and rental rates and to reduce expenses and improve efficiencies . the company had a net loss on marketable securities of $ 4,652,000 for the year ended june 30 , 2015 compared to a net gain on marketable securities of $ 998,000 for the year ended june 30 , 2014. approximately $ 2,242,000 of the $ 4,652,000 net loss is related to the company 's investment in the common stock of comstock mining inc. such investments represent approximately 46 % of the company 's portfolio . for the year ended june 30 , 2015 , the company had a net realized loss of $ 1,590,000 and a net unrealized loss of $ 3,062,000. for the year ended june 30 , 2014 , the company had a net realized gain of $ 870,000 and a net unrealized gain of $ 128,000. gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the company 's results of operations . however , the amount of gain or loss on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value . for a more detailed description of the composition of the company 's marketable securities see the marketable securities section below . during the years ended june 30 , 2015 and 2014 , the company performed an impairment analysis of its other investments and determined that its investments had an other than temporary impairment and recorded impairment losses of $ 701,000 and $ 101,000 , respectively the company and its subsidiaries , portsmouth and santa fe , compute and file income tax returns and prepare discrete income tax provisions for financial reporting . the income tax benefit ( expense ) during the year ended june 30 , 2015 and 2014 represents primarily the combined income tax effect of portsmouth 's pretax loss which includes its share in net loss of the hotel and pre-tax income from intergroup ( standalone ) primarily as the result of the significant gains related to the sales of the two real estate properties . marketable securities and other investments as of june 30 , 2015 and 2014 , the company had investments in marketable equity securities of $ 5,827,000 and $ 11,420,000 , respectively . the following table shows the composition of the company 's marketable securities portfolio by selected industry groups as : 24 replace_table_token_6_th replace_table_token_7_th the company 's investment portfolio is diversified with 15 different equity positions . the company holds one equity security that is more than 10 % of the equity value of the portfolio .
| on june 26 , 2015 , the partnership and hilton entered into an amended franchise agreement which extended the franchise agreement through 2030 , modified the monthly royalty rate , extended geographic protection to the partnership and also provided the partnership certain key money cash incentives to be earned through 2030. the key money cash incentives were received on july 1 , 2015 and are included in accounts receivable at june 30 , 2015. justice also has a management agreement with prism hospitality l.p. ( “ prism ” ) to perform management functions for the hotel . the management agreement with prism had an original term of ten years and can be terminated at any time with or without cause by the partnership owner . effective january 2014 , the management agreement with prism was amended by the partnership . effective december 1 , 2013 , gmp management , inc. , a company owned by a justice limited partner and related party , also provides management services for the partnership pursuant to a management services agreement , which is for a term of 3 years , but which can be terminated earlier by the partnership for cause . 20 the parking garage that is part of the hotel property is managed by ace parking pursuant to a contract with the partnership . portsmouth also receives management fees as a general partner of justice for its services in overseeing and managing the partnership 's assets . those fees are eliminated in consolidation . in addition to the operations of the hotel , the company also generates income from the ownership and management of real estate . properties include sixteen apartment complexes , one commercial real estate property , and two single-family houses as strategic investments . the properties are located throughout the united states , but are concentrated in texas and southern california . the company also has an investment in unimproved real property . all of the company 's operating real estate properties with exception of the two commercial properties were managed by professional third party property management companies . in july 2014 , the company terminated its property and asset management agreements with the professional third party property management company that managed its properties located outside of california . beginning august 2014 , the company began managing its five properties located outside of california in-house , while the properties located in california are still being managed by a third party property
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acquisitions on february 28 , 2014 , astronics completed the acquisition of substantially all of the assets and liabilities of eads north america 's test and services division . the entity , astronics test systems ( ats ) is located in irvine , california and is a leading provider of highly engineered automatic test systems , subsystems and instruments for the semi-conductor , consumer electronics to both the commercial and defense industries . the purchase price was approximately $ 53.0 million in cash plus a net working capital adjustment yet to be determined . the addition of ats compliments products and technologies that the astronics test segment offers . ats will be reported as a member of our test systems segment . on december 5 , 2013 we completed the acquisition of 100 % of the stock of pga . pga designs and manufactures seat motion and lighting systems primarily for premium class aircraft seats and is europe 's leading provider of in-flight entertainment/communication systems as well as cabin management systems for private vvip aircraft . the addition of pga further diversifies the products and technologies that astronics offers . the purchase price was approximately $ 32.9 million for which approximately $ 10.7 million , net of cash acquired , was paid in cash and the balance paid with 264,168 shares of astronics stock valued at $ 51.00/share . pga is included in our aerospace reporting segment . on october 1 , 2013 , we acquired certain assets and liabilities from aerosat corporation and related entities , a supplier of aircraft antenna systems for $ 12 million in cash , plus contingent purchase consideration ( earn out ) of up to a maximum of $ 53.0 million based upon the achievement of certain revenue levels in 2014 and 2015 calculated as follows : replace_table_token_6_th the addition of aerosat further diversifies the products and technologies that astronics offers . the additional contingent purchase consideration is recorded at its estimated fair value of approximately $ 5.0 million at the date of acquisition based upon the company 's assessment of revenue levels for the earn out periods and the probability of aerosat achieving those revenue levels . substantially all of the goodwill and purchased intangible assets are expected to be deductible for tax purposes over 15 years . on july 18 , 2013 , we completed the acquisition of 100 % of the stock of peco , inc. which designs and manufacturers highly engineered commercial aerospace interior components and systems for the aerospace industry . the company specializes in overhead passenger service units , ( psus ) which incorporate air handling , emergency oxygen , electrical power management and cabin lighting systems . it also manufactures a wide range of fuel access doors that meet stringent strength , fuel sealing and anti-corrosion requirements . the addition of peco diversifies the products and technologies that astronics offers . we purchased the outstanding stock of peco for $ 136.0 million in cash . peco is included in our aerospace reporting segment . on july 30 , 2012 we acquired by merger , 100 % of the stock of max-viz , inc. , a manufacturer of industry-leading enhanced vision systems for defense and commercial aerospace applications for the purpose of improving situational awareness . the addition of max-viz diversifies the products and technologies that astronics offers . we purchased the outstanding stock of max-viz for $ 10.7 million in cash plus contingent purchase consideration up to a maximum of $ 8.0 million subject to meeting certain revenue thresholds through 2014. max-viz is included in our aerospace reporting segment . the additional contingent purchase consideration is recorded at its estimated fair value at the date of acquisition based upon the company 's assessment of the probability of max-viz achieving the revenue growth targets . at december 31 , 2013 , the amount recorded as additional purchase consideration is insignificant . 17 on november 30 , 2011 we acquired 100 % of the stock of ballard technology , inc. , a manufacturer of avionics databus products . ballard is included in our aerospace reporting segment . the addition of ballard diversifies the products and technologies that astronics offers . we purchased the outstanding stock of ballard for approximately $ 23.9 million in cash plus contingent purchase consideration up to a maximum of $ 5.5 million subject to meeting certain revenue growth targets over the next five years . at december 31 , 2013 , the amount recorded as additional purchase consideration is approximately $ 0.7 million . critical accounting policies our financial statements and accompanying notes are prepared in accordance with u.s. generally accepted accounting principles . the preparation of the company 's financial statements requires management to make estimates , assumptions and judgments that affect the amounts reported . these estimates , assumptions and judgments are affected by management 's application of accounting policies , which are discussed in the notes to consolidated financial statements , note 1 of item 8 , financial statements and supplementary data of this report . the critical accounting policies have been reviewed with the audit committee of our board of directors . revenue recognition most of our revenue is recognized at the time of shipment of goods and transfer of title . revenue of approximately $ 4.4 million , $ 4.2 million and $ 10.0 million for the years ending december 31 , 2013 , 2012 and 2011 respectively , was recognized from long-term , fixed-price contracts using the percentage-of-completion method of accounting , measured by multiplying the estimated total contract value by the ratio of actual contract costs incurred to date to the estimated total contract costs . substantially all long-term contracts are with u.s. government agencies and contractors thereto . the company makes significant estimates involving its usage of percentage-of-completion accounting to recognize contract revenues . the company periodically reviews contracts in process for estimates-to-completion , and revises estimated gross profit accordingly . story_separator_special_tag while the company believes its estimated gross profit on contracts in process is reasonable , unforeseen events and changes in circumstances can take place in a subsequent accounting period that may cause the company to revise its estimated gross profit on one or more of its contracts in process . accordingly , the ultimate gross profit realized upon completion of such contracts can vary significantly from estimated amounts between accounting periods . accounts receivable and allowance for doubtful accounts we record a valuation allowance to account for potentially uncollectible accounts receivable . the allowance is determined based on management 's knowledge of the business , specific customers , review of receivable aging and a specific identification of accounts where collection is at risk . at december 31 , 2013 , the allowance for doubtful accounts for accounts receivable was $ 0.1 million , or 0.2 % of gross accounts receivable . at december 31 , 2012 , the allowance for doubtful accounts for accounts receivable was $ 0.7 million , or 1.4 % of gross accounts receivable . inventory valuation we record valuation reserves to provide for excess , slow moving or obsolete inventory or to reduce inventory to the lower of cost or market value . in determining the appropriate reserve , management considers the age of inventory on hand , the overall inventory levels in relation to forecasted demands as well as reserving for specifically identified inventory that we believe is no longer salable . at december 31 , 2013 , our reserve for inventory valuation was $ 11.0 million , or 11.5 % of gross inventory . at december 31 , 2012 , our reserve for inventory valuation was $ 12.0 million , or 19.8 % of gross inventory . deferred tax asset valuation allowances deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . we record a valuation allowance to reduce deferred tax assets to the amount of future tax benefit that we believe is more likely than not to be realized . significant assumptions regarding future profitability is required to estimate the value of these deferred tax assets . we consider recent earnings projections , allowable tax carryforward periods , tax planning strategies and historical earnings performance to determine the amount of the valuation allowance . changes in these factors could cause us to adjust our valuation allowance , which would impact our income tax expense and the carrying value of these assets when we determine that these factors have changed . as of december 31 , 2013 we had net deferred tax liabilities of $ 19.9 million . included in the deferred tax liabilities are approximately $ 17.5 million in deferred tax assets net of a $ 2.5 million valuation allowance . these deferred tax assets principally relate to goodwill and intangible assets , employee benefit liabilities , asset reserves , depreciation and state and foreign general business tax credit carry-forwards . 18 as of december 31 , 2012 , we had net deferred tax assets of $ 14.0 million , net of a $ 2.2 million valuation allowance . these assets principally relate to goodwill and intangible assets , employee benefit liabilities , asset reserves , depreciation and state and foreign general business tax credit carry-forwards . because of the uncertainty as to the company 's ability to generate sufficient future taxable income in certain states , the company has recorded the valuation allowances accordingly in 2013 and 2012. impairment of long-lived assets goodwill impairment testing our goodwill is the result of the excess of purchase price over net assets acquired from acquisitions . as of december 31 , 2013 , we had approximately $ 101.0 million of goodwill . as of december 31 , 2012 , we had approximately $ 21.9 million of goodwill . the change in goodwill is due to the acquisitions of peco , aerosat and pga , increasing goodwill by $ 79.1 million . we identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components . the test systems operating segment is its own reporting unit while the other reporting units are one level below our aerospace operating segment . companies may perform a qualitative assessment as the initial step in the annual goodwill impairment testing process for all or selected reporting units . companies are also allowed to bypass the qualitative analysis and perform a quantitative analysis if desired . economic uncertainties and the length of time from the calculation of a baseline fair value are factors that we would consider in determining whether to perform a quantitative test . when we evaluate the potential for goodwill impairment using a qualitative assessment , we consider factors including , but not limited to , macroeconomic conditions , industry conditions , the competitive environment , changes in the market for our products and services , regulatory and political developments , entity specific factors such as strategy and changes in key personnel and overall financial performance . if , after completing this assessment , it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value , we proceed to a quantitative two-step impairment test . quantitative testing first requires a comparison of the fair value of each reporting unit to the carrying value . we use the discounted cash flow method to estimate the fair value of each of our reporting units . the discounted cash flow method incorporates various assumptions , the most significant being projected revenue growth rates , operating profit margins and cash flows , the terminal growth rate and the discount rate . management projects revenue growth rates , operating margins and cash flows based on each reporting unit 's current business , expected developments and operational strategies .
| new product line electrical power & motion - includes cabin electronics , airframe power and pga seat motion products lighting & safety - includes aircraft lighting and peco safety products ( psus ) and pga cabin lighting products avionics - includes avionics , aerosat satellite antenna products and pga in-flight entertainment and cabin control products structures - includes peco structures products ( fuel access doors and diffusers ) other - includes airfield lighting and other peco products our aerospace segment serves four primary markets . they are the military , commercial transport , business jet and other . the test systems segment serves the military and defense markets . with the addition of ats in 2014 , the test systems segment will also serve the commercial electronics and semi-conductor markets . commercial transport market sales to the commercial transport market include sales of electrical power & motion products , lighting & safety products , structures products and avionics products . sales to this market totaled approximately $ 237.7 million or 70 % of our consolidated sales in 2013 , up $ 58.7 million or 32.7 % from 2012. sales of electrical power & motion products , which provide in-seat power for airline passengers , airframe power management products , power for in-flight entertainment systems ( ife ) and passenger seat motion products found on commercial airlines around the world . sales to this market were $ 174.0 million or 51.2 % of our consolidated sales , up $ 23.3 million from 2012 , due primarily to increased product sales volume . lighting & safety products supplied to the commercial transport market were approximately $ 52.8 million or 15.5 % in 2013 , up $ 29.3 million from 2012 due primarily to the sales of peco and pga both acquired in 2013 which added $ 26.4 million . structures sales of $ 6.3 million were all due to the sales of peco fuel access doors and diffusers . sales of avionics products to this market were $ 4.6 million . maintaining and growing our sales to the commercial transport market will depend on airlines capital spending budgets for cabin up-grades as well as the purchase of new aircraft such as the boeing 787 , airbus a380 and airbus a350 . this spending by the airlines is impacted by their profits , cash flow and available financing as well as competitive pressures between the airlines to improve the travel experience for their passengers . we expect that these
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for the stores reportable segment , our net sales for fiscal 2010 increased $ 286 million , or 2 percent , compared with fiscal 2009. the increase was primarily due to an increase in net sales at our new international stores , an increase in comp store sales , excluding the associated comparable online sales , of 1 percent , and the favorable impact of foreign exchange of $ 116 million . the foreign exchange impact is the translation impact if net sales for fiscal 2009 were translated at fiscal 2010 exchange rates . for the direct reportable segment , our net sales for fiscal 2010 increased $ 181 million , or 16 percent , compared with fiscal 2009. the increase was due to the growth in our online business across all brands , primarily old navy , piperlime , and athleta , and the incremental sales related to the introduction of international online sales in fiscal 2010. in fiscal 2010 , our net sales , including direct , for the u.s. and canada were $ 12.7 billion , an increase of $ 259 million or 2 percent compared with $ 12.5 billion for fiscal 2009. in fiscal 2010 , our net sales , including direct , outside of the u.s. and canada were $ 1.9 billion , an increase of $ 208 million or 12 percent compared with $ 1.7 billion for fiscal 2009. cost of goods sold and occupancy expenses replace_table_token_9_th cost of goods sold and occupancy expenses as a percentage of net sales increased 4.0 percent in fiscal 2011 compared with fiscal 2010. cost of goods sold increased 3.7 percent as a percentage of net sales in fiscal 2011 compared with fiscal 2010. the increase in cost of goods sold as a percentage of net sales was primarily driven by increased cost of merchandise primarily due to higher cotton prices . 23 occupancy expenses increased 0.3 percent as a percentage of net sales in fiscal 2011 compared with fiscal 2010. the increase in occupancy expenses as a percentage of net sales was primarily driven by lower net sales for the stores reportable segment without a corresponding decrease in occupancy expenses , partially offset by higher net sales for the direct reportable segment . cost of goods sold and occupancy expenses as a percentage of net sales increased 0.1 percent in fiscal 2010 compared with fiscal 2009. cost of goods sold increased 0.7 percent as a percentage of net sales in fiscal 2010 compared with fiscal 2009. the increase in cost of goods sold as a percentage of net sales was primarily driven by lower margins for both regular price and marked down merchandise . occupancy expenses decreased 0.6 percent as a percentage of net sales in fiscal 2010 compared with fiscal 2009. the decrease in occupancy expenses as a percentage of net sales was primarily driven by reduced expenses due to store closures and fully depreciated assets , partially offset by higher expenses due to store remodels and international store openings and the unfavorable impact of foreign exchange of $ 22 million . operating expenses replace_table_token_10_th operating expenses decreased $ 85 million , or 0.3 percent as a percentage of net sales , in fiscal 2011 compared with fiscal 2010. the decrease in operating expenses was primarily due to higher income from fees earned under the private label and co-branded credit card agreements , partially offset by an increase in marketing expenses . operating expenses increased $ 12 million , but decreased 0.8 percent as a percentage of net sales , in fiscal 2010 compared with fiscal 2009. the increase in operating expenses was primarily due to higher store payroll , store benefits , and other store-related expenses and higher expenses due to our new york and san francisco headquarter office moves , partially offset by a decrease in bonus expense . interest expense ( reversal ) replace_table_token_11_th interest expense for fiscal 2011 primarily consists of interest expense related to our $ 1.25 billion long-term debt , which was issued in april 2011 , and $ 400 million term loan , which was funded in may 2011. interest expense for fiscal 2010 includes an interest expense reversal of $ 15 million from the reduction of interest expense accruals resulting primarily from the filing of a u.s. federal income tax accounting method change application and the resolution of the internal revenue service 's review of the company 's federal income tax returns and refund claims for fiscal 2001 through 2006. interest income replace_table_token_12_th 24 g ap i nc . f orm 10-k interest income is earned on our cash and cash equivalents and investments . the decrease in interest income for fiscal 2011 compared with fiscal 2010 was primarily due to a lower monthly average cash and cash equivalents and investments balance during fiscal 2011. the decrease in interest income for fiscal 2010 compared with fiscal 2009 was primarily due to a lower monthly average cash and cash equivalents and investments balance during fiscal 2010. income taxes replace_table_token_13_th while the effective tax rate for fiscal 2011 decreased slightly compared with fiscal 2010 , there were changes in individual components of the effective tax rate . state and other income taxes decreased primarily due to changes in state tax laws and increases in state and federal tax credits . the decreases in these components were offset by the tax impact of foreign operations , which increased primarily due to operating losses in china and hong kong for fiscal 2011 ( for which no tax benefit has been provided ) , and their greater impact due to lower gap inc. pre-tax income for fiscal 2011 , as well as the unfavorable impact of a change in the mix of income between domestic and foreign operations . although the effective tax rate for fiscal 2010 remained unchanged from fiscal 2009 , there were changes in individual components of the effective tax rate . story_separator_special_tag the tax impact of foreign operations increased primarily due to the recording of valuation allowances related to losses incurred by our china subsidiaries and incremental tax expense related to the repatriation of earnings from our canadian subsidiaries . the increase was primarily offset by the release of unrecognized tax benefits for closed years . we currently expect the fiscal 2012 effective tax rate to be about 39.5 percent . the actual rate will ultimately depend on several variables , including the mix of income between domestic and international operations , the overall level of income , the potential resolution of outstanding tax contingencies , and changes in tax laws and rates . liquidity and capital resources our largest source of operating cash flows is cash collections from the sale of our merchandise . our primary uses of cash include merchandise inventory purchases , occupancy costs , personnel-related expenses , purchases of property and equipment , payment of taxes , and share repurchases . in addition to share repurchases , we also continue to return cash to our shareholders in the form of dividends . in the first quarter of fiscal 2011 , we made the strategic decision to issue debt in the aggregate amount of $ 1.65 billion . given favorable market conditions and our history of generating consistent and strong operating cash flow , we took this step to provide a more optimal capital structure . the company has generated annual cash flow from operations in excess of $ 1 billion per year for the past decade and ended fiscal 2011 with $ 1.9 billion of cash and cash equivalents . we remain committed to maintaining a strong financial profile with ample liquidity . we consider the following to be measures of our liquidity and capital resources : replace_table_token_14_th as of january 28 , 2012 , the majority of our cash and cash equivalents was held in the u.s. and is generally accessible without any limitations . 25 we believe that current cash balances and cash flows from our operations will be sufficient to support our business operations , including growth initiatives and planned capital expenditures , for the next 12 months and beyond . we are also able to supplement near-term liquidity , if necessary , with our $ 500 million revolving credit facility . cash flows from operating activities net cash provided by operating activities during fiscal 2011 decreased $ 381 million compared with fiscal 2010 , primarily due to the following : a decrease in net income in fiscal 2011 compared with fiscal 2010. net cash provided by operating activities during fiscal 2010 decreased $ 184 million compared with fiscal 2009 , primarily due to the following : an increase in inventory purchases in fiscal 2010 compared with fiscal 2009 ; a higher fiscal 2009 bonus payout in the first quarter of fiscal 2010 compared with the fiscal 2008 bonus payout in the first quarter of fiscal 2009 ; partially offset by an increase in net income in fiscal 2010 compared with fiscal 2009. we fund inventory expenditures during normal and peak periods through cash flows from operating activities and available cash . our business follows a seasonal pattern , with sales peaking over a total of about eight weeks during the end-of-year holiday period . the seasonality of our operations may lead to significant fluctuations in certain asset and liability accounts between fiscal year-end and subsequent interim periods . cash flows from investing activities our cash outflows for investing activities are primarily for capital expenditures and purchases of investments , while cash inflows are primarily proceeds from maturities of investments . net cash used for investing activities during fiscal 2011 increased $ 25 million compared with fiscal 2010 , primarily due to the following : $ 25 million less net maturities of short-term investments in fiscal 2011 compared with fiscal 2010. net cash used for investing activities during fiscal 2010 decreased $ 108 million compared with fiscal 2009 , primarily due to the following : $ 350 million more net maturities of short-term investments in fiscal 2010 compared with fiscal 2009 ; partially offset by $ 223 million more purchases of property and equipment in fiscal 2010 compared with fiscal 2009 ; and $ 17 million less release of restricted cash in fiscal 2010 compared with fiscal 2009. in fiscal 2011 , capital expenditures were $ 548 million . for fiscal 2012 , we expect capital expenditures to be about $ 600 million . cash flows from financing activities our cash outflows from financing activities consist primarily of the repurchases of our common stock and dividend payments . cash inflows primarily consist of proceeds from the issuance of long-term debt . net cash used for financing activities during fiscal 2011 decreased $ 1.5 billion compared with fiscal 2010 , primarily due to the following : $ 1.65 billion of proceeds from our issuance of long-term debt in fiscal 2011 ; partially offset by $ 133 million more repurchases of common stock in fiscal 2011 compared with fiscal 2010 . 26 g ap i nc . f orm 10-k net cash used for financing activities during fiscal 2010 increased $ 1.4 billion compared with fiscal 2009 , primarily due to the following : $ 1.4 billion more repurchases of common stock in fiscal 2010 compared with fiscal 2009. free cash flow free cash flow is a non-gaap financial measure . we believe free cash flow is an important metric because it represents a measure of how much cash a company has available for discretionary and non-discretionary items after the deduction of capital expenditures , as we require regular capital expenditures to build and maintain stores and purchase new equipment to improve our business . we use this metric internally , as we believe our sustained ability to generate free cash flow is an important driver of value creation .
| stores in which the selling square footage has changed by 15 percent or more as a result of a remodel , expansion , or reduction are excluded from the comp sales calculations until the first day they have comparable prior year sales . a store is considered non-comparable ( non-comp ) when it has been open for less than one calendar year or has changed its selling square footage by 15 percent or more within the past year . a store is considered closed if it is temporarily closed for three or more full consecutive days or is permanently closed . when a temporarily closed store reopens , the store will be placed in the comp/non-comp status it was in prior to its closure . if a store was in closed status for three or more days in the prior year , the store will be in non-comp status for the same days the following year . online comp sales are defined as sales through online channels in countries where we have existing comp store sales . current year foreign exchange rates are applied to both current year and prior year comp sales to achieve a consistent basis for comparison . store count and square footage information net sales per average square foot is as follows : replace_table_token_7_th ( 1 ) excludes net sales associated with our online , catalog , wholesale , and franchise businesses . 21 store count , openings , closings , and square footage for our stores are as follows : replace_table_token_8_th gap and banana republic outlet stores are reflected in each of the respective brands . in addition , we have franchise agreements with unaffiliated franchisees to operate gap and banana republic stores throughout asia , australia , eastern europe , latin america , the middle east , and africa . in fiscal 2012 , net of repositions , we expect to open about 125 new company-operated store locations and close about 115 company-operated store locations . through downsizes and net store closures , we expect net square footage for company-operated stores to decrease about 1 percent for fiscal 2012. as a result of ongoing
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terms of the ppp loans include the following ( i ) maximum amount limited to the lesser of $ 10 million or an amount calculated using a payroll-based formula , ( ii ) maximum loan term of two years , ( iii ) interest rate of 1.00 % , ( iv ) no collateral or personal guarantees are required , ( v ) no payments are required for six months following the loan disbursement date and ( vi ) loan forgiveness up to the full principal amount of the loan and any accrued interest , subject to certain requirements including that no more than 25 % of the loan forgiveness amount may be attributable to non-payroll costs . in return for processing and booking the loan , the sba will pay the lender a processing fee tiered by the size of the loan ( 5 % for loans of not more than $ 350 thousand ; 3 % for loans more than $ 350 thousand and less than $ 2 million ; and 1 % for loans of at least $ 2 million ) . at december 31 , 2020 , ppp loans totaled $ 277.8 million which are included in commercial and industrial loans . the economic aid act , signed into law on december 27 , 2020 , authorized new ppp funding and extended the authority of lenders to make ppp loans through march 31 , 2021. under the revised terms of the ppp , loans may be made to first time borrowers as well as certain businesses that previously received a ppp loan and experienced a significant reduction in revenue . the company is participating in the new round of the ppp by offering first and second draw loans . we are also currently participating in the federal reserve 's ppplf which , through december 31 , 2020 , will extend loans to banks who are loaning money to small businesses under the ppp . the amount outstanding at december 31 , 2020 , was $ 149.8 million and is non-recourse and secured by the amount of the ppp loans we originate . the maturity date of a borrowing under the ppplf is equal the maturity date of the ppp loan pledged to secure the borrowing and would be accelerated ( i ) if the underlying ppp loan goes into default and is sold to the sba to realize on the sba guarantee or ( ii ) to the extent that any loan forgiveness reimbursement is received from the sba . borrowings under the ppplf bear interest at a rate of 0.35 % and there are no fees to us . federal bank regulatory agencies have issued an interim final rule that permits banks to neutralize the regulatory capital effects of participating in the ppp and , if applicable , the ppplf . specifically , all ppp loans have a zero percent risk weight under applicable risk-based capital rules . additionally , a bank may exclude all ppp loans pledged as collateral to the ppplf from its average total consolidated assets for the purposes of calculating its leverage ratio , while ppp loans that are not pledged as collateral to the ppplf will be included . acquisition of beeville on april 2 , 2019 , the company completed its acquisition of first beeville financial corporation and its subsidiary , the first national bank of beeville . this transaction resulted in three additional branches and two lpo 's in the south texas region . the company issued 1,579,191 shares of its common stock as well as a net cash payment to beeville shareholders of $ 32.4 million . for more information about the acquisition , see “ note 3. business combinations ” in the notes to our consolidated financial statements included elsewhere in this annual report on form 10-k. 52 acquisition of chandler on november 5 , 2019 , the company completed its acquisition of chandler bancorp inc. , and its subsidiary , citizens state bank . this transaction resulted in seven additional branches in the north texas region . the company issued 2,100,000 shares of its common stock as well as a net cash payment to citizens shareholders of $ 17.9 million . for more information about the acquisition , see “ note 3. business combinations ” in the notes to our consolidated financial statements included elsewhere in this annual report on form 10-k. simmons branch acquisition on february 28 , 2020 , spirit completed its acquisition of certain assets and assumption of certain liabilities associated with five banking offices of simmons bank . the offices are located in austin , san antonio and tilden , texas . the company paid total consideration of $ 131.6 million in the simmons branch acquisition . results of operations our results of operations depend substantially on net interest income and noninterest income . other factors contributing to our results of operations include our level of noninterest expenses , such as salaries and employee benefits , occupancy and equipment and other miscellaneous operating expenses . net interest income net interest income represents interest income less interest expense . we generate interest income from interest , dividends and fees received on interest-earning assets , including loans and investment securities we own . we incur interest expense from interest paid on interest-bearing liabilities , including interest-bearing deposits and borrowings . to evaluate net interest income , we measure and monitor ( 1 ) yields on our loans and other interest-earning assets , ( 2 ) the costs of our deposits and other funding sources , ( 3 ) our net interest spread , ( 4 ) our net interest margin and ( 5 ) our provisions for loan losses . net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities . net interest margin is calculated as the annualized net interest income divided by average interest-earning assets . because noninterest-bearing sources of funds , such as noninterest-bearing deposits and stockholders ' equity , also fund interest-earning assets , net interest margin includes the benefit of these noninterest-bearing sources . story_separator_special_tag changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities , as well as the volume and types of interest-earning assets , interest-bearing and noninterest-bearing deposits and stockholders ' equity , are usually the largest drivers of periodic changes in net interest spread , net interest margin and net interest income . we measure net interest income before and after provision for loan losses required to maintain our allowance for loan and lease losses at acceptable levels . noninterest income our noninterest income includes the following : ( 1 ) service charges and fees ; ( 2 ) sba loan servicing fees ; ( 3 ) mortgage referral fees ; ( 4 ) gain on the sales of loans , net ; ( 5 ) gain ( loss ) on sales of investment securities ; ( 6 ) swap fees ; ( 7 ) swap referral fees ; and ( 8 ) other . noninterest expense our noninterest expense includes the following : ( 1 ) salaries and employee benefits ; ( 2 ) occupancy and equipment expenses ; ( 3 ) professional services ; ( 4 ) data processing and network ; ( 5 ) regulatory assessments and insurance ; ( 6 ) amortization of core deposit intangibles ; ( 7 ) advertising ; ( 8 ) marketing ; ( 9 ) telephone expenses ; ( 10 ) conversion expense ; and ( 11 ) other . financial condition the primary factors we use to evaluate and manage our financial condition include liquidity , asset quality and capital . 53 liquidity we manage liquidity based upon factors that include the amount of core deposits as a percentage of total deposits , the level of diversification of our funding sources , the allocation and amount of our deposits among deposit types , the short-term funding sources used to fund assets , the amount of non-deposit funding used to fund assets , the availability of unused funding sources , off-balance sheet obligations , the availability of assets to be readily converted into cash without undue loss , the amount of cash and liquid securities we hold , and the repricing characteristics and maturities of our assets when compared to the repricing characteristics of our liabilities , the ability to securitize and sell certain pools of assets and other factors . asset quality we manage the diversification and quality of our assets based upon factors that include the level , distribution , severity and trend of problem , classified , delinquent , nonaccrual , nonperforming and restructured assets , the adequacy of our allowance for loan and lease losses , discounts and reserves for unfunded loan commitments , the diversification and quality of loan and investment portfolios and credit risk concentrations . capital we manage capital based upon factors that include the level and quality of capital and our overall financial condition , the trend and volume of problem assets , the adequacy of discounts and reserves , the level and quality of earnings , the risk exposures in our balance sheet , the levels of tier 1 ( core ) , risk-based and tangible common equity capital , the ratios of tier 1 ( core ) , risk-based and tangible common equity capital to total assets and risk-weighted assets and other factors . story_separator_special_tag style= '' font-size:8pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > ( 1 ) variances attributable to both volume and rate are allocated on a consistent basis between rate and volume based on the absolute value of the variances in each category . ( 2 ) includes loans on nonaccrual status . year ended december 31 , 2020 compared to year ended december 31 , 2019 net interest income was $ 105.9 million for the year ended december 31 , 2020 compared to $ 77.9 million for the year ended december 31 , 2019 , representing an increase of $ 28.0 million , or 36.0 % . the increase in net interest income was primarily due to an increase in interest income of $ 28.3 million partially offset by an increase in interest expense of $ 240 thousand . interest income on loans increased by $ 32.4 million for the year ended december 31 , 2020. the effects of growth in average loans of $ 843.7 million , including loans held for sale , for the year ended december 31 , 2020 was more than offset by declines in interest rates during the year and the primary driver of the increase in interest income on loans of $ 6.8 million was origination fees recognized in conjunction with the ppp . interest expense was $ 17.6 million for the year ended december 31 , 2020 compared to $ 17.4 million for the year ended december 31 , 2019 , representing an increase of $ 240 thousand , or 1.4 % . this increase was mainly due to an increase in interest expense on fhlb advances and other borrowings . interest expense on fhlb advances and other borrowings totaled $ 3.0 million for the year ended december 31 , 2020 compared to $ 1.8 million for the year ended december 31 , 2019 , representing an increase of $ 1.2 million , resulting primarily from interest expense on subordinated debt issued during 2020 which yields 6.0 % . interest on subordinated debt was offset by declines in interest expense on deposits related to lower overall market interest rates . interest expense on deposits decreased by $ 970 thousand for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. the decrease was primarily attributable to a decrease in overall market rates offset by an increase in the average balance of interest bearing deposits of $ 433.6 million .
| generated diluted earnings per common share of $ 1.03 and adjusted diluted earnings per common share of $ 1.19 for the year ended december 31 , 2018. the increase in net income was driven by an increase in interest income of $ 37.9 million that was primarily attributable to acquired loan growth , partially offset by an increase in interest expense of $ 7.0 million , which was mainly the result of increased deposit balances from acquisitions . our results of operations for the year ended december 31 , 2019 produced a return on average assets of 1.14 % compared to a return on average assets of 0.89 % for the year ended december 31 , 2018. we had a return on average stockholders ' equity of 8.38 % compared to a return on average stockholders ' equity of 6.77 % for the year ended december 31 , 2018 . 54 net interest income and net interest margin the following table presents , for the periods indicated , information about ( 1 ) average balances , the total dollar amount of interest income from interest-earning assets and the resultant average yields ; ( 2 ) average balances , the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates ; ( 3 ) the interest rate spread ; ( 4 ) net interest income and margin ; and ( 5 ) net interest income and margin ( tax equivalent ) . interest earned on loans that are classified as nonaccrual is not recognized in income , however the balances are reflected in average outstanding balances for that period . any nonaccrual loans have been included in the table as loans carrying a zero yield . replace_table_token_6_th ( 1 ) average balances presented are derived from daily average balances . ( 2 ) includes loans on nonaccrual status . ( 3 ) in order to make pretax income and resultant yields on tax-exempt loans comparable to those on taxable loans , a tax-equivalent adjustment
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on january 28 , 2011 , we acquired taligen therapeutics , inc. ( taligen ) , a privately held development stage biotechnology company based in cambridge , massachusetts , in a transaction accounted for as a business combination . the acquisition was intended to broaden our portfolio of preclinical compounds and to expand our capabilities in translational medicine . preclinical compounds acquired from taligen include product candidates for the potential treatment of patients with ophthalmic diseases such as age-related macular degeneration ( amd ) , as well as other novel antibody and protein regulators of the complement inflammatory pathways . we made an upfront cash payments of $ 111,773 for 100 % of taligen 's equity interests . additional contingent payments of up to an aggregate of $ 367,000 would be due upon reaching various clinical efficacy and product approval milestones in both the united states and european union for up to six product candidates . critical accounting policies and the use of estimates the significant accounting policies and basis of preparation of our consolidated financial statements are described in note 1 , “ business overview and summary of significant accounting policies ” . under accounting principles generally accepted in the united states , we are required to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and disclosure of contingent assets and liabilities in our financial statements . actual results could differ from those estimates . we believe the judgments , estimates and assumptions associated with the following critical accounting policies have the greatest potential impact on our consolidated financial statements : revenue recognition ; contingent liabilities ; inventories ; research and development expenses ; share-based compensation ; valuation of goodwill , acquired intangible assets and in-process research and development ( ipr & d ) ; valuation of contingent consideration ; and income taxes . 41 revenue recognition net product sales our principal source of revenue is product sales . we recognize revenue from product sales when persuasive evidence of an arrangement exists , title to product and associated risk of loss has passed to the customer , the price is fixed or determinable , collection from the customer is reasonably assured and we have no further performance obligations . revenue is recorded upon receipt of the product by the end customer , which is typically a hospital , physician 's office , private or government pharmacy or other health care facility . amounts collected from customers and remitted to governmental authorities , such as value-added taxes ( vat ) in foreign jurisdictions , are presented on a net basis in our statements of operations and do not impact net product sales . in the united states , our customers are primarily specialty distributors and specialty pharmacies which supply physician office clinics , hospital outpatient clinics , infusion clinics or home health care providers . we also sell soliris to government agencies . outside the united states , our customers are primarily hospitals , hospital buying groups , pharmacies , other health care providers and distributors . because of factors such as the pricing of soliris , the limited number of patients , the short period from product sale to patient infusion and the lack of contractual return rights , soliris customers often carry limited inventory . we also monitor inventory within our sales channels to determine whether deferrals are appropriate based on factors such as inventory levels , contractual terms and financial strength of distributors . to date , actual refunds and returns have been negligible . we have entered into volume-based arrangements with governments in certain countries in which reimbursement is limited to a contractual amount . we estimate incremental discounts resulting from these contractual limitations , based on estimated sales during the limited period , and we apply the discount percentage to product shipments as a reduction of revenue . in addition to sales in countries where soliris is commercially available , we have also recorded revenue on sales for patients receiving soliris treatment through named-patient programs . the relevant authorities or institutions in those countries have agreed to reimburse for product sold on a named-patient basis where soliris has not received final approval for commercial sale . we record estimated rebates payable under governmental programs , including medicaid in the united states and other programs outside the united states , as a reduction of revenue at the time of product sale . our calculations related to these rebate accruals require analysis of historical claim patterns and estimates of customer mix to determine which sales will be subject to rebates and the amount of such rebates . we update our estimates and assumptions each period and record any necessary adjustments , which may have an impact on revenue in the period in which the adjustment is made . generally , the length of time between product sale and the processing and reporting of the rebates is three to six months . we have provided balances and activity in the rebates payable account for the years ended december 31 , 2011 , 2010 and 2009 as follows : replace_table_token_4_th we record distribution and other fees paid to our customers as a reduction of revenue , unless we receive an identifiable and separate benefit for the consideration , and we can reasonably estimate the fair value of the benefit received . if both conditions are met , we record the consideration paid to the customer as an operating expense . these costs are typically known at the time of 42 sale , resulting in minimal adjustments subsequent to the period of sale . we enter into foreign exchange forward contracts to hedge exposures resulting from portions of our forecasted intercompany revenues that are denominated in currencies other than the u.s. dollar . these hedges are designated as cash flow hedges upon inception . we record the effective portion of these cash flow hedges to revenue in the period in which the sale is made to an unrelated third party and the derivative contract is settled . story_separator_special_tag we sell soliris to a limited number of customers , and we evaluate the creditworthiness of each such customer on a regular basis . in certain european countries , sales by us are subject to payment terms that are statutorily determined . this is primarily the case in countries where the payor is government-owned or government-funded , which we consider to be creditworthy . the length of time from sale to receipt of payment in certain countries typically exceeds our credit terms . in countries in which collections from customers extend beyond normal payment terms , we seek to collect interest . we record interest on customer receivables as interest income when collected . for non-interest bearing receivables with an estimated payment beyond one year , we discount the accounts receivable to present value at the date of sale , with a corresponding adjustment to revenue . subsequent adjustments for further declines in credit rating are recorded as bad debt expense as a component of selling , general and administrative expense . we also use judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables if and when collection becomes doubtful . we continue to monitor economic conditions , including volatility associated with international economies , associated impacts on the financial markets and our business and the sovereign debt crisis in europe . the credit and economic conditions in greece , italy , spain and portugal , among other members of the european union have deteriorated throughout 2011. these conditions have resulted in , and may continue to result in , an increase in the average length of time it takes to collect our outstanding accounts receivable in these countries . as of december 31 , 2011 , our accounts receivable in greece , italy , spain , ireland and portugal were approximately $ 83,400 . approximately $ 24,000 of this amount has been outstanding for greater than one year , and we have recorded an allowance of approximately $ 3,500 related to these receivables as of december 31 , 2011. in july 2011 , we received non-interest bearing bonds issued by the greek government that mature in 2012 and 2013 for payment on receivables from 2008 and 2009 as part of the greek government 's plan for its repayment of its debt to international pharmaceutical companies . we sold the bonds in july 2011. during the year ended december 31 , 2011 , we have recorded bad debt expense of approximately $ 4,100 related to the reduction of value of greek bonds and other reduction in the realizable value of our accounts receivable in these countries . contingent liabilities we are currently involved in various claims and legal proceedings . on a quarterly basis , we review the status of each significant matter and assess our potential financial exposure . if the potential loss from any claim , asserted or unasserted , or legal proceeding is considered probable and the amount can be reasonably estimated , we accrue a liability for the estimated loss . because of uncertainties related to claims and litigation , accruals are based on our best estimates based on available information . on a periodic basis , as additional information becomes available , or based on specific events such as the outcome of litigation or settlement of claims , we may reassess the potential liability related to these matters and may revise these estimates , which could result in a material adverse adjustment to our operating results . inventories inventories are stated at the lower of cost or estimated realizable value . we determine the cost of inventory using the weighted-average cost method . we capitalize inventory produced for commercial sale , including costs incurred prior to regulatory approval but subsequent to the filing of a biologics license application ( bla ) when we have determined that the inventory has probable future economic benefit . inventory is not capitalized prior to completion of a phase iii clinical trial . for products with an approved indication , raw materials and purchased drug product associated with clinical development programs are included in inventory and charged to research and development expense when consumed . for products without and approved indication , purchased drug product is charged to research and development expense upon final quality release . we also capitalize the cost of inventory manufactured at our manufacturing plant in property , plant and equipment prior to the approval of the facility by regulatory authorities . we analyze our inventory levels to identify inventory that may expire prior to sale , inventory that has a cost basis in excess of its estimated realizable value , or inventory in excess of expected sales requirements . although the manufacturing of our product is subject to strict quality control , certain batches or units of product may , after a period of time , no longer meet quality specifications or may expire , at which point we would adjust our inventory values . soliris currently has a maximum estimated life 43 of 48 months and , based on our sales forecasts , we expect to realize the carrying value of the soliris inventory . in the future , reduced demand , quality issues or excess supply beyond those anticipated by management may result in an adjustment to inventory levels , which would be recorded as an increase to cost of sales . the determination of whether or not inventory costs will be realizable requires estimates by our management . a critical input in this determination is future expected inventory requirements based on internal sales forecasts . we then compare these requirements to the expiry dates of inventory on hand . to the extent that inventory is expected to expire prior to being sold , we will write down the value of inventory . if actual results differ from those estimates , additional inventory write-offs may be required .
| cost of sales includes manufacturing costs as well as actual and estimated royalty expenses associated with sales of soliris . we are currently involved in various claims and legal proceedings . on a quarterly basis , we review the status of each significant matter and assess its potential financial exposure . if the potential loss from any claim , asserted or unasserted , or legal proceeding is considered probable and the amount can be reasonably estimated , we accrue a liability for the estimated loss . because of uncertainties related to claims and litigation , accruals are based on our best estimates based on available information . on a periodic basis , as additional information becomes available , or based on specific events such as the outcome of litigation or settlement of claims , we may reassess the potential liability related to these matters and may revise these estimates , which could result in a material adverse adjustment to our cost of sales . research and development expense our research and development expense includes personnel , facility and external costs associated with the research and development of our product candidates , as well as product development costs . we group our research and development expenses into two major categories : external direct expenses and all other r & d expenses . external direct expenses are comprised of costs paid to outside parties for clinical development , product development and discovery research . clinical development costs are comprised of costs to conduct and manage clinical trials related to eculizumab and other product candidates . product development costs are those incurred in performing duties related to manufacturing development and regulatory functions . discovery research costs are incurred in conducting laboratory studies and performing preclinical research for other uses of eculizumab and other product candidates . clinical development costs have been accumulated and allocated to each of our programs , while product development and discovery research costs have not been allocated . all other r & d expenses consist of costs
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the following items increased our tax benefit : ( 1 ) recognition of research and experimentation credits for 2012 and 2013 due to the signing of the american relief act of 2012 on january 2 , 2013 ; ( 2 ) earnings of our subsidiaries outside of the u.s. in jurisdictions where our statutory tax rate is lower than in the u.s. ; ( 3 ) the benefit of certain interest expense deductions ; and ( 4 ) benefits of certain acquisition related elections for tax purposes . our tax provisions for 2012 and 2011 reflect 20 the benefits of lower statutory tax rates on foreign earnings as compared with our u.s. federal statutory rate , foreign interest expense deductions and the benefits of certain acquisition related elections for tax purposes . during 2012 we recognized a benefit related to the release of certain reserves for uncertain tax positions . no foreign tax benefit was recorded for the goodwill impairment charge in 2011. in september 2013 , we announced restructuring projects ( the 2013 projects ) to restructure our operations to improve profitability and increase efficiencies . the 2013 projects will reduce headcount and close or consolidate several manufacturing and office facilities . overall we expect to reduce our workforce by 9 % , and we are approximately 50 % complete as of december 31 , 2013. we expect to substantially complete the 2013 projects by the end of 2014. we have begun to realize savings from our 2013 projects during 2013 , and we expect full realization of the savings of the 2013 projects by the end of 2014 and into 2015. under the 2013 projects , we recognized $ 31.1 million in restructuring expenses , primarily related to severance , since these projects were announced in september 2013. our 2011 projects were substantially complete as of june 30 , 2013. under the 2011 projects , we incurred $ 74.1 million in costs , including $ 4.4 million in 2013. this was a reduction in the restructuring expense of approximately $ 3.7 million from the expected total expense of $ 77.8 at december 31 , 2012. restructuring expenses of $ 1.7 million were recognized in 2012 , associated with severance accruals and other facility exit costs , offset by a $ 5.4 million correction to the goodwill impairment . for further details regarding the correction of the goodwill impairment , refer to item 8 : `` financial statements and supplementary data , note 5 : goodwill . '' the remaining expense of $ 68 million associated with the 2011 projects was incurred in 2011. revenues and net operating income from the activities we have exited or will exit under the restructuring plan are not material to our operating segments or consolidated results . on february 7 , 2014 , itron 's board of directors authorized a new repurchase program of up to $ 50 million of our common stock over a 12-month period , which will take effect following the expiration of the current stock repurchase program on march 7 , 2014. repurchases are made in the open market or in privately negotiated transactions and in accordance with applicable securities laws . refer to part ii , item 5 : `` market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities '' for additional information related to our current share repurchase program . total company revenues , gross profit and margin , and unit shipments replace_table_token_6_th replace_table_token_7_th meter and module summary we classify meters into three categories : standard metering – no built-in remote reading communication technology advanced metering – one-way communication of meter data smart metering – two-way communication including remote meter configuration and upgrade ( consisting primarily of our openway technology ) in addition , advanced and smart meter communication modules can be sold separately from the meter . 21 our revenue is driven significantly by sales of meters and communication modules . a summary of our meter and communication module shipments is as follows : replace_table_token_8_th revenues revenues decreased 11 % , or $ 229.5 million , in 2013 , compared with 2012 . revenues in 2013 were lower , primarily driven by the substantial completion of four of our five largest openway projects in the electricity segment in 2012 and by $ 14.6 million in the unfavorable net translation impact of operations denominated in foreign currencies , partially offset by an increase in water revenues during the year . revenues decreased 11 % , or $ 255.9 million , in 2012 , compared with 2011 . similar to 2013 , revenues in 2012 were lower , primarily driven by several of our largest openway projects nearing completion in 2012 in the electricity and gas segments and by $ 92.2 million in unfavorable net translation of our operations denominated in foreign currencies , partially offset by an increase in water revenues during the year . a more detailed analysis of these fluctuations is provided in story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; text-indent:18px ; font-size:10pt ; '' > revenues - 2013 vs. 2012 gas revenues decreased by $ 56.9 million , or 9 % , in 2013 , compared with 2012 . our gas business continues to experience period-to-period variation in customer contracts and purchases . the decrease was driven by $ 54.2 million in lower product sales in emea and $ 18.7 million in lower communication module shipments and lower service revenue in north america , the effect of which partially offset by $ 21.3 million in increased north america gas meter shipments , particularly smart meters . no single customer represented more than 10 % of the gas operating segment revenues in 2013 , 2012 , and 2011 . revenues - 2012 vs. 2011 gas revenues decreased by $ 45.8 million , or 7 % , in 2012 , compared with 2011 , including $ 27.7 million for the unfavorable translation effect of our revenues denominated in foreign currencies . story_separator_special_tag the decrease was driven by lower communication module shipments and lower service revenue , partially offset by increased gas meter shipments , particularly smart meters . the overall decrease is due to typical period-to-period fluctuations in timing of customer projects . gross margin - 2013 vs. 2012 gross margin was 36.5 % in 2013 , compared with 37.5 % in 2012. the 100 basis point decline in gross margin was primarily the result of less favorable product mix and higher warranty costs . gross margin - 2012 vs. 2011 gross margin was 37.5 % in 2012 , compared with 37.9 % in 2011 . decreased revenues for smart gas communication modules and non-openway services were partially offset by lower warranty charges in 2012. operating expenses - 2013 vs. 2012 gas operating expenses decreased by $ 801,000 , or 1 % , in 2013. lower sales and marketing and product development expenses were partially offset by higher general and administrative expenses . operating expenses for sales and marketing , product development , general and administrative , and amortization of intangible assets as a percentage of revenues , were 21 % in 2013 and 20 % in 2012 . 24 operating expenses - 2012 vs. 2011 gas operating expenses decreased by $ 24.7 million , or 16 % in 2012 , primarily due to a decrease in restructuring expenses of $ 25.4 million . this was partially offset by increases in product development for new and enhanced products . operating expenses for sales and marketing , product development , general and administrative , and amortization of intangible assets as a percentage of revenues were 20 % in 2012 and 18 % in 2011. water : revenues - 2013 vs. 2012 the increase in revenues of $ 15.2 million , or 3 % , in 2013 was driven primarily by growth in projects in north america of $ 10.2 million . latin america experienced growth of $ 7.0 million , but was negatively impacted by foreign currency translation of $ 4.3 million . no single customer represented more than 10 % of the water operating segment revenues in 2013 , 2012 , and 2011 . revenues - 2012 vs. 2011 revenues increased $ 4.9 million , or 1 % , in 2012 , while the translation effect of a stronger u.s. dollar against most foreign currencies during 2012 negatively impacted revenues by 6 % . all regions generated revenue growth during 2012. gross margin - 2013 vs. 2012 water gross margin decreased to 34.6 % in 2013 , compared with 35.1 % in 2012 , driven predominantly by higher service revenues in north america , which have a lower margin , and partially offset by favorable product mix in emea . gross margin - 2012 vs. 2011 water gross margin increased to 35.1 % in 2012 , compared with 32.2 % in 2011 , primarily driven by $ 12.4 million in lower warranty expense in 2012 and favorable product mix , which were partially offset by lower margin services for a large project in north america . operating expenses - 2013 vs. 2012 in 2013 , water operating expenses were $ 124.5 million compared with $ 125.6 million in 2012 . decreases of $ 5.9 million in sales and marketing expense and $ 2.1 million in lower amortization of intangible expense were partially offset by increases in product development , general and administrative , and restructuring expenses . operating expenses for sales and marketing , product development , general and administrative , and amortization of intangible assets as percentages of revenues were 22 % in 2013 , compared with 24 % and 2012 . operating expenses - 2012 vs. 2011 in 2012 , water operating expenses were $ 125.6 million , compared with $ 471.7 million in 2011 including the favorable impact of foreign exchange rates of $ 7.6 million . operating expenses in 2011 included a goodwill impairment charge of $ 330.1 million and $ 15.9 million in higher restructuring costs . sales and marketing expenses in 2012 were $ 6.2 million higher than in 2011 due to investments in preparation for opportunities in developing markets . product development expenses in 2012 were $ 4.5 million higher than in 2011 as the result of development of new and enhanced products to meet the demands of various markets . operating expenses for sales and marketing , product development , general and administrative , and amortization of intangible assets as percentages of revenues were 24 % in 2012 and 2011 . corporate unallocated : operating expenses not directly associated with an operating segment are classified as “ corporate unallocated. ” these expenses increased 7 % to $ 46.4 million in 2013 , compared with 2012 , primarily due to $ 2.7 million in increased restructuring expenses in 2013 , as well as $ 3.8 million in sales and marketing costs , which are no longer allocated to the operating segments . these increases were partially offset by a decline in general and administrative expenses , including $ 3.0 million in acquisition-related expenses incurred in 2012 that did not recur in 2013. corporate unallocated expenses increased 2 % to $ 43.5 million in 2012 , compared with 2011 , primarily due to acquisition related expenses for the smartsynch acquisition , for management training and development costs in connection with the implementation of a new organizational structure , and for preliminary planning costs , prior to application development , for our global enterprise resource planning ( erp ) software initiative . these increases were partially offset by lower corporate it related and marketing spending .
| the decrease was primarily driven by $ 246.3 million in lower revenue of our five largest openway projects in north america , as four of these projects were substantially completed during 2012 . lower prepayment meter shipments drove a decrease of $ 24.8 million in our asia/pacific region . these decreases were partially offset by $ 81.5 million in increased products and services in north america , apart from the five largest openway projects , as well as by $ 27.3 million in increased product shipments and services in emea . the net translation effect of our operations in foreign currencies negatively impacted 2013 revenues by $ 18.1 million . no customer represented more than 10 % of the electricity operating segment revenues in 2013 . revenues - 2012 vs. 2011 electricity revenues for 2012 decreased by $ 215.1 million , or 17 % , compared with 2011 revenues . the decrease was primarily driven by $ 207.6 million in lower openway project revenue in north america , as four of our five largest openway projects were substantially completed during 2012 . this revenue decrease in north america was partially offset by $ 21.8 million of revenue increase as a result of the smartsynch acquisition in may 2012. lower prepayment meter shipments drove a decrease of $ 27.3 million in our asia/pacific region , which was partially offset by $ 23.0 million in higher revenue from increased product shipments and service in emea . the net translation effect of our operations in foreign currencies negatively impacted 2012 revenues by $ 34.4 million . 23 one customer individually represented 17 % of the electricity operating segment revenues in 2012 , while two customers individually represented 15 % and 14 % of the electricity operating segment revenues in 2011. gross margin - 2013 vs. 2012 gross margin was 26.2 % in 2013 , compared with 28.8 % in 2012 . the lower margin was primarily driven by decreased volume in 2013
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accounts receivable trade receivables are stated at their original invoice amounts , less an allowance for doubtful portions of such accounts . management determines the allowance for doubtful accounts based on facts and circumstances related to specific accounts , and on historical experience related to the age of accounts . trade receivables are written off when deemed uncollectible . recoveries of trade receivables previously reserved are offset against the allowance when received . investments investments consist of marketable equity securities of publicly held companies . management intends to hold such securities for a sufficient period in which to realize a reasonable return , although there is no assurance that positive returns will be realized or that such securities will not be liquidated in a shorter than expected time frame to accommodate the company 's liquidity requirements . accordingly , investments have been classified as non-current and available-for-sale in conformity with asc section 320. investments are marked to market at each measurement date , with unrealized gains and losses presented as adjustments to accumulated other comprehensive income or loss . long-lived assets and real estate held for sale we review the recoverability of long-lived assets , consisting of equipment and leasehold improvements , and of real estate held for sale , when events or changes in circumstances occur that indicate carrying values may not be recoverable . stock-based compensation we recognize compensation expense for all share-based awards made to employees and directors . the fair value of share-based awards is estimated at the grant date using the black-scholes option-pricing model . the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period using the straight-line single option method . the determination of fair value using the black-scholes model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables , including expected stock price volatility , risk-free interest rate , expected dividends and projected employee stock option exercise behavior . we estimate stock price volatility based on two factors : ( a ) the measurement date ( typically the grant date ) and ( b ) the expected life of the option , which we calculate using the staff accounting bulletin no . 107 simplified method . income taxes we recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities along with net operating loss and tax credit carryovers . deferred tax assets at both june 30 , 2013 and 2012 consisted primarily of basis differences related to research and development tax credit utilization , net operating loss carryovers , intangible assets , accrued expenses and inventories . significant management judgment is required in determining our provision for income taxes and the recoverability of our deferred tax assets . such determination is based on our historical taxable income , with consideration given to our estimates of future taxable income and the periods over which deferred tax assets will be recoverable . we record a valuation allowance against deferred tax assets to reduce the net carrying value to an amount that we believe is more likely than not to be realized . when we establish or reduce the valuation allowance against deferred tax assets , the provision for income taxes will increase or decrease , respectively , in the period such determination is made . at june 30 , 2013 and 2012 , we maintained a valuation allowance against the entire balance of our deferred tax assets , net of deferred tax liabilities . 14 | pro-dex 2013 annual report story_separator_special_tag block ; margin-left : 0pt ; margin-right : 0pt '' > as a result of the foregoing , loss from continuing operations for 2013 was $ 1.9 million , as compared to a loss from continuing operations of $ 960,000 for 2012. liquidity and capital resources the following table presents selected financial information as of june 30 , 2013 and 2012 : replace_table_token_5_th net cash used in operating activities in 2013 amounted to $ 1.3 million . the primary use of cash arose from an increase in ( a ) unbilled receivables amouting to $ 244,000 and relating to the development portion of certain contracts we entered into with customers in 2013 , and ( b ) inventories of $ 1.0 million , resulting primarily from a build-up of our stock of components related to certain of our products with the objective of shortening lead times when forecasted purchase orders are received . in the fourth quarter of 2013 , our largest customer began deferring the timing of its product orders , thus prolonging the effect of the inventory build-up described above with respect to inventory unique to that customer 's products . based on discussions with the customer , we believe that partial relief of the inventory build-up related to that customer 's products will likely be weighted toward the latter half of fiscal 2014 and possibly the first half of fiscal 2015. sources of cash arose primarily from reductions in ( a ) accounts receivable amounting to $ 325,000 , attributable primarily to the lower sales volume experienced during 2013 relative to 2012 , and ( b ) income taxes receivable amounting to $ 608,000 , resulting primarily from tax refunds received in 2013 from the carryback of tax-basis net operating losses generated in 2012 , and from increases in ( a ) accrued expenses , resulting primarily from the accrual in 2013 of anticipated losses on development contracts amounting to $ 176,000 , and ( b ) deferred revenue amounting to $ 121,000 , resulting from collections received in 2013 from customers in connection with the contractual terms of development contracts that will not qualify for revenue recognition until we complete the related non-recurring engineering services . story_separator_special_tag during 2012 , net cash provided by operating activities amounted to $ 45,000. sources of cash arose from increases in accounts payable and accrued liabilities , amounting to $ 383,000 and due primarily to high ordering activity relative to sales volumes and accruals for employee bonuses related to 2011 results . uses of cash arose from increases in accounts receivable of $ 418,000 and inventories of $ 475,000 , both increases due primarily to the high sales volumes during 2011. net cash used in investing activities during 2013 consisted primarily of investments , aggregating $ 366,000 , in common stock of public companies under the direction of the investment committee of our board ( see “ surplus capital investment policy ” below ) , and of purchases of equipment amounting to $ 86,000. net cash used in investing activities during 2012 consisted of purchases of equipment , amounting to $ 341,000 , net of proceeds received , amounting to $ 82,000 , from the sale of equipment in connection with the sale of the astromec business ( see note 3 of notes to consolidated financial statements contained elsewhere in this report ) . 16 | pro-dex 2013 annual report net cash used in financing activities for 2013 consisted primarily of ( a ) our payment , in september 2012 , of the remaining balance due , amounting to $ 685,000 , on the union bank term loan , fully retiring such indebtedness ( see note 5 of notes to condensed consolidated financial statements contained elsewhere in this report ) , and ( b ) normal reductions in the principal balance of the bank term loan , prior to the repayment described above , of $ 90,000 , partially offset by $ 66,000 in proceeds from the exercise of stock options . net cash used in financing activities during 2012 consisted primarily of reductions in the principal balance of our bank term loan , amounting to $ 357,000. we believe that existing cash balances and cash flows from operations will be sufficient to fund operations for the next twelve months . reduction in large customer orders in december 2009 , our then-largest customer informed us that it was in the process of developing , and planned to eventually manufacture , its own surgical devices which were functionally comparable to the products we provided to the customer at that time . we had been the exclusive manufacturer of these products since they were developed . the resulting reduction in orders from our largest customer and its expected future impact on our business is more fully described in “ description of business ” under item 1 of this report . reduction in directors ' compensation at our 2012 annual meeting of shareholders held on january 17 , 2013 , our shareholders elected four new members to our board of directors . at a meeting of the newly constituted board on february 4 , 2013 , three of those newly elected directors , messrs. swenson , cabillot and farrell , each opted to waive , through the date of our 2013 annual meeting of shareholders , ( a ) receipt of stock options they were otherwise entitled to receive under the provisions of the directors ' compensation plan then in effect ( the “ 2010 plan ” ) , and ( b ) any cash retainers or meeting fees they were otherwise entitled to receive under the 2010 plan in excess of $ 200 per meeting and $ 2,000 per year . at its meeting on may 2 , 2013 , our board replaced the 2010 plan with the 2013 directors ' compensation plan ( the “ 2013 plan ” ) that provides for the following : ● fees of $ 200 for participation in board or committee meetings , to a maximum of $ 2,000 per fiscal year ; ● an annual retainer of $ 23,000 for the audit committee chair ( which may be modified in compensating any future audit committee chair ) . the 2013 plan has no provision for ( a ) retainers other than that described above , or ( b ) grants of options , restricted stock or other equity or equity-based compensation or incentives ( see note 8 of notes to consolidated financial statements contained elsewhere in this report ) . we believe that , when compared to the 2010 plan , the 2013 plan will result in a reduction of directors ' cash compensation on an annualized basis of approximately $ 85,000 , and in a reduction of aggregate ( cash and non-cash ) directors ' compensation expense on an annualized basis of approximately $ 140,000. sale of real estate on july 5 , 2013 , we completed the sale of the land and building constituting the facility in which astromec formerly operated in carson city , nevada ( see note 3 of notes to condensed consolidated financial statements contained elsewhere in this report ) . the sale price for the facility was $ 980,000 , which , after approximately $ 65,000 in deductions for sale-related expenses such as commissions and fees , resulted in our receipt of net proceeds of approximately $ 915,000. the facility was not encumbered by any debt . surplus capital investment policy at its april 17 , 2013 meeting , our board approved a surplus capital investment policy ( the “ policy ” ) that provides , among other items , for the following : ( a ) determination by our board of directors of ( i ) our surplus capital balance and ( ii ) the portion of such surplus capital balance to be invested according to the policy ; ( b ) selection of an investment committee responsible for implementing the policy ; and ( c ) objectives and criteria under which investments may be made . the initial composition of the investment committee , also approved by our board at its april 17 , 2013 meeting , is
| partially offsetting these changes was a $ 369,000 reduction in warranty costs in 2013 , relative to 2012. as a percentage of sales , gross margin was 30 % for 2013 , as compared to 31 % in 2012. underlying this result was the accrual in 2013 of the anticipated contract losses , partially offset by the favorable changes in warranty costs , both as described above . selling expenses decreased $ 276,000 , or 18 % , to $ 1.3 million in 2013 from $ 1.5 million in 2012. this decrease is attributable primarily to decreases in ( a ) advertising and market research expenses of $ 220,000 , and ( b ) tradeshow expense of $ 80,000 , partially offset by an increase in severance expense of $ 26,000 from 2012 to 2013. general and administrative expenses decreased $ 616,000 , or 19 % , to $ 2.6 million in 2013 from $ 3.2 million in 2012 , due to ( a ) the lower costs incurred in 2013 , relative to 2012 , related to changes in each such year of chief executive officers , such costs amounting to $ 167,000 and $ 339,000 in 2013 and 2012 , respectively , ( b ) a decrease in compensation expense of $ 315,000 and ( c ) a decrease in professional consulting and legal expense ( excluding proxy contest expenses discussed below ) of $ 264,000. partially offsetting these decreases were increases in legal and shareholder reporting expenses , aggregating $ 190,000 , incurred in connection with proxy contest expenses related to the contested election of directors at our 2012 annual meeting of shareholders held in january 2013. pro-dex 2013 annual report | 15 research and development costs , which include costs related to development of new products and enhancements to existing products , decreased $ 279,000 , or 13 % , to $ 1.8 million in 2013 from $ 2.1 million in 2012. this decrease was due primarily to the deployment of engineering resources , normally charged to research and development expense ,
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in june 2010 , we entered into a collaboration agreement with green cross corp. ( green cross ) for the development of margetuximab . we granted green cross an exclusive license for all indications for all pharmaceutical forms of margetuximab in south korea . under the terms of this agreement , we received an upfront , nonrefundable payment of $ 1.0 million and are eligible to receive clinical , development and commercial milestone payments up to $ 4.5 million as well as royalties ranging from the low-single digits to the low-twenties on net sales of margetuximab in south korea . in addition , green cross purchased $ 2.0 million of our series d-2 preferred stock in january 2011. this preferred stock was converted to common stock upon our ipo in october 2013 . 81 financial operations overview revenues our revenue consists of collaboration revenue , including amounts recognized relating to upfront nonrefundable payments for licenses or options to obtain future licenses , research and development funding and milestone payments earned under our collaboration and license agreement with our strategic collaborators , including servier , gilead , boehringer , pfizer and green cross . in addition , we have earned revenues through several grants and or contracts with the u.s. government and other educational institutions on behalf of the u.s. government , primarily with respect to research and development activities related to infectious disease product candidates . research and development expense research and development expenses consist of expenses incurred in performing research and development activities . these expenses include conducting pre-clinical experiments and studies , clinical trials , manufacturing efforts and regulatory filings for all product candidates , and other indirect expenses in support of our research and development activities . we capture research and development expense on a program-by-program basis for our product candidates that are in clinical development and recognize these expenses as they are incurred . the following are items we include in research and development expenses : employee-related expenses such as salaries and benefits ; employee-related overhead expenses such as facilities and other allocated items ; stock-based compensation expense to employees and consultants engaged in research and development activities ; depreciation of laboratory equipment , computers and leasehold improvements ; fees paid to consultants , subcontractors , clinical research organizations ( cros ) and other third party vendors for work performed under our pre-clinical and clinical trials including but not limited to investigator grants , laboratory work and analysis , database management , statistical analysis , and other items ; amounts paid to vendors and suppliers for laboratory supplies ; costs related to manufacturing clinical trial materials , including vialing , packaging and testing ; license fees and other third party vendor payments related to in-licensed product candidates and technology ; and costs related to compliance with regulatory requirements . it is difficult to determine with certainty the duration and completion costs of our current or future pre-clinical programs and clinical trials of our product candidates , or if , when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval . we may never succeed in achieving regulatory approval for any of our product candidates . the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors , including the uncertainties of future clinical trials and pre-clinical studies , uncertainties in clinical trial enrollment rate and significant and changing government regulation . in addition , the probability of success for each product candidate will depend on numerous factors , including competition , manufacturing capability and commercial viability . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate , as well as an assessment of each product candidate 's commercial potential . 82 general and administrative expense general and administrative expenses consist of salaries and related benefit costs for employees in our executive , finance , legal and intellectual property , business development , human resources and other support functions , travel expenses and other legal and professional fees . other income ( expense ) other income ( expense ) consists of interest income earned on our cash equivalents , offset by interest expense and other expense , including changes in the fair market value of the preferred stock warrant liability . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial conditions and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheets and the reported amount of the revenue and expenses recorded during the reporting period . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable . we review and evaluate these estimates on an on-going basis . these assumptions and estimates form the basis for making judgments about the carrying values of assets and liabilities and amounts that have been recorded as revenues and expenses . actual results and experiences may differ from these estimates . the results of any material revisions would be reflected in the consolidated financial statements prospectively from the date of the change in estimate . while a summary of significant accounting policies is described fully in note 2 in our consolidated financial statements , we believe that the following accounting policies are the most critical to assist you in fully understanding and evaluating our financial results and any affect the estimates and judgments we used in preparing our consolidated financial statements . story_separator_special_tag revenue recognition we enter into collaboration and license agreements with collaborators for the development of monoclonal antibody-based therapeutics to treat cancer and other complex diseases . the terms of these agreements contain multiple deliverables which may include ( i ) licenses , or options to obtain licenses , to our technological platforms , such as our fc engineering and dart technologies , ( ii ) rights to future technological improvements , ( iii ) research and development activities to be performed on behalf of the collaborative partner or as part of the collaboration , and ( iv ) the manufacture of pre-clinical or clinical materials for the collaborative partner . payments to us under these agreements may include nonrefundable license fees , option fees , exercise fees , payments for research and development activities , payments for the manufacture of pre-clinical or clinical materials , license maintenance payments , payments based upon the achievement of certain milestones and royalties on product sales . other benefits to us from these agreements include the right to sell products resulting from the collaborative efforts of the parties in specific geographic territories . we follow the provisions of the financial accounting standards board ( fasb ) accounting standards codification ( asc ) topic 605-25 , revenue recognitionmultiple-element arrangements , and asc topic 605-28 , revenue recognitionmilestone method , in accounting for these agreements . in order to account for these agreements , we must identify the deliverables included within the agreement and evaluate which deliverables represent separate units of accounting based on the achievement of certain criteria , including whether the delivered element has stand-alone value to the collaborator . the consideration received is allocated among the separate units of accounting , and the applicable revenue recognition criteria are applied to each of the separate units . as of december 31 , 2013 , we had the following two types of agreements : 1 ) exclusive development and commercialization licenses to use our technology and or certain other intellectual property to develop compounds 83 against specified targets , which we refer to as exclusive licenses ; and 2 ) option/research agreements to secure on established terms development and commercialization licenses to anticancer and other therapeutic product candidates to collaborator selected targets developed by us during an option period , which we refer to as right-to-develop agreements . exclusive licenses the deliverables under an exclusive license agreement generally include the exclusive license to our technology with respect to a specified antigen target , and may also include deliverables related to rights to future technological improvements , research and pre-clinical development activities to be performed on behalf of the collaborator . in some cases we may have an option to participate in the co-development of product candidates that result from such agreements . generally , exclusive license agreements contain nonrefundable terms for payments and , depending on the terms of the agreement , provide that we will ( i ) at the collaborator 's request , provide research and pre-clinical development services at negotiated prices which are generally consistent with what other third parties would charge , ( ii ) earn payments upon the achievement of certain milestones , ( iii ) earn royalty payments , and ( iv ) in some cases grant us an option to participate in the development and commercialization of products that result from such agreements . royalty rates may vary over the royalty term depending on our intellectual property rights and whether we exercise any co-development and co-commercialization rights . we may provide technical assistance and share any technology improvements with our collaborators during the term of the collaboration agreements . we do not directly control when any collaborator will achieve milestones or become liable for royalty payments . in determining the units of accounting , management evaluates whether the exclusive license has stand-alone value from the undelivered elements to the collaborator based on the consideration of the relevant facts and circumstances for each arrangement . factors considered in this determination include the research capabilities of the collaborator and the availability of technology platform and product research expertise in the general marketplace . if we conclude that the license has stand-alone value and therefore will be accounted for as a separate unit of accounting , we then determine the estimated selling prices of the license and all other units of accounting based on market conditions , similar arrangements entered into by third parties , and entity-specific factors such as the terms of our previous collaboration agreements , recent pre-clinical and clinical testing results of therapeutic product candidates that use our technology platforms , our pricing practices and pricing objectives , the likelihood that technological improvements will be made , the likelihood that technological improvements made will be used by our collaborators and the nature of the research services to be performed on behalf of our collaborators and market rates for similar services . upfront payments on exclusive licenses are deferred if facts and circumstances dictate that the license does not have stand-alone value . prior to the adoption of accounting standards update ( asu ) no . 2009-13 , revenue arrangements with multiple deliverables , on january 1 , 2011 , we determined that our licenses lacked stand-alone value and were combined with other elements of the arrangement and any amounts associated with the license were deferred and amortized over a certain period , which we refer to as our period of substantial involvement . the determination of the length of the period over which to defer revenue is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period . historically , our involvement with the development of a collaborator 's product candidate has been significant at the early stages of development , and lessens as it progresses into clinical trials . accordingly , we generally estimate this period of substantial involvement to begin at the inception of the collaboration agreement and conclude at the end of our substantial involvement .
| we expect to complete the first three dose expansion cohorts of a phase 1 clinical trial by the end of 2014. we plan to initiate additional expansion cohorts using mga271 as monotherapy in other tumor types in 2014 , as well as combining mga271 with other therapies for certain tumor types . mgd006 is a humanized dart molecule that recognizes cd123 , the interleukin-3 receptor ( il3r ) alpha chain which is expressed on leukemia and leukemic stem cells , but not on normal hematopoietic stem cells , and cd3 , which is expressed on t cells . we expect to commence a phase 1 clinical trial in the second quarter of 2014. mgd007 is a humanized dart molecule that recognizes both the glycoprotein gpa33 , expressed on gastrointestinal tumors , including more than 95 % of human colon cancers , and cd3 , which is expressed on t cells . we expect to commence a phase 1 clinical trial in the second half of 2014. we commenced active operations in 2000 , and have since devoted substantially all of our resources to staffing our company , business planning , raising capital , developing our technology platforms , identifying potential product candidates , undertaking pre-clinical studies and conducting clinical trials . we have not generated any revenues from the sale of any products to date . we have financed our operations primarily through the private placements of convertible preferred stock , the public offerings of our common stock , collaborations , 79 and government grants and contracts . from inception through december 31 , 2013 , we received $ 151.3 million from the sale of convertible preferred stock and warrants . we raised $ 85.6 million ( $ 83.8 million net of expenses and deferred financing costs ) in october 2013 through the sale of common stock in connection with our initial public offering ( ipo ) and exercise by the underwriters of their over-allotment option . we raised an additional $ 77.2
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non-comparable store sales include : sales in the current fiscal year from stores opened during the previous fiscal year before they are considered comparable stores ; sales from new stores opened during the current fiscal year ; sales in the previous fiscal year for stores closed during the current or previous fiscal year that are no longer considered comparable stores ; sales in clearance centers ; and changes in the allowance for sales returns . service charges and other income . service charges and other income include income generated through the wells fargo alliance and former synchrony alliance . other income includes rental income , shipping and handling fees , gift card breakage and lease income on leased departments . cost of sales . cost of sales includes the cost of merchandise sold ( net of purchase discounts and non-specific margin maintenance allowances ) , bankcard fees , freight to the distribution centers , employee and promotional discounts , and direct payroll for salon personnel . cost of sales also includes cdi contract costs , which comprise all direct material and labor costs , subcontract costs and those indirect costs related to contract performance , such as indirect labor , employee benefits and insurance program costs . selling , general and administrative expenses . selling , general and administrative expenses include buying , occupancy , selling , distribution , warehousing , store and corporate expenses ( including payroll and employee benefits ) , insurance , employment taxes , advertising , management information systems , legal and other corporate level expenses . buying expenses consist of payroll , employee benefits and travel for design , buying and merchandising personnel . depreciation and amortization . depreciation and amortization expenses include depreciation and amortization on property and equipment . rentals . rentals include expenses for store leases , including contingent rent , and data processing and other equipment rentals . interest and debt expense , net . interest and debt expense includes interest , net of interest income , relating to the company 's unsecured notes , mortgage note , term note , subordinated debentures and borrowings under the company 's credit facility . interest and debt expense also includes gains and losses on note repurchases , if any , amortization of financing costs and interest on capital lease obligations . gain on disposal of assets . gain on disposal of assets includes the net gain or loss on the sale or disposal of property and equipment and the net gain or loss on the sale or disposal of investments . asset impairment and store closing charges . asset impairment and store closing charges consist of ( a ) write-downs to fair value of under-performing or held for sale properties and of cost method investments and ( b ) exit costs associated with the closure of certain stores . exit costs include future rent , taxes and common area maintenance expenses from the time the stores are closed . income on and equity in losses of joint ventures . income on and equity in losses of joint ventures includes the company 's portion of the income or loss of the company 's unconsolidated joint ventures as well as the distribution of excess cash from a mall joint venture . 17 critical accounting policies and estimates the company 's significant accounting policies are also described in note 1 of notes to consolidated financial statements . as disclosed in that note , the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( `` gaap '' ) requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes . the company evaluates its estimates and judgments on an ongoing basis and predicates those estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances . since future events and their effects can not be determined with absolute certainty , actual results could differ from those estimates . management of the company believes the following critical accounting policies , among others , affect its more significant judgments and estimates used in preparation of the consolidated financial statements . merchandise inventory . approximately 96 % of the company 's inventories are valued at the lower of cost or market using the last-in , first-out ( `` lifo '' ) retail inventory method . under the retail inventory method , the valuation of inventories at cost and the resulting gross margins are calculated by applying a calculated cost to retail ratio to the retail value of inventories . the retail inventory method is an averaging method that is widely used in the retail industry due to its practicality . inherent in the retail inventory method calculation are certain significant management judgments including , among others , merchandise markon , markups , and markdowns , which significantly impact the ending inventory valuation at cost as well as the resulting gross margins . during periods of deflation , inventory values on the first-in , first-out ( `` fifo '' ) retail inventory method may be lower than the lifo retail inventory method . additionally , inventory values at lifo cost may be in excess of net realizable value . at january 31 , 2015 and february 1 , 2014 , merchandise inventories valued at lifo , including adjustments as necessary to record inventory at the lower of cost or market , approximated the cost of such inventories using the fifo retail inventory method . the application of the lifo retail inventory method did not result in the recognition of any lifo charges or credits affecting cost of sales for fiscal 2014 , 2013 or 2012. the remaining 4 % of the inventories are valued at the lower of cost or market using the average cost or specific identified cost methods . story_separator_special_tag a 1 % change in the dollar amount of markdowns would have impacted net income by approximately $ 10 million for fiscal 2014. the company regularly records a provision for estimated shrinkage , thereby reducing the carrying value of merchandise inventory . complete physical inventories of all of the company 's stores and warehouses are performed no less frequently than annually , with the recorded amount of merchandise inventory being adjusted to coincide with these physical counts . the differences between the estimated amounts of shrinkage and the actual amounts realized during the past three years have not been material . revenue recognition . the company 's retail operations segment recognizes revenue upon the sale of merchandise to its customers , net of anticipated returns of merchandise . the provision for sales returns is based on historical evidence of our return rate . we recorded an allowance for sales returns of $ 5.0 million and $ 5.7 million as of january 31 , 2015 and february 1 , 2014 , respectively . adjustments to earnings resulting from revisions to estimates on our sales return provision were not material for fiscal years 2014 , 2013 and 2012. the company 's share of income earned under the wells fargo alliance and former synchrony alliance involving the dillard 's branded private label credit cards is included as a component of service charges and other income . the company received income of approximately $ 112 million , $ 113 million and $ 107 million from the alliances in fiscal 2014 , 2013 and 2012 , respectively . the company participates in the marketing of the private label credit cards and accepts payments on the private label credit cards in its stores as a convenience to customers who prefer to pay in person rather than by paying online or mailing their payments to wells fargo . revenues from cdi construction contracts are generally recognized by applying percentages of completion for each period to the total estimated revenue for the respective contracts . the length of each contract varies but is typically nine to eighteen months . the percentages of completion are determined by relating the actual costs of work performed to date to the current estimated total costs of the respective contracts . any anticipated losses on completed contracts are recognized as soon as they are determined . vendor allowances . the company receives concessions from vendors through a variety of programs and arrangements , including co-operative advertising , payroll reimbursements and margin maintenance programs . cooperative advertising allowances are reported as a reduction of advertising expense in the period in which the advertising occurred . if vendor advertising allowances were substantially reduced or eliminated , the company would likely consider other methods of advertising as well as the volume and frequency of our product advertising , which could increase or decrease our expenditures . similarly , we are not able to assess the impact of vendor advertising allowances on creating additional revenues , as such allowances do not directly generate revenues for our stores . 18 payroll reimbursements are reported as a reduction of payroll expense in the period in which the reimbursement occurred . amounts of margin maintenance allowances are recorded only when an agreement has been reached with the vendor and the collection of the concession is deemed probable . all such merchandise margin maintenance allowances are recognized as a reduction of cost purchases . under the retail inventory method , a portion of these allowances reduces cost of goods sold and a portion reduces the carrying value of merchandise inventory . insurance accruals . the company 's consolidated balance sheets include liabilities with respect to claims for self-insured workers ' compensation ( with a self-insured retention of $ 4 million per claim ) and general liability ( with a self-insured retention of $ 1 million per claim and a one-time $ 1 million corridor ) . the company 's retentions are insured through a wholly-owned captive insurance subsidiary . the company estimates the required liability of such claims , utilizing an actuarial method , based upon various assumptions , which include , but are not limited to , our historical loss experience , projected loss development factors , actual payroll and other data . the required liability is also subject to adjustment in the future based upon the changes in claims experience , including changes in the number of incidents ( frequency ) and changes in the ultimate cost per incident ( severity ) . as of january 31 , 2015 and february 1 , 2014 , insurance accruals of $ 45.9 million and $ 47.5 million , respectively , were recorded in trade accounts payable and accrued expenses and other liabilities . adjustments resulting from changes in historical loss trends have helped control expenses during fiscal 2014 and 2013 , partially due to company programs that have helped decrease both the number and cost of claims . further , we do not anticipate any significant change in loss trends , settlements or other costs that would cause a significant change in our earnings . a 10 % change in our self-insurance reserve would have affected net earnings by $ 3.0 million for fiscal 2014. long-lived assets . the company 's judgment regarding the existence of impairment indicators is based on market and operational performance . we assess the impairment of long-lived assets , primarily fixed assets , whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important which could trigger an impairment review include the following : significant changes in the manner of our use of assets or the strategy for the overall business ; significant negative industry or economic trends ; a current-period operating or cash flow loss combined with a history of operating or cash flow losses ; or store closings . the company performs an analysis of the anticipated undiscounted future net cash flows of the related finite-lived assets .
| during the comparable 52-week periods , sales of ladies ' accessories and lingerie increased significantly over the prior year , sales of shoes increased moderately and sales of juniors ' and children 's apparel increased slightly . sales of men 's apparel and accessories were essentially flat over the prior year comparable period . sales of ladies ' apparel decreased slightly between the comparable periods , sales of cosmetics decreased moderately while sales of home and furniture declined significantly . the number of sales transactions during fiscal 2013 decreased 4 % over fiscal 2012 while the average dollars per sales transaction increased 3 % . net sales from the construction segment decreased $ 11.5 million or 11 % during fiscal 2013 as compared to fiscal 2012 due to a shift in the timing of certain construction projects . the backlog of awarded construction contracts at february 1 , 2014 totaled $ 196.5 million . 21 exclusive brand merchandise sales penetration of exclusive brand merchandise for fiscal years 2014 , 2013 and 2012 was 21.6 % , 21.5 % and 21.9 % of total net sales , respectively . service charges and other income replace_table_token_13_th 2014 compared to 2013 service charges and other income is composed primarily of income from the wells fargo alliance and former synchrony alliance . income from the alliances decreased $ 1.5 million in fiscal 2014 compared to fiscal 2013 primarily due to increased credit losses and the discontinuation of a credit product previously offered by synchrony partially offset by increases in finance charge income . 2013 compared to 2012 income from the former synchrony alliance increased $ 6.0 million in fiscal 2013 compared to fiscal 2012 primarily due to increases in finance charge income . gross profit replace_table_token_14_th 2014 compared to 2013 gross profit improved 14 basis points of sales during fiscal 2014 compared to fiscal 2013. gross profit from retail operations improved 35 basis points of sales during the same periods primarily due to increased initial markups . inventory in comparable stores increased 2 % as of january 31 , 2015
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additionally , changes in our investments may result in a reconsideration event that may necessitate consolidation in the future . business combinations we allocate the fair value of purchase consideration to the tangible assets acquired , liabilities assumed and intangible assets acquired based on their estimated fair values . the excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill . such valuations require management to make significant estimates and assumptions , especially with respect to intangible assets . significant estimates in valuing certain intangible assets include , but are not limited to , future expected cash flows , useful lives and discount rates . management 's estimates of fair value are based upon assumptions believed to be reasonable , but which are inherently uncertain and unpredictable and , as a result , actual results may differ from estimates . during the measurement period , which is one year from the acquisition date , we may record adjustments to the assets acquired and liabilities assumed , with the corresponding offset to goodwill . upon the conclusion of the measurement period , any subsequent adjustments are recorded to earnings . 16 income taxes we recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities along with net operating loss and tax credit carryovers . deferred tax assets at june 30 , 2015 and 2014 consisted primarily of basis differences related to research and development tax credit utilization , net operating loss carryovers , intangible assets , accrued expenses and inventories . significant management judgment is required in determining our provision for income taxes and the recoverability of our deferred tax assets . such determination is based on our historical taxable income , with consideration given to our estimates of future taxable income and the periods over which deferred tax assets will be recoverable . we record a valuation allowance against deferred tax assets to reduce the net carrying value to an amount that we believe is more likely than not to be realized . when we establish or reduce the valuation allowance against deferred tax assets , the provision for income taxes will increase or decrease , respectively , in the period such determination is made . at june 30 , 2015 and 2014 , we maintained a valuation allowance against the entire balance of our deferred tax assets , net of deferred tax liabilities . results of operations for the fiscal year ended june 30 , 2015 compared to the fiscal year ended june 30 , 2014 the following tables set forth results from continuing operations for the years ended june 30 , 2015 and 2014 : replace_table_token_4_th 17 net sales the majority of our revenue is derived from designing , developing and manufacturing powered surgical instruments for medical device original equipment manufacturers , dental instruments , and motion control software and hardware for industrial and scientific applications . the proportion of total sales by customer type is as follows : replace_table_token_5_th net sales in fiscal 2015 increased by $ 2.6 million , or 24 % , as compared to fiscal 2014 , due primarily to an increase in medical device sales of $ 2.1 million . shipments to our largest customer , accounted for in medical device sales , increased $ 1.2 million for fiscal 2015 from fiscal 2014. our second largest medical device customer in both fiscal 2015 and 2014 increased their orders by approximately $ 474,000 in the current fiscal year . also we launched production on a new instrument in the fourth quarter of fiscal 2015 and total revenue from the product sales to this new customer totaled approximately $ 324,000. the decrease of $ 340,000 in industrial and scientific sales from fiscal 2014 to 2015 , relates primarily to reduced shipments to our largest multi-axis motion controller customer whose reduction in orders caused a reduction in revenue of $ 268,000 in fiscal 2015 compared to fiscal 2014. our dental and component revenue are generated from sales to many distributors and end-users whose purchasing activity can vary widely from year to year . finally , our other revenue increased $ 669,000 in fiscal 2015 compared to the prior fiscal year and it includes revenue generated from our fineline molds and engineering services division of $ 257,000 and $ 115,000 , respectively , in the current year , with no sales in the prior year . we also recorded $ 335,000 in fiscal 2015 in non-recurring engineering services related to the completion of one of our long-term cmf contracts . at june 30 , 2015 , we had a backlog of $ 10.6 million compared with a backlog of $ 2.8 million at june 30 , 2014. the increase in backlog at the end of fiscal 2015 is primarily due to orders for the two cmf products we developed , or are developing , as well additional orders for a customer 's unique surgical handpiece designed to be used in orthopedic surgery applications which launched in the third quarter of fiscal 2015. of the backlog amount reported as of june 30 , 2015 , approximately $ 442,000 relates to fineline molds and huber precision had immaterial backlog as of june 30 , 2015. additionally , the june 30 , 2015 backlog contains certain orders from our largest customer , which they have asked to reduce by $ 1.6 million . we have experienced , and may continue to experience , variability in our new order bookings due to , among other reasons , the launch of new products , the timing of customer orders based on end-user demand and customer inventory levels , illustrative of which is the two previously described development projects for cmf devices for which we have received initial purchase orders . we do not typically experience seasonal fluctuations in our shipments and revenues . story_separator_special_tag cost of sales and gross margin replace_table_token_6_th 18 cost of sales in fiscal 2015 increased $ 1.8 million , or 23 % , from fiscal 2014 , due primarily to a $ 2.7 million increase in product costs , partially offset by a $ 957,000 decrease from fiscal 2014 to 2015 in improved absorption of manufacturing overhead due to increased volumes in fiscal 2015 versus the prior fiscal year . the increase in product costs is due primarily to the increase in net sales from fiscal 2014 to 2015. the increase in product costs and under- ( over ) absorption of manufacturing overhead combined in fiscal 2015 increased 23 % compared to fiscal 2014 , which is consistent with the increase in sales for the corresponding periods . although sales are significantly higher fiscal 2015 than the prior fiscal year , and our product costs have over-absorbed our fixed and variable manufacturing overhead , our gross margin is consistent because our variable manufacturing overhead increases with increased sales and production volume . accrued losses from development services portion of certain contracts increased $ 82,000 , or 26 % , from fiscal 2014 relating mostly due to higher than anticipated engineering labor hours and materials needed to complete the projects , partly due to design changes required subsequent to a validation test failure , which has since been remediated . costs related to inventory and warranty charges increased $ 28,000 in fiscal 2015 compared to 2014 due primarily to $ 50,000 in increased warranty expenses offset by a decrease of $ 22,000 in inventory charges . gross margin increased one percentage point in fiscal 2015 compared to fiscal 2014. although revenue increased by 24 % from fiscal 2014 to 2015 , the sales volumes are not high enough to impact the combined product cost and absorption of manufacturing overhead . the other components of cost of sales described above did not change materially . operating expenses replace_table_token_7_th selling expenses consist of salaries and other personnel-related expenses related to our business development departments , as well as trade show attendance , advertising and marketing expenses , and travel and related costs incurred in generating and maintaining customer relationships . in the second quarter of fiscal 2015 , we launched our engineering services division ( “ esd ” ) to recruit and place contract personnel in engineering , manufacturing and other technical consulting capacities . this division includes a team of sales and recruiting staff and contributed $ 441,000 of the total selling expenses during fiscal 2015. additionally , as discussed in note 3 of notes to consolidated financial statements contained elsewhere in this report , we acquired both fineline molds and huber precision during fiscal 2015 and these divisions contributed $ 35,000 and $ 78,000 , respectively , to the selling expenses incurred during fiscal 2015. offsetting these increases , the selling expenses for our primary medical and dental business in irvine decreased by $ 162,000 in fiscal 2015 compared to fiscal 2014 , mostly due to a reduction in personnel , travel and trade show related expenses . general and administrative expenses ( “ g & a ” ) consist of salaries and other personnel-related expenses for corporate , accounting , finance and human resource personnel , as well as costs for outsourced information technology services , professional fees , directors ' fees and costs associated with being a public company . the $ 250,000 increase in g & a expenses from fiscal 2014 to 2015 is due primarily to increased legal and professional fees , commercial insurance and severance payments made to our former chief executive officer . legal expenses relating to intellectual property matters increased approximately $ 33,000 during fiscal 2015 compared to the corresponding period of the prior year . other legal and professional expenses increased approximately $ 151,000 in fiscal 2015 compared to the prior fiscal year . approximately $ 110,000 of fees incurred during the 2015 fiscal year relate to legal and consulting expenses incurred in connection with our investment in the ramsey property and related notes receivable . 19 in fiscal 2015 we also incurred legal fees relating to services provided in conjunction with our two business acquisitions , the filing our form s-8 related to our espp plan and legal expenses associated with the separation agreement of our former chief executive officer . our commercial insurance expense increased approximately $ 20,000 in fiscal 2015 compared to the prior fiscal year primarily due to increases in our directors and officers insurance premiums . during fiscal 2015 , severance costs increased by $ 31,000 compared to the prior fiscal year due to the separation of our former chief executive officer . our tax , sarbanes-oxley and other consulting expense increased approximately $ 29,000 during fiscal 2015 compared to the corresponding periods of the prior fiscal year primarily due to timing of annual engagements as well as additional services . research and development costs consist of salaries and other personnel-related costs of our product development and engineering personnel , related professional and consulting fees , and costs related to intellectual property , laboratory usage , materials , and travel and related costs incurred in the development and support of our products . the increase in research and development costs of $ 186,000 in fiscal 2015 as compared to 2014 is primarily due to the launch of an engineering battery development project to enable us to manufacture batteries for our powered surgical devices in-house as well as additional consulting expenses .
| we base our estimates 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 . revenue recognition revenue on product sales is recognized upon shipment to the customer when risk of loss and title transfer to the customer and all other conditions required by gaap , as promulgated by the financial accounting standards board ( “ fasb ” ) in accounting standards codification ( “ asc ” ) section 605 ( formerly staff accounting bulletin no . 104 , revenue recognition ) , have been satisfied . revenue from billable product development service portions of development and supply contracts is generally recognized upon completion of such product development services , in conformity with asc section 605. accordingly , revenue from product development milestone billings to our customers under such contracts is deferred . returns of our product for credit are minimal ; accordingly , we do not establish a reserve for product returns at the time of sale . 14 estimated losses on product development services cost and revenue estimates related to the product development service portions of development and supply contracts are reviewed and updated quarterly . when it is probable that total costs from the development portion of such contracts will exceed product development service revenue , the expected loss is recognized immediately in cost of sales . owing to the complexity of many of the contracts we have undertaken , the cost estimation process requires significant judgment . it is based upon the knowledge and experience of our project managers , engineers , and finance professionals . factors that are considered in estimating the cost of work to be completed and ultimate profitability of the fixed price product development portion of development and supply contracts include the nature and complexity of the work to be
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recurring subscription revenues represent fees earned from clients primarily under renewable contracts or agreements and are recognized in most cases ratably over the term of the license or service pursuant to the contract terms . the contracts state the terms under which these fees are to be calculated . the fees are recognized as we provide the product and service to the client over the license period and are generally billed in advance , prior to the license start date . when implementation services are included , we recognize revenues ratably from the date the application is put into production through the end of the license period . revenues associated with implementation services , which are allocated based on msci 's best estimated sales price for such implementation services , are recognized ratably over the useful life of those services . revenues from subscription agreements for the receipt of periodic benchmark reports , digests , and other publications , which are most often associated with our real estate benchmark business , are recognized upon delivery of such reports or data updates . asset-based fees are principally recognized based on the estimated assets under management ( “ aum ” ) linked to our indexes from independent third-party sources or the most recently reported information provided by the client . asset-based fees include revenues related to futures and options contracts linked to our indexes , which are primarily based on trading volumes . non-recurring revenues primarily represent fees earned on products and services where we do not have renewal contracts and primarily include revenues for providing historical data , certain implementation services and other special client requests . based on the nature of the services provided , non-recurring revenues are recognized upon delivery or over the service period . operating expenses we group our operating expenses into the following activity categories : cost of revenues ; selling and marketing ; research and development ( “ r & d ” ) ; general and administrative ( “ g & a ” ) ; 51 amortization of intangible assets ; and depreciation and amortization of property , equipment and leasehold improvements . costs are assigned to these activity categories based on the nature of the expense or , when not directly attributable , an estimate is allocated based on the type of effort involved . cost of revenues cost of revenues consists of costs related to the production and servicing of our products and services and primarily includes related information technology costs , including data center , platform and infrastructure costs ; costs to acquire , produce and maintain market data information ; costs of research to support , maintain and rebalance existing products ; costs of product management teams ; costs of client service and consultant teams to support customer needs ; as well as other support costs directly attributable to the cost of revenues including certain human resources , finance and legal costs . selling and marketing selling and marketing expenses consists of costs associated with acquiring new clients or selling new products or product renewals to existing clients and primarily includes the costs of our sales force and marketing teams , as well as costs incurred in other groups associated with acquiring new business , including product management , research , technology and sales operations . research and development r & d expenses consists of the costs to develop new or enhance existing products and the costs to develop new or improved technology and service platforms for the delivery of our products and services and primarily includes the costs of application development , quality and assurance , research , product management , project management and the technology support associated with these efforts . general and administrative g & a expenses consists of costs primarily related to finance operations , human resources , office of the ceo , legal , corporate technology , corporate development and certain other administrative costs that are not directly attributed , but are instead allocated , to a product or service . amortization of intangible assets amortization of intangible assets expense relates to definite-lived intangible assets arising from past acquisitions and consists of customer relationships , trademarks and trade names , technology and software , proprietary processes and data and non-competition agreements . we amortize definite-lived intangible assets over their estimated useful lives . definite-lived intangible assets are tested for impairment when impairment indicators are present , and , if impaired , written down to fair value based on either discounted cash flows or appraised values . no impairment of intangible assets has been identified during any of the periods presented . we have no indefinite-lived intangibles . depreciation and amortization of property , equipment and leasehold improvements this category consists of expenses related to depreciating or amortizing the cost of furniture & fixtures , computer and related equipment and leasehold improvements over the estimated useful life of the assets . other expense ( income ) , net this category consists primarily of interest we pay on our outstanding indebtedness , interest we collect on cash and short-term investments , transition services income associated with our sale of iss , foreign currency exchange rate gains and losses as well as other non-operating income and expense items . 52 non-gaap financial measures adjusted ebitda “ adjusted ebitda , ” a measure used by management to assess operating performance , is defined as net income before income ( loss ) from discontinued operations , net of income taxes , plus provision for income taxes , other expense ( income ) , net , depreciation and amortization of property , equipment and leasehold improvements , amortization of intangible assets and , at times , certain other transactions or adjustments . “ adjusted ebitda expenses , ” a measure used by management to assess operating performance , is defined as operating expenses less depreciation and amortization of property , equipment and leasehold improvements and amortization of intangible assets . story_separator_special_tag adjusted ebitda and adjusted ebitda expenses are believed to be meaningful measures of the operating performance of the company because they adjust for significant one-time , unusual or non-recurring items as well as eliminate the accounting effects of capital spending and acquisitions that do not directly affect what management considers to be the company 's core operating performance in the period . all companies do not calculate adjusted ebitda and adjusted ebitda expenses in the same way . these measures can differ significantly from company to company depending on , among other things , long-term strategic decisions regarding capital structure , the tax jurisdictions in which companies operate and capital investments . accordingly , the company 's computation of the adjusted ebitda and adjusted ebitda expenses measures may not be comparable to similarly titled measures computed by other companies . run rate run rate is a key operating metric and is important because an increase or decrease in our run rate ultimately impacts our operating revenues . at the end of any period , we generally have subscription and investment product license agreements in place for a large portion of total revenues for the following 12 months . we measure the fees related to these agreements and refer to this as “ run rate. ” see “ — operating metrics — run rate ” below for additional information on the calculation of this metric . subscription sales subscription sales is a key operating metric and is important because new subscription sales increase our run rate and ultimately our operating revenues . see “ — operating metrics — subscription sales ” below for additional information . aggregate retention rate another key operating metric is aggregate retention rate which is important because subscription cancellations decrease our run rate and ultimately our operating revenues . see “ — operating metrics — aggregate retention rate ” below for additional information on the calculation of this metric . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) . these accounting principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements , as well as the reported amounts of revenues and expenses during the periods presented . we believe the estimates and judgments upon which we rely are reasonable based upon information available to us at the time these estimates and judgments are made . to the extent there are material differences between these estimates and actual results , our consolidated financial statements will be affected . see note 1 , “ introduction and basis of presentation— significant accounting policies , ” of the notes to the consolidated financial statements included herein for a listing of our accounting policies . 53 factors affecting the comparability of results acquisition of insignis on october 16 , 2015 , the company completed the purchase of insignis for $ 6.5 million through its subsidiary investorforce . insignis is a financial data provider , including data on positions , transactions and complex instruments such as exchange-traded futures and options , otc swaps and foreign exchange spot and forward contracts . financial results for insignis are included within the analytics segment from the time of acquisition . the purchase price allocations for the insignis acquisition were $ 4.2 million for goodwill , $ 2.2 million of identifiable intangible assets and $ 0.1 million for assets other than identifiable intangible assets . the results of insignis were included in our results of operations from its acquisition date of october 16 , 2015. the insignis acquisition has not had a significant impact on our results of operations . disposition of real estate occupiers on august 1 , 2016 , msci completed the sale of its real estate occupiers business . the value of the disposed assets and liabilities and the resulting gain on disposal were not material to the company . share repurchases on february 4 , 2014 , our board of directors approved a stock repurchase program authorizing the purchase of up to $ 300.0 million worth of shares of our common stock , which was subsequently increased to $ 850.0 million ( the “ 2014 repurchase program ” ) . on october 14 , 2015 , we exhausted the $ 850.0 million share repurchase authorization under the 2014 repurchase program . on october 28 , 2015 , our board of directors approved a new stock repurchase program authorizing the purchase of up to $ 1.0 billion worth of shares of our common stock ( the “ 2015 repurchase program ” ) . on october 26 , 2016 , our board of directors approved an additional stock repurchase program authorizing the purchase of up to $ 750.0 million worth of shares of our common stock ( together with the $ 330.3 million remaining authorization under the 2015 repurchase program , the “ 2016 repurchase program ” ) . share repurchases made pursuant to the 2016 repurchase program may take place in the open market or in privately negotiated transactions from time to time based on market and other conditions . this authorization may be modified , suspended or terminated by our board of directors at any time without prior notice . on september 18 , 2014 , as part of the 2014 repurchase program , we entered into an asr agreement to initiate share repurchases aggregating $ 300.0 million ( the “ september 2014 asr agreement ” ) . as a result of the september 2014 asr agreement , we repurchased approximately 4.5 million shares of our common stock on september 19 , 2014 and received approximately 1.2 million shares of our common stock on may 21 , 2015 for a combined average price of $ 52.79 per share . on june 2 , 2015 , we began purchasing shares of our common stock in the open market in accordance with sec rule 10b5-1 .
| the following table presents the value of aum in etfs linked to msci indexes and the sequential change of such assets as of the end of each of the periods indicated : replace_table_token_24_th source : bloomberg and msci ( 1 ) the value of aum in etfs linked to msci indexes is calculated by multiplying the etf net asset value by the number of shares outstanding . as of december 31 , 2015 , the value of aum in etfs linked to msci equity indexes was $ 433.4 billion , up 65 $ 60.1 billion , or 16.1 % , from $ 373.3 billion as of december 31 , 2014. non-recurring revenues increased 6.1 % to $ 19.5 million for the year ended december 31 , 2015 , compared to $ 18.4 million for the year ended december 31 , 2014 , primarily resulting from higher one-time sales of index and analytics products , partially offset by lower one-time sales of real estate products within our all other segment . the following table presents operating revenues by reportable segment and revenue type for the years indicated : replace_table_token_25_th refer to the section titled , “ segment results of operations ” for an explanation of the results . operating expenses operating expenses increased 1.8 % to $ 671.1 million for the year ended december 31 , 2015 compared to $ 659.5 million for the year ended december 31 , 2014. adjusting for the impact of foreign currency exchange rate fluctuations , operating expenses would have increased 5.8 % for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. we had 2,754 employees as of december 31 , 2015 compared to 2,926 employees as of december 31 , 2014. as of december 31 , 2015 , 52.8 % of our employees were located in emerging market centers compared to 50.5 % of our employees as of december 31 , 2014 . 66 the following table presents operating expenses by activity for the years indicated : replace_table_token_26_th cost of revenues cost of revenues for the year ended december 31 , 2015 decreased 3.2 % to $ 267.7
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estimates in these consolidated financial statements include , but are not limited to , accounts and unbilled receivable allowances , revenue recognition on fixed price contracts , depreciation of property and equipment , share-based compensation , valuation of acquired intangible assets , impairment of long-lived assets and goodwill , accrued and deferred income taxes , valuation allowances on deferred tax assets , accrued compensation , accrued exit costs , and other accrued expenses . these items are monitored and analyzed by management for changes in facts and circumstances , and material changes in these estimates could occur in the future . changes in estimates are recorded in the period in which they become known . 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 our estimates if our assumptions based on past experience or our other assumptions do not turn out to be substantially accurate . a summary of the accounting policies that we believe are most critical to understanding and evaluating our financial results is set forth below . this summary should be read in conjunction with our consolidated financial statements and the related notes included in item 8 of this annual report on form 10-k. revenue recognition and accounts receivable allowances . we derive substantially all of our revenues from the performance of professional services . the contracts that we enter into and operate under specify whether the engagement will be billed on a time-and-materials or a fixed-price basis . 28 these engagements generally last three to six months , although some of our engagements can be much longer in duration . each contract must be approved by one of our vice presidents . we recognize substantially all of our revenues under written service contracts when the fee is fixed or determinable , as the services are provided , and only in those situations where collection from the client is reasonably assured . in certain cases we provide services to our clients without sufficient contractual documentation , or fees are tied to performance-based criteria , which require us to defer revenue in accordance with u.s. gaap . in these cases , these amounts are fully reserved until all criteria for recognizing revenue are met . our revenues include projects secured by our non-employee experts as well as projects secured by our employees . we recognize all project revenue on a gross basis based on the consideration of the criteria set forth in accounting standards codification ( `` asc '' ) topic 605-45 , principal agent considerations . most of our revenue is derived from time-and-materials service contracts . revenues from time-and-materials service contracts are recognized as the services are provided based upon hours worked and contractually agreed-upon hourly rates , as well as indirect fees based upon hours worked . revenues from a majority of our fixed-price engagements are recognized on a proportional performance method based on the ratio of costs incurred , substantially all of which are labor-related , to the total estimated project costs . in general , project costs are classified in costs of services and are based on the direct salary of the consultants on the engagement plus all direct expenses incurred to complete the engagement , including any amounts billed to us by our non-employee experts . the proportional performance method is used for fixed-price contracts because reasonably dependable estimates of the revenues and costs applicable to various stages of a contract can be made , based on historical experience and the terms set forth in the contract , and are indicative of the level of benefit provided to our clients . fixed-price contracts generally convert to time-and-materials contracts in the event the contract terminates . our management maintains contact with project managers to discuss the status of the projects and , for fixed-price engagements , management is updated on the budgeted costs and resources required to complete the project . these budgets are then used to calculate proportional performance ratios and to estimate the anticipated income or loss on the project . occasionally , we have been required to commit unanticipated additional resources to complete projects , which has resulted in lower than anticipated income or losses on those contracts . we may experience similar situations in the future . provisions for estimated losses on contracts are made during the period in which such losses become probable and can be reasonably estimated . to date , such losses have not been significant . revenues also include reimbursements , which include reimbursement for travel and other out-of-pocket expenses , outside consultants , and other reimbursable expenses . our average days sales outstanding ( dsos ) are calculated by dividing the sum of our accounts receivable and unbilled services balance , net of deferred revenue , at the end of the period by average daily revenues . average daily revenues are calculated by dividing period revenues by the number of days in the period . our project managers and finance personnel monitor payments from our clients and assess any collection issues . we maintain accounts receivable allowances for estimated losses resulting from disputed amounts or the inability of our clients to make required payments . we base our estimates on our historical collection experience , current trends , and credit policy . in determining these estimates , we examine historical write-offs of our receivables and review client accounts to identify any specific customer collection issues . if the financial condition of our customers were to deteriorate or disputes were to arise regarding the services provided , resulting in an impairment of their ability or intent to make payment , additional allowances may be required . a failure to estimate accurately the accounts receivable allowances and ensure that payments are received on a timely basis could have a material adverse effect on our business , financial condition , and results of operations . share-based compensation expense . story_separator_special_tag share-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award . we use the black-scholes option-pricing model to estimate the fair value of stock options . 29 option valuation models require the input of assumptions , including the expected life of the share-based awards , the expected stock price volatility , the risk-free interest rate , the expected forfeiture rates , and the expected dividend yield . the expected volatility and expected life are based on our historical experience . the risk-free interest rate is based on u.s. treasury interest rates with corresponding terms consistent with the expected life of the share-based award . expected dividend yield is not considered in the option pricing formula because we have not paid dividends in the past and we do not anticipate paying any dividends in the foreseeable future . we will update these assumptions if changes are warranted . the forfeiture rate is based upon historical experience . we believe that our historical experience is an appropriate indicator of future forfeitures . valuation of goodwill and other intangible assets . we account for our acquisitions under the purchase method of accounting . goodwill represents the purchase price of acquired businesses in excess of the fair market value of net assets acquired . intangible assets that are separate from goodwill and have determinable useful lives are valued separately . these intangible assets typically consist of non-competition agreements , customer relationships , customer lists , developed technology , and trademarks , which are generally amortized on a straight-line basis over their estimated remaining useful lives of four to ten years . in accordance with asc topic 350 , `` intangiblesgoodwill and other '' ( `` asc topic 350 '' ) , goodwill and intangible assets with indefinite lives are not subject to amortization , but are monitored annually as of october 15th for impairment , or more frequently , as necessary , if events or circumstances exist that would more likely than not reduce the fair value of the reporting unit below its carrying amount . for our goodwill impairment analysis , we operate under two reporting units , which are consulting services and neuco . under asc topic 350 , in performing the first step of the goodwill impairment testing and measurement process , we compare the estimated value of each of our reporting units to its net book value to identify potential impairment . we estimate the fair value of our consulting business utilizing our market capitalization , plus an appropriate control premium , less the estimated fair value of neuco . market capitalization is determined by multiplying our shares outstanding on the test date by the market price of our common stock on that date . we determine the control premium utilizing a discounted cash flow model that takes into consideration our forecasted results as well as appropriate industry , market and other pertinent factors , including indications of such premiums from data on recent acquisition transactions . the fair value of neuco is determined using an income approach which measures the value of the enterprise based on an expected stream of earnings over time . if the estimated fair value of a reporting unit is less than its net book value , the second step is performed to determine if goodwill is impaired . if through the impairment evaluation process a reporting unit determines that goodwill has been impaired , an impairment charge would be recorded in our consolidated income statement . neuco incurred an impairment loss during the fourth quarter of fiscal 2015. cra 's consulting services did not incur an impairment loss related to goodwill during fiscal 2015 , fiscal 2014 or fiscal 2013. the estimated fair value of cra 's consulting services was greater than its carrying value as of october 15 th of each respective year . the re-measurement of a reporting unit 's fair value and that of its underlying assets and liabilities is classified as a level 3 fair value assessment due to the significance of unobservable inputs developed using specific information from the reporting units . the fair value adjustment to goodwill , which resulted in neuco 's impairment charge , was computed as the difference between neuco 's fair value and the fair value of its underlying assets and liabilities . the unobservable inputs used to determine the fair value of the underlying assets and liabilities are based on our specific information such as estimates of revenue and cost growth rates , profit margins , discount rates , and cost estimated . see note 4 , `` goodwill and intangible assets , '' for further details . 30 we assess the impairment of amortizable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important that could trigger an impairment review include the following : a significant underperformance relative to expected historical or projected future operating results ; a significant change in the manner of our use of the acquired asset or the strategy for our overall business ; and a significant negative industry or economic trend . if we were to determine that an impairment evaluation is required , we would review the expected future undiscounted cash flows to be generated by the assets . if we determine that the carrying value of intangible assets may not be recoverable , we measure any impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model . accounting for income taxes . we record income taxes using the asset and liability method . deferred tax assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases , and operating loss and tax credit carryforwards .
| costs of services increased by $ 0.9 million , or 0.4 % , to $ 207.7 million for fiscal 2015 from $ 206.8 million for fiscal 2014. as a percentage of revenues , costs of services increased to 68.4 % for fiscal 2015 from 67.5 % for fiscal 2014 due to the increase in expenses resulting from the headcount increases in fiscal 2015 as compared with fiscal 2014 and the reduction in revenue in fiscal 2015 as compared to fiscal 2014 and the reduction in revenue in fiscal 2015 as compared to fiscal 2014 , partially offset by a $ 3.1 million decrease in client reimbursable expenses in fiscal 2015 as compared with fiscal 2014. selling , general and administrative expenses . selling , general and administrative expenses increased by $ 3.3 million , or 4.8 % , to $ 72.4 million for fiscal 2015 from $ 69.1 million for fiscal 2014. the primary contributor to this increase was the additional temporary rent expense as we occupied our legacy office spaces at the same time as building out our new spaces . the temporary additional rent expense in boston began in february 2015 and concluded in the third quarter of fiscal 2015. in new york city , the temporary additional rent expense began in august 2015 and we expect it to end in fiscal 2016. other increases in selling , general and administrative expenses related to increases in certain operating expenses ( including recruiting fees , marketing expenses , professional services and travel expenses ) . as a percentage of revenues , selling , general and administrative expenses increased to 23.9 % for fiscal 2015 from 22.5 % for fiscal 2014 due primarily to the decrease in revenues in fiscal 2015 compared to fiscal 2014 , while selling , general , and administrative expenses in fiscal 2015 increased as compared to fiscal 2014 increased by approximately $ 3.3.million . commissions to non-employee experts represented 3.4 % of revenue in fiscal 2015 and 3.0 % of revenue in fiscal 2014. neuco goodwill impairment . in accordance with asc topic 350 , `` intangiblesgoodwill and other , '' goodwill and intangible assets with indefinite
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as discussed in more detail below , we repaid the outstanding loan under the erp on february 4 , 2021. during the third quarter of 2020 , we completed $ 376.0 million in aircraft financings , including the issuance of enhanced equipment trust certificates and two sale and lease back transactions . refer to note 8 and note 9 to the notes to consolidated financial statements for more discussion of our financing activities . in december 2020 , we entered into the equity distribution agreement in connection with our atm program relating to the issuance and sale , from time to time , of up to five million shares of our common stock . as of december 31 , 2020 , we have raised approximately $ 41.2 million through the sale of approximately 2.1 million shares at an average price of $ 19.79 per share . refer to note 14 to the notes to consolidated financial statements for additional information on the equity distribution agreement . we paused our atm program between december 24 , 2020 and january 31 , 2020 and recommenced sales under our atm program on february 1 , 2021. in february 2021 , we issued $ 1.2 billion in senior secured notes as part of our notes offering , as discussed in further detail below . we will continue to explore and pursue options to raise additional financing as opportunities arise . our cash burn , which is defined as net sales , operating cash outflows , debt service , interest payments , capital expenditures , tax refunds and severance payments , for the fourth quarter of 2020 , was $ 1.7 million per day , an approximate 35 % improvement from the third quarter of 2020 of $ 2.6 million per day , and more favorable than our previously disclosed expectation of $ 2.2 million per day . we forecast our cash burn for the first quarter of 2021 to be between $ 2.3 million per day and $ 2.7 million per day . as we continue to rebuild our operations to meet expected demand , we expect to incur additional operating expenses in the first quarter of 2021 as compared to the fourth quarter of 2020. our cash burn for the first quarter of 2021 will be highly dependent on bookings during the quarter , which may continue to be volatile and may be negatively impacted by any changes in the pre-travel testing program implemented by the state of hawai ' i , the recent resurgence of covid-19 infections in the united states and internationally , the identification of new , more infectious strains of the covid-19 virus , the implementation 39 or extension of travel-related restrictions and quarantines in some key origin points , and other factors affecting public sentiment . load factor . our flown load factor for the fourth quarter of 2020 was 40 % . cares act on march 27 , 2020 , the cares act was enacted , which provided an estimated $ 2.2 trillion to fight the covid-19 pandemic and stimulate the u.s. economy . the assistance included tax relief and government loans , grants and investments for entities in affected industries . the cares act provided passenger air carriers with , among other things : ( a ) financial relief for direct payroll support , ( b ) financial relief in the form of loans and loan guarantees available for operations , ( c ) temporary suspension of certain aviation taxes , ( d ) temporary deferral of certain employer payroll taxes , and ( e ) additional corporate tax benefits that are further discussed in note 10 to the notes to consolidated financial statements . the cares act also provided for deferred payment of the employer portion of social security taxes through the end of 2020 , with 50 % of the deferred amount due december 31 , 2021 and the remaining 50 % due december 31 , 2022. lastly , the cares act provided for the carryback of additional nols to 2016 and 2017 , which will result in tax benefits for those years . payroll support program on april 22 , 2020 , we entered into a payroll support program agreement ( the psp agreement ) with the treasury under the cares act . in connection with the psp agreement , we entered into a warrant agreement ( the psp warrant agreement ) with the treasury , and we issued a promissory note to the treasury ( the note ) . pursuant to the psp agreement , the treasury provided us with financial assistance , paid in installments , totaling approximately $ 300.9 million , to be used exclusively for the purpose of continuing to pay employee salaries , wages and benefits . under the psp agreement , we agreed to ( i ) refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through september 30 , 2020 , ( ii ) limit executive compensation through march 24 , 2022 and ( iii ) suspend payment of dividends and stock repurchases through september 30 , 2021. the psp agreement also imposes certain treasury-mandated reporting obligations on us . finally , we are required to continue to provide air service to markets served prior to march 1 , 2020 until march 1 , 2022 , to the extent determined reasonable and practicable by the dot and subject to exemptions granted by the dot to us given the absence of demand for certain of such services . the note was in the total principal amount of approximately $ 60.3 million . story_separator_special_tag the note has a 10-year term and bears interest at a rate per annum equal to 1.00 % until the fifth anniversary of april 22 , 2020 ( the psp closing date ) , and thereafter bears interest at a rate equal to the secured overnight financing rate plus 2.00 % until the tenth anniversary of the psp closing date , which interest is payable semi-annually beginning on september 30 , 2020. the note may be prepaid at any time , without penalty , and is subject to customary change of control acceleration provisions and events of default . as compensation to the u.s. government for providing financial relief under the psp agreement , and pursuant to the psp warrant agreement , we issued to the treasury a total of 509,964 warrants to purchase shares of our common stock at an exercise price of $ 11.82 per share ( the psp warrants ) . the psp warrants are non-voting , freely transferable , may be settled as net shares or in cash at our option , expire five years from the date of issuance , and contain registration rights and customary anti-dilution provisions . refer to note 8 to the notes to consolidated financial statements for additional discussion . economic relief program on september 25 , 2020 ( erp closing date ) , we entered into the loan agreement . the loan agreement provides for a secured term loan facility which permits us to borrow up to $ 420.0 million ( the facility ) . on the erp closing date , we borrowed $ 45.0 million and may , at our option , borrow additional amounts in up to two subsequent borrowings until may 26 , 2021 , so long as , after giving effect to any further borrowing , the collateral coverage ratio is no less than 2.0 to 1.0. the proceeds from the facility will be used for certain general corporate purposes and operating expenses . as a condition to the drawing under the facility , we are required to comply with all applicable provisions of the cares act . borrowings under the facility will initially bear interest at a variable rate per annum equal to ( a ) the adjusted libo rate ( as defined in the loan agreement ) plus ( b ) 2.50 % accrued interest on the loans is payable in arrears on the first business day following the 14th day of each march , june , september and december ( beginning with september 15 , 2021 ) , and on june 30 , 2024. the applicable interest rate for the $ 45.0 million loan drawn on the erp closing date under the facility is 2.73 % per annum for the period from the erp closing date through september 15 , 2021 at which time the interest rate will reset in 40 accordance with the foregoing formula . all advances under the facility will be in the form of term loans , all of which will mature and be due and payable in a single installment on june 30 , 2024. the facility is secured by ( i ) our frequent flyer loyalty program , hawaiianmiles , including but not limited to loyalty program partner participation agreements ( including rights to receive cash flows thereunder ) , documents , deposit accounts , securities accounts , books and records and intellectual property primarily used in connection with the loyalty program and ( ii ) 14 boeing 717-200 airframes and the related 28 rolls royce br715-a1-30 engines , together with their related accessories , aircraft documents and parts ( collectively , the collateral ) . the facility is also subject to various financial covenants , including a minimum collateral coverage ratio of 2.0 to 1.0 and a minimum debt service coverage ratio of 1.75 to 1.00. in connection with our entry into the loan agreement , we also entered into a warrant agreement ( the erp warrant agreement ) , with the treasury under the erp . pursuant to the erp warrant agreement , we agreed to issue warrants to purchase up to an aggregate of 3,553,299 shares of our common stock ( the erp warrants ) at an exercise price of $ 11.82 per share ( the exercise price ) . pursuant to the erp warrant agreement , ( a ) on the erp closing date , we issued to the treasury an erp warrant to purchase up to 380,711 shares of our common stock and ( b ) on the date of each borrowing under the loan agreement , we will issue to the treasury an additional erp warrant for a number of shares of our common stock equal to 10 % of such borrowing , divided by the exercise price . the erp warrants are non-voting , are freely transferable , may be settled as net shares or in cash at our option , expire five years from the date of issuance , and contain registration rights and customary anti-dilution provisions . on october 23 , 2020 , we entered into the amended and restated loan agreement with the treasury providing for an increase in borrowings available under the loan agreement from $ 420 million to $ 622 million and correspondingly increased the aggregate number of erp warrants available to be issued to the treasury up to 5,262,267. on february 4 , 2021 , immediately prior to the closing of the offering ( as defined below ) , hawaiian repaid in full the $ 45.0 million loan , and in connection with such repayment , terminated the amended and restated loan agreement . we have ongoing obligations to the treasury under the erp warrants , cares act and the caa 2021 ( discussed below ) . consolidated appropriations act , 2021 on december 27 , 2020 , caa 2021 was enacted , which included $ 900 billion for various covid-19 relief programs , including $ 15.0 billion for airline workers under an extension of the cares act psp .
| these restrictions , combined with the ongoing spread and impact of the covid-19 pandemic globally , have continued to significantly suppress customer demand , which remains at historically low levels . restrictions on travel to and within the state of hawai ' i as well as travel to and from various international locations ( including international locations within our network ) , remain in effect . since october 15 , 2020 , the state of hawai ' i has allowed travelers coming to hawai ' i from the mainland u.s. to bypass the 10-day quarantine requirement with proof of a negative covid-19 test from a state-approved testing partner ( the pre-travel testing program ) , and the pre-travel testing program has since been expanded to include international travelers from japan , south korea and canada . the state of hawai ` i and counties within the state continue to evaluate and update testing requirements for travel to and within the state , including the required timing of receipt of testing results and the expansion of the pre-travel testing program to travelers from other international locations . following the announcement and implementation of the pre-travel testing program , we saw an increase in bookings and have begun rebuilding our north america , neighbor island and international flight schedules commensurate with anticipated increases in demand . during the fourth quarter , we reinstated non-stop service from honolulu to las vegas , phoenix , san jose , oakland , new york and boston , thereby restoring service to all of our pre-pandemic origin points on the u.s. mainland , as well as non-stop service from honolulu to tokyo-haneda and osaka , japan , and seoul , south korea . while we doubled our capacity during the fourth quarter of 2020 , as compared to the third quarter of 2020 , our capacity was down approximately 72 % compared to the same period in 2019 . in december 2020 , we announced the addition of three new u.s. mainland destinations : austin , texas , orlando , florida , and ontario , california
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on an ongoing basis , management evaluates their estimates and assumptions and the effects of any such revisions are reflected in the financial statements in the period in which they are determined to be necessary . actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements . set forth below are the policies and 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 . revenue recognition revenue from the sale of new and used vehicles ( which excludes sales tax ) is recognized upon the latest of delivery , passage of title , signing of the sales contract or approval of financing . manufacturer incentives and rebates , including manufacturer holdbacks , floor plan interest assistance and certain advertising assistance , are recognized as a reduction of new vehicle cost of sales at the time the related vehicles are sold . revenue from the sale of parts , service , and collision repair work ( which excludes sales tax ) is recognized upon delivery of parts to the customer or at the time vehicle service or repair work is completed , as applicable . we receive commissions from third-party lending and insurance institutions for arranging customer financing and from the sale of vehicle service contracts , guaranteed auto protection ( known as “ gap ” ) insurance , and other insurance , to customers ( collectively “ f & i ” ) . we may be charged back for f & i commissions in the event a contract is prepaid , defaulted upon , or terminated ( “ chargebacks ” ) . f & i commissions are recorded at the time a vehicle is sold . f & i commissions , net of estimated future chargebacks , are included in finance and insurance , net in the accompanying consolidated statements of income . used vehicle inventory lower of cost or market reserves— our used vehicle inventory is stated at the lower of cost or market . we use the specific identification method to value our used vehicle inventories . we maintain a reserve for specific inventory units where cost basis exceeds fair value . in assessing lower of cost or market for used vehicles , we consider ( i ) the aging of our used vehicles , ( ii ) historical sales experience of used vehicles and ( iii ) current market conditions and trends for used vehicles . we also review and consider the following metrics related to used vehicle sales ( both on a recent and longer-term historical basis ) : ( i ) days of supply in our used vehicle inventory , ( ii ) used vehicle units sold at less than original cost as a percentage of total used vehicles sold and ( iii ) average vehicle selling price of used vehicle units sold at less than original cost . we then determine the appropriate level of reserve required to reduce our used vehicle inventory to the lower of cost or market , and record the resulting adjustment in the period in which we determine a loss has occurred . the level of reserve determined to be appropriate for each reporting period is considered to be a permanent inventory write-down and therefore is only released upon the sale of the related inventory . 29 our used vehicle sales histories have indicated that our losses range between 3 % and 4 % of our original used vehicle inventory cost . accordingly , we have recorded used vehicle reserves as follows : replace_table_token_7_th as of december 31 , 2015 , each 100 basis point change in our estimate would change our used vehicle reserve by approximately $ 1.4 million . f & i chargeback reserve— we reserve for chargebacks on finance , insurance , or vehicle service contract commissions received . the reserve is established based on historical operating results and the termination provisions of the applicable contracts . this data is evaluated on a product-by-product basis . our loss histories vary depending on the product , but generally total between 9 % and 15 % of f & i revenues . our f & i chargebacks from continuing operations for the years ended december 31 , 2015 , 2014 , and 2013 were $ 38.2 million , $ 31.0 million , and $ 29.6 million , respectively . our chargeback reserves were $ 38.1 million and $ 31.3 million as of december 31 , 2015 and december 31 , 2014 , respectively . total chargebacks as a percentage of f & i revenue for the years ended december 31 , 2015 , 2014 , and 2013 , were 13 % , 12 % , and 13 % , respectively . a 100 basis point change in our estimate for all our products would have changed finance and insurance , net on our accompanying consolidated statement of income for the year ended december 31 , 2015 by approximately $ 3.0 million . insurance reserves— we are self-insured for employee medical claims and maintain stop loss insurance for large-dollar individual claims . we have large deductible insurance programs for workers compensation , property and general liability claims . we maintain and review our claim and loss history to assist in assessing our expected future liability for these claims . we also use professional service providers , such as account administrators and actuaries , to help us accumulate and assess this information . provisions for retained losses and deductibles are made by charges to expense based upon periodic evaluations of the estimated ultimate liabilities on reported and unreported claims . as of december 31 , 2015 and december 31 , 2014 , we had $ 13.3 million and $ 14.4 million , respectively , of insurance reserves for both known and unknown employee medical , workers compensation , property , and general liability claims . story_separator_special_tag expenses associated with employee medical , workers compensation , property , and general liability claims , including premiums for insurance coverage , for the years ended december 31 , 2015 , 2014 , and 2013 , totaled $ 26.9 million , $ 27.1 million , and $ 25.2 million , respectively . goodwill and manufacturer franchise rights— goodwill represents the excess cost of the businesses acquired over the fair market value of the identifiable net assets . we have determined that , based on how we integrate acquisitions into our business , how the components of our business share resources and interact with one another , and how we review the results of our operations , that we have several geographic market-based operating segments . we have determined that the dealerships in each of our operating segments are components that are aggregated into several geographic market-based reporting units for the purpose of testing goodwill for impairment , as they ( i ) have similar economic characteristics , ( ii ) offer similar products and services ( all of our dealerships offer new and used vehicles , service , parts and third-party finance and insurance products ) , ( iii ) have similar customers , ( iv ) have similar distribution and marketing practices ( all of our dealerships distribute products and services through dealership facilities that market to customers in similar ways ) and ( v ) operate under similar regulatory environments . our only significant identifiable intangible assets , other than goodwill , are rights under franchise agreements with manufacturers , which are recorded at an individual franchise level . the fair value of our manufacturer franchise rights is determined at the acquisition date through discounting the projected cash flows specific to each franchise . we have determined that manufacturer franchise rights have an indefinite life as there are no economic , contractual or other factors that limit their useful lives and they are expected to generate cash flows indefinitely due to the historically long lives of the manufacturers ' brand names . furthermore , to the extent that any agreements evidencing our manufacturer franchise rights would expire , we expect that we would be able to renew those agreements in the ordinary course of business . 30 we do not amortize goodwill and other intangible assets that are deemed to have indefinite lives . we review goodwill and manufacturer franchise rights for impairment annually as of october 1 st , or more often if events or circumstances indicate that impairment may have occurred . we are subject to financial statement risk to the extent that goodwill becomes impaired due to decreases in the fair value of our automotive retail business or manufacturer franchise rights become impaired due to decreases in the fair value of our individual franchises . we completed our annual intangible impairment tests as of october 1 , 2015 , and no impairment of goodwill or other intangible assets was recognized as a result of such tests . 31 results of operations the year ended december 31 , 2015 compared to the year ended december 31 , 2014 replace_table_token_8_th nm — not meaningful 32 replace_table_token_9_th total revenue during 2015 increased by $ 720.6 million ( 12 % ) compared to 2014 as a result of ( i ) a $ 421.9 million ( 13 % ) increase in new vehicle revenue , ( ii ) a $ 190.2 million ( 11 % ) increase in used vehicle revenue , ( iii ) a $ 74.1 million ( 11 % ) increase in parts and service revenue , and ( iv ) a $ 34.4 million ( 15 % ) increase in f & i revenue . the $ 93.6 million ( 10 % ) increase in gross profit during 2015 was driven by ( i ) a $ 50.4 million ( 12 % ) increase in parts and service gross profit , ( ii ) a $ 34.4 million ( 15 % ) increase in f & i gross profit , ( iii ) a $ 4.7 million ( 2 % ) increase in new vehicle gross profit , and ( iv ) a $ 4.1 million ( 3 % ) increase in used vehicle gross profit . our total gross profit margin decrease d 40 basis points to 16.1 % , primarily due to competitive pressures negatively impacting our gross margins across our new vehicle and used vehicle businesses , partially offset by an increase in gross margin for our parts and service business and growth in our f & i business . sg & a expenses increase d by $ 58.3 million ( 9 % ) , however sg & a expenses as a percentage of gross profit decreased by 60 basis points from 69.4 % in 2014 to 68.8 % in 2015. net income increase d by $ 57.6 million ( 52 % ) during 2015 compared to 2014. the increase in net income was driven by the $ 33.4 million ( 12 % ) increase in income from operations and a $ 57.0 million ( 67 % ) decrease in other expenses , primarily due to a $ 34.9 million gain from divestitures in 2015 and a $ 31.9 million loss on extinguishment of long-term debt in 2014. income tax expense increase d by $ 33.0 million ( 46 % ) primarily as a result of the $ 90.4 million ( 49 % ) increase in income from continuing operations before income taxes . we assess the organic growth of our revenue and gross profit on a same store basis . as such , for the following discussion , same store amounts consist of information from dealerships for identical months in each comparative period , commencing with the first month we owned the dealership . additionally , amounts related to divested dealerships are excluded from each comparative period .
| sg & a expenses increased $ 53.8 million ( 9 % ) and sg & a expenses as a percentage of gross profit decreased by 110 basis points from 70.5 % in 2013 to 69.4 % in 2014. net income increased by $ 2.5 million ( 2 % ) during 2014 as compared to 2013. the increase in net income was driven by the $ 42.1 million ( 19 % ) increase in income from operations , partially offset by a $ 24.4 million ( 40 % ) increase in other expense , primarily due to the loss on extinguishment of debt associated with the redemption of the $ 300.0 million of 8.375 % senior subordinated notes due 2020 ( the “ 8.375 % notes ” ) , and a $ 6.8 million ( 11 % ) increase in income tax expense . we assess the organic growth of our revenue and gross profit on a same store basis . as such , for the following discussion , same store amounts consist of information from dealerships for identical months in each comparative period , commencing with the first month we owned the dealership . additionally , amounts related to divested dealerships are excluded from each comparative period . 41 new vehicle— replace_table_token_20_th 42 new vehicle metrics— replace_table_token_21_th new vehicle revenue increased by $ 278.4 million ( 9 % ) as a result of the 9 % increase in new vehicle units and a $ 243 ( 1 % ) increase in revenue per new vehicle sold during 2014. same store new vehicle revenue increased by $ 213.3 million ( 8 % ) due to an increase in new vehicle units sold by 7 % and an increase in revenue per new vehicle sold by $ 330 ( 1 % ) . same store unit volumes for our luxury , import , and domestic brands increased 9 % , 5 % , and 8 % , respectively , reflecting consumer demand for the broad range of attractive vehicles we offer and the continued availability of credit at terms favorable to our customers . overall , same store total unit volumes have increased by 7 % during 2014 compared to new vehicle sales in the u.s. which has increased by 6 % . during 2014 , total new vehicle gross profit and same store new vehicle gross profit increased by $ 17.0 million ( 9 % ) and $ 12.8 million ( 7 % ) , respectively , driven by increases across all of our brand segments . the increase in gross profit was particularly strong in our luxury brand category which increased $
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we plan to continue to incur significant research and development expenses for the foreseeable future as we continue to seek regulatory approval and exclusivity for indoximod , further advance our earlier-stage research and development projects and strengthen our pipeline of immune stimulatory product candidates through our clinical and business development programs . for the years ended december 31 , 2016 , 2015 and 2014 we incurred $ 93.3 million , $ 71.4 million , and $ 35.7 million , respectively , in research and development expenses . the following tables summarize our research and development expenses for the periods indicated : replace_table_token_5_th replace_table_token_6_th at this time , we can not accurately estimate or know the nature , specific timing or costs necessary to complete clinical development activities for our product candidates . we are subject to the numerous risks and uncertainties associated with developing biopharmaceutical products including the uncertain cost and outcome of ongoing and planned clinical trials , the possibility that the fda or another regulatory authority may require us to conduct clinical or non-clinical testing in addition to trials that we have planned , rapid and significant technological changes , frequent new product and service introductions and enhancements , evolving industry standards in the life sciences industry and our future need for additional capital . in addition , we currently have limited 59 clinical data concerning the safety and efficacy of our product candidates . a change in the outcome of any of these variables with respect to the development of any of our product candidates could result in a significant change in the costs and timing of our research and development expenses . general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive , finance , business development , information technology , legal and human resources functions . other general and administrative expenses include facility costs not otherwise associated with research and development expenses , intellectual property prosecution and defense costs and professional fees for legal , consulting , auditing and tax services . interest income and interest expense interest income consists of interest earned on our cash and cash equivalents and certificates of deposit . the primary objective of our investment policy is capital preservation . we expect our interest income to increase as we invest the net proceeds from our offerings pending their use in our operations . interest expense consists primarily of interest , amortization of debt discount and amortization of deferred financing costs associated with our notes payable and obligations under capital leases . restructuring charges in may 2016 , we announced that our phase 3 clinical trial impress , for algenpantucel-l , which utilizes our hyperacute cellular immunotherapy technology , failed to achieve its primary endpoint . as a result , we adopted a restructuring plan designed to better align our workforce and operating costs to our revised pipeline development plans and operating needs . the restructuring plan included a reduction in our workforce ; the exit of or reduction of certain leased facilities ; and the renegotiation or termination of contracts with certain third parties . in connection with the restructuring plan , we also discontinued the development of our commercial manufacturing capabilities for algenpantucel-l , discontinued programs supporting the future commercialization of algenpantucel-l and recorded an impairment charge to fixed assets . we have retained some internal manufacturing ability to support the development of clinical supplies for our ongoing clinical trials of the other hyperacute cellular immunotherapy product candidates . income tax benefit and expense for the year ended december 31 , 2016 we had an income tax benefit of $ 5.4 million . income tax expense was $ 6.7 million , and $ 21.6 million for the years ended december 31 , 2015 and 2014 , respectively . income tax differs from the amount that would be expected after applying the statutory u.s. federal income tax rate primarily due to the loss incurred for our foreign subsidiary and changes in the valuation allowance for deferred taxes . in addition , for the year ended december 31 , 2016 the tax differs from the statutory u.s. federal tax rate due to our ability to carry back the full taxable loss for 2016 to 2014 for a federal tax benefit of $ 6.0 million recognized in the current year . the valuation allowance for deferred tax assets as of december 31 , 2016 and 2015 was $ 35.1 million and $ 20.7 million , respectively . the net change in the total valuation allowance for the years ended december 31 , 2016 and 2015 was an increase of $ 14.4 million . in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . management considers the scheduled reversal of deferred tax liabilities , projected taxable income , and tax planning strategies in making this assessment . valuation allowances have been established for the entire amount of the net deferred tax assets as of december 31 , 2016 and 2015 , due to the uncertainty of future recoverability . as of december 31 , 2016 and december 31 , 2015 , we had federal net operating loss carryforwards of $ 1.4 million and $ 1.4 million and federal research credit carryforwards of $ 20.8 million and $ 10.9 million , respectively , which expire at various dates from 2026 through 2031. sections 382 and 383 of the internal revenue code limit a corporation 's ability to utilize its net operating loss carryforwards and certain other tax attributes ( including research credits ) to offset any future taxable income or tax if the corporation experiences a cumulative ownership change of more than 50 % over any rolling three year period . story_separator_special_tag state net operating loss carryforwards ( and certain other tax attributes ) may be similarly limited . an ownership change can therefore result in significantly greater tax liabilities than a corporation would incur in the absence of such a change and any increased liabilities could adversely affect the corporation 's business , results of operations , financial condition and cash flow . 60 based on analysis , we believe that , from our inception through december 31 , 2015 , we experienced section 382 ownership changes in september 2001 and march 2003 and one of our subsidiaries experienced section 382 ownership changes in january 2006 and january 2011. these ownership changes limited our ability to utilize federal net operating loss carryforwards ( and certain other tax attributes ) that accrued prior to the respective ownership changes of us and one of our subsidiaries . even if another ownership change has not occurred , additional ownership changes may occur in the future as a result of events over which we will have little or no control , including purchases and sales of our equity by our 5 % stockholders , the emergence of new 5 % stockholders , additional equity offerings or certain changes in the ownership of any of our 5 % stockholders . critical accounting policies and significant judgments and estimates we have prepared our audited consolidated financial statements in accordance with united states generally accepted accounting principles , or u.s. gaap . our preparation of these financial statements requires us to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , expenses and related disclosures at the date of the financial statements , as well as revenues and expenses during the reporting periods . we evaluate our estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results could therefore differ materially from these estimates under different assumptions or conditions . we have reviewed our critical accounting policies and estimates with the audit committee of our board of directors . while our significant accounting policies are described in more detail in note 2 to our audited consolidated financial statements included later in this annual report , we believe the following accounting policies to be critical in the preparation of our financial statements . expenses accrued under contractual arrangements with third parties ; accrued clinical expenses as part of the process of preparing our financial statements , we are required to estimate our accrued expenses . this process involves reviewing open contracts and purchase orders , 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 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 . we base our expenses related to clinical trials 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 trials 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 . 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 expenses , we estimate the time period over which services will be performed and the level of effort to be expended in each period , which is based on an established protocol specific to each clinical trial . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period . share-based compensation we are required to estimate the grant-date fair value of stock options , stock awards and restricted stock issued to employees and recognize this cost over the period these awards vest . we estimate the fair value of each award granted using the black-scholes option pricing model . the black-scholes model requires the input of assumptions , including the expected stock price volatility , the calculation of expected term and the fair value of the underlying common stock on the date of grant , among other inputs . generally , we have issued employee awards that vest over time . for these awards , we record compensation cost on a straight-line basis over the vesting period . generally , we issue awards that vest either monthly or vest 25 % on the first anniversary date of issuance with the remaining options vesting ratably over the next 36 months , or as determined by the board of directors at the time of grant . we calculate the fair value of the award on the grant date , which is the date the award is authorized by the board of directors or chief executive officer and the employee has an understanding of the terms of the award .
| income tax for the year ended december 31 , 2016 was a benefit of $ 5.4 million compared to income tax expense of $ 6.7 million for the same period in 2015 . the change is primarily due to our ability to carry back the full taxable loss for 2016 to 2014 for a benefit of $ 6.0 million in the current year . our income tax benefit for the year ended december 31 , 2016 was reduced due to the net loss generated by our foreign subsidiary , newlink international , which is not deductible on our consolidated federal income tax return , and amounts recorded in 2016 for uncertain tax positions . net loss . net loss for the year ended december 31 , 2016 was $ 85.2 million , an increase from the net loss of $ 40.4 million for the same period in 2015 primarily due to the decrease in licensing and collaboration revenues and an increase in operating expenses . the diluted average shares outstanding for 2016 were 29.0 million , resulting in diluted loss per share of $ 2.94 , as compared to 28.6 million average shares outstanding and $ 1.41 a diluted loss per share for 2015 . comparison of the years ended december 31 , 2015 and 2014 revenues . revenues for the year ended december 31 , 2015 were $ 68.5 million , as compared to $ 172.6 million in 2014 , a decrease of $ 104.1 million . licensing and collaboration revenues decreased by $ 129.8 million in 2015. in 2014 , we received an upfront payment from genentech for $ 150.0 million and an upfront payment from merck for $ 30.0 million . our licensing and collaboration revenues decreased in 2015 as we did not receive similar upfront payments . licensing and collaboration revenues in 2015 are comprised primarily of a merck milestone payment received in february 2015 for $ 20.0 million and revenues recognized in 2015
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16 our principal line of products and services is our blink ev charging network ( the “ blink network ” ) and ev charging equipment ( also known as electric vehicle supply equipment ) and ev related services . our blink network consists of proprietary cloud-based software that operates , maintains and tracks all of the blink ev charging stations and the associated charging data . the blink network provides property owners , managers and parking companies , who we refer to as our “ property partners , ” with cloud-based services that enable the remote monitoring and management of ev charging stations payment processing , and provide ev drivers with vital station information including station location , availability and applicable fees . we offer our property partners a range of business models for ev charging equipment and services that generally fall into one of the three business models below . ● in our comprehensive turnkey business model , we own and operate the ev charging equipment , undertake and manage the installation , maintenance and related services , and we keep substantially all of the ev charging revenue . ● in our hybrid business model , the property partner incurs the installation costs , while we provide the charging equipment . we operate and manage the ev charging station and provide connectivity of the charging station to the blink network . as a result , we share a greater portion of the ev charging revenue with the property partner than under the turnkey mode above . ● in our host owned business model , the property partner purchases , owns and manages the blink ev charging station , incurs the installation costs of the equipment , while we provide site recommendations , connectivity to the blink network and optional maintenance services , and the property partner keeps substantially all of the ev charging revenue . we have strategic partnerships across numerous transit/destination locations , including airports , auto dealers , healthcare/medical , hotels , mixed-use , municipal locations , multifamily residential and condos , parks and recreation areas , parking lots , religious institutions , restaurants , retailers , schools and universities , stadiums , supermarkets , transportation hubs , and workplace locations . as of december 31 , 2019 , the company has sold or deployed a total of approximately 14,778 charging units , of which , 5,199 were level 2 commercial charging units , 104 were dc fast charging units and 1,200 were residential charging units . included in the above total number are approximately 353 level 2 units deployed on other networks and 7,922 non-networked , residential charging units . in december 2019 , we received one of our largest single orders from interenergy , an owner and operator of power generation , transmission and distribution assets in latin america , including the dominican republic , where its cepm subsidiary provides energy solutions to more than 66 % of the national tourism sector , to bring ev charging infrastructure to the dominican republic and panama . as part of interenergy 's total investment in the deployment of 500 charging stations for electrical vehicles , interenergy acquired 200 blink charging stations , including level 2 charging stations , dc level 3 fast chargers and networked residential smart units for a total initial purchase of $ 1.2 million in blink hardware . approximately 30 % of the purchase price was paid to us in december 2019 , with the balance payable upon shipment of the remaining units , expected to occur in the first quarter of 2020. as reflected in our consolidated financial statements as of december 31 , 2019 , we had a cash balance of $ 3,975,494 , working capital of $ 5,791,444 and an accumulated deficit of $ 169,504,981. during the years ended december 31 , 2019 and 2018 , we incurred net losses of $ 9,648,500 and $ 3,421,203 , respectively . we have not yet achieved profitability . story_separator_special_tag times , serif ; font-size : 10pt '' > compensation expense decreased by $ 2,972,046 , or 31 % , from $ 9,722,799 ( consisting of approximately $ 5.2 million of cash compensation and approximately $ 4.5 million of non-cash compensation ) for the year ended december 31 , 2018 , to $ 6,750,753 ( consisting of approximately $ 6.0 million of cash compensation and approximately $ 0.7 million of non-cash compensation ) for the year ended december 31 , 2019. the decrease was primarily attributable to a decrease in non-cash compensation of $ 3,000,000 due to common stock awards and $ 437,000 in cash bonuses , a reduction in cash fees paid to board of directors of $ 75,000 , a reduction in recruiting expense of $ 213,000 offset by an increase in payroll and related benefits of $ 722,000 due to the hiring of additional employees and senior management . general and administrative expenses increased by $ 539,447 , or 39 % , from $ 1,377,370 for the year ended december 31 , 2018 to $ 1,916,817 for the year ended december 31 , 2019. during the year ended december 31 , 2019 , we commenced a sarbanes-oxley 404 third-party review in order to further document and strengthen our internal controls resulting in related fees of $ 250,000. during 2019 , we completed our federal tax filing project whereby our federal filings are current and up-to-date resulting in an increase of $ 94,000 in tax preparation fees . story_separator_special_tag we also incurred an increase in marketing expenses of $ 159,000 to promote blink brand awareness and to support the sales and deployment effort of our generation 2 chargers and a general increase in general and administrative expenses of $ 19,000 for the year ended december 31 , 2019. other operating expenses increased by $ 782,754 , or 55 % , from $ 1,414,030 for the year ended december 31 , 2018 to $ 2,196,784 for the year ended december 31 , 2019. the increase was primarily attributable to an increase in insurance expenses of $ 111,000 primarily related to directors and officers liability insurance , an increase of $ 359,000 related to the update of our blink network software , an increase in travel expenses of $ 196,000 in association with our efforts to enter the european ev market , an increase in rent of $ 109,000 as result of moving into our larger corporate offices in miami beach in september 2018 , an increase of $ 21,000 in state income tax as a result our 2019 initiative to bring our state and local income tax filing on a current and up-to date basis , an increase in software expenses of $ 151,000 relating to the implementation and related software license purchase of our oracle software and a general net decrease in other operating expenses of $ 181,000 during the year ended december 31 , 2019. other income ( expense ) other income decreased by $ 7,367,063 from $ 8,190,506 for the year ended december 31 , 2018 to $ 823,443 for the year ended december 31 , 2019. during the year ended december 31 , 2019 , we settled accounts payable resulting in a gain of $ 273,000 and $ 383,000 of notes payable , inclusive of accrued interest to the former members of 350 green in exchange for the cancellation of the notes , the return of 8,066 of our common shares and the payment of $ 73,000 , in 2018 , to the former members of 350 green , resulting in a gain of $ 310,000. additionally , we realized net investment income from our cash and marketable securities portfolio of $ 240,000 , and an increase market value of low carbon fuel standard credits of $ 21,000. during the year ended december 31 , 2018 , we settled approximately $ 17,800,000 of obligations to jmj with the issuance of series d convertible preferred stock , which resulted in a gain of approximately $ 5,800,000. additionally , we realized a decrease in the change in fair value of derivative and other accrued liabilities of $ 49,102,863 to $ 5,093,024 during the year ended december 31 , 2018 , compared to $ 44,009,839 of expense during the year ended december 31 , 2017 , as a result of warrant holders exchanging their warrants for equity . during the year ended december 31 , 2018 , we recorded a gain on the settlement of accounts payable of $ 972,637 , which increased by $ 949,723 from a gain of $ 22,914 for the year ended december 31 , 2017 period . this increase was due to liabilities being settled pursuant to agreements contingent upon the closing of our public offering on february 16 , 2018. these items were offset by a loss on settlement of liabilities for equity of approximately $ 2,136,860 , a reduction in amortization of debt discount of $ 1,756,244 , and a charge of $ 785,200 related to a contribution of capital by our chairman and ceo during the year ended december 31 , 2018. during the year ended december 31 , 2018 , we recorded a loss on settlement reserve of $ 127,941. net loss our net loss for the year ended december 31 , 2019 increased by $ 6,227,297 , or 182 % , to $ 9,648,500 as compared to $ 3,421,203 for the year ended december 31 , 2018. the decrease was primarily attributable to a decrease in other income ( expenses ) of $ 7,367,063 and a decrease in gross profit of $ 510,079 offset by a reduction in operating expenses of $ 1,649,845 our net loss attributable to common shareholders for the year ended december 31 , 2019 decreased by $ 17,231,634 or 64 % , from $ 26,880,134 to $ 9,648,500 for the aforementioned reasons and due to the deemed dividend attributable to the immediate accretion of the beneficial conversion feature related to the series b and c convertible preferred stock of $ 23,458,931. total comprehensive ( loss ) income our total comprehensive loss for the year ended december 31 , 2019 was $ 9,465,327 whereas our total comprehensive loss for the year ended december 31 , 2018 was $ 3,421,203. the 2019 period included an increase in the fair value of marketable securities of $ 183,173 . 19 liquidity and capital resources we measure our liquidity in a number of ways , including the following : replace_table_token_0_th during the years ended december 31 , 2019 and 2018 , we financed our activities from proceeds derived from debt and equity financings occurring in prior periods . a significant portion of the funds raised from the sale of capital stock has been used to cover working capital needs and personnel , office expenses and various consulting and professional fees . on february 16 , 2018 , we closed our underwritten public offering of an aggregate 4,353,000 shares of common stock and warrants to purchase an aggregate of 8,706,000 shares of common stock at a combined public offering price of $ 4.25 per unit comprised of one share and two warrants .
| grant and rebate revenues were $ 22,396 for the year ended december 31 , 2019 , compared to $ 74,776 for the year ended december 31 , 2018 , a decrease of $ 52,380 , or 70 % . grant and rebates relating to equipment and the related installation are deferred and amortized in a manner consistent with the depreciation expense of the related assets over their useful lives . the ability to secure grant revenue is typically unpredictable and , therefore , uncertain . the 2019 revenue was related to the amortization of previous years ' grants . other revenue decreased by $ 351,662 to $ 166,710 for the year ended december 31 , 2019 , compared to $ 518,372 for the year ended december 31 , 2018. the decrease was primarily attributable to fewer low carbon fuel standard ( lcfs ) credits generated in 2019 compared to 2018 , which amounted to $ 331,120 for the year ended december 31 , 2018 , as compared to $ 123,446 for the year ended december 31 , 2019. we generate these credits from the electricity utilized by our electric car charging stations as a byproduct from our charging services in the states of california and oregon . the value of the credits is subject to market conditions and our current policy is to sell the credits generated every one-to-two years as market conditions permit . cost of revenues cost of revenues primarily consists of electricity reimbursements , revenue share payments to our property partner hosts , the cost of charging stations sold ( including commissions ) , connectivity charges provided by telco and other networks , warranty , repairs and maintenance services , and depreciation of our installed charging stations . cost of revenues for the year ended december 31 , 2019 was $ 2,366,779 , compared to $ 1,783,747 for the year ended december 31 , 2018 , an increase of $ 583,032 or 33 % . there is a degree of variability in our costs in relationship to our revenues from period to period , primarily due to : ● electricity reimbursements that are unique to those property partner host agreements which provide for such reimbursements ; ● revenue share payments are predicated
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the increase in roic was achieved primarily through successful execution of the company 's strategic initiatives and declining fuel prices , especially during the second half of 2014. the integration of airtran the company 's over three year long integration of southwest 's and airtran 's networks , fleets , systems , and people , was effectively completed in december 2014 . airtran 's final passenger service occurred on december 28 , 2014. the acquisition of airtran in 2011 served to increase the company 's fleet size and expand its network into key u.s. markets , such as atlanta and washington , d.c. as a result of the acquisition , the company estimates it achieved approximately $ 500 million in net , pre-tax synergies during 2014 ( excluding acquisition and integration expenses ) . in addition , the acquisition also aided the company 's expansion into near-international locations , such as the caribbean and mexico , which led to the historic launch of southwest international service during second quarter 2014 , and marked a significant achievement in the integration process . as of december 31 , 2014 , all 52 airtran 737-700 aircraft either have been converted to the southwest livery or have entered the conversion process and are expected to enter southwest service during first quarter 2015. fleet modernization the company is scheduled to be the launch customer for boeing 's new , more fuel-efficient 737 max 8 aircraft , which is expected to enter service in 2017 . the 737 max 8 is expected to reduce fuel burn and co2 emissions 20 percent , compared with the original next-generation 737s when they first entered service . southwest is also scheduled to be the launch customer for the boeing 737 max 7 series aircraft , with deliveries expected to begin in 2019 . currently the company has firm orders in place for 170 max 8 aircraft and 30 max 7 aircraft . during 2014 , the company retired five classic ( three 737-300 and two 737-500 ) aircraft from its fleet and intends to continue to replace these aircraft as well as the 717-200 aircraft through its current order book with boeing and through the purchase and lease of additional pre-owned 737-700 aircraft from third parties . following airtran 's final passenger service on december 28 , 2014 , the company removed all remaining boeing 717-200 aircraft from service . as of december 31 , 2014 , 52 of airtran 's 88 boeing 717-200 aircraft had been delivered to delta pursuant to a lease/sublease agreement and 36 717-200 aircraft were undergoing or awaiting conversion in preparation for delivery to delta . see note 7 to the consolidated financial statements for further information . the continued incorporation of a larger aircraft , the boeing 737-800 , into southwest 's fleet to further support its fleet modernization efforts , the company received a total of 33 boeing 737-800s during 2014 . as of december 31 , 2014 , the company 's fleet included 85 737-800s . the boeing 737-800 ( i ) is better suited for certain potential new destinations , including near-international locations , ( ii ) provides the company with the opportunity to generate additional revenue by replacing current aircraft on specified routes and locations that are restricted due to space constraints or slot controls , and ( iii ) operates at a lower unit cost than other aircraft in the company 's existing fleet . international capabilities and new reservation system the company launched southwest 's international service on july 1 , 2014 , with its inaugural flights to three caribbean destinations , aruba , nassau , and montego bay , followed by service to cabo san lucas/los cabos and cancun which commenced on august 10 , 2014 , and service to the two remaining airtran international destinations , mexico city and punta cana , which commenced on november 2 , 2014. during third quarter 2014 , the company filed 45 an application with the u.s. department of transportation to add its first destination in central america with daily roundtrip service between baltimore/washington thurgood marshall international airport ( bwi ) and juan santamaria international airport ( sjo ) in san jose , costa rica , beginning march 7 , 2015. in addition , during fourth quarter 2014 , the company filed applications with the u.s. department of transportation to provide daily , nonstop service between john wayne airport , orange county ( sna ) and licenciado gustavo diaz ordaz international airport ( pvr ) in puerto vallarta , mexico , beginning june 7 , 2015 , as well as daily nonstop service between houston 's william p. hobby airport and philip s. w. goldson international airport in belize city , belize beginning in october 2015. the service to belize , as well as additional service to san jose , costa rica and four destinations in mexico ( cancun , cabo san lucas/los cabos , puerto vallarta , and mexico city ) , is anticipated to be served from the company 's expected opening of a new five-gate international terminal with international passenger processing facilities at houston hobby airport , which is expected to be completed during the second half of 2015. see note 4 to the consolidated financial statements for further information . after the successful launch of amadeus ' altéa international reservation system , the company announced in may 2014 that it selected amadeus ' altéa reservations solution as the company 's future single reservation system for both domestic and international reservations . this single reservation system is expected to be delivered over a multi-year period . southwest 's rapid rewards frequent flyer program southwest launched its current rapid rewards frequent flyer program in march 2011 , under which members earn points for every dollar spent . story_separator_special_tag the results of the program have exceeded the company 's expectations with respect to the number of new frequent flyer members , the amount spent per member on airfare , the number of flights taken by members , the number of southwest 's co-branded chase® visa credit card holders added , the number of points sold to business partners , and the number of frequent flyer points purchased by program members . company overview during 2014 , the company took several steps designed to enhance its existing service in cities across the network or to connect existing cities with new service not previously offered by southwest , most notably : at washington reagan national airport , the company acquired 54 additional slots ( for 27 additional daily roundtrip flights ) during first quarter 2014 , which were divested in connection with the merger between amr corporation , the parent company of american airlines , inc. , and us airways group , inc. , increasing southwest 's service at reagan from 17 daily departures to 44 daily departures , currently servicing 14 destinations : atlanta , akron/canton , austin , chicago midway , dallas love field , houston hobby , fort myers , indianapolis , kansas city , milwaukee , nashville , new orleans , st. louis , and tampa bay . at new york laguardia airport , in the wake of the company 's acquisition of twelve additional slots ( for six additional daily roundtrip flights ) announced in fourth quarter 2013 , the company increased service between laguardia and nashville , houston ( hobby ) , chicago ( midway ) , and akron-canton which commenced in may 2014 . with the repeal of the wright amendment federal flight restrictions at dallas love field on october 13 , 2014 , to destinations within the 50 states and to the district of columbia , southwest commenced service to seven new nonstop destinations from love field . service from love field to eight additional nonstop destinations commenced on november 2 , 2014 , and service to two additional nonstop destinations began on january 6 , 2015 . this brings the total number of nonstop destinations out of love field to 33 compared with 16 prior to the repeal . additionally , in january 2015 , the company announced that beginning in april 2015 , it will offer daily nonstop flights to nine new cities from dallas love field , including memphis , milwaukee , and seattle , and will increase the number of nonstop flights to recently introduced destinations added after the october 2014 expiration of the wright amendment restrictions on long-haul flying at love field . the new flights will be made possible through a long-term sublease agreement that will transfer usage of two gates in the newly rebuilt 20-gate facility from united airlines to southwest . 46 at the current time , the company plans to continue its route network and schedule optimization efforts . for 2015 , the company continues to manage to a baseline of roughly 700 aircraft and an approximate six percent year-over-year increase in asms , primarily due to more efficient flying of its existing fleet through increased aircraft gauge and stage length , with a modest increase in trips . 2014 compared with 2013 operating revenues passenger revenues for 2014 increase d $ 937 million , or 5.6 percent , compared with 2013 . holding other factors constant , approximately half of the increase in passenger revenues was attributable to the 2.4 point increase in load factor and the majority of the remaining increase was attributable to higher passenger yields , both driven by strong customer demand for air travel and successful execution of the company 's strategic initiatives . passenger revenue included an increase due to a change in estimate , which was recorded on a prospective basis and effective october 1 , 2014 , of approximately $ 55 million . see note 1 regarding this change in accounting estimate . based on current trends , the company expects its first quarter 2015 passenger revenues to grow in line with the increase in its first quarter 2015 available seat mile capacity , both on a year-over-year basis . the company currently estimates its first quarter and full year 2015 available seat mile capacity to increase , year-over-year , in the six to seven percent range . freight revenues for 2014 increase d by $ 11 million , or 6.7 percent , compared with 2013 , primarily due to benefits from new and maturing markets as a result of the airtran integration . the company currently expects freight revenues in first quarter 2015 to increase approximately six percent , compared with first quarter 2014 . other revenues for 2014 decrease d by $ 42 million , or 5.2 percent , compared with 2013 , primarily due to a decline in ancillary revenues . the majority of the decline in ancillary revenues was due to the adoption of southwest 's more customer-friendly fee policies for customers who purchase travel on airtran through southwest.com , and the overall reduction in airtran flights as a result of the integration process . this decline was partially offset by an increase in certain southwest specific ancillary revenues , such as earlybird check-in® and a1-15 select boarding positions sold at the gate . the company currently expects other revenues in first quarter 2015 to decrease , compared with first quarter 2014 , similar to the year-over-year decrease in fourth quarter 2014. operating expenses operating expenses for 2014 decrease d by $ 41 million , or 0.2 percent , compared with 2013 , while capacity increased 0.5 percent over the same period . historically , except for changes in the price of fuel , changes in most operating expenses for airlines are driven by changes in capacity , or asms .
| excluding special items in both years , which consisted primarily of acquisition and integration costs associated with the airtran acquisition and unrealized non-cash adjustments and reclassifications associated with hedge accounting , non-gaap net income was a record $ 1.4 billion , or $ 2.01 per diluted share , a 73.5 percent increase year-over-year . year ended december 31 , 2014 operating income was $ 2.2 billion and non-gaap 44 operating income was $ 2.4 billion . both gaap and non-gaap annual operating income results for 2014 were company records and significantly surpassed the prior year performance . during 2014 , the company continued to return significant value to its shareholders through four separate accelerated share repurchase programs , the buyback of its common shares on the open market , and $ 139 million in dividend payments . see part ii , item 5 for further information on the company 's share repurchase authorization . for the twelve months ended december 31 , 2014 , the company 's exceptional earnings performance , combined with its actions to prudently manage invested capital , produced a 21.2 percent pre-tax return on invested capital , excluding special items ( `` roic '' ) . this represented a significant increase compared with the company 's roic of 13.1 percent for the twelve months ended december 31 ,
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comparable properties represented the following percentages of our properties for each year indicated : ( 1 ) 86 % of north american properties ( 87 % excluding delta hotels and resorts ) in 2015 , 87 % in 2014 , and 89 % in 2013 ; ( 2 ) 57 % of international properties ( 68 % excluding protea hotels ) in 2015 , 57 % ( 71 % excluding protea hotels ) in 2014 , and 75 % in 2013 ; and ( 3 ) 82 % of total properties ( 85 % excluding protea hotels and delta hotels and resorts ) in 2015 , 82 % of total properties ( 85 % excluding protea hotels ) in 2014 , and 87 % in 2013 . we also believe company-operated house profit margin , which is the ratio of property-level gross operating profit to total property-level revenue , is a meaningful indicator of our performance because this ratio measures our overall ability as the operator to produce property-level profits by generating sales and controlling the operating expenses over which we have the most direct control . house profit includes room , food and beverage , and other revenue and the related expenses including payroll and benefits expenses , as well as repairs and maintenance , utility , general and administrative , and sales and marketing expenses . house profit does not include the impact of management fees , furniture , fixtures and equipment replacement reserves , insurance , taxes , or other fixed expenses . business trends our 2015 results reflected a favorable economic climate and demand for our brands in many markets around the world , reflecting generally low supply growth in the u.s. and europe , moderate gdp growth in north america , improved pricing in most north american markets , and a year-over-year increase in the number of properties in our system . comparable worldwide systemwide revpar for 2015 increased 5.2 percent to $ 112.25 , average daily rates increased 4.1 percent on a constant dollar basis to $ 152.30 , and occupancy increased 0.8 percentage points to 73.7 percent , compared to 2014 . generally strong u.s. group business and transient demand contributed to increased room rate growth in 2015 , allowing us to eliminate discounts , shift business into higher rated price categories , and raise room rates . the growth was partially constrained by new select-service lodging supply and moderating gdp growth late in the year . in 2015 , bookings for future group business in the u.s. improved . new group business booked in 2015 for any period in the future increased 9 percent year over year . the 2016 group revenue pace for systemwide full-service hotels ( marriott , jw marriott , renaissance , the ritz-carlton , and gaylord brands ) in north america was up more than 6 percent as of year-end 2015 , compared to the 2015 group booking pace measured as of year-end 2014 . in north america , revpar from transient 25 guests increased 5 percent in 2015 reflecting strong demand from professional services , technology , and defense firms moderated somewhat by weaker demand from manufacturing , pharmaceutical , and energy companies . the europe region experienced higher demand in 2015 across most countries , primarily due to increased group and transient business driven by special events and the weak currency , partially constrained by weaker demand in france , particularly late in the year . results improved in russia due to increased domestic travel . in the asia pacific region , demand increased led by growth from corporate and other transient business in japan , india , thailand , and indonesia . the growth was partially offset by weaker results in south korea . revpar in greater china moderated in 2015 due to the impact of supply growth in certain southern china markets , continued austerity in beijing , and lower inbound travel to hong kong , while demand in shanghai remained strong . middle east demand was weaker in 2015 , reflecting the region 's instability and lower oil prices , partially offset by strong government and group demand in saudi arabia . demand in the united arab emirates was constrained mainly by new supply and , to a lesser extent , a reduction in travelers from russia . in africa , results were favorable in 2015. in the caribbean and latin america , strong performance in the region in 2015 was driven by greater demand in mexico and increased leisure travel to our caribbean and mexican resorts for most of the year , constrained somewhat by oversupply of hotels in panama and weaker economies in brazil and puerto rico . we monitor market conditions and provide the tools for our hotels to price rooms daily in accordance with individual property demand levels , generally adjusting room rates as demand changes . our hotels modify the mix of business to improve revenue as demand changes . demand for higher rated rooms improved in most markets in 2015 , which allowed our hotels to reduce discounting and special offers for transient business in many markets . this mix improvement benefited adr . for our company-operated properties , we continue to focus on enhancing property-level house profit margins and making productivity improvements . story_separator_special_tag and stronger performance across our new and existing owned and leased international properties , partially offset by $ 37 million attributable to five international properties that converted to managed or franchised properties . combined branding fees for credit card endorsements and the sale of branded residential real estate by others totaled $ 127 million in 2014 and $ 118 million in 2013. the $ 764 million increase in total cost reimbursements revenue reflected the impact of higher occupancies at our properties and growth across our system . 27 operating income 2015 compared to 2014 operating income increased by $ 191 million to $ 1,350 million in 2015 from $ 1,159 million in 2014 . story_separator_special_tag the $ 191 million increase in operating income reflected a $ 108 million increase in franchise fees , a $ 26 million increase in base management fees , a $ 25 million decrease in general , administrative , and other expenses , a $ 17 million increase in incentive management fees , a $ 9 million decrease in depreciation , amortization , and other expense , and $ 6 million of higher owned , leased , and other revenue , net of direct expenses . we discuss the reasons for the increases in base management fees , franchise fees , and incentive management fees compared to 2014 in the preceding “ revenues ” section . the $ 6 million ( 2 percent ) increase in owned , leased , and other revenue , net of direct expenses was largely attributable to $ 4 million in higher branding fees . owned and leased revenue , net of direct expenses was unchanged as stronger results at several of our international properties , including $ 4 million of lower lease payments for properties that moved to managed , franchised , or left our system , were offset by $ 10 million of weaker performance due to renovations . depreciation , amortization and other expense decreased by $ 9 million ( 6 percent ) to $ 139 million in 2015 from $ 148 million in 2014 . the decrease reflected a $ 25 million favorable variance to the 2014 impairment charge on the edition hotels , partially offset by the 2015 impairment charges of $ 6 million for the miami beach edition residences and $ 6 million for the new york ( madison square park ) edition , which are both discussed in footnote no . 3 , “ acquisitions and dispositions , ” and a $ 4 million impairment charge on corporate equipment . general , administrative , and other expenses decreased by $ 25 million ( 4 percent ) to $ 634 million in 2015 from $ 659 million in 2014 . the decrease largely reflected a $ 28 million net favorable impact to our legal expenses associated with litigation resolutions , $ 24 million of development costs that we deferred in 2015 related to our growing franchise pipeline , and $ 5 million in lower foreign exchange losses compared to the 2014 devaluation of assets denominated in venezuelan bolivars , partially offset by $ 20 million of higher costs incurred to grow our brands globally , $ 5 million of transaction costs related to the starwood combination , and $ 5 million from the delta hotels and resorts acquisition . 2014 compared to 2013 operating income increased by $ 171 million to $ 1,159 million in 2014 from $ 988 million in 2013. the $ 171 million increase in operating income reflected a $ 79 million increase in franchise fees , a $ 51 million increase in base management fees , a $ 46 million increase in incentive management fees , and $ 26 million of higher owned , leased , and other revenue , net of direct expenses , partially offset by a $ 21 million increase in depreciation , amortization , and other expense , and a $ 10 million increase in general , administrative , and other expenses . we discuss the reasons for the increases in base management fees , franchise fees , and incentive management fees compared to 2013 in the preceding “ revenues ” section . the $ 26 million ( 12 percent ) increase in owned , leased , and other revenue , net of direct expenses was largely attributable to $ 23 million of higher owned and leased revenue , net of direct expenses , $ 9 million in higher branding fees , $ 4 million from various programs at protea hotels , and $ 2 million in other program revenue , partially offset by $ 14 million in higher termination fees in 2013. higher owned and leased revenue , net of direct expenses of $ 23 million primarily reflects $ 14 million in net favorable results at several leased properties , $ 10 million of revenue , net of direct expenses for a north american full-service managed property that we acquired in the 2013 fourth quarter , and $ 7 million of revenue , net of direct expenses for new protea hotel leases , partially offset by $ 6 million attributable to international properties that converted to managed or franchised . depreciation , amortization and other expense increased by $ 21 million ( 17 percent ) to $ 148 million in 2014 from $ 127 million in 2013. the increase reflected the $ 25 million net impairment charge on the edition hotels discussed in footnote no . 3 , “ acquisitions and dispositions , ” $ 5 million in accelerated amortization related to contract terminations , $ 5 million in higher contract amortization primarily from protea hotels , and $ 3 million in higher depreciation related to a north american full-service property that we acquired in the 2013 fourth quarter , partially offset by $ 13 million of accelerated amortization related to contract terminations in 2013 and $ 5 million of 2013 depreciation for two international properties that converted to managed contracts . general , administrative , and other expenses increased by $ 10 million ( 2 percent ) to $ 659 million in 2014 from $ 649 million in 2013. the increase largely reflected $ 9 million from the addition of protea hotels and related transition costs , $ 7 million from net unfavorable foreign exchange rates , primarily from the devaluation of assets denominated in venezuelan bolivars , and $ 6 million of increased guarantee funding , partially offset by $ 8 million litigation settlements recognized in 2013 , and a $ 5 million performance cure payment in 2013 for an international property . 28 gains and other income , net 2015 compared to 2014 gains and other income , net increased by $ 19 million ( 238 percent ) to $ 27 million in 2015 compared to $ 8 million in 2014 .
| the $ 36 million decrease in owned , leased , and other revenue reflected $ 44 million of lower owned and leased revenue , partially offset by $ 8 million in higher other revenue predominantly from branding fees and hotel service programs that we 26 acquired as part of our acquisition of protea hotels in the 2014 second quarter . lower owned and leased revenue reflected net weaker performance impacted by unfavorable foreign exchange rates , a decrease of $ 27 million attributable to properties that converted to managed or franchised or left our system , and $ 16 million net unfavorable impact of properties under renovation , partially offset by increases of $ 10 million from protea hotel leases we acquired in the 2014 second quarter and $ 6 million from the miami beach edition hotel , which opened in the 2014 fourth quarter and which we subsequently sold in the 2015 first quarter as discussed in footnote no . 3 , “ acquisitions and dispositions . ” cost reimbursements revenue represents reimbursements of costs incurred on behalf of managed and franchised properties and relates , predominantly , to payroll costs at managed properties where we are the employer but also includes reimbursements for other costs , such as those associated with our rewards programs , reservations , and marketing programs . as we record cost reimbursements based upon costs incurred with no added markup , this revenue and related expense has no impact on either our operating or net income . the $ 575 million increase in total cost reimbursements revenue reflected the impact of higher occupancies and growth across our system . since the end of 2014 , our managed rooms increased by 12,668 rooms and our franchised rooms increased by 31,883 rooms , net of rooms at hotels exiting our system . 2014 compared to 2013 replace_table_token_8_th the $ 51 million increase in total base management fees , largely reflected stronger revpar due to increased demand ( $ 34 million ) , the impact of unit growth across our system ( $ 21 million ) , and increased recognition of previously deferred fees ( $ 16 million ) , partially offset by a decrease in fees from terminated units ( $ 8 million ) , decreased fees due to properties that converted from managed to
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the sec . other factors and assumptions not identified above are also relevant to the forward-looking statements , and if they prove incorrect , could also cause actual results to differ materially from those projected . all written or oral forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement . our forward-looking statements speak only as of the date made . we assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to reflect actual results , future events or developments , changes in assumptions or changes in other factors affecting the forward-looking statements . the reporting of rbc measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing , advertising or promotional activities . overview we are a holding company for a group of insurance companies operating throughout the united states that develop , market and administer health insurance , annuity , individual life insurance and other insurance products . we focus on serving the senior and middle-income markets , which we believe are attractive , underserved , high growth markets . we sell our 47 products through three distribution channels : career agents , independent producers ( some of whom sell one or more of our product lines exclusively ) and direct marketing . in periods prior to 2014 , we had an other cno business segment comprised of the long-term care business that was ceded effective december 31 , 2013 and the overhead expense of clic that was expected to continue after the completion of the sale . beginning on january 1 , 2014 : ( i ) the overhead expense of clic that was expected to continue after the completion of the sale was reallocated primarily to the bankers life and washington national segments ; and ( ii ) there was no longer an other cno business segment . we measure segment performance by excluding the net loss on the sale of clic and gain ( loss ) on reinsurance transactions , the earnings of clic prior to being sold on july 1 , 2014 , net realized investment gains ( losses ) , fair value changes in embedded derivative liabilities ( net of related amortization ) , fair value changes in the agent deferred compensation plan , loss on extinguishment or modification of debt , income taxes and other non-operating items consisting primarily of equity in earnings of certain non-strategic investments and earnings attributable to variable interest entities ( `` vies '' ) ( `` pre-tax operating earnings '' ) because we believe that this performance measure is a better indicator of the ongoing business and trends in our business . our primary investment focus is on investment income to support our liabilities for insurance products as opposed to the generation of net realized investment gains ( losses ) , and a long-term focus is necessary to maintain profitability over the life of the business . the net loss on the sale of clic , gain ( loss ) on reinsurance transactions , the earnings of clic prior to being sold , net realized investment gains ( losses ) , fair value changes in embedded derivative liabilities ( net of related amortization ) , fair value changes in the agent deferred compensation plan , loss on extinguishment or modification of debt and other non-operating items consisting primarily of equity in earnings of certain non-strategic investments and earnings attributable to vies depend on market conditions or represent unusual items that do not necessarily relate to the underlying business of our segments . net realized investment gains ( losses ) and fair value changes in embedded derivative liabilities ( net of related amortization ) may affect future earnings levels since our underlying business is long-term in nature and changes in our investment portfolio may impact our ability to earn the assumed interest rates needed to maintain the profitability of our business . the company 's insurance segments are described below : bankers life , which markets and distributes medicare supplement insurance , interest-sensitive life insurance , traditional life insurance , fixed annuities and long-term care insurance products to the middle-income senior market through a dedicated field force of career agents , financial and investment advisors , and sales managers supported by a network of community-based sales offices . the bankers life segment includes primarily the business of bankers life and casualty company . bankers life also has various distribution and marketing agreements with other insurance companies to use bankers life 's career agents to distribute medicare advantage and pdp products in exchange for a fee . washington national , which markets and distributes supplemental health ( including specified disease , accident and hospital indemnity insurance products ) and life insurance to middle-income consumers at home and at the worksite . these products are marketed through pma and through independent marketing organizations and insurance agencies including worksite marketing . the products being marketed are underwritten by washington national . this segment 's business also includes certain closed blocks of annuities and medicare supplement policies which are no longer being actively marketed by this segment and were primarily issued or acquired by washington national . colonial penn , which markets primarily graded benefit and simplified issue life insurance directly to customers in the senior middle-income market through television advertising , direct mail , the internet and telemarketing . the colonial penn segment includes primarily the business of colonial penn . story_separator_special_tag 48 the following summarizes our earnings for the three years ending december 31 , 2015 ( dollars in millions , except per share data ) : replace_table_token_10_th 49 ( a ) management believes that an analysis of net operating income provides a clearer comparison of the operating results of the company from period to period because it excludes : ( i ) the net loss on the sale of clic and gain ( loss ) on reinsurance transactions , including impact of taxes ; ( ii ) the earnings of clic prior to being sold on july 1 , 2014 , net of taxes ; ( iii ) net realized investment gains or losses , net of related amortization and taxes ; ( iv ) fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities , net of related amortization and taxes ; ( v ) fair value changes related to the agent deferred compensation plan , net of taxes ; ( vi ) loss on extinguishment or modification of debt , net of taxes ; ( vii ) changes in the valuation allowance for deferred tax assets ; and ( viii ) other non-operating items consisting primarily of equity in earnings of certain non-strategic investments and earnings attributable to variable interest entities . net realized investment gains or losses include : ( i ) gains or losses on the sales of investments ; ( ii ) other-than-temporary impairments recognized through net income ; and ( iii ) changes in fair value of certain fixed maturity investments with embedded derivatives . ebit is presented as net operating income excluding corporate interest expense and income tax expense . the table above reconciles the non-gaap measure to the corresponding gaap measure . in addition , management uses these non-gaap financial measures in its budgeting process , financial analysis of segment performance and in assessing the allocation of resources . we believe these non-gaap financial measures enhance an investor 's understanding of our financial performance and allows them to make more informed judgments about the company as a whole . these measures also highlight operating trends that might not otherwise be transparent . however , ebit and net operating income are not measurements of financial performance under gaap and should not be considered as alternatives to cash flow from operating activities , as measures of liquidity , or as alternatives to net income as measures of our operating performance or any other measures of performance derived in accordance with gaap . in addition , ebit and net operating income should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items . ebit and net operating income have limitations as analytical tools , and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under gaap . our definitions and calculation of ebit and net operating income are not necessarily comparable to other similarly titled measures used by other companies due to different methods of calculation . ( b ) increase in valuation allowance of $ 19.4 million in 2014 , related to the expected change in future taxable income following the sale of clic , is included in the `` net loss on sale of clic and gain ( loss ) on reinsurance transactions ( including impact of taxes ) '' . our mission is to be the recognized market leader in providing financial security for the protection and retirement needs of middle-income american working families and retirees . our strategic plans are focused on continuing to grow and deliver long-term value for all our stakeholders . specifically , we will focus on the following priorities : growth focus on initiatives that drive sales including lead programs , new products , agent recruitment and retention expand offering middle-market consumers a range of investment and planning solutions exploring non-organic growth opportunities that are focused on the middle market , fill product gaps , expand our distribution and geographic footprint and or enhance agent recruiting increase profitability and return on equity maintain our strong capital position and favorable financial metrics continue to increase our return on equity effectively manage risk and deploy capital active enterprise risk management process continue to cost effectively repurchase our common stock maintain a competitive dividend payout ratio further enhance the customer experience and agent productivity completion and implementation of new tools to be used by our distribution force further development of capabilities for generating and acting on prospect/customer data insights making it easier to sell and deliver service 50 reduce long-term care exposure by approximately one-half over the next three to six years drive growth of other lines of business evaluate reinsurance and or other potential solutions continue to invest in talent expanded leadership development programs emphasis on skills and experiences that are aligned with our priorities critical accounting policies the preparation of financial statements in accordance with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . management has made estimates in the past that we believed to be appropriate but were subsequently revised to reflect actual experience . if our future experience differs materially from these estimates and assumptions , our results of operations and financial condition could be materially affected . we base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances . we continually evaluate the information used to make these estimates as our business and the economic environment change . the use of estimates is pervasive throughout our financial statements . the accounting policies and estimates we consider most critical are summarized below . additional information on our accounting policies is included in the note to our consolidated financial statements entitled `` summary of significant accounting policies '' .
| we measure segment performance excluding these items because we believe that this performance measure is a better indicator of the ongoing businesses and trends in our business . our primary investment focus is on investment income to support our liabilities for insurance products as opposed to the generation of realized investment gains ( losses ) , and a long-term focus is necessary to maintain profitability over the life of the business . realized investment gains ( losses ) , fair value changes in embedded derivative liabilities , fair value changes related to the agent deferred compensation plan and equity in earnings of certain non-strategic investments and earnings attributable to vies depend on market conditions and do not necessarily relate to decisions regarding the underlying business of our segments . however , `` pre-tax operating earnings '' does not replace `` income ( loss ) before income taxes '' as a measure of overall profitability . we may experience realized investment gains ( losses ) , which will affect future earnings levels since our underlying business is long-term in nature and we need to earn the assumed interest rates on the investments backing our liabilities for insurance products to maintain the profitability of our business . in addition , management uses this non-gaap financial measure in its budgeting process , financial analysis of segment performance and in assessing the allocation of resources . we believe these non-gaap financial measures enhance an investor 's understanding of our financial performance and allows them to make more informed judgments about the company as a whole . these measures also highlight operating trends that might not otherwise be transparent . the table above reconciles the non-gaap measure to the corresponding gaap measure . general : cno is the top tier holding company for a group of insurance companies operating throughout the united states that develop , market and administer health insurance , annuity , individual life insurance and other insurance products . we distribute these products through our bankers life segment , which utilizes a career agency force , through our washington national segment , which utilizes independent producers and through our
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the net realized gain ( loss ) and unrealized appreciation ( depreciation ) across our investments for the year ended september 30 , 2018 were as follows : replace_table_token_16_th the primary drivers of our net unrealized appreciation for the year ended september 30 , 2018 , were the reversal of previously recorded depreciation on our investment in sunshine upon restructure and improved performance on certain of our portfolio companies , namely edge adhesives holdings , inc. these factors were partially offset by a decline in performance of certain of our other portfolio companies , namely fdf . 67 as of september 30 , 2019 , the fair value of our investment portfolio was less than its cost basis by approximately $ 25.6 million and our entire investment portfolio was valued at 94.0 % of cost , as compared to cumulative net unrealized depreciation of $ 37.4 million and a valuation of our entire portfolio at 91.2 % of cost as of september 30 , 2018. this year over year decrease in the cumulative unrealized depreciation on investments represents net unrealized appreciation of $ 11.8 million for the year ended september 30 , 2019. the cumulative net unrealized depreciation of our investments does not have an impact on our current ability to pay distributions to stockholders ; however , it may be an indication of future realized losses , which could ultimately reduce our income available for distribution to stockholders . net unrealized ( appreciation ) depreciation of other during the year ended september 30 , 2019 , we recorded $ 0.2 million of unrealized depreciation on our credit facility at fair value as compared to $ 0.1 million of unrealized appreciation during the year ended september 30 , 2018. comparison of the year ended september 30 , 2018 to the year ended september 30 , 2017 replace_table_token_17_th 68 investment income interest income increased by 18.6 % for the year ended september 30 , 2018 , as compared to the prior year . this increase was primarily due to an increase in the weighted average balance outstanding on our interest-bearing portfolio and an increase in the weighted average yield on our interest-bearing portfolio . the weighted average principal balance of our interest-bearing investment portfolio during the year ended september 30 , 2018 , was $ 372.2 million , compared to $ 320.1 million for the prior year , an increase of $ 52.1 million , or 16.3 % . the weighted average yield on our interest-bearing investments is based on the current stated interest rates on interest-bearing investments which increased to 11.8 % for the year ended september 30 , 2018 compared to 11.6 % for the year ended september 30 , 2017 , inclusive of any allowances on interest receivables made during those periods . as of september 30 , 2018 , one portfolio company , fdf , was on non-accrual status , with an aggregate debt cost basis of approximately $ 26.9 million , or 6.9 % of the cost basis of all debt investments in our portfolio . as of september 30 , 2017 , two portfolio companies , sunshine and adc , were on non-accrual status , with an aggregate debt cost basis of approximately $ 27.9 million , or 7.5 % of the cost basis of all debt investments in our portfolio . other income decreased by 24.9 % during the year ended september 30 , 2018 , as compared to the prior year . this decrease was primarily due to a $ 1.1 million decrease in success fees recognized year over year . for the year ended september 30 , 2018 , other income consisted primarily of $ 0.6 million in prepayment fees received , $ 0.5 million in dividend income , and $ 0.4 million in success fees recognized . for the year ended september 30 , 2017 , other income consisted primarily of $ 1.5 million in success fees recognized , $ 0.3 million in dividend income , and $ 0.3 million in prepayment fees received . as of september 30 , 2018 and 2017 , no single investment represented greater than 10 % of the total investment portfolio at fair value . expenses expenses , net of any non-contractual , unconditional and irrevocable credits to fees from the adviser , increased $ 4.7 million , or 26.4 % , for the year ended september 30 , 2018 as compared to the prior year . this increase was primarily due to a $ 2.9 million increase in our net base management and incentive fees to the adviser and a $ 2.8 million increase in interest expense on borrowings , partially offset by a $ 1.0 million decrease in dividend expense on mandatorily redeemable preferred stock . interest expense increased by 90.6 % during the year ended september 30 , 2018 , as compared to the prior year , primarily due to an increase in the weighted average balance outstanding on our credit facility . the weighted average balance outstanding during the year ended september 30 , 2018 , was $ 114.7 million , as compared to $ 58.4 million in the prior year , an increase of 96.4 % . the effective interest rate on our credit facility , including unused commitment fees incurred but excluding the impact of deferred financing costs , was 5.1 % during the year ended september 30 , 2018 , compared to 5.3 % during the prior year . the decrease in the effective interest rate was driven by a decrease in the marginal interest rate on our credit facility effective march 9 , 2018 and a decrease in unused commitment fees paid in the current year due to a greater amount outstanding on the credit facility . these factors were partially offset by an increase in libor as compared to the prior year . the net base management fee earned by the adviser increased by $ 1.7 million , or 42.2 % , during the year ended story_separator_special_tag the net realized gain ( loss ) and unrealized appreciation ( depreciation ) across our investments for the year ended september 30 , 2018 were as follows : replace_table_token_16_th the primary drivers of our net unrealized appreciation for the year ended september 30 , 2018 , were the reversal of previously recorded depreciation on our investment in sunshine upon restructure and improved performance on certain of our portfolio companies , namely edge adhesives holdings , inc. these factors were partially offset by a decline in performance of certain of our other portfolio companies , namely fdf . 67 as of september 30 , 2019 , the fair value of our investment portfolio was less than its cost basis by approximately $ 25.6 million and our entire investment portfolio was valued at 94.0 % of cost , as compared to cumulative net unrealized depreciation of $ 37.4 million and a valuation of our entire portfolio at 91.2 % of cost as of september 30 , 2018. this year over year decrease in the cumulative unrealized depreciation on investments represents net unrealized appreciation of $ 11.8 million for the year ended september 30 , 2019. the cumulative net unrealized depreciation of our investments does not have an impact on our current ability to pay distributions to stockholders ; however , it may be an indication of future realized losses , which could ultimately reduce our income available for distribution to stockholders . net unrealized ( appreciation ) depreciation of other during the year ended september 30 , 2019 , we recorded $ 0.2 million of unrealized depreciation on our credit facility at fair value as compared to $ 0.1 million of unrealized appreciation during the year ended september 30 , 2018. comparison of the year ended september 30 , 2018 to the year ended september 30 , 2017 replace_table_token_17_th 68 investment income interest income increased by 18.6 % for the year ended september 30 , 2018 , as compared to the prior year . this increase was primarily due to an increase in the weighted average balance outstanding on our interest-bearing portfolio and an increase in the weighted average yield on our interest-bearing portfolio . the weighted average principal balance of our interest-bearing investment portfolio during the year ended september 30 , 2018 , was $ 372.2 million , compared to $ 320.1 million for the prior year , an increase of $ 52.1 million , or 16.3 % . the weighted average yield on our interest-bearing investments is based on the current stated interest rates on interest-bearing investments which increased to 11.8 % for the year ended september 30 , 2018 compared to 11.6 % for the year ended september 30 , 2017 , inclusive of any allowances on interest receivables made during those periods . as of september 30 , 2018 , one portfolio company , fdf , was on non-accrual status , with an aggregate debt cost basis of approximately $ 26.9 million , or 6.9 % of the cost basis of all debt investments in our portfolio . as of september 30 , 2017 , two portfolio companies , sunshine and adc , were on non-accrual status , with an aggregate debt cost basis of approximately $ 27.9 million , or 7.5 % of the cost basis of all debt investments in our portfolio . other income decreased by 24.9 % during the year ended september 30 , 2018 , as compared to the prior year . this decrease was primarily due to a $ 1.1 million decrease in success fees recognized year over year . for the year ended september 30 , 2018 , other income consisted primarily of $ 0.6 million in prepayment fees received , $ 0.5 million in dividend income , and $ 0.4 million in success fees recognized . for the year ended september 30 , 2017 , other income consisted primarily of $ 1.5 million in success fees recognized , $ 0.3 million in dividend income , and $ 0.3 million in prepayment fees received . as of september 30 , 2018 and 2017 , no single investment represented greater than 10 % of the total investment portfolio at fair value . expenses expenses , net of any non-contractual , unconditional and irrevocable credits to fees from the adviser , increased $ 4.7 million , or 26.4 % , for the year ended september 30 , 2018 as compared to the prior year . this increase was primarily due to a $ 2.9 million increase in our net base management and incentive fees to the adviser and a $ 2.8 million increase in interest expense on borrowings , partially offset by a $ 1.0 million decrease in dividend expense on mandatorily redeemable preferred stock . interest expense increased by 90.6 % during the year ended september 30 , 2018 , as compared to the prior year , primarily due to an increase in the weighted average balance outstanding on our credit facility . the weighted average balance outstanding during the year ended september 30 , 2018 , was $ 114.7 million , as compared to $ 58.4 million in the prior year , an increase of 96.4 % . the effective interest rate on our credit facility , including unused commitment fees incurred but excluding the impact of deferred financing costs , was 5.1 % during the year ended september 30 , 2018 , compared to 5.3 % during the prior year . the decrease in the effective interest rate was driven by a decrease in the marginal interest rate on our credit facility effective march 9 , 2018 and a decrease in unused commitment fees paid in the current year due to a greater amount outstanding on the credit facility . these factors were partially offset by an increase in libor as compared to the prior year . the net base management fee earned by the adviser increased by $ 1.7 million , or 42.2 % , during the year ended
| million in prepayment fees received , and $ 1.1 million in dividend income . for the year ended september 30 , 2018 , other income consisted primarily of $ 0.6 million in prepayment fees received , $ 0.5 million in dividend income , and $ 0.4 million in success fees recognized . as of september 30 , 2019 and 2018 , no single investment represented greater than 10 % of the total investment portfolio at fair value . expenses expenses , net of any non-contractual , unconditional and irrevocable credits to fees from the adviser , increased $ 3.0 million , or 13.2 % , for the year ended september 30 , 2019 as compared to the prior year period . this increase was primarily due to a $ 2.2 million increase in interest expense on borrowings . interest expense increased by 37.2 % during the year ended september 30 , 2019 , as compared to the prior year , primarily due to the issuance of $ 57.5 million aggregate principal amount of the 2023 notes in november 2018 and an increase in the effective interest rate on our credit facility . we incurred $ 3.2 million in interest expense related to the 2023 notes during the year ended september 30 , 2019 versus no such amounts in the prior year period . the weighted average balance outstanding on our credit facility decreased during the year ended september 30 , 2019 compared to the prior year period with the issuance of the 2023 notes . the weighted average balance outstanding during the year ended september 30 , 2019 , was $ 71.5 million , as compared to $ 114.7 million in the prior year , a decrease of 37.7 % . the effective interest rate on our credit facility , including unused commitment fees incurred but excluding the impact of deferred financing costs , was 6.8 % during the year ended september 30 , 2019 , compared to 5.1 % during the prior year . the increase in the effective interest
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bookings increased $ 56.7 million , or 58 % for the year ended december 31 , 2012 as compared to the same period in 2011 , reflecting the increase in gross revenue for the period , and an increase in deferred revenue at december 31 , 2012 from december 31 , 2011 compared to the increase at december 31 , 2011 from december 31 , 2010. the growth rates for revenue and bookings are not correlated with each other in a given period due to the seasonality of when we enter into client agreements , the varied timing of billings , the recognition generally of subscription revenue on a straight-line basis over the term of each client agreement , and the recognition of consulting revenue generally on a proportional performance basis over the period the services are performed . as discussed above under the heading “ metrics , ” bookings is a non-gaap financial measure defined as the sum of gross revenue and the change in the deferred revenue balance for the period . our management uses bookings in analyzing its financial results and believes it is useful to investors , as a supplement to the corresponding gaap measure , in evaluating our ongoing operational performance and trends and in comparing our financial measures with other companies in the same industry . however , it is important to note that other companies , including companies in our industry , may calculate bookings differently or not at all , which may reduce its usefulness as a comparative measure . 51 the following table presents a reconciliation of revenue to bookings for each of the periods presented ( in thousands ) : replace_table_token_8_th we believe our revenue and bookings growth is a result of our continued investment in and development of our direct sales and sales support teams . we believe this investment has enabled us to achieve greater sales coverage and better sales execution , as well as increase our marketing activities , which we believe have improved brand awareness and created higher demand for our solutions . we have also continued to enhance our core solution , which we believe has encouraged existing clients to add additional clouds and users . cost of revenue and gross margin replace_table_token_9_th cost of revenue increased $ 13.3 million , or 63 % , in 2012 as compared to 2011 , attributable to $ 6.5 million in increased employee-related costs due to higher headcount , $ 2.0 million in increased costs related to outsourced consulting services , and $ 1.2 million in increased allocated overhead such as rent , it costs , depreciation and amortization and employee benefits costs , in each case to service our existing clients and support our continued growth . we also incurred $ 1.0 million in increased amortization of capitalized software , $ 0.8 million in increased reseller and referral fees , $ 0.6 million in increased amortization of developed technology related to intangible assets acquired in connection with our acquisition of sonar limited , and $ 0.5 million in increased third-party e-learning costs . cost of revenue increased $ 7.0 million , or 49 % , in 2011 as compared to 2010 , attributable to $ 3.4 million in increased employee-related costs due to higher headcount , $ 0.9 million in increased employee-related allocated overhead such as rent , it costs , depreciation and amortization and employee benefits costs resulting from our increased headcount in order to support our continued growth , $ 0.7 million in increased costs related to outsourced consulting services , and $ 0.5 million in increased network infrastructure costs , in each case to service our existing clients as well as in anticipation 52 of future growth . the increase was also attributable to $ 0.5 million in increased amortization of capitalized software , $ 0.5 million in increased reseller and referral fees , and $ 0.5 million in increased third-party e-learning costs . sales and marketing replace_table_token_10_th sales and marketing expenses increased $ 27.8 million , or 61 % , in 2012 as compared to 2011. the increase was attributable to the expansion of our sales force and increases in marketing programs to address additional opportunities in new and existing markets . total headcount in sales and marketing at december 31 , 2012 increased compared to december 31 , 2011 , contributing to an increase in employee-related costs of $ 19.6 million , consisting of increased employee compensation and benefits of $ 12.9 million , increased commissions of $ 3.7 million , and increased stock-based compensation of $ 3.0 million . in addition , we incurred increased overhead costs , such as rent , it costs , and depreciation and amortization , of $ 2.5 million , increased costs associated with outsourced marketing programs and events of $ 2.5 million , and increased travel costs associated with our direct sales teams of $ 1.9 million . sales and marketing expenses increased $ 17.6 million , or 63 % , in 2011 as compared to 2010. the increase was attributable to the expansion of our sales force and increases in marketing programs to address additional opportunities in new and existing markets . employee-related costs increased by $ 12.4 million , consisting of increased employee compensation and benefits of $ 8.7 million , increased commissions of $ 2.9 million , and increased stock-based compensation of $ 0.8 million . in addition , we incurred increased overhead costs , such as rent , it costs , and depreciation and amortization , of $ 1.9 million , increased travel costs associated with our direct sales teams of $ 1.6 million , and increased costs associated with outsourced marketing programs and events of $ 1.0 million . research and development replace_table_token_11_th research and development expenses increased $ 4.7 million or 47 % , in 2012 as compared to 2011. the increase was principally due to an increase in research and development headcount at december 31 , 2012 compared to december 31 , 2011 to maintain and improve the functionality of our solutions . story_separator_special_tag as a result , we incurred increased employee-related costs of $ 3.0 million arising primarily from increased headcount , consisting of increased employee compensation and benefits of $ 2.8 million and increased stock-based compensation of $ 0.2 million . in addition , in the year ended december 31 , 2012 we incurred increased expenses of allocated overhead costs , such as rent , it costs , and depreciation and amortization , of $ 1.1 million relating to overall increased expenses to support our continued growth . research and development expenses increased $ 4.5 million or 81 % , in 2011 as compared to 2010. we incurred increased employee-related costs of $ 2.5 million , consisting of increased employee compensation and benefits of $ 1.9 million and increased stock-based compensation of $ 0.6 million . in addition , in the year ended december 31 , 2011 , we incurred increased expenses of allocated overhead costs , such as rent , it costs , and depreciation and amortization , of $ 0.9 million relating to overall increased expenses to support our continued growth and increased expenses related to third-party consultants of $ 0.8 million . we capitalize a portion of our software development costs related to the development and enhancements of our solutions , which are then amortized to cost of revenue . the timing of our capitalizable development and enhancement projects may affect the amount of development costs expensed in any given period . we capitalized $ 5.7 million , $ 3.3 million and $ 1.9 million of software development costs and amortized $ 2.8 million , $ 1.9 million and $ 1.2 million in 2012 , 2011 and 2010 , respectively . 53 story_separator_special_tag style= '' line-height:120 % ; padding-top:12px ; text-indent:32px ; font-size:10pt ; '' > other , net is comprised of foreign exchange gains and losses related to transactions denominated in foreign currencies and unrealized gains and losses related to our intercompany loans . foreign exchange gains and losses for the years ended december 31 , 2012 , 2011 and 2010 , respectively , were related to fluctuations in the british pound and euro in relation to the u.s. dollar . income tax benefit ( provision ) replace_table_token_16_th we have incurred operating losses in the u.s. and u.k. in all periods to date and have recorded a full valuation allowance against our u.s. and u.k. net deferred tax assets and therefore have not recorded a provision for income taxes for any of the periods presented , other than provisions for certain foreign income taxes . during the year ended december 31 , 2012 , we recorded an income tax benefit due to the amortization of deferred tax liabilities assumed as part of the sonar limited acquisition . liquidity and capital resources historically , our operations and growth have been financed primarily through the sale of equity securities , including net cash proceeds from our initial public offering of common stock in march 2011 , in which we raised approximately $ 90.5 million , net of underwriting discounts and commissions but before offering expenses of $ 3.7 million . at december 31 , 2012 , our principal sources of liquidity were $ 76.4 million of cash and cash equivalents . our working capital at december 31 , 2012 , excluding current deferred revenue , was $ 115.3 million . 55 based on our current level of operations and anticipated growth , we believe our future cash flows from operating activities , existing cash and cash equivalents will provide adequate funds for our ongoing operations for at least the next twelve months . our future capital requirements will depend on many factors , including our rate of revenue , billings growth and collections , the level of our sales and marketing efforts , the timing and extent of spending to support product development efforts and expansion into new territories , the timing of introductions of new services and enhancements to existing services , the timing of general and administrative expenses as we grow our administrative infrastructure , and the continuing market acceptance of our solutions . to the extent that existing cash and cash from operations are not sufficient to fund our future activities , we may need to raise additional funds . if we make acquisitions of complementary businesses , services or technologies , we could be required to seek additional equity financing or utilize our cash resources . the following table sets forth a summary of our cash flows for the periods indicated ( in thousands ) : replace_table_token_17_th net cash provided by operating activities our cash flows from operating activities are significantly influenced by our growth , ability to maintain our contractual billing and collection terms , and our investments in headcount and infrastructure to support anticipated growth . in addition , our net loss in prior periods has been significantly greater than our use of cash for operating activities due to the inclusion of substantial non-cash charges . cash provided by operating activities of $ 10.3 million during 2012 was a result of the continued growth of our business and our ability to bill and collect from our customers , partially offset by our continued investments for further growth . in the year ended december 31 , 2012 , $ 18.2 million , or 58 % , of our net loss of $ 31.4 million consisted of non-cash items , including $ 12.2 million of stock-based compensation and $ 7.0 million of depreciation and amortization . these non-cash expenses were partially offset by a non-cash deferred tax benefit of $ 1.0 million . cash provided by operating activities includes a $ 35.3 million increase in deferred revenue due to increased billings during the year ended december 31 , 2012 , a $ 6.3 million increase in accrued liabilities primarily due to the timing of payments , and an increase in other liabilities of $ 3.7 million .
| we also record amortization of developed technology and software license rights in cost of revenues . the following table presents our estimate of amortization expense for each of the five succeeding fiscal years for all finite-lived intangible assets that existed at december 31 , 2012 ( in thousands ) : replace_table_token_14_th estimated amortization expense of $ 1.3 million , $ 1.2 million , $ 1.2 million , $ 0.4 million , and $ 0.1 million will be recorded in cost of revenue for 2013 , 2014 , 2015 , 2016 , and 2017 and thereafter , respectively . the remaining estimated amortization expense will be recorded in amortization of certain acquired intangible assets within operating expenses . 54 other income ( expense ) replace_table_token_15_th interest expense for the year ended december 31 , 2012 decreased $ 0.5 million as compared to the same period in 2011 due to decreased weighted average borrowings and the write-off of the remaining unamortized debt discount of $ 0.3 million in the three months ended march 31 , 2011 associated with debt that was repaid with proceeds from our initial public offering . t he decrease in interest expense of $ 0.2 million in 2011 as compared to 2010 was attributable to lower interest expense as a result of decreased borrowings under our credit facilities throughout 2011 as compared to 2010. during the year ended december 31 , 2011 , we recorded a non-cash charge of $ 42.6 million related to the change in fair value of our preferred stock warrant liabilities from december 31 , 2010 to the respective exercise dates of the warrants in march 2011 , as compared to an increase of $ 34.1 million at december 31 , 2010 as compared to december 31 , 2009. we valued our preferred stock warrants at the end of each fiscal period using the black-scholes option pricing model . during march 2011 , all of our warrants to purchase preferred stock were
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future events could occur which would cause us to conclude that impairment indicators exist , and significant adverse changes in national , regional , or local market conditions or trends may cause us to change the estimates and assumptions used in our impairment analysis . the results of an impairment analysis could be material to our financial statements . capitalized costs we capitalize certain costs incurred in connection with the development , redevelopment , capital enhancement and leasing of our properties . management is required to use professional judgment in determining whether such costs meet the criteria for immediate expense or capitalization . the amounts are dependent on the volume and timing of such activities and the costs associated with such activities . maintenance , repairs and minor improvements to properties are expensed when incurred . renovations and improvements to properties are capitalized and depreciated over their estimated useful lives and construction costs related to the development of new community or expansion sites are capitalized until the property is substantially complete . costs incurred to renovate repossessed homes for our rental program are capitalized and costs incurred to refurbish the homes at turnover and repair the homes while occupied are expensed . certain expenditures to dealers and residents related to obtaining lessees in our communities are capitalized and amortized over a seven year period based on the anticipated term of occupancy of a resident . costs associated with implementing our computer systems are capitalized and amortized over the estimated useful lives of the related software and hardware . notes and other receivables we provide financing to purchasers of manufactured homes generally located in our communities . the notes are collateralized by the underlying manufactured home sold . notes receivable include both installment loans retained by the company as well as transferred loans that have not met the requirements for sale accounting which are presented herein as collateralized receivables ( see note 5 for additional information ) . for purposes of accounting policy , all notes receivable are considered one homogenous segment , as the notes are typically underwritten using the same requirements and terms . notes receivable are reported at their outstanding unpaid principal balance adjusted for an allowance for loan loss . interest income is accrued based upon the unpaid principal balance of the loans . past due status of our notes receivable is determined based upon the contractual terms of the note . when a note receivable becomes 60 days delinquent , we stop accruing interest on the note receivable . the interest on nonaccrual loans is accounted for on the cash basis until qualifying for return to accrual . loans are returned to accrual when all principal and interest amounts contractually due are brought current and future payments are reasonably assured . loans on a nonaccrual status were immaterial at december 31 , 2011 and 2010. the ability to collect our notes receivable is measured based on current and historical information and events . we consider numerous factors including : length of delinquency , estimated costs to lease or sell , and repossession history . our experience supports a high recovery rate for notes receivable ; however there is some degree of uncertainty about the recoverability of our investment in these notes receivable . we are generally able to recover our recorded investment in uncollectible notes receivable by repossessing the homes on the notes retained by us and repurchasing the homes on the collateralized receivables , and subsequently selling or leasing these homes to potential residents in our communities . we have established a loan loss reserve based on our estimated unrecoverable costs associated with repossessed/repurchased homes . we estimate our unrecoverable costs to be the repurchase price of the home collateralizing the note receivable plus repair and remarketing costs in excess of the estimated selling price of the home being repossessed . a historical average of this excess cost is calculated based on prior repossessions/repurchases and is applied to our estimated annual future repossessions to create the allowance for both installment and collateralized notes receivable . see note 6 for additional information . 29 we evaluate the collectability of a loan based on our ability to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement . we generally see that if the obligor is delinquent on the loan they are also delinquent on site rent . if the scheduled payment is delinquent more than five to seven days , dependent on state law , we begin the repossession and eviction process simultaneously . this process generally takes 30 to 45 days ; due to the short time frame from delinquent loan to repossession we do not evaluate the notes receivables for impairments . no loans were considered impaired as of december 31 , 2011 and 2010. we evaluate the credit quality of our notes receivable at the inception of the receivable . we consider the following factors in order to determine the credit quality of the applicant- fico scores ; home debt to income ratio ; total debt to income ratio ; length of employment ; and previous landlord references . other receivables are generally comprised of amounts due from residents for rent and related charges , home sale proceeds receivable from sales near year end and various other miscellaneous receivables . accounts receivable from residents are typically due within 30 days and stated at amounts due from residents net of an allowance for doubtful accounts . accounts outstanding longer than the contractual payment terms are considered past due . we evaluate the recoverability of our receivables whenever events occur or there are changes in circumstances such that management believes it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan and lease agreements . receivables related to community rents are reserved when we believe that collection is less than probable , which is generally after a resident balance reaches 60 to 90 days past due . story_separator_special_tag investment in affiliates investments in affiliates in which we do not have a controlling direct or indirect voting interest , but can exercise significant influence over the entity with respect to its operations and major decisions , are accounted for using the equity method of accounting . the carrying value of our investment is adjusted for our proportionate share of the affiliate 's net income or loss and reduced by distributions received . we review the carrying value of our investment in affiliates for other than temporary impairment whenever events or changes in circumstances indicate a possible impairment . financial condition , operational performance , and other economic trends are some of the factors we consider when we evaluate the existence of impairment indicators . when we have a carrying value of zero for our investment , we suspend the equity method of accounting until such time that the affiliate 's net income equals or exceeds the share of net losses not recognized during the time in which the equity method of accounting was suspended . revenue recognition rental income attributable to site and home leases is recorded on a straight-line basis when earned from tenants . leases entered into by tenants are generally for one year terms but may range from month-to-month to two years and are renewable by mutual agreement from us and the resident , or in some cases , as provided by state statute . revenue from the sale of manufactured homes is recognized upon transfer of title at the closing of the sales transaction . interest income on notes receivable is recorded on a level yield basis over the life of the notes . we report certain taxes collected from the resident and remitted to taxing authorities in revenue . these taxes include certain florida property and fire taxes . depreciation and amortization depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets . useful lives are 30 years for land improvements and buildings , 10 years for rental homes , seven to 15 years for furniture , fixtures and equipment , and seven years for intangible assets . derivative instruments and hedging activities we have four derivative contracts consisting of two interest rate swap agreements with a total notional amount of $ 45.0 million , and an two interest rate cap agreements with a notional amount of $ 162.4 million as of december 31 , 2011. we do not enter into derivative instruments for speculative purposes . for those hedges that qualify for cash flow hedge accounting , we adjust our balance sheet on a quarterly basis to reflect current fair market value of our derivatives . changes in the fair value of derivatives are recorded in earnings or comprehensive income ( loss ) , as appropriate . the ineffective portion of these hedges are immediately recognized in earnings to the extent that the change in value of a derivative does not perfectly offset the change in value of the instrument being hedged . the effective portion of these hedges are recorded in accumulated other comprehensive income ( loss ) . we use standard market conventions to determine the fair values of derivative instruments , including the quoted market prices or quotes from brokers or dealers for the same or similar instruments . all methods of assessing fair value result in a general approximation of value and such value may never actually be realized . 30 income taxes we have elected to be taxed as a reit as defined under section 856 ( c ) of the code . in order for us to qualify as a reit , at least ninety-five percent ( 95 % ) of our gross income in any year must be derived from qualifying sources . as a reit , we generally will not be subject to u.s. federal income taxes at the corporate level if we distribute at least ninety percent ( 90 % ) of its reit ordinary taxable income to our stockholders , which we fully intend to do . if we fail to qualify as a reit in any taxable year , we will be subject to federal income tax ( including any applicable alternative minimum tax ) on our taxable income at regular corporate rates . we remain subject to certain state and local taxes on our income and property as well as federal income and excise taxes on our undistributed income . we are subject to certain state taxes that are considered income taxes and have certain subsidiaries that are taxed as regular corporations . deferred tax assets or liabilities are recognized for temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements and net operating loss carry forwards . deferred tax assets and liabilities are measured using currently enacted tax rates . a valuation allowance is established if based on available evidence it is more likely than not that some portion or all of the deferred tax assets will not be realized . recent accounting pronouncements in april 2011 , the fasb issued asu 2011-03 , “ reconsideration of effective control for repurchase agreements ” ( asu 2011-03 ) which amends asc topic 860 , transfers and servicing . the updated guidance in asc topic 860 removes from the assessment of effective control ( 1 ) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms , even in the event of default by the transferee , and ( 2 ) the collateral maintenance implementation guidance related to that criterion . the updated guidance in asc topic 860 is effective for the first interim or annual period beginning on or after december 15 , 2011. early adoption is not permitted . the adoption of this guidance will not have any impact on our results of operations or financial condition , and we will apply the provisions after the effective date .
| 33 real property operations - same site a key management tool we use when evaluating performance and growth of our properties is a comparison of same site communities . same site communities consist of properties owned and operated for the same period in both years for the years ended december 31 , 2011 and 2010. the same site 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 site communities , management has classified certain items differently than our gaap statements . the reclassification difference between our gaap statements and our same site 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 . we reclassify these amounts to reflect the utility expenses associated with our same site portfolio , net of recovery . the following tables reflect certain financial and other information for our same site communities as of and for the years ended december 31 , 2011 and 2010 : replace_table_token_11_th replace_table_token_12_th ( 1 ) occupied sites and occupancy % include manufactured housing and permanent rv sites , and exclude seasonal rv sites . ( 2 ) occupancy % excludes completed but vacant expansion sites . ( 3 ) average rent relates only to manufactured housing sites , and excludes permanent and seasonal rv sites . real property noi increased by $ 4.8 million from $ 135.2 million to $ 140.0 million , or 3.6 percent . the growth in noi is primarily due to increased revenues . income from real property revenues consist of manufactured home and rv site rent , and miscellaneous other property revenues . income from real property revenues increased $ 5.7 million , from $ 193.1 million to $ 198.8 million , or 3.0 percent . the growth in income from real property was due to a combination of factors . revenue from our manufactured home and
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consumers in the market categories in which we compete frequently change their taste preferences , dietary habits and product packaging preferences . consumer concern regarding food safety , quality and health . the food industry is subject to consumer concerns regarding the safety and quality of certain food products . if consumers in our principal markets lose confidence in the safety and quality of our food products , even as a result of a product liability claim or a product recall by a food industry competitor , our business could be adversely affected . fluctuations in currency exchange rates . our foreign sales are primarily to customers in canada . our sales to canada are generally denominated in canadian dollars and our sales for export to other countries are generally denominated in u.s. dollars . during fiscal 2015 , 2014 and 2013 , our net sales to foreign countries represented approximately 5.2 % , 3.6 % and 3.2 % , respectively , of our total net sales . we also purchase a significant majority of our maple syrup requirements from suppliers located in québec , canada . any weakening of the u.s. dollar against the canadian dollar could significantly increase our costs relating to the production of our maple syrup products to the extent we have not purchased canadian dollars in advance of any such weakening of the u.s. dollar or otherwise entered into a currency hedging arrangement in advance of any such weakening of the u.s. dollar . these increased costs would not be fully offset by the positive impact the change in the relative strength of the canadian dollar versus the u.s. dollar would have on our net sales in canada . our purchases of raw materials from other foreign suppliers are generally denominated in u.s. dollars . we also operate a manufacturing facility in irapuato , mexico for the manufacture of green giant frozen products and are as a result exposed to fluctuations in the mexican peso . our results of operations could be adversely impacted by changes in foreign currency exchange rates . costs and expenses in mexico are recognized in local foreign currency , and therefore we are exposed to potential gains or losses from the translation of those amounts into u.s. dollars for consolidation into our financial statements . to confront these challenges , we continue to take steps to build the value of our brands , to improve our existing portfolio of products with new product and marketing initiatives , to reduce costs 35 through improved productivity , to address consumer concerns about food safety , quality and health and to favorably manage currency fluctuations . critical accounting policies ; use of estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states requires our management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the 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 . some of the more significant estimates and assumptions made by management involve trade and consumer promotion expenses ; allowances for excess , obsolete and unsaleable inventories ; pension benefits ; acquisition accounting fair value allocations ; the recoverability of goodwill , other intangible assets , property , plant and equipment , and deferred tax assets ; the determination of the useful life of customer relationship and amortizable trademark intangibles ; the fair value of contingent consideration liabilities ; and the accounting for share-based compensation expense . actual results could differ significantly from these estimates and assumptions . our significant accounting policies are described more fully in note 2 to our consolidated financial statements included elsewhere in this report . we believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements . trade and consumer promotion expenses we offer various sales incentive programs to customers and consumers , such as price discounts , in-store display incentives , slotting fees and coupons . the recognition of expense for these programs involves the use of judgment related to performance and redemption estimates . estimates are made based on historical experience and other factors . actual expenses may differ if the level of redemption rates and performance vary from our estimates . inventories inventories are stated at the lower of cost or market . cost is determined using the first in , first out and average cost methods . inventories have been reduced by an allowance for excess , obsolete and unsaleable inventories . the allowance is an estimate based on our management 's review of inventories on hand compared to estimated future usage and sales . long-lived assets long-lived assets , such as property , plant and equipment , and intangibles with estimated useful lives are depreciated or amortized over their respective estimated useful lives to their estimated residual values , and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted net future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated undiscounted net future cash flows , an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset . recoverability of assets held for sale is measured by a comparison of the carrying amount of an asset or asset group to their fair value less estimated costs to sell . estimating future cash flows and calculating the fair value of assets requires significant estimates and assumptions by management . 36 goodwill and other intangible assets our total assets include substantial goodwill and unamortizable intangible assets ( trademarks ) . story_separator_special_tag these assets are tested for impairment at least annually and whenever events or circumstances occur indicating that goodwill or unamortizable intangibles might be impaired . we perform the annual impairment tests as of the last day of each fiscal year . the annual goodwill impairment test involves a two-step process . the first step of the impairment test involves comparing our company 's market capitalization with our company 's carrying value , including goodwill . if the carrying value of our company exceeds our market capitalization , we perform the second step of the impairment test to determine the amount of the impairment loss . the second step of the goodwill impairment test involves comparing the implied fair value of goodwill with the carrying value and recognizing a loss for the difference . we test our unamortizable intangibles by comparing the fair value with the carrying value and recognize a loss for the difference . we estimate the fair value of our unamortizable intangibles based on discounted cash flows that reflect certain third party market value indicators . calculating our fair value for these purposes requires significant estimates and assumptions by management . we completed our annual impairment tests for fiscal 2015 , 2014 and 2013 with no adjustments to the carrying values of goodwill and unamortizable intangibles . however , materially different assumptions regarding the future performance of our businesses could result in significant impairment losses . in addition , any significant decline in our market capitalization , even if due to macroeconomic factors , could put pressure on the carrying value of our goodwill . a determination that all or a portion of our goodwill or unamortizable intangible assets are impaired , although a non-cash charge to operations , could have a material adverse effect on our business , consolidated financial condition and results of operations . income tax expense estimates and policies as part of the income tax provision process of preparing our consolidated financial statements , we are required to estimate our income taxes . this process involves estimating our current tax expenses together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities . we then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe the recovery is not likely , we establish a valuation allowance . further , to the extent that we establish a valuation allowance or increase this allowance in a financial accounting period , we include such charge in our tax provision , or reduce our tax benefits in our consolidated statements of operations . we use our judgment to determine our provision or benefit for income taxes , deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets . there are various factors that may cause these tax assumptions to change in the near term , and we may have to record a valuation allowance against our deferred tax assets . we can not predict whether future u.s. federal and state income tax laws and regulations might be passed that could have a material effect on our results of operations . we assess the impact of significant changes to the u.s. federal and state income tax laws and regulations on a regular basis and update the assumptions and estimates used to prepare our consolidated financial statements when new regulations and legislation are enacted . we recognize the benefit of an uncertain tax position that we have taken or expect to take on the income tax returns we file if it is more likely than not that such tax position will be sustained based upon its technical merits . pension expense we have defined benefit pension plans covering approximately one quarter of our employees . our funding policy is to contribute annually not less than the amount recommended by our actuaries . the 37 funded status of our pension plans is dependent upon many factors , including returns on invested assets and the level of certain market interest rates . we review pension assumptions regularly and we may from time to time make voluntary contributions to our pension plans , which exceed the amounts required by statute . during fiscal 2015 and 2014 , we made total pension contributions to our pension plans of $ 3.5 million and $ 1.8 million , respectively . changes in interest rates and the market value of the securities held by the plans could materially change , positively or negatively , the funded status of the plans and affect the level of pension expense and required contributions in fiscal 2015 and beyond . our discount rate assumption for our three defined benefit plans changed from 3.882 % at january 3 , 2015 to 4.225 % at january 2 , 2016. while we do not presently anticipate a change in our fiscal 2016 assumptions , as a sensitivity measure , a 0.25 % decline or increase in our discount rate would increase or decrease our pension expense by approximately $ 0.3 million . similarly , a 0.25 % decrease or increase in the expected return on pension plan assets would increase or decrease our pension expense by approximately $ 0.2 million . we expect to make $ 3.5 million of defined benefit pension plan contributions during fiscal 2016. acquisition accounting our consolidated financial statements and results of operations include an acquired business 's operations after the completion of the acquisition . we account for acquired businesses using the acquisition method of accounting , which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values . any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill . transaction costs are expensed as incurred .
| amortization expense includes the amortization expense associated with customer relationships , amortizable trademarks and other intangibles . 40 net interest expense . net interest expense includes interest relating to our outstanding indebtedness , amortization of bond discount and amortization of deferred debt financing costs ( net of interest income ) . loss on extinguishment of debt . loss on extinguishment of debt includes costs relating to the retirement of indebtedness , including repurchase premium , if any , and write-off of deferred debt financing costs and unamortized discount , if any . non-gaap financial measures certain disclosures in this report include non-gaap financial measures . a non-gaap financial measure is defined as a numerical measure of our financial performance that excludes or includes amounts so as to be different from the most directly comparable measure calculated and presented in accordance with accounting principles generally accepted in the united states ( gaap ) in our consolidated balance sheets and related consolidated statements of operations , comprehensive income , changes in stockholders ' equity and cash flows . base business net sales . base business net sales is a non-gaap financial measure used by management to measure operating performance . we define base business net sales as our net sales excluding the impact of acquisitions until the net sales from such acquisitions are included in both comparable periods . the portion of current period net sales attributable to recent acquisitions for which there is no corresponding period in the comparable period of the prior year is excluded . for each acquisition , the excluded period starts at the beginning of the most recent fiscal period being compared and ends on the first anniversary of the acquisition date . management has included this financial measure because it provides useful and comparable trend information regarding the results of our business without the effect of the timing of acquisitions . comparable base business net sales . comparable base business net sales is a non-gaap financial measure used by management to
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payments for our products by third party payors have been made primarily through case-by-case determinations . third-party payors include , without limitation , private insurance plans and managed care programs , government programs including the va , and worker 's compensation payments . we expect that third-party payors will be an increasingly important source of revenue in the future as well as clinics that will be interested in the restore device . in december 2015 , the va issued a national policy for the evaluation , training and procurement of rewalk personal exoskeleton systems for all qualifying veterans across the united states . the va policy is the first national coverage policy in the united states for qualifying individuals who have suffered spinal cord injury . all of our rewalk personal and rewalk rehabilitation systems sold until the end of 2017 were covered by a two-year warranty from the date of purchase , which is included in the purchase price . we offer customers the ability to purchase , any time during the initial warranty period , an extended warranty for up to three additional years . both warranties cover all elements of the systems , including the batteries , other than normal wear and tear . in the beginning of 2018 we updated our service policy for new devices sold to include a five-year warranty . our restore device is sold with a two-year warranty . revenues are presented net of the amounts of any provision we record for expected future product returns . cost of revenues and gross profit cost of revenue consists primarily of systems purchased from our outsourced manufacturer , sanmina , salaries , personnel costs including non-cash share based compensation , associated with manufacturing and inventory management , training and inspection , warranty and service costs , shipping and handling and manufacturing startup and transition costs . prior to the first quarter of 2014 , when we completed the manufacturing transition to sanmina , cost of revenues also included costs of components , compensation related costs associated with manufacturing and costs to transition manufacturing to sanmina . cost of revenues also includes royalties and expenses related to royalty-bearing research and development grants and sales and marketing grants . our gross profit and gross margin as a percentage of sales is influenced by a number of factors , including primarily the volume and price of our products sold and fluctuations in our cost of revenues . we expect gross profit as a percentage of sales will improve in the future as we increase our sales volumes and decrease the product manufacturing costs . operating expenses research and development expenses , net research and development expenses , net consist primarily of salaries , related personnel costs including share-based compensation , supplies , materials and expenses related to product design and development , clinical studies , regulatory submissions , patent costs , sponsored research costs and other expenses related to our product development and research programs . we expense all research and development expenses as they are incurred . we believe that continued investment in research and development is crucial to attaining our strategic product objectives . research and development expenses are presented net of the amount of any grants we receive for research and development in the period in which we receive the grant . we previously received grants and other funding from the bird foundation and the israel innovation authority , or “ iia ” ( formerly known as the office of the chief scientist ) . certain of those grants require us to pay royalties on sales of rewalk systems , which are recorded as cost of revenues . we may receive additional funding from these entities or others in the future . see “ grants and other funding ” below . 55 sales and marketing expenses our sales and marketing expenses consist primarily of salaries , related personnel costs including share-based compensation for sales , marketing and reimbursement personnel , travel , marketing and public relations activities and consulting costs . also included in the sales and marketing expenses are the costs associated with our reimbursement activities in the united states and germany . general and administrative expenses our general and administrative expenses consist primarily of salaries , related personnel costs including share-based compensation for our administrative , finance , and general management personnel , professional services and insurance . financial income ( expenses ) , net financial income and expenses consist of bank commissions , foreign exchange gains and losses , interest earned on investments in short term deposits , interest expenses related to the loan agreement with kreos .. interest income consists of interest earned on our cash and cash equivalent balances . interest expense consists of interest accrued on , and certain other costs with respect to any indebtedness . foreign currency exchange changes reflect gains or losses related to transactions denominated in currencies other than the u.s. dollar . on december 30 , 2015 we entered into the loan agreement with kreos pursuant to which kreos extended a line of credit to us in the amount of $ 20.0 million . in connection with the loan agreement we issued to kreos a warrant to purchase up to 4,771 of our ordinary shares at an exercise price of $ 241.00 as we drew down $ 12.0 million under the loan agreement , which amount was increased to 6,679 ordinary shares upon an additional drawdown of $ 8.0 million . on june 9 , 2017 , $ 3.0 million of the outstanding principal amount was extended by an additional three years with the same interest rate and became subject to repayment in accordance with , and subject to the terms of a secured convertible promissory note ( the “ kreos convertible note ” ) . story_separator_special_tag on november 20 , 2018 , the company agreed to repay $ 3.6 million to kreos in satisfaction of all outstanding indebtedness under the kreos convertible note and other related payments , including prepayment costs and end of loan payments and kreos agreed to terminate the kreos convertible note . the company repaid kreos the $ 3.6 million by issuing to kreos 192,000 units and 288,000 pre-funded units at the applicable public offering prices for an aggregate price of $ 3.6 million ( including the aggregate exercise price for the ordinary shares to be received upon exercise of the pre-funded warrants , assuming kreos exercises all of the pre-funded warrants it purchased as part of the company 's public offering . the company and kreos also agreed to revise the principal and the repayment schedule under the kreos loan agreement . additionally , kreos and the company entered into the kreos warrant amendment , which amended the exercise price of the warrant to purchase 6,679 ordinary shares currently held by kreos from $ 241.00 to $ 7.50. for further discussion of the loan agreement with kreos , see “ -liquidity and capital resources ” below and also note 6 to our audited consolidated financial statements below . taxes on income as of december 31 , 2019 , we had not yet generated taxable income in israel . as of that date , our net operating loss carry forwards for israeli tax purposes amounted to approximately $ 152.4 million and our net operating loss carry forwards for u.s. tax purposes amounted to approximately $ 390 thousands after we utilize our net operating loss carry forwards , we are eligible for certain tax benefits in israel under the law for the encouragement of capital investments , 1959. our benefit period currently ends ten years after the year in which we first have taxable income in israel provided that the benefit period will not extend beyond 2024. our taxable income generated outside of israel will be subject to the regular corporate tax rate in the applicable jurisdictions . as a result , our effective tax rate will be a function of the relative proportion of our taxable income that is generated in those locations compared to our overall net income . 56 grants and other funding israel innovation authority ( formerly known as office of the chief scientist ) from our inception through december 31 , 2019 we have received a total of $ 1.97 million in funding from the iia , $ 1.57 million of which are royalty-bearing grants , while $ 400 thousand were received in consideration for an investment in our preferred shares . out of the royalty-bearing grants received , we have paid royalties to the iia in the total amount of $ 50 thousand . we may apply to receive additional grants to support our research and development activities in 2017. the agreements with iia require us to pay royalties at a rate of 3 % -3.5 % on sales of rewalk systems and related services up to the total amount of funding received , linked to the dollar and bearing interest at an annual rate of libor applicable to dollar deposits . if we transfer iia-supported technology or know-how outside of israel , we will be liable for additional payments to iia depending upon the value of the transferred technology or know-how , the amount of iia support , the time of completion of the iia-supported research project and other factors . as of december 31 , 2019 , the aggregate contingent liability to the iia was $ 1.6 million . for more information , see “ part i , item 1a . risk factors-we have received israeli government grants for certain of our research and development activities and we may receive additional grants in the future . the terms of those grants restrict our ability to manufacture products or transfer technologies outside of israel ... ” story_separator_special_tag january 1 , 2018 , we adopted topic 606 using the modified retrospective method for contracts that were not completed as of january 1 , 2018. under the modified retrospective method , we recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings . this adjustment did not have a material impact on our consolidated financial statements . results for reporting periods beginning after january 1 , 2018 are presented under topic 606 , while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under revenue recognition ( “ topic 605 ” ) . 60 the adoption of topic 606 represents a change in accounting principle that will provide financial statement readers with enhanced revenue recognition disclosures . in accordance with topic 606 , revenue is recognized when obligations under the terms of a contract with our customer are satisfied ; generally this occurs with the transfer of control of our products or services . revenue is measured as the amount of consideration to which we expect to be entitled in exchange for transferring products or providing services . to achieve this core principle , the company applies the following five steps : 1. identify the contract with a customer 2. identify the performance obligations in the contract 3. determine the transaction price 4. allocate the transaction price to performance obligations in the contract 5. recognize revenue when or as the company satisfies a performance obligation provisions are made at the time of revenue recognition for any applicable warranty cost expected to be incurred . the timing for revenue recognition among the various products and customers is dependent upon satisfaction of such criteria and generally varies from either shipment or delivery to the customer depending on the specific shipping terms of a given transaction , as stipulated in the agreement with each customer . other than pricing terms which may differ due to the different volumes of purchases between distributors and end-users , there are no material differences in the terms and arrangements involving direct and indirect customers .
| research and development expenses , net our research and development expenses , net for 2019 and 2018 were as follows ( in thousands ) : replace_table_token_5_th research and development expenses , net , decreased by $ 2.0 million , or 27 % , during 2019 compared to 2018. the decrease is attributable to decreased costs associated with the development and clinical study costs of our restore soft suit exoskeleton . we intend to focus our research and development expenses on the “ soft suit ” exoskeleton for additional indications affecting the ability to walk , including multiple sclerosis , cerebral palsy , parkinson 's disease and elderly assistance and the next generation of our current rewalk device . 58 sales and marketing expenses our sales and marketing expenses for 2019 and 2018 were as follows ( in thousands ) : replace_table_token_6_th sales and marketing expenses decreased by $ 1.7 million , or 22 % , during 2019 compared to 2018. the decrease is driven by lower personnel and personnel-related costs and consulting expenses as result of our cost reduction efforts . in the near term our sales and marketing expenses are expected to be driven by our efforts to commercialize the restore device and to increase reimbursement of the rewalk personal device , as we continue to pursue insurance claims on a case-by-case basis and invest in efforts to expand coverage . general and administrative expenses our general and administrative expenses for 2019 and 2018 were as follows ( in thousands ) : replace_table_token_7_th general and administrative expenses decreased by $ 1.5 million , or 23 % , during 2019 compared to 2018. the decrease was driven by cash and non-cash compensation recorded in 2018 related to severance accrual for the company 's former chief financial officer , as well as higher legal expenses related to china market development activities . financial expenses , net our financial expenses , net for 2019 and 2018 were as follows ( in thousands ) : replace_table_token_8_th financial expenses , net , increased by $ 1.0 million , or 40 % during 2019 compared to 2018. the decrease is attributable to decreased interest expenses related to the loan agreement , as amended , with kreos . for further discussion of the loan agreement with kreos , see “ -liquidity and capital resources ” below and also note 6 to our audited consolidated financial statements below . income tax our
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we may also invest in any other real property or other real estate-related assets that , in the opinion of our board of directors , meets our investment objectives and is in the best interests of our stockholders . subject to certain restrictions and limitations , our business is managed by tnp strategic retail advisor , llc , our external advisor , pursuant to an advisory agreement . our advisor and our property manager , tnp property manager , llc , manage our operations and our portfolio of real estate and real estate-related assets . our advisor and property manager depend on the capital from our sponsor and fees and other compensation that they receive from us in connection with the purchase , management and sale of our assets to conduct their operations . our sponsor has a limited operating history and , since its inception , has operated at a significant net loss . in addition , our sponsor and its subsidiaries also have substantial secured and unsecured debt obligations coming due in the near term . as a result of our sponsor 's financial condition , our board of directors is actively negotiating with glenborough , llc and its affiliates , which we refer to herein as “ glenborough , ” to replace our current advisor . glenborough is a privately held full-service real estate investment and management company focused on the acquisition , management , and leasing of high quality commercial properties . glenborough and its predecessor entities have over three decades of experience in the commercial real estate industry . our board of directors is engaged in ongoing negotiations regarding the transition to glenborough as our external advisor and the termination of our current advisory agreement and the property management agreements with respect to our properties . however , any change to our advisor or our property managers will require the consent of a number of our significant lenders . we can give no assurance that we will be able to secure such lender consents or come to terms with glenborough with respect to the transition . effective january 15 , 2013 , we announced that we will no longer be making monthly distributions . quarterly distributions will be considered by our board of directors for 2013. as of march 19 , 2013 , we announced that we will not be making a quarterly distribution for the quarter ended march 31 , 2013. we have elected to qualify as a reit for federal income tax purposes commencing with the year ended december 31 , 2009 , and therefore we generally are not subject to federal income tax on income that we distribute to our stockholders . if we fail to qualify as a reit in any taxable year , we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a reit for federal income tax purposes for four years following the year in which qualification is denied . failing to qualify as a reit could materially and adversely affect our net income . as of december 31 , 2012 , we believe we were in compliance with the reit requirements . market outlook – real estate and real estate finance markets since 2007 and the emergence of the global economic crisis , there have been persistent concerns regarding the creditworthiness and refinancing capabilities of both corporations and sovereign governments . economies throughout the world have experienced lingering levels of high unemployment and low levels of consumer and business confidence due to a global downturn in economic activity . while some markets have shown some signs of recovery , concerns remain regarding job growth , income growth and the overall economic health of consumers , businesses and governments . recent global economic events remain centered on the potential for the default of several european sovereign debt issuers and the impact that such an event would have on the european union and the rest of the world 's financial markets . during 2011 , s & p downgraded the credit rating of the united states to aa+ from aaa . in november 2012 , moody 's downgraded france 's sovereign debt rating to aa1 from aaa and , in february 2013 , moody 's downgraded the u.k. government debt to aa1 from aaa as well . the global ratings agencies continue to have a number of western sovereign issuers on negative watch as governments have struggled to resolve their fiscal obligations . these events have led to continued volatility in the capital markets . 39 story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 ; background-color : white '' > on may 16 , 2012 , we acquired a fee simple interest in a multitenant retail center located in florissant , missouri , commonly known as florissant marketplace , for an aggregate purchase price of $ 15,250,000 , excluding closing costs . we financed the purchase price for the florissant marketplace with proceeds from ( 1 ) our public offering and ( 2 ) approximately $ 11,437,500 in funds borrowed under our keybank credit facility . 41 willow run shopping center on may 18 , 2012 , we acquired a fee simple interest in a multitenant retail center located in westminster , colorado , commonly known as willow run shopping center , for an aggregate purchase price of $ 11,550,000 , excluding closing costs . the acquisition was financed with ( 1 ) proceeds from our public offering and ( 2 ) approximately $ 8,662,500 in funds borrowed under our keybank credit facility . bloomingdale hills on june 18 , 2012 , we acquired a fee simple interest in a multitenant retail center located in riverview , florida , commonly known as bloomingdale hills , for an aggregate purchase price of $ 9,300,000 , excluding closing costs . story_separator_special_tag we financed the purchase price of bloomingdale hills with cash and subsequently obtained a loan secured by this property from ing life insurance and annuity company in the amount of $ 5,600,000. visalia marketplace on june 25 , 2012 , we acquired a fee simple interest in a multitenant retail center located in visalia , california , commonly known as visalia marketplace , for an aggregate purchase price of $ 19,000,000 , excluding closing costs . we financed the purchase price for visalia marketplace with proceeds from ( 1 ) our public offering and ( 2 ) approximately $ 14,250,000 in funds borrowed under our keybank credit facility . lahaina gateway shopping center on november 9 , 2012 , we acquired a ground lease interest in lahaina gateway shopping center in maui , hawaii for $ 31,000,000 , exclusive of closing cost , or $ 226.80 per square foot . we financed the purchase with a $ 29,000,000 loan from dof iv reit holdings , llc , an affiliate of torchlight investors . we incurred an acquisition fee to our advisor of $ 775,000 in this acquisition and third party broker commissions of $ 1,530,000 . 2012 property dispositions · in september 2012 , we completed the sale of the last parcel at morningside marketplace , commonly known as the wienerchnitzel pad , for $ 1,200,000 . · in september 2012 , we completed the sale of an outparcel at osceola village for $ 1,250,000 . · in april 2012 , we completed the sale of two parcels at morningside marketplace , commonly known as the chase and chevron parcels , for $ 4,098,000 . · in february 2012 , we completed the sale of a pad at morningside marketplace , commonly known as the kfc pad , for $ 1,200,000. review of our policies our board of directors , including our independent directors , has reviewed our policies described in this annual report and determined that they are in the best interest of our stockholders because : ( 1 ) they increase the likelihood that we will be able to successfully maintain and manage our current portfolio of investments and acquire additional income producing properties and other real estate-related investments in the future ; ( 2 ) our executive officers , directors and affiliates of our advisor have expertise with the type of properties in our current portfolio ; and ( 3 ) to the extent that we acquire additional real properties or other real estate related investments in the future , the use of leverage should enable us to acquire assets and earn rental income more quickly , thereby increasing the likelihood of generating income for our stockholders and preserving stockholder capital . critical accounting policies below is a discussion of the accounting policies that management considers critical in that they involve significant management judgments and assumptions , require estimates about matters that are inherently uncertain 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 . with different estimates or assumptions , materially different amounts could be reported in our financial statements . additionally , other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses . 42 revenue recognition revenues include minimum rents , expense recoveries and percentage rental payments . minimum rents are recognized on an accrual basis over the terms of the related leases on a straight-line basis when collectability is reasonably assured and the tenant has taken possession or controls the physical use of the leased property . if the lease provides for tenant improvements , we determine whether the tenant improvements , for accounting purposes , are owned by the tenant or us . when we are the owner of the tenant improvements , the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed . when the tenant is the owner of the tenant improvements , any tenant improvement allowance that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term . tenant improvement ownership is determined based on various factors including , but not limited to : whether the lease stipulates how a tenant improvement allowance may be spent ; whether the amount of a tenant improvement allowance is in excess of market rates ; whether the tenant or landlord retains legal title to the improvements at the end of the lease term ; whether the tenant improvements are unique to the tenant or general-purpose in nature ; and whether the tenant improvements are expected to have any residual value at the end of the lease term . for leases with minimum scheduled rent increases , we recognize income on a straight-line basis over the lease term when collectability is reasonably assured . recognizing rental income on a straight-line basis for leases results in reported revenue amounts which differ from those that are contractually due from tenants . if we determine the collectability of straight-line rents is not reasonably assured , we limit future recognition to amounts contractually owed and paid , and , when appropriate , establishes an allowance for estimated losses . we maintain an allowance for doubtful accounts , including an allowance for straight-line rent receivables , for estimated losses resulting from tenant defaults or the inability of tenants to make contractual rent and tenant recovery payments . we monitor the liquidity and creditworthiness of its tenants on an ongoing basis . for straight-line rent amounts , our assessment is based on amounts estimated to be recoverable over the term of the lease .
| during 2012 we declared monthly cash distributions to our common stockholders totaling $ 4,266,000 for the distributions related to january through december 2012 , with the december distribution declared and paid in january 2013 . 40 2012 property acquisitions morningside marketplace on january 9 , 2012 , we acquired a fee simple interest in a multitenant retail center located in fontana , california , commonly known as morningside marketplace , for an aggregate purchase price of $ 18,050,000 , excluding closing costs . the acquisition was financed with ( 1 ) proceeds from our public offering , ( 2 ) approximately $ 11,953,000 in funds borrowed under our keybank credit facility , ( 3 ) approximately $ 1,200,000 in funds borrowed from smb equity , llc , a third party lender , and ( 4 ) approximately $ 1,355,000 in funds borrowed from our sponsor and other affiliates . woodland west marketplace on february 3 , 2012 , we acquired a fee simple interest in a multitenant retail center located in arlington , texas , commonly known as woodland west marketplace , for an aggregate purchase price of $ 13,950,000 , excluding closing costs . we financed the purchase price for the woodland west marketplace with proceeds from ( 1 ) our public offering , ( 2 ) a loan in the amount of $ 10,200,000 from jp morgan chase bank , national association , or jpm , and ( 3 ) a mezzanine loan in the amount of $ 1,300,000 from jpm . ensenada square on february 27 , 2012 , we acquired a fee simple interest in a multitenant retail center located in arlington , texas , commonly known as ensenada square , for an aggregate purchase price of $ 5,025,000 , excluding closing costs . we financed the purchase price of ensenada square with proceeds from ( 1 ) our public offering and ( 2 ) approximately $ 3,266,000 in funds borrowed under our keybank credit facility . shops at turkey creek on march 12 , 2012 , we acquired a fee simple interest in a multitenant retail center located in knoxville , tennessee , commonly known as the shops at turkey creek , or turkey creek , in an upreit transaction with
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prices for salvage vehicles may be impacted by a variety of factors , including the number of buyers competing to purchase the vehicles , the demand and pricing trends for used vehicles , the number of vehicles designated as “ total losses ” by insurance companies , the production level of new vehicles ( which provides the source from which salvage vehicles ultimately come ) , the age of vehicles at auction and the status of laws regulating bidders or exporters of salvage vehicles . from time to time , we may also adjust our buying strategy to target vehicles with different attributes ( for example , age , level of damage , and revenue potential ) . due to changes relating to these factors , we have seen the prices we pay for salvage vehicles fluctuate over time . our cost of goods sold also includes labor and other costs we incur to acquire and dismantle such vehicles . our labor and labor-related costs related to acquisition and dismantling generally account for between 10 % and 15 % of our cost of goods sold for vehicles we dismantle . the acquisition and dismantling of salvage vehicles is a manual process and , as a result , energy costs are not material . included in our cost of goods sold for remanufactured products is the price we pay for cores ; freight ; and costs to remanufacture the products , including direct and indirect labor , facility and equipment costs , depreciation and other overhead related to our remanufacturing operations . some of our salvage mechanical products are sold with a standard six-month warranty against defects . additionally , some of our remanufactured engines are sold with a standard three-year warranty against defects . we also provide a limited lifetime warranty for certain of our aftermarket products that is supported by certain of the suppliers of those products . we record the estimated warranty costs at the time of sale using historical warranty claims information to project future warranty claims activity and related expenses . other revenue is primarily generated from the hulks and unusable parts of the vehicles we acquire for our wholesale and self service recycled product operations , and therefore , the costs of these sales include the proportionate share of the price we pay for the salvage vehicles as well as the applicable auction , storage and towing fees and internal costs to purchase and dismantle the vehicles . our cost of goods sold for other revenue will fluctuate based on the prices paid for salvage vehicles , which may be impacted by a variety of factors as discussed above . expenses our facility and warehouse expenses primarily include our costs to operate our aftermarket warehouses , salvage yards and self service retail facilities . these costs include personnel expenses such as wages , incentive compensation and employee benefits for plant management and facility and warehouse personnel , as well as rent for our facilities and related utilities , property taxes , and repairs and maintenance . the costs included in facility and warehouse expenses do not relate to inventory processing or conversion activities and , as such , are classified below the gross margin line on our consolidated statements of income . our distribution expenses primarily include our costs to prepare and deliver our products to our customers . included in our distribution expense category are personnel costs such as wages , employee benefits and incentive compensation for drivers ; 32 third party freight costs ; fuel ; and expenses related to our delivery and transfer trucks , including vehicle leases , repairs and maintenance , and insurance . our selling and marketing expenses primarily include salary , commission and other incentive compensation expenses for sales personnel ; advertising , promotion and marketing costs ; credit card fees ; telephone and other communication expenses ; and bad debt expense . personnel costs account for the vast majority of our selling and marketing expenses . most of our sales personnel are paid on a commission basis . the number and quality of our sales force is critical to our ability to respond to our customers ' needs and increase our sales volume . our objective is to continually evaluate our sales force , develop and implement training programs , and utilize appropriate measurements to assess our selling effectiveness . our general and administrative expenses primarily include the costs of our corporate offices and field support center , which provide management , treasury , accounting , legal , payroll , business development , human resources and information systems functions . general and administrative expenses include wages , benefits , stock-based compensation and other incentive compensation for corporate , regional and administrative personnel ; information systems support and maintenance expenses ; and accounting , legal and other professional fees . seasonality our operating results are subject to quarterly variations based on a variety of factors , influenced primarily by seasonal changes in weather patterns . during the winter months , we tend to have higher demand for our vehicle replacement products because there are more weather related repairs . our specialty vehicle operations typically generate greater revenue and earnings in the first half of the year , when vehicle owners tend to install this equipment . our aftermarket glass operations typically generate greater revenue and earnings in the second and third quarters , when the demand for automotive replacement glass increases after the winter weather . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . the preparation of these financial statements requires us to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . story_separator_special_tag on an ongoing basis , we evaluate our estimates , assumptions , and judgments , including those related to revenue recognition , inventory valuation , business combinations and goodwill impairment . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . the results of these estimates form the basis for our judgments about the carrying values of assets and liabilities and our recognition of revenue . actual results may differ from these estimates . revenue recognition we recognize and report revenue from the sale of vehicle products when they are shipped to or picked up by the customers and title has transferred , subject to an allowance for estimated returns , discounts and allowances that management estimates based upon historical information . in instances where a product is returned by a customer , the product would ordinarily be returned within a few days of shipment . we analyze historical returns and allowances activity by comparing the items to the original invoice amounts and dates . we use this information to project future returns and allowances on products sold . if actual returns and allowances are higher than our historical experience , there would be an adverse impact on our operating results in the period of occurrence . in addition , our customers may earn discounts for prompt payment or may earn a discount or rebate upon achievement of sales volumes . we analyze historical and current sales volume activity to estimate and record a liability for any discounts or rebates that we e xpect customers to earn . any rebates earned are generally applied as a credit to the customer 's receivable account . we recognize revenue from the sale of scrap metal , other metals , and cores when title has transferred , which typically occurs upon delivery to the customer . inventory accounting salvage and remanufactured inventory . our salvage inventory cost is established based upon the price we pay for a vehicle , including auction , towing and storage fees , as well as expenditures for buying and dismantling vehicles . inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility 's inventory at expected selling prices , the assessment of which incorporates the sales probability based on a part 's days in stock and historical demand . the average cost to sales percentage is derived from each facility 's historical profitability for salvage vehicles . remanufactured inventory cost is based upon the price paid for cores , and also includes expenses incurred for freight , direct manufacturing costs and overhead related to our remanufacturing operations . 33 for all inventory , carrying value is recorded at the lower of cost or net realizable value and is reduced to reflect current anticipated demand . if actual demand differs from our estimates , additional reductions to inventory carrying value would be necessary in the period such determination is made . business combinations we record our acquisitions using the purchase method of accounting , under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values . we utilize management estimates and , in some instances , independent third-party valuation firms to assist in determining the fair values of assets acquired , liabilities assumed and contingent consideration granted . such estimates and valuations require us to make significant assumptions , including projections of future events and operating performance . goodwill impairment we are required to test our goodwill for impairment at least annually . when testing goodwill for impairment , we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceed the carrying value . if these assumptions or estimates change in the future , we may be required to record impairment charges for these assets . in response to changes in industry and market conditions , we may be required to strategically realign our resources and consider restructuring , disposing of , or otherwise exiting businesses , which could result in an impairment of goodwill . we perform goodwill impairment tests annually in the fourth quarter and between annual tests whenever events indicate that an impairment may exist . during 2017 , we did not identify any events or changes in circumstances that would more likely than not reduce the fair value of our reporting units below their carrying amounts . therefore , we did not perform any impairment tests other than our annual test in the fourth quarter of 2017 . as of the date of our annual goodwill impairment test , we were organized into five reporting units : wholesale - north america , europe , specialty , self service and aviation . our aviation reporting unit resulted from an acquisition of a small wholesale business in north america completed in 2017. our goodwill would be considered impaired if the net book value of a reporting unit exceeded its estimated fair value . the fair value estimates are established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach . we believe that using two methods to determine fair value limits the chances of an unrepresentative valuation . as of december 31 , 2017 , we had a total of $ 3.5 billion in goodwill subject to future impairment tests . we determined that no adjustments were necessary when we performed our annual impairment testing in the fourth quarter of 2017 on all five reporting units . we noted that the fair value estimate for the aviation reporting unit exceeded the carrying value by less than 10 % .
| our operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors , some of which are beyond our control . please refer to the factors discussed in forward-looking statements in part i , item 1 and risk factors in part i , item 1a of this annual report on form 10-k. due to these factors and others , which may be unknown to us at this time , our operating results in future periods can be expected to fluctuate . accordingly , our historical results of operations may not be indicative of future performance . acquisitions and investments since our inception in 1998 , we have pursued a growth strategy through both organic growth and acquisitions . we have pursued acquisitions that we believe will help drive profitability , cash flow and stockholder value . we target companies that are market leaders , will expand our geographic presence and will enhance our ability to provide a wide array of vehicle products to our customers through our distribution network . on july 3 , 2017 , we acquired four aftermarket parts distribution businesses in belgium . the objective of these acquisitions is to transform the existing three-step distribution model in belgium to a two-step distribution model to align with our netherlands operations . on november 1 , 2017 , we acquired warn industries , inc. ( `` warn '' ) , a leading designer , manufacturer and marketer of high performance vehicle equipment and accessories . we expect the acquisition of warn to expand lkq 's presence in the specialty market and create viable points of entry into related markets . in addition to the aftermarket parts distribution businesses acquired in belgium and the acquisition of warn , during the year ended december 31 , 2017 , we completed 21 acquisitions , including 6 wholesale businesses in north america , 12 wholesale businesses in europe and 3 specialty vehicle aftermarket businesses . on december 10 , 2017 , lkq and its wholly-owned subsidiary lkq german
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first defiance risk management is a wholly owned insurance company subsidiary of the company to insure the company and its subsidiaries against certain risks unique to the operations of the company and for which insurance may not be currently available or economically feasible in today 's insurance marketplace . first defiance risk management pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves . first defiance risk management was incorporated on december 20 , 2012. financial condition assets at december 31 , 2016 totaled $ 2.48 billion compared to $ 2.30 billion at december 31 , 2015 , an increase of $ 179.9 million or 7.8 % . cash and cash equivalents increased $ 19.2 million to $ 99.0 million at december 31 , 2016 from $ 79.8 million at december 31 , 2015. the increase in assets was due to an increase in loans receivable , net of undisbursed loan funds and deferred fees and costs , of $ 138.3 million and an increase in securities of $ 14.5 million . these increases were funded by increases in total deposits of $ 145.5 million and advances from the federal home loan bank of $ 44.0 million as well as from cash and cash equivalents . securities the securities portfolio increased $ 14.5 million to $ 251.2 million at december 31 , 2016. the 2016 activity in the portfolio included $ 71.3 million of purchases , $ 882,000 of amortization , , $ 36.4 million of principal pay-downs and maturities , and $ 14.9 million of securities being sold . there was a net decrease of $ 5.4 million in the market value of available-for-sale securities . for additional information regarding first defiance 's investment securities see note 5 to the consolidated financial statements . loans loans receivable , net of undisbursed loan funds and deferred fees and costs , increased $ 138.3 million to $ 1.94 billion at december 31 , 2016. for more details on the loan balances , see note 7 – loans receivable in the notes to the consolidated financial statements . the majority of first defiance 's commercial real estate and commercial loans are to small and mid-sized businesses . the combined commercial , commercial real estate and multi-family real estate loan portfolios totaled $ 1.51 billion and $ 1.37 billion at december 31 , 2016 and 2015 , respectively , and accounted for approximately 74.2 % and 73.1 % of first defiance 's loan portfolio at the end of those respective periods . first defiance believes it has been able to establish itself as a leader in its market area in the commercial and commercial real estate lending area by hiring experienced lenders and providing a high level of customer service to its commercial lending clients . - 36 - the 1-4 family residential portfolio totaled $ 207.6 million at december 31 , 2016 , compared with $ 205.3 million at the end of 2015. at the end of 2016 , those loans comprised 10.2 % of the total loan portfolio , down from 11.0 % at december 31 , 2015. construction loans , which include one-to-four family and commercial real estate properties , increased to $ 182.9 million at december 31 , 2016 compared to $ 163.9 million at december 31 , 2015. these loans accounted for approximately 9.0 % and 8.7 % of the total loan portfolio at december 31 , 2016 and 2015 , respectively . home equity and home improvement loans increased to $ 118.4 million at december 31 , 2016 , from $ 117.0 million at the end of 2015. at the end of 2016 , those loans comprised 5.8 % of the total loan portfolio , down slightly from 6.3 % at december 31 , 2015. consumer finance and mobile home loans were $ 16.7 million at december 31 , 2016 up slightly from $ 16.3 million at the end of 2015. these loans accounted for approximately 0.8 % and 0.9 % of the total loan portfolio at december 31 , 2016 and 2015 , respectively . in order to properly assess the collateral dependent loans included in its loan portfolio , the company has established policies regarding the monitoring of the collateral underlying such loans . the company requires an appraisal that is less than one year old for all new collateral dependent real estate loans , and all renewed collateral dependent real estate loans where significant new money is extended . the appraisal process is handled by the credit department , which selects the appraiser and orders the appraisal . first defiance 's loan policy prohibits the account officer from talking or communicating with the appraiser to insure that the appraiser is not influenced by the account officer in any way in making a determination of value . first federal generally does not require updated appraisals for performing loans unless significant new money is requested by the borrower . when a collateral dependent loan is downgraded to classified status , first federal reviews the most current appraisal on file and if appropriate , based on first federal 's assessment of the appraisal , such as age , market , etc . first federal will discount the appraisal amount to a more appropriate current value based on inputs from lenders and realtors . this amount may then be discounted further by first federal 's estimation of the selling costs . in most instances , if the appraisal is more than twelve to fifteen months old , a new appraisal may be required . finally , first federal assesses whether there is any collateral short fall , taking into consideration guarantor support and liquidity , and determines if a charge off is necessary . all loans over 90 days past due and or on non-accrual are classified as non-performing loans . non-performing status automatically occurs in the month in which the 90-day delinquency occurs . story_separator_special_tag when a collateral dependent loan moves to non-performing status , first federal generally gets a new third party appraisal and charges the loan down appropriately based upon the new appraisal and an estimate of costs to liquidate the collateral . all properties that are moved into the other real estate owned ( “ oreo ” ) category are supported by current appraisals , and the oreo is carried at the lower of cost or fair value , which is determined based on appraised value less first federal 's estimate of the liquidation costs . first federal does not adjust any appraisals upward without written documentation of this valuation change from the appraiser . when setting reserves and charge offs on classified loans , appraisal values may be discounted downward based upon first federal 's experience with liquidating similar properties . - 37 - appraisals are received within approximately 60 days after they are requested . the first federal loan loss reserve committee reviews the amount of each new appraisal and makes any necessary charge off decisions at its meeting prior to the end of each quarter . any partially charged-off collateral dependent loans are considered non-performing , and as such , would need to show an extended period of time with satisfactory payment performance as well as cash flow coverage capability supported by current financial statements before first federal will consider an upgrade to performing status . first federal may consider moving the loan to accruing status after approximately six months of satisfactory payment performance . for loans where first federal determines that an updated appraisal is not necessary , other means are used to verify the value of the real estate , such as recent sales of similar properties on which first federal had loans as well as calls to appraisers , brokers , realtors and investors . first federal monitors and tracks its loan to value quarterly to determine accuracy and any necessary charge offs . based on these results , changes may occur in the processes used . loan modifications constitute a troubled debt restructuring ( “ tdr ” ) if first federal for economic or legal reasons related to the borrower 's financial difficulties grants a concession to the borrower that it would not otherwise consider . for loans that are considered tdrs , first federal either computes the present value of expected future cash flows discounted at the original loan 's effective interest rate or it may measure impairment based on the fair value of the collateral . for those loans measured for impairment utilizing the present value of future cash flows method , any discount is carried as a specific reserve in the allowance for loan and lease losses . for those loans measured for impairment utilizing the fair value of the collateral , any shortfall is charged off . as of december 31 , 2016 and december 31 , 2015 , first federal had $ 10.5 million and $ 11.2 million , respectively , of loans that were still performing and which were classified as tdrs . allowance for loan losses the allowance for loan losses represents management 's assessment of the estimated probable incurred credit losses in the loan portfolio at each balance sheet date . management analyzes the adequacy of the allowance for loan losses regularly through reviews of the loan portfolio . consideration is given to economic conditions , changes in interest rates and the effect of such changes on collateral values and borrower 's ability to pay , changes in the composition of the loan portfolio and trends in past due and non-performing loan balances . the allowance for loan losses is a material estimate that is susceptible to significant fluctuation and is established through a provision for loan losses based on management 's evaluation of the inherent risk in the loan portfolio . in addition to extensive in-house loan monitoring procedures , the company utilizes an outside party to conduct an independent loan review of commercial loan and commercial real estate loan relationships . the goal is to have approximately 55 % to 60 % of the portfolio reviewed annually . this includes all relationships over $ 5.0 million with new exposure greater than $ 2.0 million and a sample of other relationships greater than $ 5.0 million ; loan relationships between $ 1.0 million and $ 5.0 million with new exposure greater than $ 750,000 and a sample of other relationships between $ 1.0 million and $ 5.0 million ; and a sample of relationships less than $ 1.0 million . management utilizes the results of this outside loan review to assess the effectiveness of its internal loan grading system as well as to assist in the assessment of the overall adequacy of the allowance for loan losses associated with these types of loans . the allowance for loan loss is made up of two basic components . the first component of the allowance for loan loss is the specific reserve in which the company sets aside reserves based on the analysis of individual impaired credits . in establishing specific reserves , the company analyzes all substandard , doubtful and loss graded loans quarterly and makes judgments about the risk of loss based on the cash flow of the borrower , the value of any collateral and the financial strength of any guarantors . if the loan is impaired and cash flow dependent , then a specific reserve is established for the discount on the net present value of expected future cash flows . if the loan is impaired and collateral dependent , then any shortfall is usually charged off . the company also considers the impacts of any small business association or farm service agency guarantees . the specific reserve was $ 809,000 at december 31 , 2016 and $ 437,000 at december 31 , 2015 .
| the average balance of loans receivable increased $ 166.0 million to $ 1.85 billion at december 31 , 2016 from $ 1.69 billion at december 31 , 2015. interest income from loans increased to $ 80.2 million for 2016 compared to $ 73.3 million in 2015 , which represents an increase of 9.4 % . during the same period , the average balance of investment securities decreased to $ 233.4 million for 2016 from $ 239.9 million for the year ended december 31 , 2015. interest income from investment securities decreased to $ 6.2 million in 2016 compared to $ 6.8 million in 2015 , which represents a decrease of 7.7 % . the overall duration of investments decreased to 3.6 years at december 31 , 2016 from 4.2 years at december 31 , 2015. interest expense increased by $ 1.6 million in 2016 compared to 2015 , to $ 8.4 million from $ 6.8 million . this increase was mainly due to an eight basis point increase in the average cost of interest-bearing liabilities in 2016 and a $ 110.2 million increase in the average balance of interest-bearing liabilities . the average balance of interest bearing deposits increased $ 64.3 million to $ 1.46 billion at december 31 , 2016 from $ 1.40 billion at december 31 , 2015. interest expense related to interest-bearing deposits was $ 6.3 million in 2016 compared to $ 5.3 million in 2015. interest expenses on fhlb advances and other interest-bearing funding sources were $ 1.3 million and $ 138,000 respectively , in 2016 and $ 675,000 and $ 152,000 respectively in 2015. the increase in fhlb advance expense was due to a $ 47.7 million increase in the average balance of fhlb advances to $ 85.9 million at december 31 , 2016 compared to $ 38.1 million at december 31 , 2015. interest expense recognized by the company related to subordinated debentures was $ 753,000 in 2016 and $ 613,000 in 2015 due to rising rates . total interest income increased by $ 4.6 million or 6.0 % to $ 80.8 million for the year ended december 31 , 2015 from $ 76.2 million for the year ended december 31 , 2014. the increase in interest income
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the amounts recognized in the consolidated financial statements related to pension plans are determined from actuarial valuations . inherent in these valuations are assumptions , including expected return on plan assets , discount rates at which the liabilities could be settled at december 31 , 2016 , rate of increase in future compensation levels and mortality rates . these assumptions are updated annually and are disclosed in item 8 , note 10 to the consolidated financial statements . pursuant to fasb asc 715 - compensation retirement benefits , the company has recognized the funded status of its defined benefit postretirement plan in its balance sheet and has recognized changes in that funded status through comprehensive income . the funded status is measured as the difference between the fair value of the plan assets and the projected benefit obligation as of the date of its fiscal year-end . 18 summary of results replace_table_token_4_th * presented on a tax-equivalent basis the results of 2016 compared to 2015 include the following significant items : overall , the company 's performance was boosted as a result of adding new accounts and expanding service lines as payment and processing fees and total processing volume increased 7 % and 6 % , respectively . lingering adverse economic factors including low interest rates and low energy prices continued to impact total processing dollars , which decreased 4 % , and net interest margin . the decrease in processing dollars generated smaller investable balances that lowered investment income and fees from carrier services . average earning assets and net interest income after provision for loan losses both increased 5 % year over year . the increase in net interest income after provision for loan losses was primarily due to higher average earning assets and a negative provision for loan losses of $ 1,500,000 in 2016 compared to $ 850,000 in 2015. gains from the sale of securities were $ 387,000 in 2016 and $ 2,910,000 in 2015. bank service fees increased $ 53,000 , or 4 % , and other income increased $ 147,000. operating expenses increased $ 3,690,000 , or 4 % , as the company invested in staff and technology to win and support new business and the company received a one-time litigation settlement of $ 1.4 million ( $ 800,000 reduction in other operating expenses and $ 600,000 loan loss recovery ) in the prior year . the results of 2015 compared to 2014 include the following significant items : overall , the company 's performance was impacted by lingering adverse economic factors including low interest rates , plummeting energy prices and a contraction in u.s. manufacturing output . total processing dollars fell 6 % . the decrease in processing dollars generated smaller investable balances that lowered investment income . the company received a onetime litigation settlement of $ 1.4 million ( $ 800,000 reduction in other operating expenses and $ 600,000 loan loss recovery ) in 2015. net interest income after provision for loan losses and average earning assets increased very slightly year over year , primarily due to a negative provision for loan losses of $ 850,000 in the fourth quarter of 2015. gains from the sale of securities were $ 2,910,000 in 2015 and $ 23,000 in 2014. bank service fees increased $ 91,000 , or 8 % , and other income was down $ 712,000. operating expenses increased $ 4,369,000 , or 5 % , as the company incurred higher health insurance costs and retirement plan expenses . salaries also increased as the company invested in staff and technology to win and support new business . 19 fee revenue and other income the company 's fee revenue is derived mainly from transportation and facility payment and processing fees . as the company provides its processing and payment services , it is compensated by service fees which are typically calculated on a per-item basis , discounts received for services provided to carriers and by the accounts and drafts payable balances generated in the payment process which can be used to generate interest income . processing volumes , fee revenue and other income were as follows : replace_table_token_5_th * includes energy , telecom and environmental fee revenue and other income in 2016 compared to 2015 include the following significant pre-tax components : in the transportation sector , new business and a growing customer base boosted invoice volume , though lingering negative factors continued to hinder dollar volume growth . reduced average invoice amounts caused by low fuel and carrier prices as well as shifts in modal activity impacted dollar volume . the decrease in dollar volume also generated smaller investable balances that reduced investment income and more significantly lowered fees from carrier services . expense management transaction volume increased 15 % and dollar volume increased 2 % as new customer wins , including several large accounts that migrated from competitors , fueled the increase . gains on sales of investment securities decreased as market conditions were not as favorable in the current year . fee revenue and other income in 2015 compared to 2014 include the following significant pre-tax components : the transportation group added new accounts which produced higher transaction volume , but the benefits of that growth were offset by declining activity from existing customers , especially those involved in oil and gas production , resulting in a decrease of less than 1 % . transportation dollar volume fell 6 % as lower fuel prices reduced average invoice amounts . the decrease in dollar volume also generated smaller investable balances that reduced investment income and more significantly lowered fees from carrier services . expense management dollar volume declined as competitor consolidation in the market offset success in growing new accounts . story_separator_special_tag gains on sales of investment securities increased significantly as the company took advantage of market gains . net interest income net interest income is the difference between interest earned on loans , investments , and other earning assets and interest expense on deposits and other interest-bearing liabilities . net interest income is a significant source of the company 's revenues . the following table summarizes the changes in tax-equivalent net interest income and related factors : replace_table_token_6_th * presented on a tax-equivalent basis using a tax rate of 35 % in all years . net interest income in 2016 compared to 2015 : the increase in net interest income was primarily due to an increase in average earning assets . this was partially offset by a decrease in the net interest margin due to the difficulty finding acceptable investment alternatives in the current low interest rate environment . more information is contained in the tables below and in item 7a of this report . total average loans increased $ 7,042,000 , or 1 % , to $ 678,061,000. loans have a positive effect on interest income and the net interest margin due to the fact that loans are one of the company 's highest yielding earning assets for any given maturity . 20 total average investment in securities and certificates of deposit increased $ 25,537,000 , or 8 % . the investment portfolio will expand and contract over time as the company manages its liquidity and interest rate position . all purchases were made in accordance with the company 's investment policy . total average federal funds sold and other short-term investments increased $ 34,621,000 , or 31 % . interest bearing deposits in other financial institutions decreased $ 3,083,000 , or 2 % . the bank 's total average interest-bearing deposits increased $ 7,255,000 , or 2 % , compared to the prior year . average rates paid on interest-bearing liabilities decreased from .51 % to .48 % as a result of the continued low interest rate environment . net interest income in 2015 compared to 2014 : the decrease in net interest income was caused by a decrease in net interest margin . the decrease in net interest margin was due to the lack of satisfactory investment alternatives in this historically low interest rate environment . more information is contained in the tables below and in item 7a of this report . total average loans increased $ 7,195,000 , or 1 % , to $ 671,019,000. loans have a positive effect on interest income and the net interest margin due to the fact that loans are one of the company 's highest yielding earning assets for any given maturity . total average investment in securities and certificates of deposit increased $ 12,557,000 , or 4 % . the investment portfolio will expand and contract over time as the company manages its liquidity and interest rate position . all purchases were made in accordance with the company 's investment policy . interest bearing deposits in other financial institutions decreased $ 7,189,000 , or 5 % . total average federal funds sold and other short-term investments decreased $ 10,315,000 , or 8 % . the bank 's total average interest-bearing deposits decreased $ 8,059,000 , or 2 % , compared to the prior year . average rates paid on interest-bearing liabilities decreased from .58 % to .51 % as a result of the continued low interest rate environment . 21 distribution of assets , liabilities and shareholders ' equity ; interest rate and interest differential the following table contains condensed average balance sheets for each of the periods reported , the tax-equivalent interest income and expense on each category of interest-earning assets and interest-bearing liabilities , and the average yield on such categories of interest-earning assets and the average rates paid on such categories of interest-bearing liabilities for each of the periods reported : replace_table_token_7_th 1 balances shown are daily averages . 2 for purposes of these computations , nonaccrual loans are included in the average loan amounts outstanding . interest on nonaccrual loans is recorded when received as discussed further in item 8 , note 1 of this report . 3 interest income on loans includes net loan fees of $ 586,000 , $ 469,000 , and $ 325,000 for 2016 , 2015 and 2014 , respectively . 4 interest income is presented on a tax-equivalent basis assuming a tax rate 35 % in all years . the tax-equivalent adjustment was approximately $ 5,500,000 , $ 5,427,000 and $ 5,288,000 for 2016 , 2015 and 2014 , respectively . 5 for purposes of these computations , yields on investment securities are computed as interest income divided by the average amortized cost of the investments . 22 analysis of net interest income changes the following table presents the changes in interest income and expense between years due to changes in volume and interest rates . replace_table_token_8_th 1 the change in interest due to the combined rate/volume variance has been allocated in proportion to the absolute dollar amounts of the change in each . 2 average balances include nonaccrual loans . 3 interest income includes net loan fees . 4 interest income is presented on a tax-equivalent basis assuming a tax rate of 35 % in all years . loan portfolio interest earned on the loan portfolio is a primary source of income for the company . the loan portfolio was $ 664,866,000 and represented 44 % of the company 's total assets as of december 31 , 2016 and generated $ 29,063,000 in revenue during the year then ended . the company had no sub-prime mortgage loans or residential development loans in its portfolio for any of the years presented . the following tables show the composition of the loan portfolio at the end of the periods indicated and remaining maturities for loans as of december 31 , 2016. replace_table_token_9_th 23 table of contents loans by maturity replace_table_token_10_th 1 loans
| also , the company had no sub-prime mortgage loans or residential development loans in its portfolio in any of the years presented . the company does not have any other interest-earning assets which would have been included in nonaccrual , past due or restructured loans if such assets were loans . summary of nonperforming assets replace_table_token_12_th * in february 2016 , one nonaccrual loan with a balance of $ 2,727,000 was paid in full . in february 2013 , a payment of $ 4,115,000 was received for one nonaccrual loan with a balance of $ 4,198,000 . $ 83,000 was charged off . operating expenses operating expenses in 2016 compared to 2015 include the following significant pre-tax components : salaries and employee benefits expense increased $ 2,267,000 , or 3 % , to $ 72,581,000 as the company invested in staff and technology to win and support new business . equipment expense increased $ 160,000 to $ 4,451,000 primarily due to depreciation of internally developed software . other operating expense increased $ 1,273,000 , or 11 % , to $ 12,643,000 primarily due to a one-time litigation settlement that occurred in 2015 ( $ 800,000 reduction in other operating expenses ) . operating expenses in 2015 compared to 2014 include the following significant pre-tax components : salaries and employee benefits expense increased $ 4,214,000 , or 6 % , to $ 70,314,000 as the company invested in staff and technology to win and support new business . occupancy expense increased $ 228,000 , or 7 % , due to the expansion of the company 's operating facilities for its transportation and waste management operations . equipment expense increased $ 161,000 to $ 4,291,000 primarily due to depreciation on new furniture and additional systems hardware and software . amortization of intangibles decreased $ 75,000 to $ 408,000. other operating expense decreased $ 159,000 , or 1 % , to $ 11,370,000 primarily due to a one-time litigation settlement that occurred in 2015 ( $ 800,000 reduction
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capital from such sales is reinvested into properties that are expected to provide better prospective returns or returned to shareholders . we have disposed of 11 properties since inception for a cumulative sales price of approximately $ 160.4 million and a total gain of approximately $ 55.1 million . 38 index to financial statements 2017 developments acquisition activity during 2017 , we acquired 35 industrial buildings containing approximately 1.7 million square feet and five improved land parcels consisting of approximately 25.1 acres for a total purchase price of approximately $ 292.7 million . the properties and improved land parcels were acquired from unrelated third parties using existing cash on hand , proceeds from the issuance of common stock and senior unsecured notes , proceeds from the dispositions of properties , and proceeds from borrowings on our revolving credit facility . the following table sets forth the industrial properties and improved land parcels we acquired during 2017 : replace_table_token_9_th 1 excludes intangible liabilities and mortgage premiums , if any . the total aggregate investment was approximately $ 319.7 million , including $ 5.5 million in closing costs and acquisition costs . 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 and closing costs , estimated near-term 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. 3 includes approximately one million square feet of land , which is 100 % ground leased on a long-term basis to two tenants , and contains two industrial distribution buildings and one rail transshipment facility . 4 represents an improved land parcel containing approximately 10.6 acres . 5 represents an improved land parcel containing approximately 7.2 acres . 6 also includes an improved land parcel containing approximately 1.1 acres . 7 also includes an improved land parcel containing approximately 0.9 acres . 8 represents an improved land parcel containing approximately 5.4 acres . 39 index to financial statements disposition activity during the year ended december 31 , 2017 , we sold four properties for an aggregate sales price of approximately $ 77.3 million , resulting in a total gain of approximately $ 30.6 million . we sold one property located in the los angeles market for a sales price of approximately $ 25.3 million , resulting in a gain of approximately $ 10.1 million , and three properties located in the washington , d.c. market for an aggregate sales price of approximately $ 52.0 million , resulting in an aggregate gain of approximately $ 20.5 million . the following summarizes the condensed results of operations of the properties sold during the year ended december 31 , 2017 for the years ended december 31 , 2017 , 2016 and 2015 ( dollars in thousands ) : replace_table_token_10_th atm program we have an at-the-market equity offering program ( the $ 200 million atm program ) pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $ 200.0 million in amounts and at times as we determine from time to time . prior to the implementation of the $ 200 million atm program , we had a $ 150.0 million atm program ( the $ 150 million atm program ) , which was fully utilized as of june 30 , 2017 , and a $ 100.0 million atm program ( the $ 100 million atm program ) , which was fully utilized as of december 31 , 2016. during 2017 , we issued an aggregate of 7,859,929 shares of common stock at a weighted average offering price of $ 32.48 per share under the $ 200 million atm program and the $ 150 million atm program , resulting in net proceeds of approximately $ 251.6 million and paying total compensation to the applicable sales agents of approximately $ 3.7 million . as of december 31 , 2017 , we had shares of common stock having an aggregate offering price of up to $ 90.1 million available for issuance under the $ 200 million atm program . senior unsecured notes on july 14 , 2017 , we issued in a private placement $ 100.0 million of senior unsecured notes with a seven-year term that bear interest at a fixed annual interest rate of 3.75 % and mature in july 2024 ( the july 2024 senior unsecured notes ) . the net proceeds from the issuance were used to redeem all 1,840,000 outstanding shares of 7.75 % series a cumulative redeemable preferred stock ( the series a preferred stock ) , to repay the outstanding borrowings on our revolving credit facility and for property acquisitions . share repurchase program on november 1 , 2016 , our board of directors approved an extension of the share repurchase program authorizing us to repurchase up to 2,000,000 shares of our outstanding common stock from time to time through december 31 , 2018. purchases made pursuant to the program , if any , will be made in either the open market or in privately negotiated transactions as permitted by federal securities laws and other legal requirements . story_separator_special_tag the timing , manner , price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and market conditions , stock price , applicable legal requirements and other factors . the program may be suspended or discontinued at any time . as of december 31 , 2017 we have not repurchased any shares of stock pursuant to our share repurchase authorization . 40 index to financial statements dividend and distribution activity the following table sets forth the cash dividends paid or payable per share during the year ended december 31 , 2017 : replace_table_token_11_th preferred stock redemption on july 19 , 2017 , we redeemed all 1,840,000 outstanding shares of our series a preferred stock for cash at a redemption price of $ 25.00 per share , plus an amount per share of $ 0.096875 representing all accrued and unpaid dividends per share from july 1 , 2017 to , but excluding , july 19 , 2017. we recognized a charge of approximately $ 1.8 million during the year ended december 31 , 2017 representing the write-off of original issuance costs related to the redemption of the series a preferred stock . recent developments acquisition activity subsequent to december 31 , 2017 , we acquired one industrial building containing approximately 100,000 square feet for a total purchase price of approximately $ 17.5 million . the property was acquired from unrelated third parties using cash on hand . the following table sets forth the wholly-owned industrial property we acquired subsequent to december 31 , 2017 : replace_table_token_12_th contractual commitments as of february 7 , 2018 , we have three outstanding contracts with third-party sellers to acquire three industrial properties as further described under the heading contractual obligations in this annual report on form 10-k. there is no assurance that we will acquire the properties under contract because the proposed acquisitions are subject to the completion of satisfactory due diligence and various closing conditions . as of february 7 , 2018 , we have two outstanding contracts with third-party purchasers to sell two properties consisting of three buildings for an aggregate sales price of approximately $ 39.3 million ( aggregate net book value of approximately $ 29.4 million ) . there is no assurance we will sell the properties under contract because the proposed dispositions are subject to the purchaser 's completion of satisfactory due diligence and various closing conditions . 41 index to financial statements outlook current operating conditions in our six markets are excellent , the best we have seen since our initial public offering . we believe that on average , the rental rates we are likely to achieve on new or renewed leases for our 2018 expirations will be above the rates currently being paid for the same space . however , new speculative development continues . this new development will slow potential rent growth from what it would be without such new development . macroeconomic conditions , while uncertain and impossible to accurately predict , appear favorable to us . we see attractive acquisition opportunities today ; however , our acquisition volume will be dependent on both the quality and pricing of the opportunity set and the price of our stock relative to nav . those conditions , not knowable in advance , will determine our results . we entered 2018 with our balance sheet well positioned for growth . over the intermediate term of the next three to four years , although there can be no assurance , we expect to grow our portfolio to approximately $ 3.0 billion of assets up from approximately $ 2.4 billion as of december 31 , 2017 as measured by our total market capitalization . we expect , although there can be no assurance , that this will utilize approximately $ 2.0 billion of equity up from approximately $ 1.9 billion as of december 31 , 2017. we expect this to enhance our operating efficiency , increase our shareholder liquidity and maintain our investment grade credit rating . we remain mindful , however , that it is per share , rather than aggregate , results that matter . we believe in the long-term operating prospects of our functional , infill coastal assets . we believe in sound balance sheet management . we believe in the benefits of our market-leading corporate governance and exceptionally aligned executive management compensation . as a result , we are enthusiastic about the future and our ability to produce superior results for our shareholders over time . we contribute positively to the environment by owning and operating facilities in infill locations close to population centers thereby minimizing vehicle miles traveled and the concomitant use of fuel and production of airborne particulate matter pollution . further , we do no greenfield development of properties ; sustainability for us means never building on a site that has not previously been commercially developed . during redevelopment of our facilities , we recycle the majority of the building materials from existing buildings and focuses on modern design solutions to reduce our impact on the environment . when releasing vacant space , we seek to reduce our carbon footprint by upgrading existing facilities with energy efficient lighting and heating . inflation although the u.s. economy has been experiencing relatively modest inflation rates recently , and a wide variety of industries and sectors are affected differently by changing commodity prices , inflation has increased construction costs but has not had a significant impact on our operating costs . most of our leases require the tenants to pay their share of operating expenses , including common area maintenance , real estate taxes and insurance , thereby reducing our exposure to increases in costs and operating expenses resulting from inflation . in addition , approximately 67.0 % of our total rentable square feet expire within five years which enables us to seek to replace existing leases with new leases at the then-existing market rate .
| the same store pool for the comparison of the 2017 and 2016 fiscal years includes all properties that were owned and in operation as of december 31 , 2017 and since january 1 , 2016 and excludes properties that were either disposed of prior to , held for sale to a third-party or in redevelopment as of december 31 , 2017. as of december 31 , 2017 , the same store pool consisted of 140 buildings aggregating approximately 10.2 million square feet representing approximately 78.3 % of our total square feet owned and three improved land parcels consisting of 4.9 acres . as of december 31 , 2017 , the non-same store properties , which we acquired or sold during 2016 and 2017 , were held for sale or in redevelopment as of december 31 , 2017 , consisted of 56 buildings aggregating approximately 2.8 million square feet and seven improved land parcels consisting of 43.0 acres . as of december 31 , 2017 and 2016 , our consolidated same store pool occupancy was approximately 97.5 % and 98.9 % , respectively . 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 . 43 index to financial statements comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016 : replace_table_token_13_th 1 includes 2016 and 2017 acquisitions and dispositions and seven improved land parcels as of december 31 , 2017 . 2 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 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 $ 24.1 million for the year ended december 31 , 2017 compared to the prior year due primarily to property acquisitions during 2016 and 2017 and increased revenue on new and renewed leases . same store rental revenues and tenant expense reimbursement revenues increased primarily due to new lease agreements at our v street , interstate 130 , hamilton , airgate , kent 202 , and 180 manor properties . for the quarter and year ended december 31 , 2017 , approximately $ 0.9 million and $
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have not vested ( # ) equity incentive plan awards : market or payout value of unearned shares , units or other rights that have not vested ( # ) david lester , president ceo , cfo and director 375,000 125,000 55,000 $ 0.35 ( 1 ) $ 0.35 ( 1 ) $ 1.00 10/1/14 12/22/14 5/31/16 david harrell , chairman , former president and ceo 100,000 200,000 102,500 $ 1.00 $ 1.81 $ 1.00 3/5/14 4/26/15 5/31/16 terence j. hamilton vp of sales 150,000 127,500 $ 1.00 $ 1.00 3/5/14 5/31/16 ( 1 ) these are warrants that were revalued on october 1 , 2009 to $ 0.35 per share . 21 the table below summarizes all compensation of our directors 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 affect 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 . results of operations for the years ended december 31 , 2011 and 2010 story_separator_special_tag ( subject to adjustment for reverse and forward stock splits , stock combinations and other similar transactions of the common stock that may occur ) and the average daily trading volume for the common stock during such ten day period exceeds 100,000 shares ( such period , the “ threshold period ” ) , the company may , at any time after the fifth trading day after the end of any such period , deliver a notice to the holder ( a “ forced conversion notice ” and the date such notice is received by the holder , the “ forced conversion notice date ” ) to cause the holder to immediately convert all and not less than all of the stated value of the shares held by such holder plus accumulated and unpaid dividends at the then current conversion price ( a “ forced conversion ” ) . we may only effect a forced conversion notice if all of the conditions specified in the purchase agreement are met through the applicable threshold period until the date of the applicable forced conversion and through and including the date such shares of common stock are issued to the holder . the vicis warrants are exercisable for a period of seven years at an exercise price of $ 3.00 per share . the vicis warrants are also exercisable on a cashless basis . in addition , the vicis warrants are subject to anti-dilution adjustments and protections in the event of stock splits and stock dividends , subsequent equity sales entitling persons to acquire shares of common stock at an effective price per share that is lower than the then exercise price of the warrants and subsequent rights offerings , in the event we issue rights , options or warrant to all holders of common stock and not to the warrant holders , pro rata distributions of assets or indebtedness and fundamental transactions , such as a merger , consolidation or recapitalization . the anti-dilution adjustment shall apply the lowest sale price as being the adjusted option price or conversion ratio for existing shareholders . 14 as of december 31 , 2011 with the current level of financing and cash on hand , we have sufficient cash to operate our business at the current level for the next twelve months but insufficient cash to achieve our business goals unless we : a ) realize cash revenues on sales generated ; b ) continue with the sale of our series b preferred stock to vicis ; and or c ) obtain additional financing through debt and or equity based financing arrangements which may be insufficient to fund our capital expenditures , working capital , or other cash requirements . there can be no assurance that such additional financing will be available to us on acceptable terms , or at all . off balance sheet arrangements as of december 31 , 2011 , there were no off balance sheet arrangements . going concern the story_separator_special_tag have not vested ( # ) equity incentive plan awards : market or payout value of unearned shares , units or other rights that have not vested ( # ) david lester , president ceo , cfo and director 375,000 125,000 55,000 $ 0.35 ( 1 ) $ 0.35 ( 1 ) $ 1.00 10/1/14 12/22/14 5/31/16 david harrell , chairman , former president and ceo 100,000 200,000 102,500 $ 1.00 $ 1.81 $ 1.00 3/5/14 4/26/15 5/31/16 terence j. hamilton vp of sales 150,000 127,500 $ 1.00 $ 1.00 3/5/14 5/31/16 ( 1 ) these are warrants that were revalued on october 1 , 2009 to $ 0.35 per share . 21 the table below summarizes all compensation of our directors 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 affect 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 . results of operations for the years ended december 31 , 2011 and 2010 story_separator_special_tag ( subject to adjustment for reverse and forward stock splits , stock combinations and other similar transactions of the common stock that may occur ) and the average daily trading volume for the common stock during such ten day period exceeds 100,000 shares ( such period , the “ threshold period ” ) , the company may , at any time after the fifth trading day after the end of any such period , deliver a notice to the holder ( a “ forced conversion notice ” and the date such notice is received by the holder , the “ forced conversion notice date ” ) to cause the holder to immediately convert all and not less than all of the stated value of the shares held by such holder plus accumulated and unpaid dividends at the then current conversion price ( a “ forced conversion ” ) . we may only effect a forced conversion notice if all of the conditions specified in the purchase agreement are met through the applicable threshold period until the date of the applicable forced conversion and through and including the date such shares of common stock are issued to the holder . the vicis warrants are exercisable for a period of seven years at an exercise price of $ 3.00 per share . the vicis warrants are also exercisable on a cashless basis . in addition , the vicis warrants are subject to anti-dilution adjustments and protections in the event of stock splits and stock dividends , subsequent equity sales entitling persons to acquire shares of common stock at an effective price per share that is lower than the then exercise price of the warrants and subsequent rights offerings , in the event we issue rights , options or warrant to all holders of common stock and not to the warrant holders , pro rata distributions of assets or indebtedness and fundamental transactions , such as a merger , consolidation or recapitalization . the anti-dilution adjustment shall apply the lowest sale price as being the adjusted option price or conversion ratio for existing shareholders . 14 as of december 31 , 2011 with the current level of financing and cash on hand , we have sufficient cash to operate our business at the current level for the next twelve months but insufficient cash to achieve our business goals unless we : a ) realize cash revenues on sales generated ; b ) continue with the sale of our series b preferred stock to vicis ; and or c ) obtain additional financing through debt and or equity based financing arrangements which may be insufficient to fund our capital expenditures , working capital , or other cash requirements . there can be no assurance that such additional financing will be available to us on acceptable terms , or at all . off balance sheet arrangements as of december 31 , 2011 , there were no off balance sheet arrangements . going concern the
| in our fourth quarter 2011 , we had revenues of $ 325,910 , as compared to revenues of $ 12,386 for our fourth quarter 2010. if we were to discount all non-cash expenses for the fourth quarter 2011 , our statement of operations would show a modest net income . liquidity and capital resources as of december 31 , 2011 , we had total current assets of $ 1,550,068 and total assets in the amount of $ 2,892,487. our total current liabilities as of december 31 , 2011 were $ 1,303,317. we had working capital of $ 246,751 as of december 31 , 2011 . 13 operating activities used $ 521,509 in cash for the year ended december 31 , 2011. our net loss of $ 2,120,762 was the primary component of our negative operating cash flow . investing activities used $ 239,919 during the year ended december 31 , 2011 largely as a result of website development costs . financing activities provided $ 442,500 for the year ended december 31 , 2011 largely as a result of the sale of our series b preferred stock less payments on a note payable . on september 16 , 2011 , we entered into a securities purchase agreement with vicis for sale of up to 50 shares of our series b preferred stock and warrants to purchase up to 3,333,334 shares of our common stock with an exercise price of $ 3.00 per share ( the “ vicis warrants ” ) . we already sold 15 shares of series b preferred stock and a warrant to purchase 1,000,000 shares of our common stock at the above exercise price for $ 1,500,000. this money was used to pay off a promissory note we had with physicians interactive and the balance is for working capital . thereafter , a subsequent closing may occur at our option commencing on december 1 , 2011 for the sale of an additional 15 shares of series b preferred stock and a warrant to purchase an additional 1,000,000 shares of our common stock for $ 1,500,000. a final subsequent closing may occur
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certain of those grants require us to pay royalties on sales of rewalk systems , which are recorded as cost of revenues . see “ —grants and other funding. ” we may receive additional funding from these entities or others in the future . sales and marketing expenses , net our sales and marketing expenses , net , consist primarily of salaries , related personnel costs including share-based compensation for sales , marketing and reimbursement personnel , travel , marketing and public relations activities and consulting costs . included in the sales and marketing expenses are the costs associated with our reimbursement activities in the united states and germany . sales and marketing expenses in 2013 are presented net of the amount of any grants we received in such period for sales and marketing . general and administrative expenses our general and administrative expenses consist primarily of salaries , related personnel costs including share-based compensation for our administrative , finance , and general management personnel , professional services and insurance . financial income ( expenses ) , net financial income and expenses consist of bank commissions , foreign exchange gains and losses , interest earned on investments in short term deposits , and revaluation of the fair value of warrants to purchase our preferred shares and expenses related to our convertible loans . warrants to purchase our convertible preferred shares were classified as a liability on our consolidated balance sheet at fair value . the warrants were subject to revaluation at each balance sheet date and any change in fair value is recognized as a component of financial income ( expense ) , net , on our consolidated statements of operations . all such warrants were exercised , expired or converted into warrants to purchase ordinary shares in connection with our initial public offering , and therefore as of december 31 , 2014 and for periods beginning with the fourth quarter of 2014 , we no longer record any liability in respect of them on our balance sheet or financial expenses in respect of them on our statement of operations . interest income and expenses consist of interest earned on our cash and cash equivalent balances and interest accrued on and certain other costs with respect to any indebtedness . foreign currency exchange changes reflect gains or losses related to transactions denominated in currencies other than the u.s. dollar . as described above in item 5 . “ market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities – unregistered sales of equity securities ” , on december 30 , 2015 we entered into the loan agreement with 39 kreos pursuant to which kreos extended a line of credit to us in the amount of $ 20.0 million . in connection with the loan agreement we issued to kreos the warrant to purchase up to 119,295 of our ordinary shares at an exercise price of $ 9.64 . taxes on income as of december 31 , 2015 , we had not yet generated taxable income in israel . as of that date , our net operating loss carry forwards for israeli tax purposes amounted to approximately $ 56.5 million . after we utilize our net operating loss carry forwards , we are eligible for certain tax benefits in israel under the law for the encouragement of capital investments , 1959. our benefit period currently ends ten years after the year in which we first have taxable income in israel provided that the benefit period will not extend beyond 2024. our taxable income generated outside of israel will be subject to the regular corporate tax rate in the applicable jurisdictions . as a result , our effective tax rate will be a function of the relative proportion of our taxable income that is generated in those locations compared to our overall net income . grants and other funding bird foundation and ao & p in july 2009 , we entered into a grant agreement with the bird foundation and allied orthotics & prosthetics inc. , or the ao & p . ao & p was the distributor of our products at the time . we received $ 500,000 and ao & p received $ 60,000. the agreement with the bird foundation required us to pay a royalty at a rate of 5 % on sales of rewalk systems and related services . the repayment requirement is equal to the amount of the grant multiplied by an increasing contractual percentage in an amount up to 150 % . under the agreement ao & p is responsible for repayment of its grant . however , pursuant to the agreement , we are required to make any payments on which ao & p defaults . as of december 31 , 2015 , there was no contingent liability to the bird foundation . in 2014 , we recorded an expense of $ 466,000 as a settlement for the prepayment , at a discount , of amounts due under the agreement . office of the chief scientist we have also received a total of $ 740,000 in funding from the ocs , $ 340,000 of which are royalty-bearing grants , while $ 400,000 were received in consideration for an investment in our preferred shares . out of the royalty-bearing grants received , we have paid royalties to the ocs in the total amount of $ 50,000. we may apply to receive additional grants to support our research and development activities in 2016. the agreements with ocs require us to pay royalties at a rate of 3 % to 3.5 % on sales of rewalk systems and related services up to the total amount of funding received , linked to the dollar and bearing interest at an annual rate of libor applicable to dollar deposits . story_separator_special_tag if we transfer ocs-supported technology or know-how outside of israel , we will be liable for additional payments to ocs depending upon the value of the transferred technology or know-how , the amount of ocs support , the time of completion of the ocs-supported research project and other factors . as of december 31 , 2015 , the aggregate contingent liability to the ocs was $ 300,000. fund for promoting overseas marketing we also received a total of $ 100,000 in funding from the fund for promoting overseas marketing under the israeli ministry of economy , which are non-royalty-bearing grants , to support our marketing activities . we may in the future apply to receive additional grants to support our marketing activities . story_separator_special_tag marketing-related costs associated with expanding our sales and marketing activities as we expand commercialization of the rewalk personal and rehabilitation systems . general and administrative expenses our general and administrative expenses for 2014 and 2013 were as follows ( in thousands ) : replace_table_token_15_th general and administrative expenses increased $ 1.6 million , or 90 % , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. the increase in expenses is primarily attributable to personnel and personnel-related costs , professional services and other expenses related to our being a publicly traded company . financial expenses , net our financial expenses , net for 2014 and 2013 were as follows ( in thousands ) : replace_table_token_16_th financial expenses , net , decreased $ 1.7 million , or 50 % , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. this decrease is attributable mainly to a decrease in financial expenses related to the revaluation of the fair value of warrants to purchase preferred shares in an amount of $ 1.9 million and a decrease in financial expenses related to convertible loans in an amount of $ 2.2 million , offset by an increase in financial expenses related to issuance of convertible preferred shares in an amount of $ 800,000 and an increase in financial expenses related to issuance of warrants to purchase preferred shares in an amount of $ 1.1 million . income tax our income tax for 2014 and 2013 were as follows ( in thousands ) : replace_table_token_17_th income taxes increased $ 23,000 for the year ended december 31 , 2014 , compared to the year ended december 31 , 2013 due to tax in respect of prior years . 44 critical accounting policies our consolidated financial statements are prepared in accordance with united states generally accepted accounting principles . the preparation of our financial statements requires us to make estimates , judgments and assumptions that can affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . we base our estimates , judgments and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances . materially different results can occur as circumstances change and additional information becomes known . besides the estimates identified above that are considered critical , we make many other accounting estimates in preparing our financial statements and related disclosures . see note 2 to our audited consolidated financial statements presented elsewhere in this annual report for a description of the significant accounting policies that we used to prepare our consolidated financial statements . the critical accounting policies that were impacted by the estimates , judgments and assumptions used in the preparation of our consolidated financial statements are discussed below . revenue recognition we recognize revenues in accordance with asc 605 , “ revenue recognition , ” when delivery has occurred , persuasive evidence of an agreement exists , the fee is fixed and determinable , collectability is reasonably assured and no further obligations exist . provisions are made at the time of revenue recognition for any applicable warranty cost expected to be incurred . the timing for revenue recognition among the various products and customers is dependent upon satisfaction of such criteria and generally varies from either shipment or delivery to the customer depending on the specific shipping terms of a given transaction , as stipulated in the agreement with each customer . other than pricing terms which may differ due to the different volumes of purchases between distributors and end-users , there are no material differences in the terms and arrangements involving direct and indirect customers . our products sold through agreements with distributors are non-exchangeable , non-refundable , non-returnable and without any rights of price protection or stock rotation . accordingly , we consider all the distributors as end-users . we generally do not grant a right of return for our products . there have been a few occasions in which we experienced a return of our products . therefore , we record reductions to revenue for expected future product returns based on our historical experience . for the majority of sales of rehabilitation systems , we include training and consider the elements in the arrangement to be a single unit of accounting . in accordance with asc 605 , we have concluded that the training is essential to the functionality of our systems . therefore , we recognize revenue for the system and training only after delivery , in accordance with the agreement delivery terms , to the customer and after the training has been completed , once all other revenue recognition criteria have been met . for sales of personal systems to end users , and for sales of personal or rehabilitation systems to third party distributors , we do not provide training to the end user as this training is completed by the rehabilitation centers or by the distributor that have previously completed the rewalk training program .
| research and development expenses , net our research and development expenses , net for 2015 and 2014 were as follows ( in thousands ) : replace_table_token_6_th research and development expenses , net , decreased $ 2.6 million , or 31 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the decrease in expenses is attributable to a one-time , non-cash , share-based compensation award to our founder at the time of our initial public offering in 2014 , which is offset by increased personnel and personnel-related costs related to regulatory , quality and research and development activities for the year ended december 31 , 2015. we expect research and development costs to increase in the near future as we continue to devote resources to developing the next generation of our products and increase spending on clinical studies . 41 sales and marketing expenses our sales and marketing expenses for 2015 and 2014 were as follows ( in thousands ) : replace_table_token_7_th sales and marketing expenses increased $ 5.7 million , or 77 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. this increase is attributable to an increase in personnel and personnel-related costs and marketing and reimbursement related costs associated with expanding our sales , marketing and reimbursement activities as we expand commercialization of the rewalk personal and rehabilitation systems . over the near future we expect growth in our sales and an increase in our marketing expense will be driven by our continued investment in our reimbursement efforts , as we continue to pursue insurance claims on a cases by case basis , manage claims through the review process and through external appeals , and invest in efforts to expand coverage . general and administrative expenses our general and administrative expenses for 2015 and 2014 were as follows ( in thousands ) : replace_table_token_8_th general and administrative expenses increased $ 3.0 million , or 91 % , for the year ended december 31 , 2015 compared to
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mr. compton is focused on driving the continued growth of our cdmo business , including the ongoing expansion of our commercial and clinical customer base . mr. richieri oversees our process development , clinical and commercial manufacturing , technical support and facilities functions , and focuses on streamlining operations , building internal efficiencies and strategic planning for future growth . appointed catherine mackey , ph.d. to our board of directors as an independent member . facilities initiated the pre-engineering , design and permitting work required that will allow us to break ground on a facility expansion when we determine it is appropriate . we expect that such expansion could take 12 to 18 months to complete . while a specific kick-off date has not yet been established for this expansion , we believe that customer demand will require additional capacity in the next 12 to 24 months and we expect to be prepared to accommodate that demand . advanced the construction stages of the installation of a pharmaceutical-grade water system within our myford facility . we expect the installation and validation of the pharmaceutical grade water system to take place in late calendar year 2020. completed the expansion of our total available process development laboratory space , upgraded the infrastructure and equipment within our existing process development laboratories , and implemented new state-of-the-art technologies and equipment designed to facilitate efficient , high-throughput development of innovative upstream and downstream manufacturing processes . impact of covid-19 pandemic in march 2020 , the world health organization declared the global novel coronavirus disease ( “ covid-19 ” ) outbreak a pandemic . to date , the covid-19 pandemic has not had a significant impact on our operations , as we have been able to continue to operate our manufacturing facilities and provide essential services to our customers . additionally , in an effort to protect the health and safety of our employees and in compliance with state regulations , we have instituted a work-from-home policy for employees who can perform their job functions offsite , implemented social distancing requirements and other measures to allow manufacturing and other personnel essential to production to continue work within our manufacturing facilities , and suspended all non-essential employee travel . the full extent to which covid-19 will directly or indirectly impact our business , financial condition , and results of operations will depend on future developments that are highly uncertain and can not be accurately predicted , including new information that may emerge concerning covid-19 , the actions taken to contain it or treat its impact and the economic impact on local , regional , national and international markets . we will continue to assess the potential impact of the covid-19 pandemic on our business , financial condition , and results of operations . for a further discussion of potential risks to our business from the covid-19 pandemic , see “ part i , item 1a—risk factors ” of this annual report . performance and financial measures in assessing the performance of our business , we consider a variety of performance and financial measures . the key indicators of the financial condition and operating performance of our business are revenues , gross profit , selling , general and administrative expenses and operating income . 22 we intend for this discussion to provide the reader with information that will assist in understanding our consolidated financial statements , the changes in certain key items in those consolidated financial statements from period to period and the primary factors that accounted for those changes . revenues revenues are derived from services provided under our customer contracts and are disaggregated into manufacturing and process development revenue streams . the manufacturing revenue stream generally represents revenue from the manufacturing of customer products derived from mammalian cell culture covering clinical through commercial manufacturing runs . the process development revenue stream generally represents revenue from services associated with the custom development of a manufacturing process and analytical methods for a customer 's product . gross profit gross profit is equal to revenues less cost of revenues . cost of revenues reflects the direct cost of labor , overhead and material costs . direct labor costs include personnel costs within the manufacturing , process and analytical development , quality assurance , quality control , validation , supply chain and facilities functions . overhead costs include the rent , common area maintenance , utilities , property taxes , security , materials and supplies , software , small equipment and deprecation costs of all manufacturing and laboratory locations . selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses are composed of corporate-level expenses , including personnel and support costs of corporate functions such as executive management , finance and accounting , business development , legal , human resources , information technology , project management , and other centralized services . sg & a expenses include corporate legal fees , audit and accounting fees , investor relation expenses , non-employee director fees , corporate facility related expenses , and other expenses relating to our general management , administration , project management , and business development activities . sg & a expenses are generally not directly proportional to revenues , but we expect such expenses to increase over time to support the needs of our growing company . story_separator_special_tag ( or as ) we satisfy a performance obligation . revenue recognized from services provided under our customer contracts are disaggregated into manufacturing and process development revenue streams . manufacturing revenue manufacturing revenue generally represents revenue from the manufacturing of customer products recognized over time , utilizing an input method that compares the cost of cumulative work-in-process to date to the most current estimates for the entire cost of the performance obligation . story_separator_special_tag under a manufacturing contract , a quantity of manufacturing runs is ordered and the product is manufactured according to the customer 's specifications and typically only one performance obligation is included . each manufacturing run represents a distinct service that is sold separately and has stand-alone value to the customer . the products are manufactured exclusively for a specific customer and have no alternative use . the customer retains control of its product during the entire manufacturing process and can make changes to the process or specifications at its request . under these agreements , we are entitled to consideration for progress to date that includes an element of profit margin . process development revenue process development revenue generally represents revenue from services associated with the custom development of a manufacturing process and analytical methods for a customer 's product . process development revenue is recognized over time , utilizing an input method that compares the cost of cumulative work-in-process to date to the most current estimates for the entire cost of the performance obligation . under a process development contract , the customer owns the product details and process , which has no alternative use . these process development projects are customized to each customer to meet its specifications and typically only one performance obligation is included . each process represents a distinct service that is sold separately and has stand-alone value to the customer . the customer also retains control of its product as the product is being created or enhanced by our services and can make changes to its process or specifications upon request . the timing of revenue recognition , billings and cash collections results in billed trade receivables , contract assets ( unbilled receivables ) , and contract liabilities ( customer deposits and deferred revenue ) . contract assets are recorded when our right to consideration is conditioned on something other than the passage of time . contract assets are reclassified to accounts receivables on the consolidated balance sheet when our rights become unconditional . contract liabilities represent customer deposits and deferred revenue billed and or received in advance of our fulfillment of performance obligations . contract liabilities convert to revenue as we perform our obligations under the contract . the transaction price for services provided under our customer contracts reflect our best estimates of the amount of consideration to which we are entitled in exchange for providing goods and services to our customers . in determining the transaction price , we considered the different sources of variable consideration including , but not limited to , discounts , credits , refunds , price concessions or other similar items . we have included in the transaction price some or all of an amount of variable consideration , utilizing the most likely method , only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved . the actual amount of consideration ultimately received may differ . management may be required to exercise judgement in estimating revenue to be recognized . judgement is required in identifying performance obligations , estimating the transaction price , estimating the stand-alone selling prices of identified performance obligations , and estimating the progress towards the satisfaction of performance obligations . if actual results in the future vary from our estimates , the estimates will be adjusted , which will affect revenues in the period that such variances become known . we apply the practical expedient available under asc 606 that permits us not to disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less . as of april 30 , 2020 , we do not have any unsatisfied performance obligations for contracts greater than one year . 26 prior to our adoption of asc 606 on may 1 , 2018 , revenue was generally recognized when all of the following criteria were met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred or services have been rendered , ( iii ) the seller 's price to the buyer is fixed or determinable , and ( iv ) collectability is reasonably assured . stock-based compensation we account for stock options , restricted stock units and other stock-based awards granted under our equity compensation plans in accordance with the authoritative guidance for stock-based compensation . the estimated fair value of stock options granted to employees in exchange for services is measured at the grant date , using a fair value based method , such as a black-scholes option valuation model , and is recognized as expense on a straight-line basis over the requisite service periods , which is generally the vesting period . the fair value of restricted stock units is measured at the grant date based on the closing market price of our common stock on the date of grant , and is recognized as expense on a straight-line basis over the period of vesting . forfeitures are recognized as a reduction of stock-based compensation expense as they occur . as of april 30 , 2020 , there were no outstanding stock-based awards with market or performance conditions . the use of a valuation model requires us to make certain estimates and assumptions with respect to selected model inputs . the expected volatility is based on the daily historical volatility of our common stock covering the estimated expected term . the expected term of options granted reflects actual historical exercise activity and assumptions regarding future exercise activity of unexercised , outstanding options . the risk-free interest rate is based on u.s. treasury notes with terms within the contractual life of the option at the time of grant . the expected dividend yield assumption is based on our expectation of future dividend payouts .
| gross profit gross profit was $ 3.9 million in fiscal 2020 , compared to $ 7.2 million in fiscal 2019 , a decrease of approximately $ 3.3 million , and gross margins for fiscal 2020 and fiscal 2019 were 7 % and 13 % , respectively . the $ 3.3 million decrease in gross profit for fiscal 2020 was primarily attributed to higher facility and equipment related costs primarily related to the production interruption noted above , planned growth costs associated with payroll and related costs , and increased depreciation expense from the acquisition of new equipment , which were partially offset by an increase in revenues . selling , general and administrative expenses sg & a expenses were $ 14.5 million in fiscal 2020 , compared to $ 12.8 million in fiscal 2019 , an increase of approximately $ 1.7 million , or 13 % . as a percentage of revenue , sg & a expenses for the fiscal years 2020 and 2019 were both 24 % . the net increase in sg & a expenses was attributed to the following components : $ millions increase in separation related expenses $ 0.8 increase in payroll and benefit costs 0.6 increase in stock-based compensation expense 0.5 decrease in accrued bonus expense ( 0.5 ) net increase in all other sg & a expenses 0.3 total increase in sg & a expenses $ 1.7 24 loss on lease termination in the second quarter of fiscal 2020 , we terminated an operating lease for one of our non-manufacturing facilities that was primarily utilized for warehouse space . the lease termination was primarily driven by our efforts to reduce costs by leveraging available warehouse space in our other facilities , which we expect will save us approximately $ 1.3 million in the aggregate over a period of four years . in connection with the termination of this lease , we removed the corresponding operating lease right-of-use asset and liability balances from our consolidated balance sheet and recognized a loss of $ 0.4 million . additionally , the lease termination released $ 0.3 million of restricted cash that was pledged as collateral under a letter of credit required by the terminated lease . operating loss operating loss was
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we have two reportable segments : kfc and pizza hut . our remaining operating segments , including the operations of east dawning , little sheep , taco bell and daojia , are combined and referred to as all other segments , as those operating segments are insignificant both individually and in the aggregate . we intend for this md & a to provide the reader with information that will assist in understanding our results of operations , including metrics that management uses to assess the company 's performance . throughout this md & a , we discuss the following performance metrics : the company provides certain percentage changes excluding the impact of foreign currency translation ( “ f/x ” ) . these amounts are derived by translating current year results at prior year average exchange rates . we believe the elimination of the f/x impact provides better year-to-year comparability without the distortion of foreign currency fluctuations . system sales growth reflects the results of all restaurants regardless of ownership , including company-owned , franchise and unconsolidated affiliate restaurants that operate our concepts . sales of franchise and unconsolidated affiliate restaurants typically generate ongoing franchise fees for the company at a rate of approximately 6 % of system sales . franchise and unconsolidated affiliate restaurant sales are not included in company sales in the consolidated and combined statements of income ; however , the franchise fees are included in the company 's revenues . we believe system sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates all of our revenue drivers , company and franchise same-store sales as well as net unit growth . effective january 1 , 2018 , the company revised its definition of same-store sales growth to represent the estimated percentage change in sales of food of all restaurants in the company system that have been open prior to the first day of our prior fiscal year . we refer to these as our “ base ” stores . previously , same-store sales growth represented the estimated percentage change in sales of all restaurants in the company system that have been open for one year or more , and the base stores changed on a rolling basis from month to month . this revision was made to align with how management measures performance internally and focuses on trends of a more stable base of stores . prior years have been adjusted accordingly . 64 2018 form 10-k company restaurant profit ( “ restaurant profit ” ) is defined as company sales less expenses incurred directly by our company-owned restaurants in generating company sales . company restaurant margin percentage is defined as restaurant profit divided by company sales . within the company sales and restaurant profit analysis , store portfolio actions represent the net impact of new-unit openings , acquisitions , refranchising and store closures , and other primarily represents the impact of same-store sales as well as the impact of changes in restaurant operating costs such as inflation/deflation . in addition to the results provided in accordance with gaap throughout this md & a , the company provides measures adjusted for special items , which include adjusted operating profit , adjusted net income , adjusted diluted earnings per common share , adjusted effective tax rate and adjusted ebitda , which we define as net income including noncontrolling interests adjusted for income tax , interest income , net , investment loss , depreciation , amortization and other items , including store impairment charges and special items . special items consist of gain recognized from the re-measurement of our previously held equity interest in wuxi kfc at fair value upon acquisition , impairment on assets acquired from daojia , impact from the u.s. tax cuts and jobs act ( the “ tax act ” ) , reversal of losses associated with sales of aircraft , incremental restaurant-level impairment upon separation , income from the reversal of contingent consideration previously recorded for a business combination , changes in fair value of financial instruments , and the impact of the redemption of the little sheep noncontrolling interest . the company excludes impact from special items for the purpose of evaluating performance internally . special items are not included in any of our segment results . in addition , the company provides adjusted ebitda because we believe that investors and analysts may find it useful in measuring operating performance without regard to items such as income tax , interest income , net , investment loss , depreciation , amortization and other items , including store impairment charges and special items . these adjusted measures are not intended to replace the presentation of our financial results in accordance with gaap . rather , the company believes that the presentation of these adjusted measures provides additional information to investors to facilitate the comparison of past and present results , excluding those items that the company does not believe are indicative of our ongoing operations due to their nature . results of operations story_separator_special_tag style= '' text-align : justify ; margin-bottom:0pt ; margin-top:0pt ; margin-left:5.24 % ; text-indent : -5.24 % ; font-family : times new roman ; font-size:10pt ; '' > ( c ) during 2015 , we made the decision to dispose of a corporate aircraft in china and recognized a loss of $ 15 million associated with the planned sale of the aircraft for the year ended december 31 , 2015. we completed the sale during 2016. the sale proceeds of $ 19 million were greater than the net book value of $ 17 million of the aircraft at the time of disposal , which resulted in the reversal of $ 2 million of the previously recognized loss . ( d ) incremental restaurant-level impairment represents additional impairment as a result of including the impact from the license fee paid to yum on the individual restaurants future cash flow , which is equal to 3 % of net system sales . story_separator_special_tag such license fee was not included in our restaurant impairment indicator and recoverability tests prior to the separation as it was considered an intercompany charge at the time , whereas it became a charge from a third party after the separation and therefore should be considered in the impairment assessment . ( e ) during the year ended december 31 , 2017 , we recognized income from the reversal of contingent consideration previously recorded for a business combination as the likelihood of making payment became remote . ( f ) in connection with the investment agreement with strategic investors entered into on september 1 , 2016 , yum china issued 19,145,169.42 shares of common stock on november 1 , 2016 , subject to adjustment ( “ post-closing adjustment ” ) by december 30 , 2016 , and warrants to purchase additional shares of common stock . the post-closing adjustment and the warrants were accounted for as derivative instruments and liability-classified equity contracts , respectively . these financial instruments were initially measured at fair value on the date of issuance , with subsequent changes in fair value of $ 21 million recognized in earnings during the year ended december 31 , 2016. no subsequent fair value measurements were recognized after december 30 , 2016 . ( see note 11 ) ( g ) tax effect was determined based upon the impact of the nature of each special item tax effected at the 25 % china tax rate or the 21 % , or the historical 35 % , u.s. tax rate , except for the $ 21 million changes in fair value of financial instruments associated with the strategic investment which resulted in no income tax expense . additionally , during the year ended december 31 , 2016 , we recognized a tax benefit of $ 26 million related to the legal entity restructuring of our little sheep business . of this benefit , $ 12 million was attributed to previous little sheep impairment losses recognized within special items in 2013 and 2014 and as such was classified as a special item consistent with the classification of those historical impairments . ( h ) the company incurred an estimated one-time income tax charge of $ 164 million in the fourth quarter of 2017 , as a result of the tax act , due to the transition tax on deemed repatriation of accumulated undistributed earnings of foreign subsidiaries , and additional tax related to the revaluation of certain deferred tax assets . in the fourth quarter of 2018 , we recognized a tax benefit of $ 36 million as a result of adjusting the provisional amount of the transition tax previously recorded . 69 2018 form 10-k ( i ) during the year ended december 31 , 2016 , the little sheep founding shareholders sold their remaining 7 % little sheep ownership interest to the company pursuant to their redemption rights . the difference between the purchase price of less than $ 1 million , which was determined using a non-fair value based formula pursuant to the agreement governing the redemption rights , and the carrying value of their redeemable noncontrolling interest s was recorded as an $ 8 million loss attributable to noncontrolling interests . ( see note 6 ) adjusted ebitda net income , along with the reconciliation to adjusted ebitda , is presented below . replace_table_token_10_th 70 2018 form 10-k segment results kfc kfc is the leading qsr brand in china in terms of system sales and number of restaurants . kfc delivered strong sales performance in 2018 , marking the third year of positive same-store sales growth , led by continued focus on innovative products , creating abundant value to our customers as well as upgrading ingredients to meet chinese consumers ' needs . kfc also continued with its digital and delivery initiatives to enhance customer experience . kfc loyalty program members exceeded 160 million at year-end 2018 and represented 48 % of system sales at kfc in the fourth quarter of 2018. delivery sales accounted for 14 % of system sales at kfc in 2018 with over 3,900 stores across 1100 cities offering delivery services at the end of 2018. replace_table_token_11_th replace_table_token_12_th replace_table_token_13_th replace_table_token_14_th 71 2018 form 10-k ( a ) as a result of acquisition of wuxi kfc as disclosed in note 1 , the units of wuxi kfc have been transferred from unconsolidated affiliates to company-owned . replace_table_token_15_th company sales and restaurant profit the changes in company sales and restaurant profit were as follows : replace_table_token_16_th replace_table_token_17_th in 2018 , the increase in company sales and restaurant profit associated with store portfolio actions , excluding the impact of f/x , was driven by net unit growth including the acquisition of wuxi kfc . significant other factors impacting company sales and restaurant profit were the same-store sales growth , labor efficiency , and a decrease in advertising expenses , partially offset by higher labor costs mainly due to wage inflation of 6 % , higher promotion cost and commodity inflation of 2 % . in 2017 , the increase in company sales and restaurant profit associated with store portfolio actions , excluding the impact of f/x , was driven by net unit growth . significant other factors impacting company sales and restaurant profit were the same-store sales growth and the favorable impact from retail tax structure reform ( primarily in cost of sales ) , partially offset by higher labor costs mainly due to wage inflation of 7 % , promotion costs and commodity inflation of 1 % . franchise fees and income in 2018 , the decrease in franchise fees and income , excluding the impact of f/x , was primarily driven by the acquisition of wuxi kfc , partially offset by net unit growth and same-store sales growth for the unconsolidated affiliates and franchisees . 72 2018 form 10-k in 201 7 , the increase in franchise fees and income , excluding the impact of f/x , was driven by t he impact of net unit growth , refranchising and same-store sales growth for the unconsolidated affiliates and franchisees .
| net income for 2017 decreased 20 % and , excluding the estimated one-time income tax charge of $ 164 million recorded in the fourth quarter 2017 related to the tax act , increased 24 % , excluding f/x . in 2018 , the company 's total revenues increased 8 % , or 6 % excluding the impact of f/x , attributable to solid sales performance at kfc with same-store sales growth of 2 % . the increase was also attributable to new-unit openings of 819 or 6 % net unit growth , bringing total store count to 8,484 across more than 1,200 cities . the increase in operating profit was driven by strong sales , a gain recognized from re-measurement of our previously held equity interest in wuxi kfc at fair value upon acquisition , g & a expenses savings and productivity improvements , partially offset by wage and commodity inflation , and higher investment in product upgrades and promotions . net income for 2018 increased 78 % or 70 % excluding f/x , mainly due to the increase in operating profit and impact from the tax act , partially offset by investment loss , while adjusted net income , excluding f/x , increased 4 % . 2018 financial highlights are below : replace_table_token_5_th nm refers to changes over 100 % , from negative to positive amounts or from zero to an amount . ( a ) system sales and same-store sales percentages as shown in 2018 financial highlights exclude the impact of f/x . 66 2018 form 10-k the consolidated and combined results of operations for the years ended december 31 , 2018 , 201 7 and 201 6 are presented below : replace_table_token_6_th ( a ) represents year-over-year change in percentage . performance metrics replace_table_token_7_th 67 2018 form 10-k replace_table_token_8_th special items special items , along with the reconciliation to the most comparable gaap financial measure , are presented below . replace_table_token_9_th 68 2018 form 10-k ( a ) as a result of the acquisition of wuxi kfc in the first quarter of 2018 , the company recognized a gain of $ 98 million from the re-measurement of our previously held 47 % equity interest at fair value , which was not allocated
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story_separator_special_tag style= '' line-height:120 % ; text-align : center ; font-size:10pt ; '' > replace_table_token_15_th for the years ended december 31 , 2014 , 2013 and 2012 , we recorded net gains ( losses ) of $ 1.3 million , ( $ 0.9 ) million and $ 2.3 million , respectively , related to our derivative activities . this activity is recorded in “ price-risk management and other , net ” on the accompanying consolidated statements of operations . had these amounts been recognized in the oil and gas sales account , our average oil price would have been $ 92.52 , $ 102.93 and $ 106.77 for the years ended december 31 , 2014 , 2013 and 2012 , respectively , and our average natural gas price would have been $ 3.93 , $ 3.35 and $ 2.42 for the years ended december 31 , 2014 , 2013 and 2012 , respectively . costs and expenses 2014 - our expenses for the year ended december 31 , 2014 increased $ 398.7 million , or 68 % , compared to the prior year levels , for the reasons noted below . our expenses in 2014 increased $ 0.3 million when compared to those in 2013 ( excluding the 2014 and 2013 ceiling test write-downs ) . during 2014 , we saw some tightening in the availability of services and supplies including some upward pressure on service costs , but we believe that these costs will decrease from current levels with the recent decline in oil prices . lease operating cost . these expenses decreased $ 6.5 million , or 7 % , compared to the level of such expenses for the year ended december 31 , 2013 , primarily due to lower salt water disposal , labor and maintenance costs , partially offset by higher utilities costs . our lease operating costs per boe produced were $ 7.52 and $ 8.49 for the years ended december 31 , 2014 and 2013 , respectively . transportation and gas processing . these expenses were comparable to the level of such expenses for the year ended december 31 , 2013 . our transportation and gas processing costs per boe produced were $ 1.71 and $ 1.79 for the years ended december 31 , 2014 and 2013 , respectively . depreciation , depletion and amortization ( “ dd & a ” ) . these expenses increased $ 14.8 million , or 6 % , from those during the year ended december 31 , 2013 , due to increased production and a higher depletable base . our dd & a rate per boe of production was $ 21.60 and $ 21.52 for the years ended december 31 , 2014 and 2013 , respectively . general and administrative expenses , net . these expenses decreased $ 5.8 million or 13 % , compared to the level of such expenses for the year ended december 31 , 2013 , due to lower stock compensation , a lower benefit accrual and lower salaries , partially offset by higher legal fees and lower capitalized costs . for the years ended december 31 , 2014 and 2013 , our capitalized general and administrative costs totaled $ 26.3 million and $ 31.8 million , respectively . our net general and administrative expenses per boe produced were $ 3.20 and $ 3.87 for the years ended december 31 , 2014 and 2013 , respectively . the supervision fees 31 recorded as a reduction to general and administrative expenses were $ 12.7 million and $ 11.6 million for the years ended december 31 , 2014 and 2013 , respectively . severance and other taxes . these expenses decreased $ 5.7 million , or 13 % , from the year ended december 31 , 2013 . severance and other taxes , as a percentage of oil and gas sales , were approximately 6.8 % and 7.3 % for the years ended december 31 , 2014 and 2013 , respectively . the change in rate was primarily driven by higher production in south texas which carries a lower severance tax rate than in louisiana . interest . our gross interest cost for the year ended december 31 , 2014 was $ 78.2 million , of which $ 5.0 million was capitalized . our gross interest cost for the year ended december 31 , 2013 was $ 76.6 million , of which $ 7.2 million was capitalized . the increase in interest came from increased credit facility borrowings during 2014. write-down of oil and gas properties . due to the effects of pricing , timing of projects and changes in our reserves product mix , in 2014 and 2013 we reported non-cash write-downs on a before-tax basis of $ 445.4 million ( $ 287.3 million after tax ) and $ 46.9 million ( $ 30.0 million after tax ) , respectively , for our oil and natural gas properties . income taxes . our effective income tax rate was 34.6 % for the year ended december 31 , 2014 . for the year ended december 31 , 2013 the rate was over 100 % due to the proportional effect of non-deductible expenses compared to pre-tax book income that was close to break-even . 2013 - our expenses for the year ended december 31 , 2013 increased $ 60.5 million , or 12 % , compared to the prior year levels , for the reasons noted below . lease operating cost . these expenses increased $ 1.9 million , or 2 % , compared to the level of such expenses for the year ended december 31 , 2012 , due to higher costs in our south texas region for chemical treating , compressor rentals and lease operator costs , partially offset by lower salt water disposal costs in south texas . our lease operating costs per boe produced were $ 8.49 and $ 8.36 for the years ended december 31 , 2013 and 2012 , respectively . story_separator_special_tag story_separator_special_tag style= '' line-height:120 % ; text-align : center ; font-size:10pt ; '' > replace_table_token_15_th for the years ended december 31 , 2014 , 2013 and 2012 , we recorded net gains ( losses ) of $ 1.3 million , ( $ 0.9 ) million and $ 2.3 million , respectively , related to our derivative activities . this activity is recorded in “ price-risk management and other , net ” on the accompanying consolidated statements of operations . had these amounts been recognized in the oil and gas sales account , our average oil price would have been $ 92.52 , $ 102.93 and $ 106.77 for the years ended december 31 , 2014 , 2013 and 2012 , respectively , and our average natural gas price would have been $ 3.93 , $ 3.35 and $ 2.42 for the years ended december 31 , 2014 , 2013 and 2012 , respectively . costs and expenses 2014 - our expenses for the year ended december 31 , 2014 increased $ 398.7 million , or 68 % , compared to the prior year levels , for the reasons noted below . our expenses in 2014 increased $ 0.3 million when compared to those in 2013 ( excluding the 2014 and 2013 ceiling test write-downs ) . during 2014 , we saw some tightening in the availability of services and supplies including some upward pressure on service costs , but we believe that these costs will decrease from current levels with the recent decline in oil prices . lease operating cost . these expenses decreased $ 6.5 million , or 7 % , compared to the level of such expenses for the year ended december 31 , 2013 , primarily due to lower salt water disposal , labor and maintenance costs , partially offset by higher utilities costs . our lease operating costs per boe produced were $ 7.52 and $ 8.49 for the years ended december 31 , 2014 and 2013 , respectively . transportation and gas processing . these expenses were comparable to the level of such expenses for the year ended december 31 , 2013 . our transportation and gas processing costs per boe produced were $ 1.71 and $ 1.79 for the years ended december 31 , 2014 and 2013 , respectively . depreciation , depletion and amortization ( “ dd & a ” ) . these expenses increased $ 14.8 million , or 6 % , from those during the year ended december 31 , 2013 , due to increased production and a higher depletable base . our dd & a rate per boe of production was $ 21.60 and $ 21.52 for the years ended december 31 , 2014 and 2013 , respectively . general and administrative expenses , net . these expenses decreased $ 5.8 million or 13 % , compared to the level of such expenses for the year ended december 31 , 2013 , due to lower stock compensation , a lower benefit accrual and lower salaries , partially offset by higher legal fees and lower capitalized costs . for the years ended december 31 , 2014 and 2013 , our capitalized general and administrative costs totaled $ 26.3 million and $ 31.8 million , respectively . our net general and administrative expenses per boe produced were $ 3.20 and $ 3.87 for the years ended december 31 , 2014 and 2013 , respectively . the supervision fees 31 recorded as a reduction to general and administrative expenses were $ 12.7 million and $ 11.6 million for the years ended december 31 , 2014 and 2013 , respectively . severance and other taxes . these expenses decreased $ 5.7 million , or 13 % , from the year ended december 31 , 2013 . severance and other taxes , as a percentage of oil and gas sales , were approximately 6.8 % and 7.3 % for the years ended december 31 , 2014 and 2013 , respectively . the change in rate was primarily driven by higher production in south texas which carries a lower severance tax rate than in louisiana . interest . our gross interest cost for the year ended december 31 , 2014 was $ 78.2 million , of which $ 5.0 million was capitalized . our gross interest cost for the year ended december 31 , 2013 was $ 76.6 million , of which $ 7.2 million was capitalized . the increase in interest came from increased credit facility borrowings during 2014. write-down of oil and gas properties . due to the effects of pricing , timing of projects and changes in our reserves product mix , in 2014 and 2013 we reported non-cash write-downs on a before-tax basis of $ 445.4 million ( $ 287.3 million after tax ) and $ 46.9 million ( $ 30.0 million after tax ) , respectively , for our oil and natural gas properties . income taxes . our effective income tax rate was 34.6 % for the year ended december 31 , 2014 . for the year ended december 31 , 2013 the rate was over 100 % due to the proportional effect of non-deductible expenses compared to pre-tax book income that was close to break-even . 2013 - our expenses for the year ended december 31 , 2013 increased $ 60.5 million , or 12 % , compared to the prior year levels , for the reasons noted below . lease operating cost . these expenses increased $ 1.9 million , or 2 % , compared to the level of such expenses for the year ended december 31 , 2012 , due to higher costs in our south texas region for chemical treating , compressor rentals and lease operator costs , partially offset by lower salt water disposal costs in south texas . our lease operating costs per boe produced were $ 8.49 and $ 8.36 for the years ended december 31 , 2013 and 2012 , respectively .
| the following table provides information regarding the changes in the sources of our oil and gas sales and volumes for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_14_th ( 1 ) our 2014 south texas oil and gas sales include $ 62.2 million for artesia wells , $ 224.8 million for awp , $ 87.2 million for fasken and $ 8.2 million for other south texas fields . our 2014 south texas net oil and gas production volumes include 1,786 million mboe for artesia wells , 4,636 million mboe for awp , 3,565 million mboe for fasken and 252 million mboe for other south texas fields . our production increase from 2013 to 2014 was primarily due to an increase of natural gas production from increased drilling in our fasken field , plus an increase in oil and natural gas production at our awp field . these increases were partially offset by a decrease in overall production for our artesia wells field and a decrease in oil production in our lake washington field . in 2014 , our $ 37.4 million , or 6 % decrease in oil , ngl , and natural gas sales resulted from : price variances that had a $ 9.7 million unfavorable impact on sales , with a decrease of $ 35.4 million due to the 10 % decrease in oil prices received , partially offset by an increase of $ 24.9 million attributable to the 18 % increase in natural gas prices and an increase of $ 0.8 million due to the 1 % increase in ngl prices . volume variances that had a $ 27.7 million unfavorable impact on sales , with a $ 42.7 million decrease attributable to the 0.4 million bbl decrease in oil production volumes and a $ 15.9 million decrease due to the 0.5 million bbl decrease in ngl production volumes , partially offset by a $ 30.9 million increase due to the 9.4 bcf increase in natural gas production volumes . in 2013 , our $ 26.8 million , or 5 % increase in oil , ngl , and natural gas sales resulted from : price variances that accounted for approximately $ 10 million of the favorable increase as gas prices were up 37 % , partially offset by lower prices for oil ( down 3 % ) and ngls ( down 10 % ) ; and volume variances
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the decrease in sales consist of an increase in sales of dpfs of $ 1,409,623 , a decrease in sales of liquid filters of $ 3,743,655 and a decrease in sales of kiln furniture $ 229,185 respectively . the increase in demand for our dpfs is mainly due to an increase in market activity in china compared to the same period last year . the decrease in demand for our liquid filters and systems is due significant larger water filtrations systems sales in 2016 compared to 2017 and the delay in marine scrubber systems sales anticipated in 2017 compared to 2016. the decrease in demand for our kiln furniture is due to our decision to close down this product line . gross profit gross profit for the year ended december 31 , 2017 was $ 206,751 compared to $ 1,432,429 for the same period in 2016 , representing a decrease of $ 1,225,678 , or 85.6 % . the decrease in gross profit was due to lower sales activity in general , lower gross margin and due to lower sales activity for our liquid filters and systems , which historically have a higher gross margin , compared to the same period in 2016. included in the gross profit is depreciation of $ 939,500 and $ 1,378,277 for the years ended december 31 , 2017 and 2016 , respectively . 26 expenses total operating expenses for the year ended december 31 , 2017 were $ 4,814,006 , representing a decrease of $ 9,753,227 or 67.0 % , compared to $ 14,567,233 for the same period in 2016. this decrease in operating expenses is attributable to a decrease in selling expenses of $ 219,791 or 10.2 % , a decrease in general and administrative expenses of $ 1,844,079 or 46.1 % , a decrease in non-cash compensation expenses of $ 256,850 or 58.9 % , a decrease in research and development expenses of $ 89,299 or 14.3 % and a decrease in impairment of goodwill of $ 7,343,208 compared to the same period in 2016. selling expenses for the year ended december 31 , 2017 were $ 1,944,989 compared to $ 2,164,780 for the same period in 2016 , representing a decrease of $ 219,791 or 10.2 % . this decrease is attributable to a cost reduction in selling expenses in general and a centralization of the sales structure for the year ending december 31 , 2017 compared to the same period in 2016. general and administrative expenses for the year ended december 31 , 2017 were $ 2,153,225 compared to $ 3,997,304 for the same period in 2016 , representing a decrease of $ 1,844,079 , or 46.1 % . this decrease is attributable to a general cost reduction in general and administrative a decrease in the provision for bad debt of approximately $ 1.3 million . non-cash compensation expenses for the year ended december 31 , 2017 were $ 178,944 compared to $ 435,794 for the same period in 2016 , representing a decrease of $ 256,850 or 58.9 % . this decrease is attributable to decreased non-cash compensation expense for stock options granted to employees and warrants issued for services offset by an increase in non-cash compensation expense for stock awards issued to the board of directors . the following is a summary of our non-cash compensation : replace_table_token_6_th research and development expenses for the year ended december 31 , 2017 were $ 536,848 compared to $ 626,147 for the same period in 2016 , representing a decrease of $ 89,299 , or 14.3 % . this decrease is attributable to decreased research and development expenditures for the period ended december 31 , 2017 compared to the same period in 2016 as the company focuses on the marine scrubber industry . impairment of goodwill for the year ended december 31 , 2017 was $ 0 compared to $ 7,343,208 for the same period in 2016 , representing a decrease of $ 7,343,208. the company recorded an impairment charge on goodwill , during the year ended december 31 , 2016 , as managements estimated fair value of the reporting unit did not exceeded the carrying value during 2016 fourth quarter testing . net loss net loss attributable to the company for the year ended december 31 , 2017 was a loss of $ 4,460,353 compared to a loss of $ 16,418,634 for the comparable period in 2016 , representing a decrease in loss of $ 11,958,281. this improvement was primarily attributable to a decrease in operating expenses of $ 9,753,227 , a decrease in tax expenses of $ 2,901,867 offset by a decrease in our gross profit of $ 1,225,678. the largest contributor to the decrease in operating expenses was the impairment write down of $ 7,343,208 , which the company made in 2016 . 27 liquidity and capital resources the accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the united states of america , which contemplate continuation of the company as a going concern . we have historically satisfied our capital and liquidity requirements through offerings of equity instruments , internally generated cash from operations and our available lines of credit . at the filing date , the company did not have any available lines of credit with any lender . at december 31 , 2018 , we had cash of $ 3,776,111 and working capital of $ 6,753,593 , and at december 31 , 2017 , we had cash of 2,486,199 and working capital of $ 4,659,877. at december 31 , 2018 , our working capital had increased by $ 2,093,716 , compared to december 31 , 2017. total current assets were $ 11,373,206 and $ 9,427,697 at december 31 , 2018 and at december 31 , 2017 , respectively , and total current liabilities were $ 4,619,613 and $ 4,767,820 at december 31 , 2018 and at december 31 , 2017 , respectively . in connection with certain orders , we have to give the customer a working guarantee or a prepayment guarantee or security bond . story_separator_special_tag for that purpose , we have a guarantee credit line of dkk 94,620 ( approximately $ 14,514 at december 31 , 2018 ) with a bank , subject to certain base limitations . this line of credit is guaranteed by vækstfonden ( the danish state 's investments fund ) and is secured by certain assets of liqtech systems such as receivables , inventory and equipment . we believe that the cash on hand and positive cash flows generated from operations will provide adequate resources to meet our operating commitments and interest payments for at least the next 12 months from the date of this report . cash flows year ended december 31 , 201 8 compared to year ended december 31 , 201 7 cash provided ( used ) by operating activities is net income ( losses ) adjusted for certain non-cash items and changes in assets and liabilities . cash used by operating activities for the year ended december 31 , 2018 was $ 3,914,174 , representing an increase of $ 598,812 compared to cash used by operating activities of $ 3,315,362 for the year ended december 31 , 2017. the increase in cash used by operating activities for the year ended december 31 , 2018 was mainly due to the net loss before tax of $ 4,179,958 , increase in accounts receivables of $ 999,099 , increase in prepaid expenses of $ 184,009 , decrease in accrued expenses of $ 692,550 and off-set by a decrease in inventory of $ 22,427 , a decrease in accounts payable of $ 347,249 and an increase in long-term contracts of $ 75,315. the net loss and the variations in working capital were all due to increase in activities . net cash used in investing activities was $ 170,890 for the year ended december 31 , 2018 , as compared to net cash used in investing activities of $ 123,673 for the year ended december 31 , 2017. cash used in investing activities increased $ 47,217 for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017. this increase was due to a period over period increase of $ 41,199 in the purchase of property and equipment . cash provided by financing activities was $ 6,017,280 for the year ended december 31 , 2018 , as compared to cash provided by financing activities of $ 4,104,700 for the year ended december 31 , 2017. this change of $ 1,912,580 in cash provided by financing activities for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , was mainly due to cash received in connection with a registered public offering on april 16 , 2018 that generated net proceeds of $ 5,865,077 , which was greater than proceeds received from private placements in may and november of 2017 . 28 year ended december 31 , 2017 compared to year ended december 31 , 2016 cash provided ( used ) by operating activities is net income ( losses ) adjusted for certain non-cash items and changes in assets and liabilities . cash used by operating activities for the year ended december 31 , 2017 was $ 3,315,362 representing a decrease of $ 3,731,156 compared to cash provided by operating activities of $ 415,794 for the year ended december 31 , 2016. the $ 3,731,156 decrease in cash provided by operating activities for the year ended december 31 , 2017 was mainly due to decreases in account payable of $ 487,458 , a net loss of $ 4,460,353 and increase in accounts receivables of $ 241,256 , offset by a decrease in inventory of $ 564,359 , an increase in accrued expenses of $ 80,797 , and an increase in long-term contracts of $ 353,070. the decreases in accounts payable , the net loss , the increase in accounts receivables , the decrease in inventory , the increase in accrued expenses and the increase in long-term contracts were all due to normal variations in the ordinary course of business . cash used in investing activities was $ 123,673 for the year ended december 31 , 2017 , as compared to cash used in investing activities of $ 373,740 for the year ended december 31 , 2016. cash used in investing activities decreased of $ 250,067 for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016. this decrease was due to a period over period decrease of $ 236,067 in the purchase of property and proceeds from sale of property and equipment of $ 14,001 in 2017. cash provided by financing activities was $ 4,101,700 for the year ended december 31 , 2017 , as compared to cash used by financing activities of $ 202,619 for the year ended december 31 , 2016. this change of $ 4,307,319 in cash provided by financing activities for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 , was mainly due to cash received in connection with the private placement on may 19 , 2017 where the company raised $ 1,825,000 issuing 7,300,000 shares of common stock and cash received in connection with the private placement in november 2017 where the company raised $ 2,641,004 issuing 2,200,837 shares of series a convertible preferred stock . the shares of series a convertible preferred stock automatically converted into 8,803,348 common shares on may 14 , 2018. off balance sheet arrangements as of december 31 , 2018 , we had no off-balance sheet arrangements other than normal operating leases . we are not aware of any material transactions which are not disclosed in our consolidated financial statements . operating leases the company leases office and production facilities under operating lease agreements . the office leases expire in february 2021 and in august 2024 , respectively . in some of these lease agreements , the company has the right to extend .
| 24 expenses total operating expenses for the year ended december 31 , 2018 were $ 5,551,652 , representing an increase of $ 737,646 or 15.3 % , compared to $ 4,814,006 for the same period in 2017. selling expenses for the year ended december 31 , 2018 were $ 1,703,327 compared to $ 1,944,989 for the same period in 2017 , representing a decrease of $ 241,662 or 12.4 % . this decrease is attributable to a cost reduction in selling expenses in general including a decline in the number of sales employees based on the full focusing on the marine scrubber area compared to the same period in 2017. general and administrative expenses for the year ended december 31 , 2018 were $ 3,187,311 compared to $ 2,332,169 for the same period in 2017 , representing an increase of $ 855,142 , or 36.7 % . this increase is attributable to an increase in the provision for bad debt of approximately $ 301,000 and general increase in legal expenses , it expenses and salaries for administrative employees . included in general and administrative expenses is non-cash compensation expenses which for the year ended december 31 , 2018 were $ 116,434 compared to $ 178,944 for the same period in 2017 , representing a decrease of $ 62,510 or 34.9 % . this decrease is attributable to decreased non-cash compensation expense for stock options granted to employees . the following is a summary of our non-cash compensation : replace_table_token_4_th research and development expenses for the year ended december 31 , 2018 were $ 661,014 compared to $ 536,848 for the same period in 2017 , representing an increase of $ 124,166 , or 23.1 % . this increase is attributable to an increase in the number of employees in the research and development area , as the company focuses on increase development of additional products for the marine industry . net loss net loss attributable to the company for the year ended december 31 , 2018 was a loss of $ 3,814,528 compared to a loss of $ 4,460,353 for the comparable period in 2017 , representing a decrease in
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we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms , or at all . if we fail to raise capital or enter into such agreements as , and when , needed , we would have to significantly delay , scale back or discontinue the development and commercialization of one or more of our product candidates . because of the numerous risks and uncertainties associated with cell therapy product development , we are unable to accurately predict the timing or amount of increased expenses or when , or if , we will be able to achieve or maintain profitability . even if we are able to generate product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . we believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through the first half of 2023. see “ —liquidity and capital resources. ” impact of the covid-19 coronavirus in december 2019 , a novel strain of coronavirus , which causes the disease known as covid-19 , was reported to have surfaced in wuhan , china . since then , covid-19 coronavirus has spread globally . in march 2020 , the world health organization declared the covid-19 outbreak a pandemic and the u.s. government-imposed travel restrictions on travel between the united states , europe and certain other countries . the covid-19 pandemic has impacted and may continue to impact personnel at third-party manufacturing facilities or the availability or cost of materials , which would disrupt our supply chain , and it has affected and may continue to affect our ability to enroll patients in and timely complete our ongoing phase 1 clinical trials of sqz-pbmc-hpv and sqz-aac-hpv and delay the initiation of any future clinical trials , disrupt regulatory activities , or have other adverse effects on our business and operations . for example , we have experienced delays in receiving supplies of raw materials for our preclinical activities due to the impact of covid-19 on our suppliers ' ability to timely manufacture these materials , and we have experienced an increase in the transportation cost of our product candidates due to the decreased availability of commercial flights . in addition , we have experienced delays in opening clinical trial sites and sites that are open may also have challenges enrolling patients due to the covid-19 pandemic . further , some staff that are required to conduct certain testing , such as biopsies , at our clinical sites or at third-party vendors have been required to stay at home or have been reallocated to other activities , resulting in such tests not being properly or timely performed or being delayed . in response to the public health directives and to help reduce the risk to our employees , we took precautionary measures , including implementing work-from-home policies for our administrative employees and staggered work times for our lab employees . we plan to continue these measures and are assessing when and how to resume normal operations . the effects of the public health directives and our work-from-home policies may negatively impact productivity , disrupt our business and delay our clinical programs and timelines and future clinical trials , the magnitude of which will depend , in part , on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course . these and similar , and perhaps more severe , disruptions in our operations could negatively impact our business , results of operations and financial condition , including our ability to obtain financing . the pandemic has already caused significant disruptions in the financial markets , and may continue to cause such disruptions , which could impact our ability to raise additional funds to support our operations . moreover , the pandemic has significantly impacted economies worldwide and could result in adverse effects on our business and operations . we are monitoring the potential impact of the covid-19 pandemic on our business and financial statements . to date , we have not incurred impairment losses in the carrying values of our assets as a result of the pandemic and we are not aware of any specific related event or circumstance that would require us to revise our estimates reflected in our consolidated financial statements . we can not be certain what the overall impact of the covid-19 pandemic will be on our business and people . the extent to which the covid-19 pandemic will directly or indirectly impact our business , results of operations , financial condition , and liquidity , including planned and future clinical trials and research and development costs , will depend on future developments that are highly uncertain , including as a result of new information that may emerge concerning covid-19 , the actions taken to contain or treat it , and the duration and intensity of the related effects . components of our results of operations revenue to date , we have not generated any revenue from product sales and do not expect to do so for the next several years . all of our revenue to date has been derived from three collaboration agreements with roche , which we entered into in 2015 , 2017 and 2018 , and , to a lesser extent , from government grants . 100 if our development efforts for our product candidates are successful and result in regulatory approval or license or additional collaboration agreements with third parties , we may generate revenue in the future from product sales , payments from additional collaboration or license agreements that we may enter into with third parties , or any combination thereof . story_separator_special_tag we expect that our revenue for the next several years will be derived primarily from our collaboration agreements with roche as well as any additional collaborations that we may enter into in the future . we can not provide assurance as to the timing of future milestone or royalty payments or that we will receive any of these payments at all . collaboration revenue 2017 license and collaboration agreement with roche in april 2017 , we entered into a second license and collaboration agreement with roche , or the 2017 roche agreement , to allow roche to use our cell squeeze technology to enable gene editing of immune cells to discover new targets in cancer immunotherapy . the 2017 roche agreement includes several licenses granted by roche to us and by us to roche in order to conduct a specified research program in accordance with a specified research plan . under the agreement , we received an upfront payment of $ 5.0 million as a technology access fee and are entitled to ( i ) payments of up to $ 1.0 million as reimbursement for our research costs ; ( ii ) milestone payments of up to $ 7.0 million upon the achievement of specified development milestones ; and ( iii ) annual maintenance fees ranging from $ 0.5 million to $ 0.9 million for each year following the fifth anniversary of the effective date , subject to specified prepayment discounts . we assessed our accounting for the 2017 roche agreement under asc 606 and identified the following promises under the agreement : ( i ) a non-exclusive license granted to roche to perform research related to and use our cell squeeze technology for gene editing of immune cells ; ( ii ) specified research and development services related to gene editing of immune cells through the research term ; ( iii ) manufacturing activities to support the specified research plan ; and ( iv ) participation on a joint research committee , or jrc . we concluded at the outset of the 2017 roche agreement that the first three promises should be combined into a single performance obligation and that the jrc participation had an immaterial impact on the accounting model . we received the upfront payment of $ 5.0 million in april 2017 upon execution of the 2017 roche agreement . we also received the payments of $ 0.5 million in each of 2017 and 2018 related to our reimbursable research costs . in addition , during the third quarter of 2018 , we received a payment of $ 2.0 million following the achievement of the first development milestone under the agreement related to roche 's validation of preclinical proof of concept . we recognize revenue associated with the performance obligation as the research and development services are provided using an input method , based on the cumulative costs incurred compared to the total estimated costs expected to be incurred to satisfy the performance obligation . the amounts received from roche that have not yet been recognized as revenue are deferred as a contract liability in our consolidated balance sheet and will be recognized over the remaining research and development period until the performance obligation is satisfied . during the years ended december 31 , 2020 and 2019 , there were no significant changes in the total estimated costs expected to be incurred to satisfy the performance obligation under the 2017 roche agreement and we recognized revenue of $ 0.5 million and $ 0.7 million , respectively , under the 2017 roche agreement . as of december 31 , 2020 and 2019 , we recorded as a contract liability , deferred revenue related to the 2017 roche agreement of $ 1.2 million and $ 1.7 million , respectively , of which $ 0.8 million and $ 0.7 million , respectively , were current liabilities . as of december 31 , 2020 and 2019 , the research and development services related to the performance obligation were expected to be performed over a remaining period of approximately 1.5 and 2.5 years , respectively . 2018 license and collaboration agreement with roche in october 2018 , we entered into a third license and collaboration agreement with roche , or the 2018 roche agreement , to jointly develop certain products based on mononuclear antigen presenting cells , or apcs , including human papilloma virus , or hpv , using our sqz apc platform for the treatment of oncology indications . we granted roche a non-exclusive license to our intellectual property , and roche granted us a non-exclusive license to its and its affiliates ' intellectual property for the purpose of performing research activities . in connection with this agreement , the parties terminated the original roche agreement entered into in 2015. under the 2018 roche agreement , roche was granted option rights to obtain an exclusive license to develop apc products or products derived from the collaboration programs on a product-by-product basis in oncology and to develop a tumor cell lysate , or tcl , product . for each of the apc products and tcl product , once roche exercises its option and pays a specified incremental amount , roche will receive worldwide , exclusive commercialization rights for the licensed products , subject to our alternating option to retain u.s. apc commercialization rights . through december 31 , 2020 , roche had not exercised any of its options under the 2018 roche agreement .
| during the years ended december 31 , 2020 and 2019 , we recognized total revenue of $ 0.5 million and $ 0.7 million , respectively , under the 2017 roche agreement . grant revenue decreased by $ 0.8 million from the year ended december 31 , 2019 compared to the same period in 2020. grant revenue decreased in 2020 because we did not yet complete all the steps that would allow us to submit a request for reimbursements of qualifying expenses under our existing government grants during the year ended december 31 , 2020. research and development expenses replace_table_token_2_th 105 research and development expenses were $ 51.5 million for the year ended december 31 , 2020 , compared to $ 36.1 million for the year ended december 31 , 2019. the direct costs related to our sqz-pbmc-hpv program increased by $ 4.2 million primarily due to our phase 1 clinical trial of sqz-pbmc-hpv in patients with hpv , which was initiated in january 2020. these direct costs in the year ended december 31 , 2020 included a full year of the costs of a dedicated suite at a contract manufacturing as compared to three months of similar costs in 2019. direct costs incurred for our sqz-aac-hpv program increased by $ 5.4 million due to higher laboratory , consumable , raw materials , as well as costs incurred to transfer technical know-how to our contract manufacturing site . our apc-other programs and our other programs increased by $ 0.8 million and $ 0.5 million , respectively , both due to higher laboratory and consumable materials expenses and raw materials expenses . the increase in personnel-related costs of $ 3.4 million was primarily due to increased headcount in our research and development function . personnel-related costs for the year ended december 31 , 2020 and 2019 included stock-based compensation expense of $ 1.2 million and $ 0.7 million , respectively . facility-related costs increased by $ 2.5 million primarily due to an increase in
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on april 11 , 2005 , mr. rosefsky was appointed president and chief executive officer and the company retained mr. brian c. harriss as senior vice president and chief financial officer . at the time of these appointments , mr. thomas helms , jr. , formerly chairman and chief executive officer , was appointed executive chairman . on june 8 , 2005 , mr. lawrence s. wexler , former president of nacc , was appointed chief operating officer of the company . restructuring program : coincident with the retention of mr. rosefsky , the company commenced a restructuring program to improve sales , reduce costs , streamline operations , focus on higher return activities and increase operating cash flow . refinancing : on june 16 , 2005 , the company refinanced its existing $ 35.0 million amended and restated loan agreement , dated as of february 17 , 2004 , by entering into a financing agreement ( the financing agreement ) , as described in the liquidity and capital requirements discussion below . sales and marketing realignment : in december 2005 , the company restructured and realigned its sales and marketing functions and established a unified organization structure . this action included the remapping of sales territories to better align the company 's sales force with the relative market development of its products , customers and consumers . results of operations for financial reporting purposes , the company has three reporting segments : smokeless tobacco , which principally includes the sale of loose leaf chewing tobacco ; myo , which includes sales of premium cigarette papers and myo tobacco and related products ; and premium manufactured cigarettes . the company launched its premium manufactured cigarette business late in the third quarter of 2003. to date , this business is in a developmental phase and its results have not been significant . as a result of the stoker acquisition , the company also operates a catalog business which sells tobacco and non-tobacco products . the stoker acquisition was completed on november 17 , 2003. story_separator_special_tag both to expand the distribution in the myo area and to enhance recovery from counterfeiting activity . the company attributes its continuing recovery from counterfeiting activity to the litigation instituted by the company against alleged counterfeiters as discussed under part i , item 3 , legal proceedings above . gross profits . for 2004 , gross profit increased 7.0 % to $ 56.7 million from $ 53.0 million for the prior year while gross margins decreased to 49.2 % from 52.2 % . gross profit of the smokeless tobacco segment increased to $ 20.8 million in 2004 from $ 17.1 million for the prior year , or 21.6 % , relating to the stoker acquisition . gross margin of this segment decreased to 45.0 % of net sales in 2004 from 46.5 % of net sales for the prior year . this decrease is attributed primarily to sales of the lower margin stoker brands . gross profit of the myo segment decreased 8.4 % to $ 32.8 million from $ 35.8 million in 2003 due to higher cost of goods with respect to myo premium cigarette papers resulting from a stronger euro in comparison to the u.s. dollar partially offset by the increase in sales relating to the stoker acquisition . the gross margin decreased from 55.3 % of net sales in 2003 to 51.7 % due to the impact of the stronger euro in comparison to the u.s. dollar and to changes in product mix ( greater growth in lower margin products ) . currency . currency movements and suppliers ' price increases relating to premium cigarette papers , cigarette tubes and cigarette injector machines are the primary factors affecting cost of sales . those products are purchased from bolloré on terms of net 45 days and are payable in euros . thus , naoc bears certain foreign exchange risks for its inventory purchases . to minimize this risk , naoc may choose to utilize short-term forward currency contracts , through which naoc secures euros at contract prices in order to provide payment for its monthly purchases of inventory . no forward contracts were utilized in 2004. selling , general and administrative expenses . selling , general and administrative expenses for 2004 increased 13.5 % to $ 37.0 million from the prior year 's $ 32.6 million . this increase was due primarily to stoker expenses of $ 3.3 million ; start-up expenses of nacc 's premium cigarette business of $ 2.2 million ; recruitment expenses of $ 0.4 million ; legal/litigation/lobbying of $ 0.4 million ; sales/marketing expenses of $ 0.2 million ; professional fees of $ 0.1 million ; partially offset by a reduction in compensation and related expenses of $ 2.2 million . amortization expense . amortization of goodwill was eliminated effective january 1 , 2002. amortization expense totaling $ 0.4 million for the year ending december 31 , 2004 related to the intangible assets acquired from stoker . net interest expense and amortization of deferred financing costs . interest expense and amortization of deferred financing costs increased to $ 31.3 million in 2004 from $ 19.1 million for the prior year . this increase was the result of the refinancing of the company 's debt . other expense ( income ) . other income of $ 4.4 million in 2004 represents principally $ 4.5 million associated with the reduction in the judgment rendered against the company in connection with the litigation with republic tobacco , inc as described in part i , item 3 , legal proceedings above . other expense of $ 11.1 million in 2003 primarily represents $ 7.4 million associated with the judgment rendered against the company in connection with the litigation with republic tobacco , inc. and $ 3.3 million associated with the termination of the star cigarette asset purchase agreement . 35 income tax expense ( benefit ) . story_separator_special_tag income tax expense was $ 27.2 million for 2004 , reflecting the net loss of the company and the recording of the valuation reserve relating to the realization of the net deferred taxes of $ 29.7 million . income tax benefit was $ 3.7 million in 2003. net income ( loss ) . due to the factors described above , the company incurred a net loss of $ 34.9 million for 2004 compared to $ 6.2 million for 2003. liquidity and capital requirements the company 's principal uses for cash are working capital , debt service , its annual msa escrow account deposit and capital expenditures . the company 's principal sources of cash are from operating cash flows and from borrowings under its revolving credit facility . as described below , natc consummated the refinancing of its existing amended and restated loan agreement on june 16 , 2005. working capital was $ 19.5 million at december 31 , 2005 compared to $ 16.8 million at december 31 , 2004. this increase was the result of the decrease in the revolving credit facility of $ 14.5 million offset by decreased accounts receivable of $ 1.1 million , decreased inventories of $ 7.4 million , increased accounts payable and accrued expenses of $ 1.6 million , and a lower cash balance of $ 1.8 million . as of december 31 , 2005 , natc had an undrawn availability of approximately $ 55.0 million under the revolving credit portion of its financing agreement . during 2005 , the company had $ 4.8 million ( including $ 1.2 million relating to deposits recorded in other current assets in 2004 ) in capital expenditures . the company believes that its capital expenditure requirements for 2006 will be between $ 2.5 million and $ 3.0 million . management believes that it will be able to fund its capital expenditure requirements from operating cash flows and , if needed , borrowings under the financing agreement . for the year ended december 31 , 2005 , net cash provided by operating activities was $ 30.4 million compared with $ 4.2 million for the year ended december 31 , 2004. this change was due primarily to reductions in inventory and other current assets and an increase in net income resulting from the gain on the repurchase of the senior discount notes . for the year ended december 31 , 2005 , net cash used in investing activities was $ 4.8 million ( including $ 1.2 million relating to deposits recorded in other current assets in 2004 ) compared with $ 3.3 million for the year ended december 31 , 2004. this change was due to investing in capital expenditures . for the year ended december 31 , 2005 , net cash used in financing activities was $ 27.4 million compared with $ 1.1 million for the year ended december 31 , 2004. this change was due primarily to the repurchase of the senior discount notes . on february 17 , 2004 , natc consummated the refinancing of its existing debt and preferred stock . the refinancing consisted principally of ( 1 ) the offering and sale of $ 200.0 million principal amount of the senior notes ( the new senior notes ) by natc , ( 2 ) the entering into of an amended and restated loan agreement that provides a $ 50.0 million senior secured revolving credit facility to natc and ( 3 ) the concurrent sale of $ 97.0 million aggregate principal amount at maturity of senior discount notes of the company . the new senior notes are senior unsecured obligations of natc , mature on march 1 , 2012 and are guaranteed on a senior unsecured basis by all of natc 's existing and certain of its future subsidiaries . the new senior notes bear interest at the rate of 9 1 / 4 % per annum from the date of issuance , or from the most recent date to which interest has been paid or provided for , and interest is payable semiannually on march 1 and september 1 of each year . natc is not required to make mandatory redemptions or sinking fund payments prior to the maturity of the notes . natc or the company may from time to time seek to retire all or a portion of the new senior notes through cash purchases and or exchanges for other securities in open market purchases , privately negotiated transactions or otherwise . on and after march 1 , 2008 , the new senior notes are redeemable , at natc 's option , in whole at any time or in part from time to time , upon not less than 30 nor more than 60 days prior notice at the following redemption prices ( expressed in percentages of principal amount ) , if redeemed during the 12-month period commencing march 1 of the years set forth below , plus accrued and unpaid interest to the redemption date ( subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date ) : 36 replace_table_token_3_th in addition , prior to march 1 , 2008 , natc may redeem the new senior notes , at its option , in whole at any time or in part from time to time , upon not less than 30 nor more than 60 days prior notice at a redemption price equal to 100 % of the principal amount of the new senior notes redeemed plus a make-whole premium based on u.s. treasury rates as of , and accrued and unpaid interest to , the applicable redemption date .
| gross profit of the smokeless tobacco segment decreased to $ 20.4 million in 2005 from $ 20.8 million for the prior year , or 1.8 % , while gross margin of this segment increased to 46.4 % of net sales in 2005 from 45.0 % of net sales for the prior year . this increase is attributed primarily to a price increase instituted during 2005. gross profit of the myo segment increased 12.8 % to $ 37.0 million from $ 32.8 million in 2004 due to an increase in myo sales volumes and a weakening euro in comparison to the u.s. dollar coupled with a price increase and reduced customer incentives instituted during 2005. currency . currency movements and suppliers ' price increases relating to premium cigarette papers , cigarette tubes and cigarette injector machines are the primary factors affecting cost of sales . those products are purchased from bolloré on terms of net 45 days and are payable in euros . thus , naoc bears certain foreign exchange risks for its inventory purchases . to minimize this risk , naoc may choose to utilize short-term forward currency contracts , through which naoc secures euros in order to provide payment for its monthly purchases of inventory . in january 2000 , the company adopted sfas no . 133 and in july 2005 , the board of the company approved the company 's foreign exchange risk management policy and procedures . during 2005 , the company executed various forward contracts for the purchase of $ 6.7 million euros with maturity dates from october 20 , 2005 to july 28 , 2006. forward contracts that qualify as hedges are adjusted to their fair value through other comprehensive income as determined by market prices on the measurement date except any ineffectiveness which is currently recognized in income . gains and losses on these contracts are transferred from other comprehensive income into net income as the related inventories are received . as of december 31 , 2005 , the company recognized
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these actions , together with responses to the pandemic by businesses and individuals , have resulted in rapid decreases in commercial and consumer activity , temporary , and some permanent , closures of many businesses that have led to a loss of revenues and a rapid increase in unemployment , material decreases in business valuations , disrupted global supply chains , market downturns and volatility , changes in consumer behavior related to pandemic fears ( including a decline in demand for banking products or services , including loans and deposits which could impact our future financial condition , results of operations and liquidity ) , related emergency response legislation and an expectation that federal reserve policy will maintain a low interest rate environment for the foreseeable future . although financial markets have rebounded from significant declines that occurred 31 earlier in the pandemic and global economic conditions showed signs of improvement beginning during the second quarter of 2020 , many of the effects that arose or became more pronounced after the onset of the covid-19 pandemic have persisted through the end of the year . these changes have had and are likely to continue to have a significant adverse effect on the markets in which we conduct our business and the demand for our products and services . our business and consumer customers are experiencing varying degrees of financial distress , which is expected to continue into the first quarter of 2021 and beyond , especially if covid-19 infections increase and new economic restrictions are mandated . our borrowing base includes customers in industries such as hotel/lodging , restaurants , and retail , all of which have been and are likely to continue to be significantly impacted by the covid-19 pandemic . we recognize that these industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on a more permanent basis as a result of the pandemic . we continue to monitor these customers closely . future economic conditions are subject to significant uncertainty . we have taken deliberate actions to ensure that we have the balance sheet strength to serve our clients and communities , including increases in liquidity and managing our assets and liabilities in order to maintain a strong capital position . current economic pressures and their effects on our customers , coupled with the implementation of the cecl expected loss methodology for determining our allowance for credit losses , have contributed to a substantially increased provision for credit losses in 2020. we continue to monitor closely the impact of the covid-19 pandemic on our customers , as well as the effects of the cares act . uncertainties associated with the pandemic include the duration of the outbreak ( including the impact of new variants of the virus that may be resistant to the various vaccines available ) , the impact to our customers , employees and vendors and the impact to the economy as a whole . covid-19 has had , and is expected to continue to have , a significant adverse impact on our business , financial position and operating results . the extent to which the covid-19 pandemic will impact our operations and financial results in 2021 can not be fully estimated at this time . in march 2020 , the coronavirus aid , relief and economic security ( “ cares ” ) act was signed into law . the cares act includes provisions for the paycheck protection program ( “ ppp ” ) offered through the u.s. small business administration ( “ sba ” ) . loans originated under this program have a contractual rate of interest of 1 % with principal and interest that may be forgiven provided that the borrower uses the funds in a manner consistent with ppp guidelines . seacoast assisted borrowers in 2020 with more than 5,500 loans originated through the ppp and , when combined with ppp loans acquired from freedom bank , outstanding balances totaled $ 567.0 million at december 31 , 2020. the sba established a fee structure based on loan size . fees received by seacoast , net of related costs , totaled $ 17.2 million , and are deferred and recognized as an adjustment to yield over time . seacoast recognized net fees of $ 7.8 million and contractual interest of $ 4.2 million on ppp loans in 2020. the remaining $ 9.5 million in deferred ppp loan fees at december 31 , 2020 will be recognized over the loans ' remaining contractual maturity or sooner , as loans are forgiven . in january 2021 , the company began accepting applications for the re-opening of the ppp lending program on our fully digital origination platform . as of february 18 , 2021 , the company had originated approximately 1,800 loans totaling $ 180 million under the latest round of ppp . loan modifications the cares act , as amended by the consolidated appropriations act on december 27 , 2020 , provides financial institutions the option to exclude from troubled debt restructuring ( “ tdr ” ) consideration certain loan modifications that might otherwise be categorized as tdrs under asc 310-40 in order to assist borrowers financially impacted by covid-19 . this option is available for modifications that are deemed to be covid-related , where the borrower was not more than 30 days past due on december 31 , 2019 , and the modification is executed between march 1 , 2020 and the earlier of ( i ) january 1 , 2022 or ( ii ) 60 days after the end of the covid-19 national emergency . federal banking regulators issued similar guidance that also allows lenders to conclude that short-term modifications for borrowers financially affected by the pandemic should not be considered tdrs if the borrower was current at the time of modification . story_separator_special_tag seacoast began offering payment accommodations to eligible borrowers in march 2020 and , at december 31 , 2020 , $ 74.1 million of loans , or 1 % of total loans , had active payment accommodations , down 93 % from a peak of $ 1.1 billion in the second quarter of 2020. none of these loans have been classified as tdrs . during the payment accommodation period , seacoast typically continues to recognize interest income . adoption of new accounting for credit losses on january 1 , 2020 , the company adopted asc topic 326 - financial instruments - credit losses , which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ( “ cecl ” ) methodology . the adoption resulted in an increase to the allowance for credit losses on loans of $ 21.2 million and an addition to the reserve for unfunded lending-related commitments of $ 1.8 million . 32 2020 financial performance highlights steady build of shareholder value through consistent growth in tangible book value per share , which ended the period at $ 16.16 , an increase of 15 % during the fourth quarter on an annualized basis . the tangible common equity ratio of 11 % supports seacoast 's ability to deploy capital for organic growth and opportunistic acquisitions . record net income of $ 29.3 million in the fourth quarter , increasing 30 % quarter-over-quarter . record levels of mortgage banking fees and wealth management income in 2020 , reflecting increases of 126 % and 18 % , respectively , from 2019. the successful acquisitions of first bank of the palm beaches and freedom bank added experienced bankers while expanding the company 's presence in attractive growth markets , which we believe will further support sustainable , profitable growth . total deposits per banking center were $ 135.9 million at december 31 , 2020 , an increase of 17 % from $ 116.3 million one year earlier . continued discipline around expenses , primarily achieved through focus on reducing overhead and streamlining business and cost savings processes , achieving a fourth quarter 2020 efficiency ratio below 50 % . results of operations story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > in 2020 , net interest income and the net interest margin reflect the impact of interest rate cuts by the federal reserve in the first quarter of 2020 in response to the covid-19 pandemic . loans and security yields contracted by 59 and 67 basis points , respectively , offset by a decline in the cost of deposits by 37 basis points . the impact on net interest margin from accretion of purchase discounts on acquired loans was 21 basis points in 2020 , compared to 25 basis points in 2019. ppp loans decreased net interest margin by three basis points in 2020. table 2 presents the company 's average balance sheets , interest income and expenses , and yields and rates , for the past three years . the following table details the trend for net interest income and margin results ( on a fully taxable equivalent basis ) 1 , yield on earning assets and rate on interest bearing liabilities . ( in thousands , except percentages ) net interest income 1 net interest margin 1 yield on earning assets 1 rate on interest bearing liabilities fourth quarter 2019 $ 61,846 3.84 % 4.49 % 0.98 % first quarter 2020 63,291 3.93 4.54 0.90 second quarter 2020 67,388 3.70 4.03 0.51 third quarter 2020 63,621 3.40 3.65 0.40 fourth quarter 2020 68,903 3.59 3.80 0.33 1 on a fully taxable equivalent basis - see “ explanation of certain unaudited non-gaap financial measures ” for more information and a reconciliation to gaap . total average loans increased $ 745.3 million , or 15 % , during 2020 compared to 2019 with growth attributed primarily to loans originated in the ppp , and the two bank acquisitions completed in 2020. average investment securities balances increased $ 99.6 million , or 8 % , during 2020 compared to 2019. average loans ( the highest yielding component of earning assets ) as a percentage of average earning assets totaled 79 % in 2020 and 2019. the mix of loans has remained stable , with volumes related to commercial real estate representing 52 % of total loans , excluding ppp loans , at december 31 , 2020 , compared to 49 % at december 31 , 2019. residential loan balances with individuals ( including home equity loans and lines and personal construction loans ) represented 28 % of total loans , excluding ppp loans , at december 31 , 2020 compared to 32 % at december 31 , 2019 . ( see “ loan portfolio ” ) . 1 non-gaap measure - see “ explanation of certain unaudited non-gaap financial measures ” for more information and a reconciliation to gaap . 34 loan production is detailed in the following table for the periods specified : replace_table_token_3_th commercial and commercial real estate loan production in 2020 totaled $ 655.8 million , compared to $ 1.1 billion in 2019. during 2019 , the company acquired $ 72.4 million in fixed-rate commercial real estate loans from the wholesale market . no purchases were made in the wholesale market during 2020. residential loan production totaled $ 638.6 million in 2020 compared to $ 523.6 million in 2019 . 2019 includes purchases of residential loans from the wholesale market totaling $ 134.7 million . no purchases were made in the wholesale market during 2020. consumer originations totaled $ 219.3 million during 2020 compared to $ 214.5 million during 2019. seacoast originated more than 5,500 loans to borrowers through the ppp program for $ 599.0 million in 2020 , and acquired $ 55.0 million in ppp loans from freedom bank .
| the change reflects the impact on net income of increased provisioning for credit losses in 2020 attributed to the adoption of cecl on january 1 , 2020 , and the financial impact of the covid-19 pandemic , as well as growth in the balance sheet resulting from ppp loans , acquisitions , and higher deposit balances . in 2020 , the company 's efficiency ratio , defined as noninterest expense less foreclosed property expense and amortization of intangibles divided by net operating revenue ( net interest income on a fully tax equivalent basis plus noninterest income excluding securities gains and losses ) , was 54.84 % , compared to 51.71 % for 2019. changes from the prior year reflect higher 2020 expenses , including acquisition-related costs , partially offset by lower funding costs and increases in noninterest income . the adjusted efficiency ratio 1 in 2020 was 51.63 % compared to 50.90 % in 2019. the company expects to maintain an adjusted efficiency ratio in the low 50s for the full year 2021 . 33 net interest income and margin net interest income for the year ended december 31 , 2020 totaled $ 262.7 million , increasing $ 19.1 million , or 8 % , compared to the year ended december 31 , 2019. net interest income ( on a fully taxable equivalent basis ) 1 for the year ended december 31 , 2020 was $ 263.2 million , increasing $ 19.3 million , or 8 % , compared to the year ended december 31 , 2019. in 2020 and 2019 , net interest margin was 3.65 % and 3.92 % , respectively . < span
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the poster presented the following findings : ◦ 100 % of evaluable patients ( n=13 ) demonstrated tumor reduction with a clinical benefit ( disease control rate ) in 92 % of patients ( 12/13 ) ; ◦ 69.2 % ( 9/13 ) orr , with best responses of cr or pr ; ◦ 100 % ( 5/5 ) orr ( cr + pr ) , with one cr and four prs observed in pd-l1 high patients ; 66 ◦ 50 % ( 4/8 ) orr ( cr + pr ) , with four prs observed in pd-l1 low patients ; and ◦ safety data showed that the triple combination treatment with eganelisib , atezolizumab , and nab-paclitaxel demonstrated safety in line with expectations of the component drugs with no additive or new safety signals . the most common ≥ grade 3 treatment-emergent adverse events were decreased neutrophil count ( 21.4 percent ) , diarrhea ( 14.3 percent ) , and rash ( 14.3 percent ) . only one patient ( 7.1 percent ) experienced ≥ grade 3 alt/ast increase , and this patient had a grade 3 elevation . we expect to complete enrollment for the mario-3 tnbc cohort in the second half of 2021 and expect to present data regarding pfs and updated orr data for the tnbc cohort in the first and the second half of 2021. enrollment is complete in the rcc cohort and we expect to present data from the rcc cohort in the first half of 2022. mario-1 enrollment is complete in mario-1 , our phase 1/1b clinical study designed to evaluate the safety , tolerability , pharmacokinetics , pharmacodynamics , and activity for eganelisib — both as a monotherapy and in combination with nivolumab — in 224 patients with advanced solid tumors . the study included a dose escalation portion and a combination therapy expansion portion evaluating patients dosed at 40 mg qd of eganelisib in combination with the standard regimen of nivolumab in the following forms of cancer : non-small cell lung cancer , melanoma , squamous cell carcinoma of the head and neck , or scchn , tnbc , mesothelioma , adrenocortical carcinoma , and those with high baseline blood levels of mdscs . we provided updated data for the melanoma expansion cohort and scchn expansion cohort at the 2021 annual meeting of the society for immunotherapy of cancers . data from both cohorts shows evidence of clinical activity in patients not expected to benefit from checkpoint inhibitor , or cpi , monotherapy due to immediate prior progression on a cpi . safety data from both cohorts indicates the combination therapy was generally well tolerated and associated with a favorable safety profile . arcus collaboration trial in december 2020 , arcus biosciences , inc. , or arcus , presented data at sabcs from the phase 1/1b clinical study collaboration between infinity and arcus on arc-2 , a study designed to evaluate each company 's respective drug candidates in up to 40 patients with previously treated , advanced tnbc and ovarian cancer . the arc-2 sabcs data showed that a novel triple-combination regimen of eganelisib in combination with etrumadenant , arcus 's dual adenosine receptor antagonist , and liposomal doxorubicin chemotherapy , also known as doxil® , lead to a meaningful increase in response in tnbc patients . the companies have determined that these findings are sufficient to guide their internal development plans and have decided to close enrollment while allowing existing patients to remain on treatment . etrumadenant is an orally bioavailable , highly potent antagonist of the adenosine 2a and 2b receptors . the activation of these receptors by adenosine interferes with the activity of key populations of immune cells and inhibits the body 's optimal anti-tumor immune response . by blocking these receptors , etrumadenant has the potential to reverse adenosine-induced immune suppression within the tumor microenvironment . as both macrophages and high adenosine levels are believed to play critical roles in creating a highly immunosuppressive tumor microenvironment in cancer after treatment with chemotherapy , the novel immuno-oncology combination being evaluated in this setting represents a potentially promising approach to treating tnbc and ovarian cancer . recent events on february 11 , 2021 , we entered into a purchase agreement with piper sandler & co. , as representative of the underwriters named therein , pursuant to which we issued and sold to the underwriters in an underwritten public offering an aggregate of 24,150,000 shares of our common stock , including 3,150,000 shares of common stock sold in connection with the exercise in full of a 15 % over-allotment option by the underwriters . the public offering price was $ 3.80 per share . the gross proceeds to us from this offering were approximately $ 91.8 million . after underwriting discounts and commissions and estimated offering expenses , we received net proceeds from the offering of approximately $ 86.0 million . 67 financial overview revenue to date , all of our revenue has been generated under collaboration agreements , including payments to us of upfront license fees , funding or reimbursement of research and development efforts , milestone payments if specified objectives are achieved , and royalties on product sales . in the future , we may generate revenue from a combination of product sales , research and development support services and milestone payments in connection with strategic relationships , as well as royalties resulting from the sales of products developed under licenses of our intellectual property . we expect that any potential future revenue we generate will fluctuate from year to year as a result of the timing and amount of license fees , research and development reimbursement , milestone , royalty and other payments earned under our collaborative or strategic relationships and the amount and timing of payments that we earn upon the sale of our products , to the extent any are successfully commercialized . research and development expense we are a drug development company . story_separator_special_tag our research and development expense has historically consisted primarily of the following : compensation of personnel associated with research and development activities ; clinical testing costs , including payments made to contract research organizations ; costs of combination and comparator drugs used in clinical studies ; costs of manufacturing product candidates for preclinical testing and clinical studies ; costs associated with the licensing of research and development programs ; preclinical testing costs , including costs of toxicology studies ; fees paid to external consultants ; fees paid to professional service providers for independent monitoring and analysis of our clinical trials ; costs for collaboration partners to perform research and development activities , including development milestones for which a payment is due when achieved ; depreciation of equipment ; and allocated costs of facilities . general and administrative expense general and administrative expense primarily consists of compensation of personnel in executive , finance , accounting , legal and intellectual property , information technology , corporate communications , and human resources functions . other costs include facilities costs not otherwise included in research and development expense and professional fees for legal and accounting services . royalty expense royalty expense is recorded when incurred and represents the expense associated with amounts owed to third parties as a result of royalty revenue recognized and the amounts owed by us to takeda in relation to sale of future royalties . other income and expense other income and expense typically consist of interest earned on cash , cash equivalents and available-for-sale securities , non-cash interest expense , and changes in fair value of warrant liability . 68 critical accounting policies and significant judgments and estimates the following discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make judgments , estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . on an ongoing basis , we evaluate our estimates , including those related to cumulative revenue related to variable consideration , accrued expenses , estimates of future net royalty payments used in the calculation of our liability related to the sale of future royalties , and assumptions in the valuation of stock-based compensation . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results could differ from those estimates . differences between actual and estimated results have not been material and have been adjusted in the period they become known . we believe that the following accounting policies and estimates are most critical to understanding and evaluating our reported financial results . please refer to note 2 to our consolidated financial statements included in this report for a description of our significant accounting policies . revenue recognition to date , all our revenue has been generated under collaboration agreements , including payments to us of upfront license fees , funding or reimbursement of research and development efforts , milestone payments if specified objectives are achieved , and or royalties on product sales . we recognize revenue when we transfers goods or services to customers in an amount that reflects the consideration that we expect to receive for those goods or services . these principles are applied using a five-step model : 1 ) identify the customer contract ; 2 ) identify the contract 's performance obligations ; 3 ) determine the transaction price ; 4 ) allocate the transaction price to the performance obligations ; and 5 ) recognize revenue when or as a performance obligation is satisfied . we evaluate all promised goods and services within a customer contract and determine which of those are separate performance obligations . this evaluation includes an assessment of whether the good or service is capable of being distinct and whether the good or service is separable from other promises in the contract . when a performance obligation is satisfied , we recognize as revenue the amount of the transaction price , excluding estimates of variable consideration that are constrained , that is allocated to that performance obligation . for contracts that contain variable consideration , such as milestone payments , we estimate the amount of variable consideration by using either the expected value method or the most likely amount method . in making this assessment , we evaluate factors such as the clinical , regulatory , commercial and other risks that must be overcome to achieve the milestone . each reporting period we re-evaluate the probability of achievement of such milestones and any related constraints . we will include variable consideration , without constraint , in the transaction price to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved . we recognize sales-based milestones and royalty revenue based upon net sales by the licensee of licensed products in licensed territories , and in the period the sales occur under the sales- and usage-based royalty exception when the sole or predominate item to which the royalty relates is a license to intellectual property . in the event of an early termination of a collaboration agreement , any contract liabilities would be recognized in the period in which all our obligations under the agreement have been fulfilled . accrued expenses as part of the process of preparing financial statements , we are required to estimate accrued expenses . this process involves identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for such service as of each balance sheet date . examples of services for which we must estimate accrued expenses include contract service fees paid to contract manufacturers in conjunction with pharmaceutical development work and to contract research organizations in connection with clinical trials and preclinical studies .
| research and development expense for the year ended december 31 , 2020 , we recognized approximately $ 26.8 million in research and development expense , a decrease of approximately 1 % as compared to approximately $ 27.1 million in research and development expense for the year ended december 31 , 2019. research and development expenses represented approximately 67 % and 56 % of our total operating expenses for the years ended december 31 , 2020 and 2019 , respectively . we began to track and accumulate costs by major program starting on january 1 , 2006. these expenses primarily relate to payroll and related expenses for personnel working on the programs , process development and manufacturing , preclinical toxicology studies , clinical trial costs and allocated costs of facilities . during the years ended december 31 , 2020 and 2019 and from january 1 , 2006 through december 31 , 2020 , we estimate that we incurred $ 26.8 million , $ 27.1 million and $ 683.4 million , respectively , on our pi3k inhibitor program , including eganelisib and duvelisib . 70 we expect our research and development expense to increase as a result of our continued clinical development of eganelisib . we do not believe that the historical costs associated with our lead drug development programs are indicative of the future costs associated with these programs , nor represent what any other future drug development programs we initiate may cost . due to the variability in the length of time and scope of activities necessary to develop a product candidate and uncertainties related to our cost estimates and our ability to obtain marketing approval for eganelisib or any future product candidates we may develop , accurate and meaningful estimates of the total costs required to bring product candidates to market are not available . because of the risks inherent in drug development , we can not reasonably estimate or know : the nature , timing and estimated costs of the efforts necessary to complete the development of our programs ; the
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for brazil , we expect higher volumes in the third and fourth calendar quarters . the first quarter is generally the weakest , driven by heavy consumer vacations and activities associated with carnival . other factors unrelated to seasonality , such as changes in economic condition , manufacturer incentive programs and changes in currency exchange rates may exaggerate seasonal or cause counter-seasonal fluctuations in our reported revenues and operating income . according to u.s. industry experts , the annual new light vehicle unit sales for 2015 increased 953 thousand units , or 5.8 % , to 17.4 million units , compared to 16.5 million units in 2014 . automotive sales in the u.k. increased 6.3 % to 2.6 million during 2015 as compared to the same period a year ago . the brazilian economy represents the seventh largest economy in the world and until recently has been one of the fastest growing . however , the brazilian economy is in recession and is facing many challenges . new vehicle registrations in brazil declined 25.6 % during 2015 as compared to the same period a year ago to 2.5 million . on a consolidated basis for the year ended december 31 , 2015 , our total revenues increased 7.0 % from 2014 to $ 10.6 billion and gross profit improved 5.9 % to $ 1.5 billion . for the years ended december 31 , 2014 and 2013 , total revenues were $ 9.9 billion and $ 8.9 billion , respectively . for the years ended december 31 , 2014 and 2013 , gross profits were $ 1.4 billion and $ 1.3 billion , respectively . we generated net income of $ 94.0 million , or $ 3.90 per diluted common share for the year ended december 31 , 2015 , compared to $ 93.0 million , or $ 3.60 per diluted share for the year ended december 31 , 2014 and $ 114.0 million , or $ 4.32 per diluted share for the year ended december 31 , 2013 . in addition to the matters described above , the following factors impacted our financial condition and results of operations in 2015 , 2014 , and 2013 : year ended december 31 , 2015 : asset impairments : as a result of our determination that the fair value of goodwill in our brazil reporting units did not exceed its carrying value , we recorded a $ 55.4 million pretax non-cash asset impairment charge . in addition , as a result of our determination that the fair value of indefinite-lived intangible franchise rights related to certain of our franchises did not exceed their carrying value , we recognized a $ 30.1 million pretax non-cash impairment charge , of which $ 18.1 million related to intangible franchise rights in our two u.s. reporting units and $ 12.0 million related to intangible franchise rights in our brazil reporting unit . also , we recognized $ 2.1 million in pre-tax non-cash asset impairment charges associated with non-operating real estate holdings and other long-lived assets of our existing dealership facilities . in total , we recognized $ 87.6 million in pretax non-cash impairment charges . catastrophic events : our results were negatively impacted by several catastrophic events . insurance deductibles and other related expenses totaling $ 1.6 million were recognized as sg & a expenses as a result of snow storms and flooding during the year . real estate and dealership disposition transactions : we disposed of two u.s. dealerships and terminated one u.s. dealership franchise . we also terminated two franchises in brazil . as a result , we recognized a pre-tax net gain on sale of dealerships and real estate transactions of $ 8.2 million , as a reduction of sg & a expenses . in addition , we disposed of real estate during the year and received cash proceeds of $ 3.3 million , recognizing a net gain of $ 0.2 million . year ended december 31 , 2014 : extinguishment of long-term debt : we extinguished our 2.25 % convertible senior notes due 2036 ( “ 2.25 % notes ” ) and 3.00 % convertible senior notes due 2020 ( “ 3.00 % notes ” ) and recognized an aggregate loss for 2014 of $ 46.4 million . asset impairments : primarily related to our determination that the fair value of indefinite-lived intangible franchise rights related to certain of our franchises did not exceed their carrying value and an impairment charge was required , we recorded a $ 31.0 million pretax non-cash impairment charge . we also recognized a total of $ 10.5 million in pre-tax non-cash asset impairment charges related to impairment of various real estate holdings and other long-lived assets . non-cash interest expense : our 2014 results were negatively impacted by $ 7.2 million of non-cash interest expense relative to the amortization of the discount associated with our 2.25 % notes and 3.00 % notes representing the impact of the accounting for convertible debt as required by financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 470 , debt ( “ asc 470 ” ) . catastrophic events : our results were negatively impacted by several catastrophic events . insurance deductibles and other related expenses totaling $ 2.8 million were recognized as sg & a expense as a result of snow storms , windstorms , and hail damage during the year . 40 real estate and dealership disposition transactions : positively impacting our 2014 results was a pre-tax net gain on sale of dealerships of $ 13.3 million . foreign deductible goodwill : we recognized a $ 3.4 million tax benefit in 2014 , as a result of a restructuring in brazil that created tax deductible goodwill . year ended december 31 , 2013 : asset impairments : we determined that the fair value of indefinite-lived intangible franchise rights related to four of our franchises did not exceed their carrying value and an impairment charge was required . accordingly , we recorded a $ 5.4 million pretax non-cash impairment charge during the fourth quarter of 2013. story_separator_special_tag we also recognized a total of $ 1.1 million in pretax non-cash asset impairment charges related to impairment of various long-lived assets . non-cash interest expense : our 2013 results were negatively impacted by $ 10.8 million of non-cash interest expense relative to the amortization of the discount associated with our 2.25 % notes and 3.00 % notes representing the impact of the accounting for convertible debt as required by fasb asc 470. catastrophic events : our results were negatively impacted by several catastrophic events . insurance deductibles and other related expenses totaling $ 12.2 million were recognized as sg & a expense as a result of snow storms , windstorms , and hail damage . acquisition costs : primarily due to our acquisition of uab motors in february 2013 , we incurred a total of $ 6.2 million in acquisition costs . net gain on real estate and dealership disposition transactions : positively impacting our 2013 results was a pre-tax net gain on sale of dealerships of $ 10.4 million . key performance indicators the following table highlights certain of the key performance indicators we use to manage our business : consolidated statistical data replace_table_token_9_th the following discussion briefly highlights certain of the results and trends occurring within our business . throughout the following discussion , references may be made to same store results and variances which are discussed in more detail in the “ results of operations ” section that follows . our results are impacted by changes in exchange rates relating to our u.k. and brazil segments . as exchange rates fluctuate , our results of operations as reported in u.s. dollars fluctuate . for example , if the british pound sterling were to weaken against the u.s. dollar , our u.k. results of operations would translate into less u.s. dollar reported results . during the twelve months ended december 31 , 2015 , the british pound sterling weakened against the u.s. dollar as the average exchange rate decreased 7.7 % compared to the same period in 2014. the brazilian real also weakened against the u.s. dollar as the a 41 verage exchange rate declined 41.6 % as compared to the same period in 2014. for the twelve months ended december 31 , 2014 , the british pound strengthened against the u.s. dollar as the average rate increased 5.1 % , as compared to the same period in 2013. the brazilian real weakened against the u.s. dollar as the average rate declined 8.5 % as compared to the same period in 2013 . 2015 compared to 2014 our consolidated revenues from new vehicle retail sales increased 4.5 % for the twelve months ended december 31 , 2015 , as compared to the same period in 2014. this growth was primarily a result of better industry conditions in both the u.s. and the u.k. , dealership acquisition activity , and the continued execution of key initiatives by our operating team . u.s. industry sales rose 5.8 % to a record 17.4 million units for the year ended 2015 as compared to 16.5 million units in 2014. in the u.k. , industry sales also set a record with registrations increasing 6.3 % to 2.6 million units as compared to the same period in 2014. in the u.s. and u.k. , our new vehicle retail unit sales rose 5.1 % and 27.3 % , for the year ended december 31 , 2015 , respectively , from 2014 levels . our new vehicle unit sales growth in the u.s. and u.k. was partially offset by a 19.2 % decline in brazil for the year ended december 31 , 2015 as compared to the same period in 2014. the decline reflects overall weaker industry unit sales and dealership dispositions . in brazil , industry sales declined for the year ended december 31 , 2015 by 25.6 % as compared to the same period in 2014 to 2.5 million units . this decline was primarily due to decreased consumer confidence , higher interest rates and the expiration of the government sponsored auto purchase tax incentive at the end of 2014. consolidated new vehicle retail gross margin declined 30 basis points to 5.1 % for the twelve months ended december 31 , 2015 , as compared to the same period in 2014 , primarily reflecting the competitive selling environments in most of the u.s. and u.k. markets in which we operate . our used vehicle results are directly affected by economic conditions , the level of manufacturer incentives on new vehicles and new vehicle financing , the number and quality of trade-ins and lease turn-ins , the availability of consumer credit , and our ability to effectively manage the level and quality of our overall used vehicle inventory . the improving industry conditions in the u.s. and u.k. that have benefited new vehicle sales also supported used vehicle demand . as a result , our revenues from used vehicle retail sales increased 13.5 % for the twelve months ended december 31 , 2015 , as compared to the same period in 2014. we generated increases of 14.6 % and 24.1 % in the u.s. and u.k. , respectively . these increases were partially offset by a 29.7 % decline in brazil , as the result of weaker exchange rates in 2015. on a local currency basis , brazil 's used vehicle retail revenues were relatively flat for the year ended december 31 , 2015 , compared to the same period in 2014. used vehicle retail gross profit increased for the twelve months ended december 31 , 2015 , primarily as a result of growth in used vehicle retail unit sales of 13.0 % , reflecting increases of 12.1 % and 30.7 % in the u.s. and u.k. , respectively .
| for example , if the british pound sterling were to weaken against the u.s. dollar , our u.k. results of operations would translate into less u.s. dollar reported results . the british pound sterling weakened against the u.s. dollar as the average exchange rate during the twelve months ended december 31 , 2015 decreased 7.7 % compared to the same period in 2014. the brazilian real weakened against the u.s. dollar , as well . the average exchange rate during the twelve months ended december 31 , 2015 declined 41.6 % as compared to the same period in 2014. for the twelve months ended december 31 , 2014 , the british pound strengthened against the u.s. dollar as the average rate increased 5.1 % , as compared to the same period in 2013. the brazilian real weakened against the u.s. dollar as the average rate during the twelve months ended december 31 , 2014 declined 8.5 % as compared to the same period in 2013 . 50 new vehicle retail data ( dollars in thousands , except per unit amounts ) replace_table_token_11_th 51 the following table sets forth our same store retail unit sales volume and the percentage changes from year to year by manufacturer : same store new vehicle unit sales replace_table_token_12_th in total , our same store new vehicle retail unit sales improved in many of our major brands highlighted by a 9.2 % improvement in ford/lincoln , a 3.4 % increase in toyota/lexus and a 6.4 % increase in honda/acura , as well as a 9.5 % increase in chrysler/dodge/jeep/ram , a 6.3 % increase in chevrolet/gmc/buick/cadillac , and a 5.1 % increase in hyundai/kia . these improvements were primarily driven by our same store u.s. operations that grew new vehicle retail unit sales by 3.6 % for the year ended december 31 , 2015 , led by increases of 4.7 % in toyota/scion/lexus , 5.3 % in ford/lincoln , 9.5 % in chrysler/dodge/jeep/ram , 6.3 % in chevrolet/gmc/buick/cadillac , 4.3 % in honda/acura and a 5.1 % in hyundai/kia , as compared to the same period in 2014. the focus that we have placed on capturing market share by improving our
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we expect additional expenses to be incurred and customer activity to be impacted in the first quarter of 2018 , primarily related to our operations in puerto rico . we have recognized insurance recoveries related to those hurricane losses in the amount of approximately $ 93 million for the year ended december 31 , 2017 as an offset to the costs incurred within cost of services in our consolidated statements of comprehensive income and as an increase to other current assets in our consolidated balance sheets . we continue to assess the damage of the hurricanes and work with our insurance carriers to submit claims for property damage and business interruption . we expect to record additional insurance recoveries related to these hurricanes in future periods . replace_table_token_8_th 27 story_separator_special_tag ze:10pt ; '' > the mvno transaction ; and the negative impact from hurricanes of approximately $ 37 million . branded prepaid revenues increased $ 827 million , or 10 % , primarily from : a 7 % increase in average branded prepaid customers primarily driven by growth in the customer base ; and a 2 % increase in branded prepaid arpu from the success of our metropcs brand and the optimization of our third-party distribution channels ; partially offset by the negative impact from hurricanes of approximately $ 11 million . wholesale revenues increased $ 199 million , or 22 % , primarily from the impact of the mvno transaction , growth in mvno customers and higher minimum commitment revenues . roaming and other service revenues decreased $ 20 million , or 8 % . equipment revenues increased $ 648 million , or 7 % , primarily from : an increase of $ 445 million in device sales revenues excluding purchased lease devices , primarily due to : higher average revenue per device sold due to an increase in the high-end device mix and the impacts of an oem recall of its smartphone devices in 2016 , partially offset by an increase in promotions and device-related commissions spending ; partially offset by a 2 % decrease in the number of devices sold , excluding purchased lease devices , driven by a lower branded postpaid handset upgrade rate . device sales revenue is recognized at the time of sale ; an increase of $ 395 million from customers ' purchase of leased devices at the end of the lease term ; an increase of $ 231 million primarily related to proceeds from liquidation of returned customer handsets in 2017 ; and an increase of $ 130 million in sim and upgrade revenue ; partially offset by a decrease of $ 539 million in lease revenues from declining jump ! on demand population due to shifting focus to our eip financing option beginning in the first quarter of 2016 ; a decrease of $ 18 million in accessory revenue primarily related to the decrease in device sales volume ; and the negative impact from hurricanes of approximately $ 8 million . under our jump ! on demand program , upon device upgrade or at lease end , customers must return or purchase their device . revenue for purchased leased devices is recorded as equipment revenues when revenue recognition criteria have been met . gross eip device financing to our customers increased by $ 437 million for the year ended december 31 , 2017 , primarily due to growth in the gross amount of equipment financed on eip . the increase was also due to certain customers on leased devices reaching the end of lease term who financed their devices over a nine-month eip . other revenues increased $ 150 million , or 16 % , primarily due to higher revenue from revenue share agreements with third parties . 30 our operating expenses consist of the following categories : cost of services primarily includes costs directly attributable to providing wireless service through the operation of our network , including direct switch and cell site costs , such as rent , network access and transport costs , utilities , maintenance , associated labor costs , long distance costs , regulatory program costs , roaming fees paid to other carriers and data content costs . cost of equipment sales primarily includes costs of devices and accessories sold to customers and dealers , device costs to fulfill insurance and warranty claims , costs related to returned and purchased leased devices , write-downs of inventory related to shrinkage and obsolescence , and shipping and handling costs . selling , general and administrative primarily includes costs not directly attributable to providing wireless service for the operation of sales , customer care and corporate activities . these include commissions paid to dealers and retail employees for activations and upgrades , labor and facilities costs associated with retail sales force and administrative space , marketing and promotional costs , customer support and billing , bad debt expense , losses from sales of receivables and back office administrative support activities . operating expenses increased $ 2.3 billion , or 7 % , primarily from higher cost of services , cost of equipment sales , selling , general and administrative and lower gains on disposal of spectrum licenses , partially offset by lower depreciation and amortization as discussed below . cost of services increased $ 369 million , or 6 % , primarily from : higher lease , engineering and employee-related expenses associated with network expansion ; and the negative impact from hurricanes of $ 105 million , net of insurance recoveries ; partially offset by lower long distance and toll costs as we continue to renegotiate contracts with vendors ; and lower regulatory expenses . story_separator_special_tag cost of equipment sales increased $ 789 million , or 7 % , primarily from : an increase of $ 806 million in device cost of equipment sales , excluding purchased leased devices , primarily due to : a higher average cost per device sold primarily from an increase in the high-end device mix and from the impact of an oem recall of its smartphone devices in 2016 ; partially offset by a 2 % decrease in the number of devices sold , excluding purchased lease devices , driven by a lower branded postpaid handset upgrade rate . an increase of $ 201 million in lease device cost of equipment sales , primarily due to : an increase in lease buyouts as leases began reaching their term dates in 2017 ; partially offset by a decrease in write downs to market value of devices returned to inventory resulting from a decrease in the number of leased device upgrades . these increases are partially offset by a decrease of $ 159 million primarily related to : a decrease in insurance and warranty claims ; higher proceeds from liquidation of returned customer handsets under our insurance programs ; and lower inventory adjustments related to physical adjustments and obsolete inventory ; partially offset by higher costs from an increase in the volume of liquidated returned customer handsets outside of our insurance programs . a decrease of $ 57 million in accessory cost primarily driven by the decrease in device sales volume . under our jump ! on demand program , upon device upgrade or at the end of the lease term , customers must return or purchase their device . the cost of purchased leased devices is recorded as cost of equipment sales . returned devices transferred from property and equipment , net are recorded as inventory and are valued at the lower of cost or market with any write-down to market recognized as cost of equipment sales . 31 selling , general and administrative increased $ 881 million , or 8 % , primarily from higher commissions , employee-related costs , promotional and advertising costs , and costs related to outsourced functions and managed services to support our growing customer base , partially offset by lower handset repair services cost . additionally , the negative impact from hurricanes of approximately $ 36 million contributed to the increase . depreciation and amortization decreased $ 259 million , or 4 % , primarily from : lower depreciation expense related to our jump ! on demand program resulting from a lower number of devices under lease . under our jump ! on demand program , the cost of a leased wireless device is depreciated to its estimated residual value over the period expected to provide utility to us ; partially offset by the continued build-out of our 4g lte network ; the implementation of the first component of our new billing system ; and growth in our distribution footprint . cost of metropcs business combination decreased $ 104 million . on july 1 , 2015 , we officially completed the shutdown of the metropcs cdma network . network decommissioning costs primarily relate to the acceleration of lease costs for cell sites that would have otherwise been recognized as cost of services over the remaining lease term had we not decommissioned the cell sites . we do not expect to incur significant additional network decommissioning costs in 2018. gains on disposal of spectrum licenses decreased $ 600 million , or 72 % , primarily from gains of $ 636 million and $ 191 million on disposal of spectrum licenses with at & t and sprint during the first quarter and third quarter of 2016 , respectively . these 2016 gains were partially offset by gains of $ 235 million from spectrum license transactions with at & t and verizon in 2017 . net income increased $ 3.1 billion , primarily due to the tax cuts and jobs act of 2017 ( `` tcja '' ) as discussed below , higher operating income and a net decrease in interest expense , partially offset by the negative impact from hurricanes of approximately $ 130 million , net of insurance recoveries . operating income , the components of which are discussed above , increased $ 838 million , or 21 % . the negative impact from the hurricanes for the year ended december 31 , 2017 was approximately $ 201 million , net of insurance recoveries . income tax benefit ( expense ) changed $ 2.2 billion , from an expense of $ 867 million in 2016 to a benefit of $ 1.4 billion in 2017 primarily from : a lower effective tax rate . the effective tax rate was a benefit of 43.5 % in 2017 , compared to an expense of 37.3 % in 2016 . the decrease in the effective income tax rate was primarily due to the impact of the tcja , which resulted in a net tax benefit of $ 2.2 billion in 2017 , substantially due to a re-measurement of deferred tax assets and liabilities ; and a $ 319 million reduction in the valuation allowance against deferred tax assets in certain state jurisdictions in 2017 ; partially offset by higher income before income taxes . the tcja was enacted december 22 , 2017 and is generally effective beginning january 1 , 2018. the tcja includes numerous changes to existing tax law , which have been reflected in the 2017 consolidated financial statements . the state corporate income tax impact of the tcja is complex and will continue to evolve as jurisdictions evaluate conformity to the numerous federal tax law changes . as such , a re-measurement of state deferred tax assets and liabilities and the associated net tax benefit or expense may result within the next 12 months .
| net income included net , after-tax spectrum gains of $ 174 million and $ 509 million , for the years ended december 31 , 2017 and 2016 , respectively . adjusted ebitda , a non-gaap financial measure , of $ 11.2 billion increased $ 574 million , or 5 % . the increase was primarily due to higher operating income driven by the factors described above , partially offset by lower gains on disposal of spectrum licenses . adjusted ebitda included pre-tax spectrum gains of $ 235 million and $ 835 million for the years ended december 31 , 2017 and 2016 , respectively . net cash provided by operating activities of $ 8.0 billion increased $ 1.8 billion , or 30 % . see “ liquidity and capital resources ” section for additional information . free cash flow , a non-gaap financial measure , of $ 2.7 billion increased $ 1.3 billion , or 90 % . see “ liquidity and capital resources ” section for additional information . 28 set forth below is a summary of our consolidated results : replace_table_token_9_th nm - not meaningful 29 the following discussion and analysis is for the year ended december 31 , 2017 , compared to the same period in 2016 unless otherwise stated . total revenues increased $ 3.1 billion , or 8 % , primarily due to higher revenues from branded postpaid and prepaid customers as well as higher equipment revenues as discussed below . branded postpaid revenues increased $ 1.3 billion , or 7 % , primarily from : a 7 % increase in average branded postpaid phone customers , primarily from growth in our customer base driven by the continued strong customer response to our un-carrier initiatives and promotions for services and devices , including the growing success of our business channel , t-mobile for business ; and the positive impact from a decrease in the non-cash net revenue deferral for data stash ; partially offset by a 1 %
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