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the underwriters partially exercised their over-allotment option on december 1 , 2017 , and purchased 16,969 shares of our common stock , for aggregate gross proceeds of $ 0.2 million . as a result of the ipo , we received approximately $ 67.0 million in net proceeds after deducting $ 7.9 million of underwriting discounts and commissions and offering costs . on june 28 , 2019 , we completed a registered direct offering in which we issued and sold 2,632,092 shares of our common stock , at a purchase price of $ 3.80 per share , for net proceeds of $ 9.4 million , after deducting issuance costs , through a securities purchase agreement with the investors . the shares of common stock sold in this offering were being offered pursuant to our shelf registration statement on form s-3 , or form s-3 , filed with the securities and exchange commission , or sec , which was declared effective on december 26 , 2018. on december 30 , 2019 , we completed an at-the-market offering in which we issued and sold 1,243,756 shares of our common stock , at a purchase price of $ 2.15 per share , for net proceeds of $ 2.6 million , after deducting issuance costs , through an at-the-market equity offering sales agreement . the shares of common stock sold in this offering were also being offered pursuant to our shelf registration statement on form s-3 filed with the sec , which was declared effective on december 26 , 2018. our operations to date have been limited to organizing and staffing our company , business planning , raising capital , developing our technology , identifying potential product candidates , producing drug substance and drug product material for use in preclinical studies and clinical trials , conducting preclinical studies of our product candidates and clinical trials for our lead product candidate , reloxaliase . we do not have any products approved for sale and have not generated any revenue to date . as of december 31 , 2019 , we had cash and cash equivalents totaling $ 30.0 million . we have incurred significant net operating losses in every year since our inception and expect to continue to incur significant expenses and increasing operating losses for the foreseeable future . our net losses may fluctuate significantly from quarter to quarter and year to year . our net losses were $ 47.3 million , $ 35.6 million and $ 21.7 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 164.9 million . we anticipate that our expenses will increase significantly as we : conduct future clinical trials of our lead product candidate , reloxaliase ; manufacture additional material for our pivotal phase 3 clinical program and potential future clinical studies we might conduct for our product candidates ; scale up our manufacturing process for reloxaliase to prepare for the filing of a potential biologics license application , or bla , and commercialization if our clinical development program is successful ; advance the development and conduct future clinical trials of alln-346 ; conduct research on the discovery and development of additional product candidates ; seek regulatory and marketing approvals for product candidates that successfully complete clinical trials , if any ; establish a sales , marketing and distribution infrastructure to commercialize any products for which we may obtain regulatory approval in geographies in which we plan to commercialize our products ourselves ; maintain , expand and protect our intellectual property portfolio ; hire additional staff , including clinical , scientific , technical , operational , and financial personnel , to execute our business plan ; and add clinical , scientific , operational , financial and management information systems to support our product development and potential future commercialization efforts , and to enable us to operate as a public company . we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for a product candidate . additionally , we currently use contract research organizations , or cros , and contract manufacturing organizations , or cmos , to carry out our preclinical and clinical development activities . we do not yet have a sales organization . if we obtain regulatory approval for our product candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . furthermore , we expect to incur additional costs associated with operating as a public company . accordingly , we may seek to fund our operations through public or private equity or debt financings or other sources , including strategic collaborations . we may , however , be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our current product candidates , or any additional product candidates , if developed . 93 financial operations overview revenue to date , we have not generated any revenue from product sales or any other source and do not expect to generate any revenue from the sale of products for the foreseeable future . if our development efforts for reloxaliase or other product candidates that we may develop in the future are successful and result in marketing approval or collaboration or license agreements with third parties , we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements . story_separator_special_tag research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our drug discovery efforts and the development of our product candidates , which include : employee-related expenses , including salaries , benefits and stock-based compensation expense ; costs incurred under agreements with third parties , including cros , that conduct research and development , preclinical studies and clinical trials on our behalf ; costs related to production of preclinical and clinical materials , including fees paid to cmos ; consulting , licensing and professional fees related to research and development activities ; costs of purchasing laboratory supplies and non-capital equipment used in our research and development activities ; costs related to compliance with clinical regulatory requirements ; and facility costs and other allocated expenses , which include expenses for rent and maintenance of facilities , insurance , depreciation and other supplies . we expense research and development costs as incurred . we recognize costs for certain development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as clinical site activations , patient enrollment , or information provided to us by our vendors and our clinical investigative sites . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and may be reflected in our consolidated financial statements as prepaid or accrued research and development expenses . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized , even when there is no alternative future use for the research and development . the capitalized amounts are expensed as the related goods are delivered or the services are performed . the following summarizes our most advanced current research and development programs : reloxaliase is our lead product candidate which we are developing for the treatment of hyperoxaluria . substantially all of our research and development costs to date have been used to fund this program . alln-346 is our second product candidate which we are developing for patients with hyperuricemia and ckd . we began incurring external research and development costs for this program in 2016. we typically use our employee and infrastructure resources across our development programs . we track outsourced development costs by product candidate or development program , but we do not allocate personnel costs and other internal costs to specific product candidates or development programs . the following table summarizes our research and development expenses by program ( in thousands ) : replace_table_token_2_th 94 research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages , primarily due to the increased size and duration of later-stage clinical trials . since inception , we have incurred $ 83.4 million of external research and development costs for reloxaliase and $ 8.1 million of external research and development costs for alln-346 . we expect that our research and development costs will continue to increase for the foreseeable future as we initiate additional clinical trials of reloxaliase , scale our manufacturing processes and advance development and initiate clinical trials of alln-346 . the successful development of reloxaliase , alln-346 and other potential future product candidates is highly uncertain . accordingly , at this time , we can not reasonably estimate or know the nature , timing and costs of the efforts that will be necessary to complete the development of these product candidates . we are also unable to predict when , if ever , we will generate revenue and material net cash inflows from the commercialization and sale of any of our product candidates for which we may obtain marketing approval . we may never succeed in achieving regulatory approval for any of our product candidates . the duration , costs and timing of preclinical studies , clinical trials and development of our product candidates will depend on a variety of factors , including : successful enrollment in , and completion of , clinical trials for reloxaliase ; successful data from our clinical program of reloxaliase that supports an acceptable benefit-risk profile of reloxaliase in the intended populations ; successful enrollment in , and completion of , clinical trials for alln-346 ; establishing an appropriate safety profile for any potential future product candidates with studies to enable the filing of investigational new drug application , or inds ; approval of inds for any potential future product candidate to commence planned or future clinical trials ; significant and changing government regulation and regulatory guidance ; timing and receipt of marketing approvals from applicable regulatory authorities ; making arrangements with cmos for third-party commercial manufacturing of our product candidates ; obtaining and maintaining patent and other intellectual property protection and regulatory exclusivity for our product candidates ; commercializing the product candidates , if and when approved , whether alone or in collaboration with others ; acceptance of the product , if and when approved , by patients , the medical community and third-party payors ; and maintenance of a continued acceptable safety profile of the drugs following approval . a change in the outcome of any of these variables with respect to the development , manufacture or commercialization enabling activities of any of our product candidates could mean a significant change in the costs , timing and viability associated with the development of that product candidate . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in executive , finance , accounting , business development and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , legal fees relating to patent and corporate matters and professional fees for accounting , auditing , tax and consulting services .
| of 2018 and we released top-line data in november 2019 . 98 our manufacturing external costs increased by $ 3.1 million from $ 5.7 million for the year ended december 31 , 2018 to $ 8.8 million for the year ended december 31 , 2019 ; alln-346 formulation and development related costs increased $ 3.5 million from $ 0.8 million for the year ended december 31 , 2018 to $ 4.3 million for the year ended december 31 , 2019. included in the formulation and development related costs for the year ended december 31 , 2019 was $ 2.5 million of costs for the production of engineering and clinical batches of drug substance , of which there were no comparable costs for the year ended december 31 , 2018 ; reloxaliase formulation and development related costs increased $ 1.3 million from $ 0.6 million for the year ended december 31 , 2018 to $ 1.9 million for the year ended december 31 , 2019 ; partially offsetting the increases in reloxaliase and alln-346 formulation and development costs were decreases of batch production and drug product production costs of reloxaliase incurred at our cmos for our phase 3 clinical program . โช costs for drug substance engineering and clinical batches decreased $ 1.4 million from $ 1.8 million for the year ended december 31 , 2018 to $ 0.4 million for the year ended december 31 , 2019 . โช we did not incur any drug product production costs during the year ended december 31 , 2019 as compared to $ 0.7 million of drug product production costs for the year ended december 31 , 2018 ; and we purchased consumables and raw materials required for engineering and clinical batches . our costs for consumables and raw materials were $ 1.2 million and $ 0.9 million for the years ended december 31 , 2019 and 2018 , respectively ; our employee compensation and benefits costs
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our technology is supported by a substantial intellectual property portfolio that we have built through internal development and , to a lesser extent , acquisitions and license agreements . as of december 31 , 2016 , we had 913 issued and pending patents worldwide . we have exclusively licensed from our development partner , cercacor , the right to oem rainbow ยฎ technology and the right to incorporate rainbow ยฎ technology into our products intended to be used by professional caregivers , including , but not limited to , hospital caregivers and alternate care facility caregivers . 59 settlement agreement with koninklijke philips n.v. ( philips n.v. ) on november 5 , 2016 , we entered into a settlement agreement with philips n.v. ( the philips settlement agreement ) , pursuant to which philips n.v. agreed to pay us $ 300 million , and philips n.v. and its affiliates ( collectively , the philips group ) and us ( collectively , the parties ) agreed to dismiss , with prejudice , all pending legal and contractual disputes between the parties and agreed not to sue each other for patent infringement for certain of each other 's products . in addition , the parties agreed to work together to integrate our technologies into additional philips group products , and to jointly develop certain other products . each of the parties has additional obligations to the other in the event that such party does not meet certain objectives under the settlement agreement . the philips settlement agreement also contains rainbow ยฎ parameter pricing and related terms . the parties further agreed to undertake a joint marketing program to promote rainbow ยฎ adoption with philips group products . see note 15 to our accompanying consolidated financial statements under the caption โ litigation โ included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information on the philips legal disputes and the philips settlement agreement . stock repurchase programs in february 2013 , our board authorized the repurchase of up to 6.0 million shares of common stock under a stock repurchase program ( 2013 plan ) . in october 2014 , our board increased the number of shares of our common stock authorized for repurchase under the 2013 plan by 3.0 million shares , bringing the total number of shares of our common stock authorized for repurchase under the 2013 plan to 9.0 million . the 2013 plan terminated pursuant to its terms in september 2015 when all of the authorized 9.0 million shares had been repurchased . in september 2015 , our board authorized a new stock repurchase program , whereby we may purchase up to 5.0 million shares of our common stock over a period of up to three years . the stock repurchase program may be carried out at the discretion of a committee comprised of our chief executive officer and chief financial officer through open market purchases , one or more rule 10b5-1 trading plans , block trades and in privately negotiated transactions . the total remaining shares authorized for repurchase under this stock repurchase program approximated 2.9 million shares as of december 31 , 2016 . for further details regarding our stock repurchase program , please see note 13 to our accompanying consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k. cercacor cercacor is an independent entity spun off from masimo to our stockholders in 1998. we are a party to a cross-licensing agreement with cercacor , which was amended and restated effective january 1 , 2007 ( cross-licensing agreement ) , that governs each party 's rights to certain intellectual property held by the two companies . joe kiani , our chairman and chief executive officer , is also the chairman and chief executive officer of cercacor . we have also entered into various other agreements with cercacor , including an administrative services agreement , a consulting services agreement and a sublease agreement . see note 4 to our accompanying consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information on these agreements and other transactions with cercacor . as a result of recent changes in the capital structure of cercacor , as well as certain of its contractual relationships with us , we completed a re-evaluation of the authoritative consolidation guidance during the first quarter of 2016 and determined that although cercacor remains a variable interest entity ( vie ) , we are no longer its primary beneficiary as we can no longer be deemed to have the power to direct the activities of cercacor that most significantly impact cercacor 's economic performance and can no longer be deemed to have an obligation to absorb cercacor 's losses pursuant to our on-going contractual relationships with cercacor . based on such determination , we discontinued consolidating cercacor within our consolidated financial statements effective as of january 3 , 2016. however , cercacor continues to be a related party following its deconsolidation . we recognized a gain of $ 0.3 million upon such deconsolidation , which has been reported within non-operating income in the consolidated statement of operations . see note 3 to our accompanying consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information on the deconsolidation of cercacor . 60 story_separator_special_tag selling , general and administrative expenses for the years ended december 31 , 2016 and january 2 , 2016 , respectively . research and development . research and development expenses consist primarily of salaries and related expenses for engineers and other personnel engaged in the design and development of our products . these expenses also include third-party fees paid to consultants , prototype and engineering supply expenses and the costs of clinical trials . story_separator_special_tag research and development expenses for fiscal years 2016 and 2015 were as follows ( dollars in thousands ) : replace_table_token_9_th research and development expenses increased $ 2.7 million , or 4.8 % , to $ 59.4 million for the year ended december 31 , 2016 from $ 56.6 million for the year ended january 2 , 2016 . this net increase was due primarily to increases in payroll-related costs of approximately $ 5.2 million , occupancy-related costs of $ 1.7 million , engineering project-related costs and professional fees of $ 0.9 million and the non-recurrence of approximately $ 0.9 million of cost reimbursements from cercacor in the year ended january 2 , 2016 . offsetting these higher expenses were approximately $ 6.3 million of research and development expenses related to cercacor that were included in our consolidated results of operations for the year ended january 2 , 2016 , as compared to $ 0 for the year ended december 31 , 2016 due to the deconsolidation of cercacor as of january 3 , 2016 . ( see note 3 of our accompanying consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information related to the deconsolidation of cercacor . ) included in research and development expenses was approximately $ 2.7 million and $ 2.3 million of share-based compensation expense for the years ended december 31 , 2016 and january 2 , 2016 , respectively . litigation settlement , award and or defense costs . litigation settlement , award and or defense costs for fiscal years 2016 and 2015 were as follows ( dollars in thousands ) : replace_table_token_10_th on november 5 , 2016 , we entered into a settlement agreement ( the philips settlement agreement ) with koninklijke philips n.v. ( philips n.v. ) , which among other things , settled all of the claims , legal proceedings and contractual disputes between us , philips and its affiliates . pursuant to the philips settlement agreement , philips n.v. paid us $ 300 million , $ 30 million of which related to certain future performance obligations by us and , therefore , has been deferred to future periods in accordance with authoritative accounting guidance . see note 15 to our accompanying consolidated financial statements under the caption โ litigation โ included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information on the philips legal disputes and the philips settlement agreement . on november 16 , 2015 , we entered into a settlement and covenant not to sue agreement ( the mindray settlement agreement ) with shenzhen mindray biomedical electronics co. , ltd. and certain of its affiliates ( collectively , mindray ) . the mindray settlement agreement settled each of the claims and legal proceedings between us and mindray . pursuant to the mindray settlement agreement , mindray paid us an aggregate of $ 25.0 million . 63 two of our former physician office sales representatives filed employment-related claims against us in 2011 regarding our noninvasive hemoglobin monitoring products . in january 2014 , an arbitrator awarded the former sales representatives approximately $ 5.4 million in damages ( the arbitration award ) . as a result , we recorded a charge of $ 8.0 million in the fiscal quarter ended december 28 , 2013 , which included the arbitration award and approximately $ 2.6 million in defense-related costs that had previously been reimbursed by insurance . we challenged the arbitration award in the u.s. district court for the central district of california , and in april 2014 , the district court vacated the arbitration award . accordingly , we reversed the previous $ 8.0 million charge in the fiscal quarter ended march 29 , 2014. the former sales representatives appealed the u.s. district court 's ruling , and the appeal argument was held in the ninth circuit court of appeals on february 1 , 2016. on february 19 , 2016 , the ninth circuit court of appeals reversed the decision of the district court vacating the award , and remanded the case to the district court with instructions to confirm the arbitration award . as a result , we reinstated the $ 5.4 million charge for the arbitration award that was previously reversed , plus approximately $ 0.7 million of estimated non-operating interest expense , as of january 2 , 2016. as of december 31 , 2016 , we have not reinstated the $ 2.6 million charge for defense-related costs previously reimbursed by the insurance company based upon our assessment of this matter . non-operating expense . non-operating expense consists primarily of interest income , interest expense and foreign exchange losses . non-operating expense for fiscal years 2016 and 2015 was as follows ( dollars in thousands ) : replace_table_token_11_th non-operating expense was $ 2.4 million for the year ended december 31 , 2016 , as compared to $ 3.9 million for the year ended january 2 , 2016 . this net decrease of approximately $ 1.5 million was primarily due to higher interest income of $ 0.4 million and a $ 0.3 million gain resulting from our deconsolidation of cercacor . ( see note 3 of our accompanying consolidated financial statements included in part iv , item 15 ( a ) of this annual report on form 10-k for additional information related to the deconsolidation of cercacor . ) in addition , we recognized approximately $ 0.1 million of net realized and unrealized gains on foreign currency denominated transactions during the year ended december 31 , 2016 , as compared to $ 0.5 million of net realized and unrealized losses on foreign currency denominated transactions during the year ended january 2 , 2016 . offsetting these increases was approximately $ 0.2 million of higher interest expense during the year ended december 31 , 2016 , resulting from increased borrowings under our revolving credit agreement . provision for income taxes .
| as of december 31 , 2016 , we estimate that our installed base of circuit boards and pulse oximeters totaled more than 1,504,000 units , up from 1,414,000 units at january 2 , 2016 . product revenue generated through our direct and distribution sales channels increased $ 63.8 million , or 12.5 % , to $ 572.0 million for the year ended december 31 , 2016 , compared to $ 508.2 million for the year ended january 2 , 2016 . revenues from our oem channel increased 0.7 million , or 0.8 % , to $ 91.8 million for the year ended december 31 , 2016 as compared to $ 91.1 million for the year ended january 2 , 2016 . royalty revenue remained consistent with the prior year period and is primarily comprised of amounts received from medtronic plc ( medtronic ) pursuant to the terms of our amended settlement agreement . pursuant to the terms of the third amendment to settlement agreement and release of claims effective september 2016 , medtronic agreed to continue paying royalties through october 6 , 2018 , after which no more royalties will be due . gross profit . gross profit consists of total revenue less cost of goods sold . our gross profit for fiscal years 2016 and 2015 was as follows ( dollars in thousands ) : replace_table_token_6_th cost of goods sold includes labor , material , overhead and other similar costs related to the production , supply , distribution and support of our products . cost of goods sold increased $ 10.7 million to $ 230.8 million for the year ended december 31 , 2016 , from $ 220.1 million for the year ended january 2 , 2016 , primarily due to the increase in product revenues and the impact of approximately $ 6.4 million of cercacor royalty expenses that are no longer eliminated in consolidation . these increases were partially offset by the non-recurrence of approximately $ 9.7 million of inventory valuation adjustments related to certain product end-of-life decisions in the year ended january 2 , 2016 and approximately $ 2.8 million in
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the lease agreement contains a purchase option exercisable at any time by us on or before ninety days prior to the scheduled completion date with an option purchase price equal to 103 % of the total project cost as of the date of the option closing if the option closing occurs on or before july 17 , 2016. the option purchase price will increase by 0.35 % per month thereafter up to and including the date which is the earlier of ( a ) ninety days after the scheduled completion date and ( b ) december 31 , 2016. the obligation to pay rent will commence on december 31 , 2016 , if the option remains unexercised . the initial term of the lease is for 15 years from the rent commencement date with six options to renew , each with a renewal term of 5 years . the annual base rent for the new facility will be an amount equal to : the product of 7.50 % and ( a ) the total estimated budget for the project , or ( b ) all construction costs outlined in the final budget on or prior to the scheduled completion date ; or the product of 7.50 % and the total project costs , to the extent that all components of the document delivery and completion requirement are fully satisfied on or prior to the scheduled completion date . annual base rent will increase by 2 % during each year of the lease term . 22 on july 17 , 2015 , we also entered into a development management agreement ( โ dma โ ) with stream realty partners-dfw , l.p. , a texas limited partnership ( โ developer โ ) . pursuant to the dma , we retained the services of developer to manage , coordinate , represent , assist and advise us on matters concerning the pre-development , development , design , entitlement , infrastructure , site preparation and construction of the new facility . the term of the dma is from july 17 , 2015 until final completion of the project . pursuant to the dma , we will pay developer : a development fee of 3.25 % of all development costs ; an oversight fee of 2 % of any amounts paid to the company-contracted parties for any oversight by the developer of company-contracted work ; an incentive fee , the amount of which will be determined by the parties , if final completion occurs prior to the scheduled completion date ; and an amount equal to $ 2.6 million as additional fee in respect of development services . subject to the finalization of the optimal utilization , automation and build-out of the facility , the new facility construction costs are currently expected to be approximately $ 35 million to $ 40 million . pursuant to the lease agreement , landlord owns the premises , and is obligated to finance the overall construction and to reimburse us for substantially all expenditures we incur with respect to the construction of the premises . in addition to landlord 's expenditures for the construction of the new facility , we expect to incur and pay for approximately $ 20 million to $ 25 million in anticipated capital expenditures for machinery and equipment , furniture and fixtures , and related expenditures . no such capital expenditures were incurred in the fiscal years ended june 30 , 2015 and 2014. the majority of the capital expenditures associated with the new facility are expected to be incurred in early fiscal 2017. the expenditures associated with the new facility are expected to be partially offset by the net proceeds from the planned sale of our torrance facility . acquisition on january 12 , 2015 , we completed the rlc acquisition . the purchase price was $ 1.5 million , consisting of $ 1.2 million in cash paid at closing and earnout payments of up to $ 0.1 million that we expect to pay each year over a three-year period based on achievement of certain milestones . the accompanying consolidated financial statements include rlc 's results since the date of acquisition . at closing , we received substantially all of the fixed assets of rlc . we did not assume any liabilities of rlc . disclosure of the impact of the rlc acquisition on a pro forma basis as if the results of rlc had been included from the beginning of the periods presented has not been included in the accompanying consolidated financial statements as the impact was not material . the acquisition has been accounted for as a business combination . the total purchase price has been allocated to tangible and intangible assets based on their estimated fair values as of january 12 , 2015 as determined by management based upon a third-party valuation . the following table summarizes the estimated fair values of the assets acquired at the date of acquisition , based on the final purchase price allocation : fair values of assets acquired estimated useful life ( years ) ( in thousands ) property , plant and equipment $ 338 intangible assets : non-compete agreement 20 3.0 customer relationships 870 4.5 goodwill 272 total assets acquired $ 1,500 the excess of the purchase price over the total fair value of assets acquired is included as goodwill . intangible assets consist of a non-compete agreement and customer relationships with a total net carrying value and accumulated amortization 23 as of june 30 , 2015 of $ 0.8 million and $ 0.1 million , respectively . estimated aggregate amortization of acquired intangible assets , calculated on straight-line basis and based on the estimated fair values is $ 0.2 million in each of the next four fiscal years commencing with fiscal 2016. critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( โ gaap โ ) . story_separator_special_tag our significant accounting policies are discussed in note 1 to our consolidated financial statements , included herein at part ii , item 8. the preparation of these financial statements requires us to make estimates , judgments and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to inventory valuation , including lifo reserves , the allowance for doubtful accounts , deferred tax assets , liabilities relating to retirement benefits , liabilities resulting from self-insurance , tax liabilities and litigation . we base our estimates , judgments and assumptions on historical experience and other relevant factors that are believed to be reasonable based on information available to us at the time these estimates are made . while we believe that the historical experience and other factors considered provide a meaningful basis for the accounting policies applied in the preparation of the consolidated financial statements , actual results may differ from these estimates , which could require us to make adjustments to these estimates in future periods . we believe that the estimates , judgments and assumptions involved in the accounting policies described below require the most subjective judgment and have the greatest potential impact on our financial statements , so we consider these to be our critical accounting policies . our senior management has reviewed the development and selection of these critical accounting policies and estimates , and their related disclosure in this report , with the audit committee of our board of directors . coffee brewing equipment and service we classify certain expenses related to coffee brewing equipment provided to customers as cost of goods sold . these costs include the cost of the equipment as well as the cost of servicing that equipment ( including service employees ' salaries , cost of transportation and the cost of supplies and parts ) and are considered directly attributable to the generation of revenues from our customers . we capitalize coffee brewing equipment and depreciate it over a three or five year period , depending on the assessment of its useful life and report the depreciation expense in cost of goods sold . investments our investments consist of money market instruments , marketable debt , equity and hybrid securities . investments are held for trading purposes and stated at fair value . the cost of investments sold is determined on the specific identification method . dividend and interest income are accrued as earned . exposure to commodity price fluctuations and derivative instruments our primary raw material is green coffee , an agricultural commodity . green coffee prices are determined by worldwide forces of supply and demand , and , as a result , green coffee prices are volatile . in the fiscal year ended june 30 , 2015 , โ c โ market prices rose in the first quarter but declined during the remaining three quarters . in the fiscal year ended june 30 , 2014 , the โ c โ market experienced a significant drop during the first two quarters and then increased sharply in the third quarter . in the fiscal year ended june 30 , 2013 , average โ c โ market prices declined approximately 30.1 % from the prior fiscal year . average โ c โ market prices in fiscal 2015 , 2014 and 2013 were $ 1.66 , $ 1.42 and $ 1.51 , respectively . in general , increases in the price of green coffee could cause our cost of goods sold to increase and , if not offset by product price increases , could negatively affect our financial condition and results of operations . as a result , our business model strives to reduce the impact of green coffee price fluctuations on our financial results and to protect and stabilize our margins , principally through customer arrangements and derivative instruments . customers generally pay for our products based either on a price schedule that we announce or on a commodity-based pricing mechanism whereby the changes in green coffee commodity costs are passed through to the customer . the pricing 24 schedule is generally subject to adjustment , either on contractual terms or in accordance with periodic product price adjustments , typically monthly , resulting in , at the least , a 30-day lag in our ability to correlate the changes in our prices with fluctuations in the cost of raw materials and other inputs . approximately 36 % and 40 % , respectively , of our roast and ground coffee volumes for the fiscal years ended june 30 , 2015 and 2014 were based on a price schedule . approximately 64 % and 60 % , respectively , of our roast and ground coffee volumes for the fiscal years ended june 30 , 2015 and 2014 were sold to customers under commodity-based pricing arrangements . consequently , while our revenues can fluctuate significantly as green coffee prices change , we would expect the impact of these price changes on our profitability to be less significant . in addition to our customer arrangements , we utilize derivative instruments to reduce further the impact of changing green coffee commodity prices . we purchase exchange-traded coffee-related derivative instruments to enable us to lock in the price of green coffee commodity purchases . these derivative instruments may be entered into at the direction of the customer under commodity-based pricing arrangements to effectively lock in the purchase price of green coffee under such customer arrangements , in certain cases up to 18 months or longer in the future . notwithstanding this customer direction , pursuant to accounting standards codification 815 , โ derivatives and hedging โ ( โ asc 815 โ ) , we are considered the owner of these derivative instruments and , therefore , we are required to account for them as such .
| we also continued to expand our product portfolio by investing resources in what we believe to be key growth categories , including the launch of our metropolitan single cup coffee , expanded seasonal coffee and specialty beverages , new shelf-stable coffee products , and new hot teas . net sales in fiscal 2015 increased $ 17.5 million , or 3.3 % , to $ 545.9 million from $ 528.4 million in fiscal 2014. the increase in net sales in fiscal 2015 included $ 8.8 million in price increases to customers utilizing commodity-based pricing arrangements , where the changes in the green coffee commodity costs are passed on to the customer . the change in net sales in fiscal 2015 compared to fiscal 2014 was due to the following : ( in millions ) year ended june 30 , 2015 vs. 2014 effect of change in unit sales $ ( 2.0 ) effect of pricing and product mix changes 19.5 total increase in net sales $ 17.5 unit sales decreased ( 0.2 ) % in fiscal 2015 as compared to fiscal 2014 , fully offset by a 3.5 % increase in average unit price resulting in an increase in net sales of 3.3 % . the decrease in unit sales was primarily due to a ( 0.7 ) % decrease in unit sales of roast and ground coffee products , which accounted for approximately 61 % of our total net sales , while the increase in average unit price was primarily due to the higher average unit price of roast and ground coffee products primarily driven by the pass-through of higher green coffee commodity purchase costs to our customers . in fiscal 2015 , we processed and sold approximately 87.7 million pounds of green coffee as compared to approximately 88.3 million pounds of green coffee processed and sold in fiscal 2014. there were no new product category introductions in fiscal 2015 or 2014 which had a material impact on our net sales . 35 the following table presents net sales aggregated by product category for
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components of our results of operations revenue for fiscal year 2017 , revenue reflects sales of our obalon balloon system directly to physicians and institutions in the united states , and sales of our obalon balloon system to our middle east distributor , bader . for fiscal year 2016 , revenue , related party reflects sales of our obalon balloon system to bader , which was our only source of revenue in 2016. for fiscal year 2015 , revenue , related party reflects sales of our obalon balloon system to bader and revenue reflects sales of our obalon balloon system to physicians and distributors outside the united states . bader was considered a related party for accounting purposes prior to january 1 , 2017 due to its beneficial ownership percentage of us prior to our ipo . prior to december 31 , 2016 , all of our sales were outside the united states . in january 2017 , we shifted our focus to commercialization efforts in the united states and recognized our initial u.s. revenue . we will continue to focus on selling our obalon balloon system in the united states , which we anticipate will be our primary market . we expect that , as a result , total revenue will increase as we implement our u.s. sales strategy and our revenue from international sales will constitute a smaller percentage of total revenue . however , to date we have experienced limited penetration of the u.s. market , and the degree to which our revenue will increase depends on many factors , including our ability to develop the currently small and immature intragastric balloon market , acceptance of our obalon balloon system by doctors and patients , our ability to scale production in a cost effective manner , the emergence of competing products , actions by regulatory bodies and general economic trends . the amount of and timing of revenue recognition may also be impacted by the customer incentive programs we decide to offer . cost of revenue and gross margin cost of revenue consists primarily of costs related to the direct materials and direct labor that are used to manufacture our products and the overhead costs that directly support manufacturing . currently , a significant portion of our cost of revenue consists of manufacturing overhead , which is mostly fixed in nature . these overhead costs include the costs of compensation for operations management , engineering support , material procurement and inventory control personnel , outside consultants , production related supplies , allocated quality assurance and facilities costs , and depreciation on production equipment . we expect cost of revenue to increase in absolute dollars to the extent our total revenue grows but decrease as a percentage total of revenue over time as the fixed portion of our overhead costs is allocated over a greater number of units produced . we calculate gross margin as gross profit divided by total revenue . our gross margin has been and will continue to be affected by a variety of factors , primarily production volumes , manufacturing costs , product yields , headcount and cost-reduction strategies . we expect our gross margin to increase over the long term as our production volume increases and as we allocate the fixed portion of our manufacturing overhead costs over a larger number of units produced , thereby reducing our per unit manufacturing costs . we intend to use our design , engineering and manufacturing capabilities to further advance and improve the efficiency of our manufacturing processes , which we believe will reduce costs and increase our gross margin . while we expect gross margin to increase over the long term , it will likely fluctuate from quarter to quarter as we continue to introduce new products , enter international markets , expand manufacturing capacity when required , discontinue obsolete products and adopt new manufacturing processes and technologies . as we have scaled manufacturing , we have experienced challenges in our ability to meet commercial demand . while we have taken steps to address these challenges , we can not assure you those steps will be sufficient or that additional challenges will not arise as we continue with the commercialization of our obalon balloon system . in january 2017 , we began offering a swallow guarantee program in the united states through which we may provide replacement balloons to physicians and institutions when patients are unsuccessful in swallowing an obalon balloon , subject to certain requirements and restrictions . we defer revenue relating to this swallow guarantee program based on expected failure rate and then recognize the revenue when replacement balloons are provided . as a result of this program our financial results or gross profit may be adversely impacted . research and development expenses research and development , or r & d , expenses consist of the cost of engineering , clinical affairs , regulatory affairs and quality assurance associated with developing our obalon balloon system . r & d expenses consist primarily of : employee-related expenses , including salaries , benefits , travel expense and stock-based compensation expense ; cost of outside consultants who assist with technology development , regulatory affairs , clinical affairs and quality assurance ; cost of clinical trial activities performed by third-party medical partners ; and 62 cost of facilities , depreciation on r & d equipment and supplies used for internal research and development and clinical activities . we expense r & d costs as incurred . in the future , we expect r & d expenses to increase in absolute dollars as we continue to develop new products and enhance existing products and technologies . however , we expect r & d expenses as a percentage of total revenue to vary over time depending on the level and timing of our new product development efforts , as well as our clinical development , clinical trial and other related activities . story_separator_special_tag selling , general and administrative expenses selling , general and administrative , or sg & a , expenses consist of employee-related expenses , including salaries , commissions , benefits , travel expense and stock-based compensation expense . other sg & a expenses include promotional and advertising activities , marketing , conferences and trade shows , professional services fees , including legal fees , accounting fees , insurance costs , general corporate expenses , and allocated facilities-related expenses . we have grown our sales and marketing headcount and programs significantly in the past year to support the commercial launch of our obalon balloon system in the united states . as a result , sg & a expenses have grown significantly , and are expected to continue to increase in absolute dollars and as a percentage of total revenue for the foreseeable future as we continue to expand our sales and marketing infrastructure to drive and support anticipated growth in revenue and due to the additional legal , accounting , insurance and other expenses associated with being a public company . critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets , liabilities , revenue , expenses and related disclosures . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions and any such differences may be material . while our significant accounting policies are more fully described in the notes to our financial statements appearing elsewhere in this annual report on form 10-k , we believe the following discussion addresses our most critical accounting policies , which are those that are most important to our financial condition and results of operations and require our most difficult , subjective and complex judgments . revenue recognition the company recognizes revenue when ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred , ( iii ) the selling price is fixed or determinable and ( iv ) collectability is reasonably assured . determination of criteria ( iii ) and ( iv ) are based on management 's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts . the company reserves for sales returns , as a reduction to revenue , based on its historical experience . shipping charges billed to customers are included in product revenue and the related shipping costs are included in cost of revenue . the company 's revenue contracts do not provide for maintenance . multiple element arrangements the company evaluates its revenue contracts under the authoritative guidance for multiple-element arrangements to determine whether each deliverable represents a separate unit of accounting . a deliverable constitutes a separate unit of accounting when it has standalone value to the customer . if the deliverable does not have standalone value without one of the undelivered elements in the arrangement , the company combines such elements and accounts for them as a single unit of accounting . the company allocates revenue to each separate unit of accounting based on a selling price hierarchy at the arrangement inception . the selling price for each element is based upon the following selling price hierarchy : vendor specific objective evidence , or vsoe , if available , third-party evidence , or tpe , if vsoe is not available , or estimated selling price , or esp , if neither vsoe nor tpe are available . typically , the components of the obalon balloon system are packaged in a kit and delivered to the customer at the same time . if a partial delivery occurs , the company recognizes revenue for the components which have been delivered and have met the aforementioned revenue recognition criteria . the company allocates revenue to the various components based on management 's estimated selling price of each component . the company bases the estimated selling price of each obalon balloon system component 63 using estimates within a range of selling prices considering multiple factors including , but not limited to , size of transaction , pricing strategies and market conditions . customer incentives estimated costs of customer incentive programs are recorded at the time the incentives are offered , based on the specific terms and conditions of the program . estimated costs from these programs are recorded as a reduction of revenue unless the company receives a separately identifiable benefit from the customer and can reasonably estimate the fair value of that benefit , in which case , these costs are recorded as an operating expense . in order to closely monitor the safety , efficacy and quality of the obalon balloon system in actual commercial use , the company has created an online clinical performance database , or registry . all physicians and institutions using the obalon balloon system are able to enter their patents ' data in the registry and compare their performance to national and regional data . physicians are given a credit for each patient entered into the registry , subject to requirements and restrictions . the company accrues the cost of the credit as a reduction of revenue . the company offers a swallow guarantee program in the united states where it may provide replacement balloons to physicians and institutions when patients are unsuccessful in swallowing an obalon balloon , subject to certain requirements and restrictions . the company defers revenue relating to its swallow guarantee program based on its expected failure rate and then recognizes the revenue when replacement balloons are provided .
| gross profit increased $ 4.5 million to $ 5.1 million during the year ended december 31 , 2017 , compared to $ 0.6 million during the year ended december 31 , 2016. gross profit as a percentage of revenue increased to 51 % during the year ended december 31 , 2017 compared to 17 % during the year ended december 31 , 2016. this was primarily attributable to a higher average selling price on each unit , and the fixed portion of our overhead costs being allocated over a higher number of units produced . research and development expenses . r & d expenses increased $ 0.7 million to $ 10.6 million during the year ended december 31 , 2017 , compared to $ 9.9 million during the year ended december 31 , 2016 . this increase was primarily due to an increase in employee related expenses associated with additional headcount , and an increase in supplies expense and outside consultants expense related primarily to work on our next generation products . selling , general and administrative expenses . sg & a expenses increased $ 18.6 million to $ 28.8 million during the year ended december 31 , 2017 , compared to $ 10.2 million during the year ended december 31 , 2016 . this increase was primarily attributable to a $ 7.9 million increase in payroll expenses from an increase in headcount , a $ 3.6 million increase in sales and marketing related activities and a $ 2.3 million increase in stock based compensation . sg & a expense was also impacted by $ 1.9 million in charges relating to litigation settlements for alleged patent infringement . approximately $ 1.6 million of these charges was non-cash expense relating to the fair value of shares of our common stock that we issued as consideration for the settlement . the remainder of the increase relates to travel , insurance and public company related expenses . 65 interest expense , net . interest expense , net decreased $ 0.4 million to $ 0.1 million during the year ended december 31 , 2017 compared to $
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revenue from our consignment model , as well as other fee revenue , accounted for approximately 8.8 % , 12.5 % , and 20.1 % of our total revenue for the fiscal years ended september 30 , 2011 , 2012 and 2013 , respectively , and is recorded as fee revenue in the consolidated statement of operations . the merchandise sold under our consignment model accounted for approximately 44.7 % , 52.3 % , and 59.1 % of our gmv for the fiscal years ended september 30 , 2011 , 2012 and 2013 , respectively . purchase model . under our purchase model , we offer our sellers a fixed amount or the option to share a portion of the proceeds received from our completed sales in the form of a distribution . distributions are calculated based on the value we receive from the sale after deducting a required return to us that we have negotiated with the seller . because we are the primary obligor , and take general and physical inventory risks and credit risk under this transaction model , we recognize as revenue the sale price paid by the buyer upon completion of a transaction . revenue from our purchase model accounted for approximately 65.2 % , 71.4 % , and 66.5 % of our total revenue for the fiscal years ended september 30 , 2011 , 2012 and 2013 , respectively . the merchandise sold under our purchase model accounted for approximately 39.6 % , 38.8 % , and 33.9 % of our gmv , for the fiscal years ended september 30 , 2011 , 2012 and 2013 , respectively . we collect a buyer premium on substantially all of our transactions under all of our transaction models . buyer premiums are calculated as a percentage of the sale price of the merchandise sold and 34 are paid to us by the buyer . buyer premiums are in addition to the price of the merchandise . under our profit-sharing model , we typically share the proceeds of any buyer premiums with our sellers . industry trends . we believe there are several industry trends impacting the growth of our business including : ( 1 ) the increase in the adoption of the internet by businesses to conduct e-commerce both in the united states and abroad ; ( 2 ) in the long term product innovation in the retail supply chain has increased the pace of product obsolescence and , therefore , the supply of surplus assets ; ( 3 ) the increase in the volume of returned merchandise handled by both online and offline retailers ; ( 4 ) the increase in government regulations and the need for corporations to have sustainability solutions necessitating verifiable recycling and remarketing of surplus assets ; ( 5 ) the increase in outsourcing by corporate and government organizations of disposition activities for surplus and end-of-life assets ; ( 6 ) as a result of the economic downturn , an increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases , which results in lower per unit prices and margins in our retail goods marketplace ; and ( 7 ) in the near term , the decrease in the volume and price of consumer electronic products , resulting in lower supply from our retail clients and lower per unit prices and margins in our retail goods marketplace . our seller agreements our dod agreements . we have two contracts with the dod pursuant to which we acquire , manage and sell excess property : surplus contract . in june 2001 , we were awarded the surplus contract , a competitive-bid exclusive contract under which we acquire , manage and sell all usable dod surplus personal property turned into the dla disposition services . surplus property generally consists of items determined by the dod to be no longer needed , and not claimed for reuse by , any federal agency , such as computers , electronics , office supplies , scientific and medical equipment , aircraft parts , clothing and textiles . revenue from our surplus contract ( including buyer premiums ) accounted for approximately 30.3 % , 27.2 % , and 27.7 % of our total revenue for the fiscal years ended september 30 , 2011 , 2012 and 2013 , respectively . the property sold under our surplus contract accounted for approximately 18.5 % , 15.5 % , and 15.0 % of our gmv for the fiscal years ended september 30 , 2011 , 2012 and 2013 , respectively . on november 6 , 2008 , the dod extended the original surplus contract through december 17 , 2008. we executed the new contract on december 18 , 2008. the new surplus contract base term expired in february 2012 , subject to dod 's right to extend it for two additional one-year terms . the dod has exercised both renewal options , and has initiated a request for proposal ( rfp ) process for the next surplus contract , which process was suspended in november 2013. we continue to provide services under our existing contract . scrap contract . in june 2005 , we were awarded a competitive-bid exclusive contract under which we acquire , manage and sell substantially all scrap property of the dod turned into the dla disposition services . scrap property generally consists of items determined by the dod to have no use beyond their base material content , such as metals , alloys , and building materials . revenue from our scrap contract ( including buyer premiums ) accounted for approximately 25.5 % , 16.1 % , and 13.5 % of our total revenue for the fiscal years ended september 30 , 2011 , 2012 and 2013 , respectively . the property sold under our scrap contract accounted for approximately 15.4 % , 8.9 % , and 7.0 % of our gmv for the fiscal years ended september 30 , 2011 , 2012 and 2013 , respectively . story_separator_special_tag we were required to pay $ 5.7 million to the dod in fiscal 2005 for the right to manage the operations and remarket scrap material in connection with the scrap contract . the scrap contract base term expired in august 2012 , subject to dod 's right to extend it for three additional one-year terms . the dod has exercised the first two renewal options . 35 under the scrap contract , we acquire scrap property at a per pound price and we are entitled to 23 % of the profits of sale ( defined as gross proceeds of sale less allowable operating expenses ) and distribute the remaining profits to dod . we refer to these disbursement payments to dod as profit-sharing distributions . as a result of this arrangement , we recognize as revenue the gross proceeds from these sales . dod also reimburses us for actual costs incurred for packing , loading and shipping property under the scrap contract that we are obligated to pick up from non-dod locations . under the surplus contract , executed on december 18 , 2008 , we are not required to distribute any portion of the profits realized under the contract , as the new contract contains a higher fixed percentage price of 1.8 % of the dla disposition services ' acquisition value to be paid for the property . the dod has broad discretion to determine what property will be made available for sale to us under the surplus contract and may retrieve or restrict property previously sold to us for national security reasons or if the property is otherwise needed to support the mission of the dod . under the scrap contract , we also have a small business performance incentive based on the number of scrap buyers that are small businesses that would allow us to receive up to an additional 2 % of the profit sharing distribution . the profit-sharing distribution for the scrap contract is 23 % and includes inventory assurance processes and procedures with respect to the mutilation of demilitarized scrap property sold . our commercial agreements . in connection with our acquisition of jacobs trading , llc ( `` jacobs '' ) on october 1 , 2011 , we assumed the rights and obligations under a master merchandise salvage contract ( the `` wal-mart agreement '' ) . we have the exclusive right to purchase certain consumer products from wal-mart that have been removed from the sales stream of its retail operations and we believe this agreement will be the source of a significant portion of our revenue and gmv during its term , which expires on may 16 , 2016 and thereafter continues on a month to month basis . in addition , we have other contracts / programs with wal-mart . for the year ended september 30 , 2013 , approximately 11 % of our gmv was generated from wal-mart under multiple contracts / programs . during fiscal year 2013 , we had over 600 corporate clients who each sold in excess of $ 10,000 of surplus and salvage assets in our marketplaces . our agreements with these clients are generally terminable at will by either party . key business metrics our management periodically reviews certain key business metrics for operational planning purposes and to evaluate the effectiveness of our operational strategies , allocation of resources and our capacity to fund capital expenditures and expand our business . these key business metrics include : gross merchandise volume . gross merchandise volume , or gmv , is the total sales value of all merchandise sold through our marketplaces during a given period . we review gmv because it provides a measure of the volume of goods being sold in our marketplaces and thus the activity of those marketplaces . gmv also provides a means to evaluate the effectiveness of investments that we have made and continue to make , including in the areas of customer support , value-added services , product development , sales and marketing , and operations . the gmv of goods sold in our marketplace during fiscal year 2013 totaled $ 973.3 million . completed transactions . completed transactions represents the number of auctions in a given period from which we have recorded revenue . similar to gmv , we believe that completed transactions is a key business metric because it provides an additional measurement of the volume of activity flowing through our marketplaces . during the fiscal year ended september 30 , 2013 , we completed approximately 530,000 transactions . 36 total registered buyers . we grow our buyer base through a combination of marketing and promotional efforts . a person becomes a registered buyer by completing an online registration process on one of our marketplaces . as part of this process , we collect business and personal information , including name , title , company name , business address and contact information , and information on how the person intends to use our marketplaces . each prospective buyer must also accept our terms and conditions of use . following the completion of the online registration process , we verify each prospective buyer 's e-mail address and confirm that the person is not listed on any banned persons list maintained internally or by the u.s. federal government . after the verification process , which is completed generally within 24 hours , the registration is approved and activated and the prospective buyer is added to our registered buyer list . total registered buyers , as of a given date , represents the aggregate number of persons or entities who have registered on one of our marketplaces . we use this metric to evaluate how well our marketing and promotional efforts are performing . total registered buyers excludes duplicate registrations , buyers who are suspended from utilizing our marketplaces and those buyers who have voluntarily removed themselves from our registration database . in addition , if we become aware of registered buyers that are no longer in business , we remove them from our database .
| cost of goods sold ( excluding amortization ) increased $ 1.4 million , or 0.7 % , to $ 199.5 million for the year ended september 30 , 2013 from $ 198.1 million for the year ended september 30 , 2012. as a percentage of revenue , these expenses decreased to 39.5 % from 41.7 % , primarily as a result of the acquisition of goindustry which primarily utilizes the consignment model . profit-sharing distributions . profit-sharing distributions decreased $ 7.3 million , or 16.9 % , to $ 35.9 million for the year ended september 30 , 2013 from $ 43.2 million for the year ended september 30 , 2012. as a percentage of revenue , these expenses decreased to 7.1 % from 9.1 % . these decreases were primarily due to decreasing property flow from the dod scrap contract and lower commodity prices . technology and operations expenses . technology and operations expenses increased $ 22.5 million , or 33.3 % , to $ 90.1 million for the year ended september 30 , 2013 from $ 67.6 million for the year ended september 30 , 2012. as a percentage of revenue , these expenses increased to 17.8 % from 14.2 % . these increases are primarily due to ( 1 ) expenses of $ 14.6 million related to the activity of goindustry and nesa ; and ( 2 ) expenses of $ 7.9 million in staff and temporary wages , including stock based compensation , and consultant fees associated with technology infrastructure projects . sales and marketing expenses . sales and marketing expenses increased $ 8.9 million , or 28.5 % , to $ 40.2 million for the year ended september 30 , 2013 from $ 31.3 million for the year ended september 30 , 2012. as a percentage of revenue , these expenses increased to 7.9 % from 6.6 % . these increases are primarily due to expenses of $ 8.1 million related to the activity of goindustry and nesa . general and administrative expenses . general and administrative expenses increased $ 11.8 million , or 31.9 % , to $ 48.9 million for the year ended september 30 , 2013 from $ 37.1 million for the year ended september 30 , 2012. as a percentage of revenue , these expenses increased to 9.7 % from 7.8 % . these increases are primarily due to ( 1 ) expenses of $ 9.3 million related to the activity of goindustry and nesa ; and ( 2 ) $ 2.4 million of expenses associated with increases in general
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declines in the level of real estate activity or the average price of real estate sales will adversely affect our title insurance revenues . both the volume and the average price of residential real estate transactions have experienced declines in many parts of the country over the past several years from 2005 and prior levels , resulting in a reduction of revenues in our businesses . these trends appear likely to continue . we have found that residential real estate activity generally decreases in the following situations : when mortgage interest rates are high or increasing ; when the mortgage funding supply is limited ; and when the united states economy is weak , including during high unemployment levels . in 2007 , as interest rates on adjustable rate mortgages reset to higher rates , foreclosures on subprime mortgage loans increased to record levels . this resulted in a significant decrease in levels of available mortgage funding as investors became wary of the risks associated with investing in subprime mortgage loans . in addition , tighter lending standards and a bearish outlook on the real estate environment caused potential home buyers to become reluctant to purchase homes . in 2008 , the increase in foreclosure activity , which had previously been limited to the subprime mortgage market , became more widespread as borrowers encountered difficulties in attempting to refinance their adjustable rate mortgages . in the last three years , the elevated mortgage delinquency and default rates caused negative operating results at a number of banks and financial institutions and , as a result , significantly reduced the level of lending activity . multiple banks have failed over the past three years and others may fail in the future , further reducing the capacity of the mortgage industry to make loans . since december of 2008 , the federal reserve has held the federal funds rate at 0.0 % -0.25 % , and has indicated that rates will stay at this level at least through late 2014. this action by the federal reserve , along with other government programs designed to increase liquidity in the mortgage markets , resulted in a significant increase in our refinance order volumes in december 2008 and continued to positively affect our revenues through the first nine months of 2009. in the fourth quarter of 2009 and through 2010 , we again experienced a decline in order volumes . mortgage interest rates remained at historically low levels throughout 2010 and continued to decrease in 2011. according to the mba , u.s. mortgage originations ( including refinancings ) were approximately $ 1.3 trillion , $ 1.6 trillion and $ 2.0 trillion in 2011 , 2010 and 2009 , respectively . the mba 's mortgage finance forecast currently estimates an approximately $ 1.0 trillion mortgage origination market for 2012 , which would be a decrease of 23.1 % from 2011 . the mba forecasts that the 23.1 % decrease will result almost entirely from decreased refinance activity . several pieces of legislation were enacted to address the struggling mortgage market and the current economic and financial environment . one of these programs , the american recovery and reinvestment act of 2009 , passed on february 17 , 2009 , was a $ 787 billion stimulus package , that provided an array of types of relief for homebuyers , such as an $ 8,000 tax credit that became available to first-time homebuyers for the purchase of a principal residence . the first-time homebuyers tax credit program expired on september 30 , 2010. we believe these measures had a positive impact on our 2010 order volumes . more recently , on october 24 , 2011 , the federal housing finance agency announced a series of changes to the home affordable refinance program ( `` harp '' ) which would make it easier for certain borrowers who owe more than their home is worth and who are current on their mortgage payments to refinance their mortgages at lower interest rates . the new program reduces or eliminates the risk-based fees fannie mae and freddie mac charge on many loans , raises the loan-to-home value ratio requirement for refinancing , and streamlines the underwriting process . according to the federal housing authority ( `` fha '' ) , lenders began taking refinancing applications on december 1 , 2011 under the modified harp program but it could take several months before the new loans are made and fannie mae and freddie mac will not begin buying certain types of refinanced loans until march 2012. we are uncertain to what degree the modified harp program may affect our results in the future . on february 1 , 2012 , the obama administration announced new initiatives designed to increase refinancing of mortgages , 27 reduce foreclosures and improve the housing market . under these initiatives , among other things : ( i ) certain borrowers with loans insured by fannie mae or freddie mac ( `` gses '' and such loans , `` gse loans '' ) and certain borrowers with non-gse loans , through a new fha program , would be able to refinance their mortgages and take advantage of historically low interest rates ; ( ii ) the fha will begin transitioning foreclosed properties in the nations hardest-hit cities into rental housing units ; ( iii ) gses and major banks have begun offering one year of forbearance ( up from three months ) to certain unemployed borrowers ; and ( iv ) the home affordable modification program ( `` hamp '' ) was extended through 2013 , including easing the eligibility requirements and increasing the financial incentives for banks to participate . as indicated , the obama administration has already begun implementing these initiatives , except for the refinancing initiatives ; however , the gses have not started the refinancing program . the obama administration is looking to congress to pass legislation to implement a refinancing program for non-gse loans . story_separator_special_tag we are uncertain to what degree these initiatives may affect our results in the future . during 2010 , a number of lenders imposed freezes on foreclosures in some or all states as they reviewed their foreclosure practices . in response to these freezes , the office of the comptroller of the currency ( `` occ '' ) is concurrently reviewing the foreclosure practices in the residential mortgage loan servicing industry . on april 13 , 2011 , the occ and other federal regulators announced formal consent orders against several national bank mortgage servicers and third-party servicer providers for inappropriate practices related to residential mortgage loan servicing and foreclosure processing . the consent orders require the servicers to promptly correct deficiencies and make improvements in practices for residential mortgage loan servicing and foreclosure processing , including improvements to future communications with borrowers and a comprehensive `` look back '' to assess whether foreclosures complied with federal and state laws and whether any deficiencies in the process or related documentation resulted in financial injury to borrowers . we are not involved in these enforcement actions and we do not believe that we are exposed to significant losses resulting from faulty foreclosure practices . our title insurance underwriters issue title policies on real estate owned properties to new purchasers and lenders to those purchasers . we believe that these policies will not result in significant additional claims exposure to us because even if a court sets aside a foreclosure due to a defect in documentation , the foreclosing lender would be required to return to our insureds all funds obtained from them , resulting in reduced exposure under the title insurance policy . further , we believe that under current law and the rights we have under our policies , we would have the right to seek recovery from the foreclosing lender in the event of a failure to comply with state laws or local practices in connection with a foreclosure . many states continue to evaluate foreclosure practices and related legislation may change in the future . as with the freezes on foreclosures in 2010 , the consent orders imposed by the federal regulators may continue to delay lender foreclosure completions . on february 9 , 2012 , federal officials , state attorneys general and representatives of bank of america , jp morgan chase , wells fargo , citigroup and ally financial agreed to a $ 25 billion settlement of federal and state investigations into the foreclosure practices of banks and other mortgage servicers from september 2008 to december 2011. under the settlement , approximately one million underwater borrowers will have their mortgages reduced by lenders and 300,000 homeowners will be able to refinance their homes at lower interest rates . we are uncertain to what degree these initiatives may affect our results in the future . historically , real estate transactions have produced seasonal revenue levels for title insurers . the first calendar quarter is typically the weakest quarter in terms of revenue due to the generally low volume of home sales during january and february . the third calendar quarter has been typically the strongest in terms of revenue primarily due to a higher volume of home sales in the summer months and the fourth quarter is usually also strong due to commercial entities desiring to complete transactions by year-end . in the past five years we have seen a divergence from these historical trends with orders being negatively affected by a reduction in the availability of financing , rising default levels , and falling home values causing an overall downward trend in home sales . in addition we have noted short term fluctuations through recent years in resale and refinance transactions as a result of changes in interest rates and the implementation and subsequent expiration of government programs designed to stimulate the real estate market . because commercial real estate transactions tend to be driven more by supply and demand for commercial space and occupancy rates in a particular area rather than by macroeconomic events , we believe that our commercial real estate title insurance business is less dependent on the industry cycles discussed above than our residential real estate title business . however , from 2007 to 2009 we experienced a significant decrease in our average commercial fee per file , which we believe was due , in part , to a decrease in the number of closings of larger deals due to difficulties or delays in obtaining financing . during 2010 and especially 2011 , we again saw an increase in fee per file and in the volume of commercial transactions , which may indicate an improvement in availability of financing in the commercial markets . our revenues in future periods will continue to be subject to these and other factors which are beyond our control and , as a result , are likely to fluctuate . 28 critical accounting estimates the accounting estimates described below are those we consider critical in preparing our consolidated financial statements . management is required to make estimates and assumptions that can affect the reported amounts of assets and liabilities and disclosures with respect to contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . actual amounts could differ from those estimates . see note a of notes to the consolidated financial statements for additional description of the significant accounting policies that have been followed in preparing our consolidated financial statements . reserve for claim losses . title companies issue two types of policies , owner 's and lender 's policies , since both the new owner and the lender in real estate transactions want to know that their interest in the property is insured against certain title defects outlined in the policy .
| the increase in 2011 as compared to 2010 is due to an overall increase in the fixed maturity security portfolio book value during 2011 as well as dividend income received on our preferred stock which was not held during 2010. the decrease in 2010 compared to 2009 is due to overall declines in bond interest income on our fixed maturity securities in 2010. average invested assets were $ 3,792.2 million , $ 3,928.7 million , and $ 3,972.1 million for the years ended december 31 , 2011 , 2010 , and 2009 , respectively . effective return on average invested assets , excluding realized gains and losses , was 4.3 % , 4.0 % , and 4.1 % for the years ended december 31 , 2011 , 2010 , and 2009 , respectively . net realized gains and losses totaled $ 6.7 million , $ 235.7 million , and $ 25.8 million for the years ended december 31 , 2011 , 2010 , and 2009 , respectively . the net realized gain for the year ended december 31 , 2011 includes $ 28.2 million net gains on 35 various investments and other assets , offset by a $ 4.4 million decrease in the value of our structured notes and $ 17.1 million in impairment charges on investments determined to be other-than-temporarily impaired . the net realized gain for the year ended december 31 , 2010 includes a $ 98.4 million gain on the sale of our 32 % interest in sedgwick in may 2010 , a $ 27.2 million gain on the sale of a corporate bond purchased during 2009 , a $ 21.7 million gain on the sale of fis stock as part of a tender offer , $ 11.4 million in gains resulting from an increase in the value of our structured notes , and $ 77.0 million in gains from the sale of other various investments and assets . the net realized gain for the year ended december 31 , 2009 , included impairment charges totaling $ 6.9 million on equity securities that were deemed to be other-than-temporarily impaired , net realized gains on sales of various investments of $ 28.1 million , and net gains on sales of other assets of $ 4.6 million . expenses . our operating
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additionally , service revenue in 2013 increased 7 % from 2012 , with an underlying 9 % increase in maintenance services revenue , as compared to 2012. consulting services revenue increased 5 % in 2013 compared to 2012. in 2012 , teradata revenue increased 13 % from 2011. the revenue increase included a negative 2 % impact from foreign currency fluctuations , and approximately 1 % increase from acquisitions . product revenue increased 16 % in 2012 from 2011 , led by growth in the americas region . service revenue increased 10 % in 2012 from 2011 , driven primarily by increases in consulting services revenue in the international region , which included revenue from the ecircle acquisition . overall , consulting revenue increased 12 % in 2012 from 2011 , and maintenance services revenue increased 9 % during the same period . gross margin gross margin was 54.7 % in 2013 down from 55.9 % in 2012 , as a result of a shift in the product mix . product gross margin decreased to 64.8 % in 2013 , compared to 67.9 % 2012 , primarily the result of lower product revenue volume , product mix , and higher capitalized software amortization . service gross margin increased to 46.2 % in 2013 compared to 44.6 % in 2012 , driven by higher maintenance revenues and improved consulting margins . in 2012 , gross margin was 55.9 % up from 54.7 % in 2011 , driven primarily by improved product margins in the americas region , as well as the increased proportion of product revenue ( as compared to services revenue ) . product gross margin increased to 67.9 % in 2012 from 66.0 % in 2011. the improved product margins were driven primarily by improved product revenue mix , as well as $ 13 million less in acquisition-related costs . these improvements were offset in part by $ 4 million in additional amortization of capitalized software development costs . services gross margin was roughly unchanged , at 44.6 % in 2012 compared to 44.5 % in 2011. operating expenses total operating expenses , including selling , general and administrative ( ยsg & aย ) and research and development ( ยr & dย ) expenses , totaled $ 941 million in 2013 compared to $ 911 million in 2012. sg & a increased by $ 29 million , and was primarily driven by higher selling expense , resulting from our strategic initiative to add sales territories and related headcount , which was offset in part by lower variable incentive based compensation expense . r & d expenses increased $ 1 million and included $ 3 million less in capitalization of software development costs , which were offset by lower variable incentive based compensation expense . 35 in 2012 , total operating expenses including sg & a and r & d expenses , totaled $ 911 million compared to $ 837 million in 2011. the $ 65 million increase in sg & a expenses was driven by higher selling expense , due primarily to our strategic initiative to add sales headcount , in addition to the impact of additional headcount and infrastructure brought on by the acquisition of ecircle . the $ 9 million increase in r & d expenses was primarily due to higher engineering headcount expenses , including new engineering headcount from the acquisition of ecircle . these increases were offset in part by $ 12 million more in capitalization of software development cost as compared to the prior-year period , as well as lower incentive-based compensation expenses . other ( expense ) income , net other expense was $ 24 million in 2013 compared to $ 2 million in 2012. the increase in other expense is due to a $ 22 million net loss on equity investments in 2013 arising from an impairment of carrying value , partially offset by a gain on sale . in 2012 , other expense was $ 2 million compared to $ 25 million of other income in 2011. other income in 2011 resulted primarily from $ 28 million in gains on the sales of equity investments . income taxes the effective income tax rate was 25.8 % , 27.5 % and 26.6 % for the years ended december 31 , 2013 , 2012 and 2011 , respectively . the tax rate for 2013 included a $ 4 million discrete tax benefit for the 2012 u.s. federal research and development tax credit ( the ยr & d tax creditย ) , that was recognized in january of 2013 when the tax credit was retroactively reinstated . due to a change in tax law enacted in the state of california in the fourth quarter of 2012 , the company established a valuation allowance to partially offset its california research & development tax credit carryforward deferred tax asset , as the company expects to continue to generate excess california research & development tax credits into the foreseeable future . however , the discrete tax impact of establishing the valuation allowance was fully offset with a favorable discrete tax impact resulting from a decrease in the company 's effective state tax rate resulting from the california change in tax law , resulting in no material net impact to the company 's overall effective tax rate for the fourth quarter and full year ended december 31 , 2012. the effective tax rate for 2011 was impacted by a $ 4 million discrete tax benefit related to the book gain recorded on the company 's previous equity investment in aster data , which was reflected as a permanent non-taxable item in the second quarter of 2011. we currently estimate our full-year effective tax rate for 2014 to be approximately 26.5 % . story_separator_special_tag this estimate takes into consideration , among other things , the forecasted earnings mix by jurisdiction for 2014 , and assumes that the r & d tax credit , which expired as of december 31 , 2013 , will be retroactively reinstated sometime during 2014. if the credit is not reinstated during 2014 , we estimate our effective tax rate will be negatively impacted by approximately 60 basis points . the provision for income taxes is based on the pre-tax earnings mix by jurisdiction of teradata and its subsidiaries under the company 's current structure . for additional information , see ยnote 4ยincome taxesย in the notes to consolidated financial statements elsewhere in this annual report . revenue and gross margin by operating segment teradata manages its business in two geographic regions , which are also the company 's operating segments : the americas and international regions . teradata believes this format is useful to investors because it allows analysis and comparability of operating trends by operating segment . it also includes the same information that is used by teradata management to make decisions regarding the segments and to assess our financial performance . the discussion of our segment results describes the changes in results as compared to the prior-year period . 36 the following table presents revenue and operating performance by segment for the years ended december 31 : replace_table_token_5_th americas : revenue increased $ 14 million or 1 % , in 2013 from 2012 , with an underlying 7 % increase in services revenue offset in part by a 4 % decrease in product revenue . the revenue increase was not materially impacted by foreign currency fluctuations . gross margins were 58.0 % for 2013 , down from 59.7 % in 2012 , as higher maintenance services margins and improved consulting services margins were more than offset by a greater proportion of services revenue ( in relation to product revenue ) , compared to the prior-year period . in 2012 , revenue increased 13 % from 2011 , led by a 17 % increase in product revenue . the revenue increase was not significantly impacted by foreign currency fluctuations . gross margin increased to 59.7 % in 2012 , from 58.3 % in 2011 , driven primarily by improved product margins and the greater proportion of product revenue ( versus services revenue ) , as compared to the prior-year period . international : revenue increased $ 13 million or 1 % , in 2013 from 2012 , as a 7 % increase in services revenue was largely offset by a 7 % reduction in product revenue . the increase in services revenue was largely driven by revenue from the acquisition of ecircle . the revenue increase includes a 3 % adverse impact from foreign currency fluctuations . gross margins decreased slightly to 49.7 % in 2013 , down from 50.1 % in 2012 , as improved consulting services and maintenance services margins were more than offset by a greater proportion of services ( in relation to product revenue ) , compared to the prior-year period . in 2012 , revenue increased 13 % from 2011 , led by an 18 % increase in consulting services revenue . the increase in consulting revenue was largely driven by revenue from the acquisition of ecircle , which was completed in 2012. the revenue increase included a negative 5 % impact from foreign currency fluctuations . gross margin increased to 50.1 % in 2012 , from 49.2 % in 2011 , driven by improvements in both product and services margins , offset in part by a greater proportion of consulting services revenue ( compared to product revenue ) , as compared to the prior-year period . 37 financial condition , liquidity and capital resources teradata ended 2013 with $ 695 million in cash and cash equivalents , a $ 34 million decrease from the december 31 , 2012 balance , after using approximately $ 382 million for repurchases of company common stock , and approximately $ 36 million for acquisitions and investment activities which were completed during the year . cash provided by operating activities decreased by $ 65 million to $ 510 million in 2013. the decrease in cash provided by operating activities was primarily due to lower net income and timing of working capital transactions . teradata 's management uses a non-gaap measure called ยfree cash flow , ย which is not a measure defined under accounting principles generally accepted in the united states of america ( ยgaapย ) . we define free cash flow as net cash provided by operating activities less capital expenditures for property and equipment , and additions to capitalized software , as one measure of assessing the financial performance of the company , and this may differ from the definition used by other companies . the components that are used to calculate free cash flow are gaap measures taken directly from the consolidated statements of cash flows . we believe that free cash flow information is useful for investors because it relates the operating cash flow of the company to the capital that is spent to continue and improve business operations . in particular , free cash flow indicates the amount of cash available after capital expenditures for , among other things , investments in the company 's existing businesses , strategic acquisitions and repurchase of teradata common stock . free cash flow does not represent the residual cash flow available for discretionary expenditures since there may be other non-discretionary expenditures that are not deducted from the measure . this non-gaap measure should not be considered a substitute for , or superior to , cash flows from operating activities under gaap . the table below shows net cash provided by operating activities and capital expenditures for the following periods : replace_table_token_6_th financing activities and certain other investing activities are not included in our calculation of free cash flow . in 2013 , these other investing activities primarily consisted of immaterial business acquisitions and investment activities that were closed during the year .
| our range of analytic applications , the teradata and teradata aster databases , workload-specific platforms , big data analytics and cloud-based solutions , help customers drive more complete and complex analytics to enhance both top- and bottom-line performance and extend their competitive advantage in today 's global marketplace . our marketing applications leverage data to help organizations manage their marketing operations , plan and execute campaigns , and communicate with their customers across all channels . the explosion of data has created opportunities for our customers to significantly improve their effectiveness in marketing to their customers . our consulting services are an important part of our business , with our consultants offering a combination of proven methodologies , deep industry expertise and years of hands-on experience . in addition , our customer services professionals provide a single source of support services for our analytic data platforms that allow customers to maximize use and leverage the value of their analytic data and marketing investments . we serve customers across a broad set of industries from around the world , ranging from small departmental and corporate implementations to many of the world 's largest analytic data platforms and marketing applications . teradata delivers its solutions primarily through direct sales channels , as well as through alliances with system integrators , other independent software vendors , value-added resellers and distributors . we provide our offerings on-premise or in the cloud ( as a service ) . effective january 1 , 2013 , teradata combined the management of the europe , middle east , africa , asia pacific and japan regions into a new international region . this larger international region has greater critical mass and leverage of resources for deployment of the company 's integrated marketing management , big data analytics , and data 32 warehouse solutions , and also possesses more knowledge depth for our numerous consulting and support services offers . as a result , teradata now manages its business in two geographic regions , which are also the company 's operating segments : ( 1 ) the americas region ( north america and latin america ) ; and ( 2 ) the international region ( europe , middle east , africa , asia pacific and japan ) . management evaluates the performance of its segments based on revenue
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electronic trading continues to account for an increasing amount of trading activity , with some firms charging very low trading execution fees that are difficult for any conventional discount firm to meet . some of these brokers , however , impose asset based charges for services such as mailing , transfers and handling exchanges which we do not currently impose , and also direct their orders to market makers where they have a financial interest . continued competition could limit our growth or even lead to a decline in our customer base , which would adversely affect our results of operations . industry-wide changes in trading practices , such as the continued use of electronic communications networks , are expected to put continuing pressure on commissions/fees earned by brokers while increasing volatility . we are a party to an operating agreement ( the ยoperating agreementย ) , with suzanne shank and napoleon brandford iii , the two individual principals ( the ยprincipalsย ) of sbsfpc , a delaware limited liability company . pursuant to the terms of the operating agreement , the company and each of the principals made an initial capital contribution of $ 400,000 in exchange for a 33.33 % initial interest in sbsfpc . sbsfpc engages in derivatives transactions related to the municipal underwriting business . the operating agreement provides that profit and loss will be shared 66.66 % by the principals and 33.33 % by us . operations from sbsfpc is considered to be integral to our operations . on january 23 , 2008 , our board of directors authorized a buy back of up to 300,000 shares of our common stock . under this program , shares are purchased from time to time , at our discretion , in the open market and in private transactions . during 2012 we repurchased 8,107 shares of common stock for an average price of $ 1.67. critical accounting policies we generally follow accounting policies standard in the brokerage industry and believe that our policies appropriately reflect our financial position and results of operations . our management makes significant estimates that affect the reported amounts of assets , liabilities , revenues and expenses and the related disclosure of contingent assets and liabilities included in the financial statements . the estimates relate primarily to revenue and expense items in the normal course of business as to which we receive no confirmations , invoices , or other documentation , at the time the books are closed for a period . we use our best judgment , based on our knowledge of revenue transactions and expenses incurred , to estimate the amount of such revenue and expenses . we are not aware of any material differences between the estimates used in closing our books for the last five years and the actual amounts of revenue and expenses incurred when we subsequently receive the actual confirmations , invoices or other documentation . estimates are also used in determining the useful lives of intangibles assets , and the fair market value of intangible assets . our management believes that its estimates are reasonable . - 16 - story_separator_special_tag named as one of the defendants in a class action pending in the united states district court , southern district of new york . among other claims , the third amended complaint in the action asserted on behalf of a class of purchasers in a public offering of $ 1,500,000,000 , 6.75 % subordinated notes due 2017 ( the ยnotesย ) , issued by lehman brothers holdings , inc. , and certain smaller issuances of other securities that siebert and other underwriters of the notes violated section 11 of the securities act of 1933 and other applicable law in that relevant offering materials were false and misleading . siebert had purchased $ 15 million of the notes and $ 462,953 of other securities as an underwriter in the offerings . siebert and the other underwriters moved to dismiss the third amended complaint on various grounds . the court granted in part and denied in part the motion by an order dated july 27 , 2011. on november 3 , 2011 , siebert and the plaintiffs class agreed to resolve all claims against siebert in consideration of a $ 1 million payment by siebert . as of december 31 , 2011 , the settlement remained subject to court approval and the company had accrued a $ 1 million provision for - 18 - loss to reflect the settlement . as certain defendants did not agree to a settlement , additional liability to the company is possible . at present , we are uncertain as to the potential liability , if any , in connection with the non-settling defendants . income from our equity investment in sbs , an entity in which siebert holds a 49 % equity interest , for 2011 was $ 8,000 compared to income of $ 4.1 million for 2010 , a decrease of $ 4.0 million , primarily due to sbs participating in fewer municipal bond offerings as senior- and co-manager . this decrease was attributable to a sharp decline in the number of offerings by municipalities due to investor concerns over defaults by municipalities at the state and local level and the expiration of the build america bonds program . income from our equity investment in sbsfpc , an entity in which we hold a 33 % equity interest , for 2011 was $ 21,000 as compared to a loss of $ 24,000 from the same period in 2010. this increase was principally due to a gain recorded by sbsfpc on termination of a swap position . results of operations of equity investees is considered to be integral to our operations and material to the results of operations . taxes . the tax provision for the year ended december 31 , 2011and 2010 was $ 23,000 and $ 1.6 million , respectively . the tax provision for 2011 of $ 23,000 principally story_separator_special_tag electronic trading continues to account for an increasing amount of trading activity , with some firms charging very low trading execution fees that are difficult for any conventional discount firm to meet . some of these brokers , however , impose asset based charges for services such as mailing , transfers and handling exchanges which we do not currently impose , and also direct their orders to market makers where they have a financial interest . continued competition could limit our growth or even lead to a decline in our customer base , which would adversely affect our results of operations . industry-wide changes in trading practices , such as the continued use of electronic communications networks , are expected to put continuing pressure on commissions/fees earned by brokers while increasing volatility . we are a party to an operating agreement ( the ยoperating agreementย ) , with suzanne shank and napoleon brandford iii , the two individual principals ( the ยprincipalsย ) of sbsfpc , a delaware limited liability company . pursuant to the terms of the operating agreement , the company and each of the principals made an initial capital contribution of $ 400,000 in exchange for a 33.33 % initial interest in sbsfpc . sbsfpc engages in derivatives transactions related to the municipal underwriting business . the operating agreement provides that profit and loss will be shared 66.66 % by the principals and 33.33 % by us . operations from sbsfpc is considered to be integral to our operations . on january 23 , 2008 , our board of directors authorized a buy back of up to 300,000 shares of our common stock . under this program , shares are purchased from time to time , at our discretion , in the open market and in private transactions . during 2012 we repurchased 8,107 shares of common stock for an average price of $ 1.67. critical accounting policies we generally follow accounting policies standard in the brokerage industry and believe that our policies appropriately reflect our financial position and results of operations . our management makes significant estimates that affect the reported amounts of assets , liabilities , revenues and expenses and the related disclosure of contingent assets and liabilities included in the financial statements . the estimates relate primarily to revenue and expense items in the normal course of business as to which we receive no confirmations , invoices , or other documentation , at the time the books are closed for a period . we use our best judgment , based on our knowledge of revenue transactions and expenses incurred , to estimate the amount of such revenue and expenses . we are not aware of any material differences between the estimates used in closing our books for the last five years and the actual amounts of revenue and expenses incurred when we subsequently receive the actual confirmations , invoices or other documentation . estimates are also used in determining the useful lives of intangibles assets , and the fair market value of intangible assets . our management believes that its estimates are reasonable . - 16 - story_separator_special_tag named as one of the defendants in a class action pending in the united states district court , southern district of new york . among other claims , the third amended complaint in the action asserted on behalf of a class of purchasers in a public offering of $ 1,500,000,000 , 6.75 % subordinated notes due 2017 ( the ยnotesย ) , issued by lehman brothers holdings , inc. , and certain smaller issuances of other securities that siebert and other underwriters of the notes violated section 11 of the securities act of 1933 and other applicable law in that relevant offering materials were false and misleading . siebert had purchased $ 15 million of the notes and $ 462,953 of other securities as an underwriter in the offerings . siebert and the other underwriters moved to dismiss the third amended complaint on various grounds . the court granted in part and denied in part the motion by an order dated july 27 , 2011. on november 3 , 2011 , siebert and the plaintiffs class agreed to resolve all claims against siebert in consideration of a $ 1 million payment by siebert . as of december 31 , 2011 , the settlement remained subject to court approval and the company had accrued a $ 1 million provision for - 18 - loss to reflect the settlement . as certain defendants did not agree to a settlement , additional liability to the company is possible . at present , we are uncertain as to the potential liability , if any , in connection with the non-settling defendants . income from our equity investment in sbs , an entity in which siebert holds a 49 % equity interest , for 2011 was $ 8,000 compared to income of $ 4.1 million for 2010 , a decrease of $ 4.0 million , primarily due to sbs participating in fewer municipal bond offerings as senior- and co-manager . this decrease was attributable to a sharp decline in the number of offerings by municipalities due to investor concerns over defaults by municipalities at the state and local level and the expiration of the build america bonds program . income from our equity investment in sbsfpc , an entity in which we hold a 33 % equity interest , for 2011 was $ 21,000 as compared to a loss of $ 24,000 from the same period in 2010. this increase was principally due to a gain recorded by sbsfpc on termination of a swap position . results of operations of equity investees is considered to be integral to our operations and material to the results of operations . taxes . the tax provision for the year ended december 31 , 2011and 2010 was $ 23,000 and $ 1.6 million , respectively . the tax provision for 2011 of $ 23,000 principally
| clearing and floor brokerage fees decreased $ 100,000 , or 3.5 % , from the prior year to $ 2.7 million in 2012 primarily due to lower retail trading volumes as well as execution charges for institutional equity customers . professional fees decreased $ 2.0 million , or 38.6 % from the prior year to $ 3.1 million in 2012 primarily due to a decrease in legal fees relating to a dispute with a former employee offset by increases in consulting fees relating to our information technology department and our commission recapture business . advertising and promotion expense increased $ 16,000 , or 4.0 % , from the prior year to $ 418,000 in 2012 due to an increase in online advertising . communications expense decreased $ 543,000 , or 25.3 % , from the prior year to $ 1.6 million in 2012 due to a decrease in bloomberg devices resulting from fewer employees in the institutional trading department and the closing of our surfside and naples branches in florida during the fourth quarter of 2011 , as well as the elimination of costs associated with the discontinuance of our website developed and maintained by a software vendor as of june 2012. occupancy costs decreased $ 188,000 , or 17.2 % , from the prior year to $ 907,000 in 2012 due to the decrease in rents in our new jersey office and decrease in our utilities costs as well as the closing of our surfside and naples branches in florida during the fourth quarter of 2011. impairment of intangibles of $ 300,000 in 2012 was the result of the company writing down the carrying value of its unamortized intangible assets to fair value . write off of software development costs of $ 433,000 was due to the company 's discontinuation of its relationship with a software vendor on june 30 , 2012 , which had developed and maintained our website . as a result , the company wrote off its remaining unamortized
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july 31 , 2016. accounts receivable at july 31 , 2017 totaled $ 3.8 million , which is an increase of $ 3.5 million from the $ 0.3 million accounts receivable balance at july 31 , 2016. our working capital was $ 6.6 million as of july 31 , 2017 , while working capital as of july 31 , 2016 was a negative $ 2.4 million . total liabilities were $ 6.5 million as of july 31 , 2017 , which represents a decrease of $ 0.1 million from total liabilities of $ 6.6 million as of july 31 , 2016. during the year ended july 31 , 2017 , we received net proceeds in the amount of $ 13.7 million from the sale to swk ( see note 10 โ sale of royalties ) of our right to receive , commencing on october 1 , 2016 , royalties arising from the sale , by adapt , of our narcanยฎ nasal spray product . this sale of royalties was the primary reason for the significant increase in cash as of july 31 , 2017 as compared to july 31 , 2016 . 28 the following table sets forth the primary sources and uses of cash for each of the periods presented below : for the fiscal year ended july 31 , 2017 july 31 , 2016 cash flows from continuing operations : net cash provided by ( used in ) operating activities $ 5,556,162 $ ( 915,287 ) net cash used in financing activities - ( 7,537 ) net cash ( used in ) provided by financing activities ( 165,000 ) 1,970,000 net decrease in cash and cash equivalents $ 5,391,162 $ 1,047,176 cash provided by ( used in ) operating activities during the year ended july 31 , 2017 , net cash provided by operating activities was $ 5.6 million , which was primarily due to net income of $ 6.6 million , as well as non-cash items as adjustments for stock based compensation of warrants and options of $ 1.5 million and increase in accounts payable and accrued liabilities of $ 2.1 million , offset with an increase of accounts receivable of $ 3.4 million and a decrease in accrued salaries and wages of $ 1.2 million . during the year ended july 31 , 2016 , net cash used in operating activities used in operating activities was $ 0.9 million , which was primarily due to net loss of $ 7.8 million , as well as a decrease in deferred revenue of $ 4.8 million , offset with an increase of non-cash items as adjustments for stock based compensation of options of $ 10.3 million and issuance of common stock for services . cash provided by used in investing activities there were no investing activities for the year ended july 31 , 2017. during the year ended july 31 , 2016 , net cash used in operations was $ 8,000 , which was due to the purchase of equipment . cash provided by ( used in ) provided by financing activities during the year ended july 31 , 2017 , net cash used in financing activities was $ 0.2 million which was due to the repayment of note payable . during the year ended july 31 , 2016 , net cash provided by financing activities was $ 2.0 million , which was due to proceeds from the adapt agreement , as amended by the adapt amendment , in the amount of $ 2.1 million , offset with the net repayment of a related party note in the amount of $ 0.1 million . we believe that , based on our current level of operations , our existing cash resources will provide adequate funds for ongoing operations and working capital requirements for at least the next 12 months . plan of operation during the fiscal year ending july 31 , 2018 , we aim to broaden our product pipeline and anticipate commencing further trials based on our existing as well as potential patents . after certain obligations with respect to the purchase agreement with swk are satisfied , we anticipate receiving revenues pursuant to the adapt agreement . pursuant to the adapt agreement , in exchange for licensing its treatment to adapt , we could receive total potential development and sales milestone payments in excess of $ 20 million , plus up to double-digit royalties . in november 2015 , the fda approved narcanยฎ for the emergency treatment of known or suspected opioid overdose , to be marketed by adapt . in december 2015 , we received a $ 2 million milestone payment from adapt . this milestone payment was triggered by the fda approval of narcanยฎ . on march 7 , 2016 , we received a $ 2.5 million milestone payment from adapt . this milestone payment was triggered by the first commercial sale of narcanยฎ in the u.s. in october 2016 , we received $ 500,000 from adapt as a regulatory milestone payment pursuant to the adapt agreement . this payment was triggered by the health canada approval of narcanยฎ . pursuant to the adapt agreement , we also have received royalty payments . in april 2016 , we received $ 105,000 in royalty payments due from adapt from commercial sales of narcanยฎ in the u.s during the first calendar quarter of 2016. on august 8 , 2016 , we received $ 234,000 in royalty payments due from adapt from commercial sales of narcanยฎ in the u.s during the second calendar quarter of 2016. on november 3 , 2016 , we received $ 524,000 in royalty payments due from adapt from commercial sales of narcanยฎ in the u.s during the third calendar quarter of 2016 . 29 on december 13 , 2016 , we received an upfront purchase price of $ 13.7 million from swk pursuant to the swk purchase agreement . on august 10 , 2017 , we received an additional $ 3.8 million from swk upon satisfaction of the earn out milestone . story_separator_special_tag pursuant to the swk purchase agreement , we sold our right to receive , commencing on october 1 , 2016 , all royalties arising from the sale by adapt , pursuant to the adapt agreement , of narcanยฎ or any other product ( as defined in the swk purchase agreement ) , up to ( i ) $ 20.6 million and then the residual royalty ( as defined in the swk purchase agreement ) thereafter or ( ii ) $ 26.3 million , if adapt has received in excess of $ 25 million of cumulative net sales for any two consecutive fiscal quarters during the period from october 1 , 2016 through september 30 , 2017 from the sale of narcanยฎ ( the โ earn out milestone โ ) , and then the residual royalty thereafter . the $ 3.8 million payment became payable upon the achievement of the earn out milestone which was achieved during the quarters ended march 31 , 2017 and june 30 , 2017. therefore , upon swk 's recoupment of the โ capped royalty amount โ , or $ 26.3 million , swk will only be entitled to receive the residual royalty , or a maximum of 10 % of all royalties ( subject to certain reductions ) , thereafter , with the remaining at least 90 % of all royalties payable to us . we plan to evaluate the use of a nasal opioid antagonist to treat bn and on march 20 , 2017 , we announced that we have initiated a phase ii clinical trial evaluating our novel nasally-delivered opioid antagonist candidate , opnt001 , as a potential treatment for bn . we also plan to advance opnt002 , for the treatment of aud , into additional clinical trials , aim to collaborate with other parties and progress its drug development program for bed , and are developing a treatment for cocud and a heroin vaccine . net profit interests narcanยฎ we have entered into agreements with certain investors whereby , in exchange for funding for the research , development , marketing and commercialization of a product relating to our treatment to reverse opioid overdoses ( the โ opioid overdose reversal treatment product โ ) , we provided such investors with an interest in any pre-tax profits received by us that were derived from the sale of the opioid overdose reversal treatment product less any and all expenses incurred by and payments made by us in connection with the opioid overdose reversal treatment product , including but not limited to an allocation of our overhead devoted by us to product-related activities , which allocation shall be determined in good faith by us ( the โ oort net profit โ ) . a summary of the investor agreements is below , and categorized by investor : potomac construction limited ( โ potomac โ ) : ยท on april 16 , 2013 , we entered into an agreement with potomac ( as clarified by the letter agreement dated october 15 , 2014 ( โ potomac agreement no . 1 โ ) ) for funding from potomac for the research , development , marketing and commercialization of the opioid overdose reversal treatment product in the amount of $ 600,000 , in exchange for a 6.0 % interest in the oort net profit in perpetuity . on april 12 , 2017 , we entered into an amendment with potomac whereby potomac granted us the right , during the period from april 12 , 2017 until april 22 , 2018 , to buy back all or any portion of the interest at the price of $ 600,000 for the full 6.0 % interest ( the โ potomac interest no . 1 buyback amount โ ) ; provided , that in the event we exercise this right within 3.25 years of the date of the investment , we shall pay potomac 1.8 times the potomac interest no . 1 buyback amount ; provided , further , that in the event we exercise this right after 3.25 years of the date of the investment and no later than 4.25 years from the date of the investment , we will pay potomac 3.15 times the potomac interest no . 1 buyback amount . during the year ended july 31 , 2015 , the company recognized $ 600,000 as revenue because the investor 's option to receive the shares of common stock expired unexercised , and the research and development work related to the product was completed as of july 31 , 2015 . 30 ยท on may 30 , 2013 , we entered into a new agreement with potomac ( as clarified by that certain letter agreement dated october 15 , 2014 ( โ potomac agreement no . 2 โ ) ) for additional funding from potomac in the amount of $ 150,000 for the research , development , marketing and commercialization of the opioid overdose reversal treatment product , in exchange for an additional 1.5 % interest in the oort net profit in perpetuity . on april 12 , 2017 , we entered into an amendment with potomac whereby potomac granted the us the right , during the period from april 12 , 2017 until july 5 , 2018 , to buy back all or any portion of the interest from potomac at the price of $ 150,000 for the full 1.5 % interest ( the โ potomac interest no . 2 buyback amount โ ) ; provided , that in the event we exercise this right within 3.25 years of the date of the investment , we will pay potomac 1.8 times the potomac interest no . 2 buyback amount ; provided , further , that in the event we exercise this right after 3.25 years of the date of the investment and no later than 4.25 years from the date of the investment , we will pay potomac 3.15 times the potomac interest no . 2 buyback amount .
| the following table summarizes our royalty and licensing net revenue for fiscal years ended july 31 , 2017 and 2016 : replace_table_token_3_th 26 the $ 13.3 million increase in royalty and licensing net revenue was partially offset by the $ 4.8 million decrease in treatment investment net revenue , as fiscal year 2017 treatment investment net revenue was $ 40,000 as compared to the $ 4.8 million recorded during fiscal year 2016. the $ 40,000 of fiscal year 2017 treatment investment net revenue was related entirely to our bed program , while the entire $ 4.8 million of fiscal year 2016 treatment investment net revenue was related to the sale of oort net profit interests . treatment investment net revenue related to the sale of oort net profit interests was zero during fiscal year 2017 because we had recognized all net revenue related to the sale of oort net profit interests during the fiscal year ended july 31 , 2016. the revenue from these sales was recognized during the year ended july 31 , 2016 because either the investment did not contain an option to exchange oort net profit interests for shares of our common stock or the product was approved by the fda and marketed , which negated the investor 's option to exchange oort net profit interests for shares of our common stock , and the research and development work related to the product was completed as of july 31 , 2016. general and administrative expenses fiscal year 2017 general and administrative expenses totaled $ 6.5 million , which represents a decrease of $ 8.0 million , or 55.0 % , as compared to the $ 14.5 million of general and administrative expenses incurred during fiscal year 2016. the primary reason for the significant reduction in general and administrative expenses was the $ 9.4 million reduction in stock based compensation expense during fiscal year 2017 as compared to fiscal year
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it should be noted however , that the amount of the deferred tax asset realized could be adjusted in future years , if estimates of taxable income during the carryforward periods are reduced , or if there is objective negative evidence in the form of cumulative losses . we continue to maintain a full valuation allowance against our u.k. deferred tax assets as we have experienced cumulative losses and do not have any indication that the operation will be profitable in the future to an extent that will allow us to utilize much of our net operating loss carryforwards . to the extent that actual experience deviates from our assumptions , our projections would be affected and hence our assessment of realizability of our deferred tax assets may change . results of discontinued operations cspi ltd , a wholly owned indirect subsidiary of the company , sold all of the outstanding stock of modcomp gmbh to reply ag , an affiliate of reply spa , a holding company for a worldwide group of companies , on july 31 , 2018 for $ 14.4 million cash , and recognized a gain of $ 16.8 million . the divestiture of csp 's german operations and our increased cash position will enable us to focus time and resources on our higher-margin and greater-potential growth opportunities . we are encouraged by the traction of our managed services business in the u.s. and we intend to continue to invest and focus on our new aria sds cyber security products and to capitalize on the proliferation of our wireless service business . this divestiture of our german operations is another positive step toward our future growth . the following table is a summary of the operating results of the germany division of our ts segment which have been reflected as discontinued operations . see note 2 for additional information . for the years ended september 30 , 2018 september 30 , 2017 ( amounts in thousands ) revenues $ 18,365 $ 22,990 income ( loss ) from discontinued operations , net of tax $ ( 410 ) $ 263 liquidity and capital resources our primary source of liquidity is our cash and cash equivalents , which increased by approximately $ 14.7 million to $ 25.1 million as of september 30 , 2018 from $ 10.4 million as of september 30 , 2017 , which was primarily due to the sale of our german operations to reply ag on july 31 , 2018 ( see note 2 in the notes to our consolidated financial statements contained in this annual report on form 10-k ) . at september 30 , 2018 , cash equivalents totaled $ 0.5 million of this amount . significant sources of cash for the year ended september 30 , 2018 included net income of approximately $ 14.4 million , a decrease in accounts receivable of approximately $ 5.2 million , an increase in long term liabilities of approximately $ 0.6 million and an increase in income taxes payable of approximately 0.5 million . partially offsetting these sources of cash were an increase in inventories of approximately $ 2.6 million , a decrease in accounts payable of approximately $ 2.4 million , and payment of dividends of approximately $ 1.9 million . the significant increase in net income was primarily due to the $ 16.8 million gain recognized for the sale of our german operations , which included $ 14.4 million in cash received in the sale transaction . cash held by our foreign subsidiary located in the u.k. totaled approximately $ 9.9 million as of september 30 , 2018 and $ 1.1 million as of september 30 , 2017 . this cash is included in our total cash and cash equivalents reported above . 23 as of september 30 , 2018 and september 30 , 2017 , the company maintained a line of credit that allows for borrowings of up to $ 1.0 million . availability under the facility is reduced by outstanding borrowings thereunder . the interest rates on outstanding borrowings is london inter-bank offer rate ( `` libor '' ) plus 2.5 % , with a floor of 4 % . borrowings under the credit agreements are required to be repaid on demand in certain circumstances , upon termination of the agreements , or may be prepaid by the company without penalty . the company had no amounts outstanding under the line of credit during the fiscal years ending september 30 , 2018 and 2017. as of september 30 , 2018 and september 30 , 2017 , the company also maintained an inventory line of credit that may be used by the ts segment in the u.s. to purchase inventory from approved vendors with payment terms which exceed those offered by the vendors . no interest accrues under the inventory line of credit when advances are paid within terms , however , late payments are subject to an interest charge of prime plus 5 % . the credit agreement for the inventory line of credit contains financial covenants which require the company to maintain the following ts segment-specific financial ratios : ( 1 ) a minimum current ratio of 1.2 , ( 2 ) tangible net worth of no less than $ 4.0 million , and ( 3 ) a maximum ratio of total liabilities to total net worth of less than 5.0:1. as of september 30 , 2018 and september 30 , 2017 , company borrowings under the inventory line of credit , which is included as a component of accounts payable and accrued expenses on the accompanying consolidated balance sheets , were $ 3.2 million and $ 3.1 million , respectively , and the company was in compliance with all covenants . story_separator_special_tag for more information , please refer to note 13 - lines of credit , in the notes to our consolidated financial statements contained in this annual report on form 10-k. if cash generated from operations is insufficient to satisfy working capital requirements , we may need to access funds through bank loans , the equity markets , or other means . there is no assurance that we will be able to raise any such capital on terms acceptable to us , on a timely basis or at all . if we are unable to secure additional financing , we may not be able to complete development or enhancement of products , take advantage of future opportunities , respond to competition or continue to effectively operate our business . based on our current plans and business conditions , management believes that the company 's available cash and cash equivalents , the cash generated from the sale of our german operations , the cash generated from operations and availability on our lines of credit will be sufficient to provide for the company 's working capital and capital expenditure requirements for the foreseeable future . critical accounting policies our 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 . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an on-going basis , we evaluate our estimates , including those related to uncollectible receivables , inventory valuation , goodwill and intangibles , income taxes , deferred compensation , revenue recognition , retirement plans , restructuring costs and contingencies . we base our estimates on historical performance and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition ; valuation allowances , specifically the allowance for doubtful accounts and net deferred tax asset valuation allowance ; inventory valuation ; intangibles ; and pension and retirement plans . revenue recognition we derive revenue from the sale of integrated hardware and software , financing of hardware and software , professional services , maintenance contracts , other services , and third party service contracts . professional services generally include implementation , installation , and training services . other services generally include revenue generated through our royalty and extended warranty contracts . we recognize revenue when persuasive evidence of an arrangement exists , delivery of the product or service has occurred , the fee is fixed and determinable and collectability is reasonably assured . we enter into multiple element arrangements as well as standalone sales of product , professional services , and other services . we recognize revenue from standalone product sales upon transfer of title , which is typically upon shipment , provided all other revenue recognition criteria have been met . revenue generated from standalone professional services and 24 extended warranty contracts is recognized as services are performed , provided all other revenue recognition criteria have been met . in some instances professional service contracts include a customer acceptance provision , in which case revenue is deferred until we have evidence of customer acceptance . we recognize revenue from usage based royalty contracts upon confirmation from the customer of shipment of the system produced pursuant to the royalty agreement . we recognize revenue from multiple element arrangements in accordance with accounting standards codification ( `` asc '' ) 605-25 , multiple element arrangements . we evaluate multiple element arrangements to determine if separate units of accounting exist , and if so , we allocate revenue to each element based upon the relative selling price of each element . asc 605-25 establishes a hierarchy for determining the amount to allocate to each separate deliverable in an arrangement . we determine selling price using vendor specific objective evidence ( `` vsoe '' ) , if it exists ; or , if vsoe does not exist , third party evidence ( `` tpe '' ) of fair value is applicable ; otherwise , we use the best estimate of selling price ( `` besp '' ) . the objective of besp is to determine the price at which the company would transact if the element was sold on a standalone basis . management 's determination of besp involves several factors including budgeted profit margins , and cost to complete services . we recognize revenue from third party service contracts as either gross sales or net sales in accordance with asc 605-45 , principal agent considerations , which requires us to determine if the company is acting as a principal party to the transaction or simply acting as an agent or broker . under asc 605-45 , the assumption of the risks and rewards under the arrangement are considered indicators of principal parties to the arrangement . we record revenue as gross when it is a principal party to the arrangement and net of cost when we are acting as a broker or agent . under gross sales recognition , the entire selling price is recorded in revenue and our cost to the third-party service provider or vendor is recorded in cost of goods sold . under net sales recognition , the cost to the third-party service provider or vendor is recorded as a reduction to revenue resulting in net sales equal to the gross profit on the transaction . in may 2014 , the fasb issued asu no .
| our ts segment revenue decrease d by approximately $ 12.2 million from decreases of $ 8.8 million and $ 3.4 million in our u.s. and u.k. divisions , respectively . hpp segment revenue change by product and services lines for the fiscal years ended september 30 were as follows : replace_table_token_5_th the decrease in hpp product revenues for the period of $ 0.6 million was primarily the result of a decrease of approximately $ 1.0 million in multicomputer product line shipments , partially due to a large shipment in the prior fiscal year period , partially offset by an increase in myricom product line shipments of approximately $ 0.4 million for the fiscal year ended september 30 , 2018 as compared to the fiscal year ended september 30 , 2017. the decrease in hpp services revenues of approximately $ 2.8 million for the period was primarily the result of a decrease of approximately $ 2.9 million in royalty revenues on high-speed processing boards related to the e2d program during the fiscal year ended september 30 , 2018 as compared to the fiscal year ended september 30 , 2017 . 19 ts segment revenue change by product and services lines for the fiscal years ended september 30 were as follows : replace_table_token_6_th the ts segment total revenue decreased in the u.s. and u.k. divisions as previously noted . the $ 16.1 million decrease in ts segment product revenue is attributed to decreases of $ 12.9 million and $ 3.2 million in our u.s. and u.k. divisions , respectively . these decreases were primarily associated with the same major customer in the u.s. and u.k. the $ 3.9 million service revenue increase is related to an increase in the u.s. division of $ 4.1 million , partially offset by a decrease in the u.k. of $ 0.2 million . our total revenues by geographic area based on the location to which the
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we incurred costs related to the introduction of the aircraft in the fourth quarter of 2012 and expect to incur additional training and pre-operating costs in the first half of 2013 as we add the aircraft type to our operating certificate . 23 during 2012 , we announced the retirement of seven md-80 aircraft , comprised of two 130 seat md-87 aircraft and five 150 seat md-80 aircraft which will not be reconfigured to 166 seats . the two md-87 aircraft were dedicated to flying under a fixed fee agreement with caesars entertainment inc. , which expired in december 2012. we believe the acquisition of the airbus aircraft under purchase agreements and operating lease agreements along with having six boeing 757-200 aircraft in service will meet our aircraft needs to support our planned growth in 2013 and 2014. our network grew from 171 total routes as of december 31 , 2011 , to 195 total routes at december 31 , 2012 , and we have announced additional service to increase the number of routes to 198 routes by the end of the first quarter of 2013. despite increased asms from our fleet growth and larger gauge aircraft , we expect to continue to aggressively manage capacity in our markets in an attempt to maintain acceptable loads and fares . with our significant capacity growth in 2012 , our rasm was flat , but our casm , excluding fuel , declined by 6.7 % . we expect our capacity growth in 2013 to continue to pressure our unit revenues and unit costs we are focused in the first half of 2013 on operating a higher percentage of our flights during peak windows and a lower percentage of flights during off-peak windows . we believe this approach with our planned departure and asm growth , primarily in our florida markets and our new hawaii service , will contribute to the achievement of our profitability goals in the current operating environment . our operating revenue our operating revenue is comprised of both air travel on a stand-alone basis and bundled with hotels , rental cars and other travel-related services . we believe our diversified revenue streams distinguish us from other u.s. airlines and other travel companies . scheduled service revenue . scheduled service revenue consists of base air fare for nonstop flights on our route network . ancillary revenue . our ancillary revenue is generated from air-related charges and third party products . air-related revenue is generated through charges for checked or carry-on bags , carrier usage charges , advance seat assignments , travel protection product with unlimited changes to nonrefundable itineraries , change fees , use of our call center for purchases , priority boarding and other services provided in conjunction with our scheduled air service . we also generate revenue from third party products through the sale of hotel rooms , ground transportation ( rental cars and hotel shuttle products ) , attraction and show tickets and fees we receive from other merchants selling products through our website . we recognize our ancillary revenues net of amounts paid to wholesale providers , travel agent commissions and payment processing fees . fixed fee contract revenue . our fixed fee contract revenue is generated from fixed fee agreements and charter service on a seasonal and ad-hoc basis . other revenue . other revenue is primarily generated from aircraft and flight equipment leased to third parties . seasonality . our results of operations for interim periods are not necessarily indicative of those for the entire year because our business is subject to seasonal fluctuations . we can be adversely impacted during periods with reduced leisure travel spending . traffic demand for our business historically has been weaker in the third quarter and stronger in the first quarter . the expansion of our route network may produce some varying levels of seasonality from new leisure destinations , such as hawaii , where demand levels are typically weaker in the first quarter . our operating expenses a brief description of the items included in our operating expense line items follows . aircraft fuel expense . aircraft fuel expense includes the cost of aircraft fuel , fuel taxes , into plane fees and airport fuel flowage , storage or through-put fees . under the majority of our fixed fee contracts , our customer reimburses us for fuel costs . these amounts are netted against our fuel expense . salary and benefits expense . salary and benefits expense includes wages , salaries , and employee bonuses , sales commissions for in-flight personnel , as well as expenses associated with employee benefit plans and employer payroll taxes . station operations expense . station operations expense includes the fees charged by airports for the use or lease of airport facilities and fees charged by third party vendors for ground handling services , commissary expenses and other related services such as deicing of aircraft . maintenance and repairs expense . maintenance and repairs expense includes all parts , materials and spares required to maintain our aircraft . also included are fees for repairs performed by third party vendors . 24 sales and marketing expense . sales and marketing expense includes all advertising , promotional expenses , travel agent commissions and debit and credit card discount fees associated with the sale of scheduled service and air-related charges . aircraft lease rentals expense . aircraft lease rentals expense consists of the cost of leasing aircraft under operating leases with third parties . depreciation and amortization expense . depreciation and amortization expense includes the depreciation of all fixed assets , including aircraft that we own and amortization of aircraft that we operated under capital leases . other expense . other expense includes the cost of passenger liability insurance , aircraft hull insurance and all other insurance policies except for employee welfare insurance . story_separator_special_tag additionally , this expense includes loss on disposals of aircraft and other equipment disposals , travel and training expenses for crews and ground personnel , facility lease expenses , professional fees , personal property taxes and all other administrative and operational overhead expenses not included in other line items above . results of operations 2012 compared to 2011 the table below presents our operating expenses as a percentage of operating revenue for the periods presented : replace_table_token_9_th operating revenue our operating revenue increased 16.6 % to $ 908.7 million in 2012 , up from $ 779.1 million in 2011 , primarily due to a 29.3 % increase in ancillary revenue and a 13.8 % increase in scheduled service revenue . scheduled service and ancillary revenue increases were driven by a 14.1 % increase in scheduled service passengers and a 3.7 % increase in total average fare from $ 125.51 to $ 130.10. scheduled service revenue . scheduled service revenue increased 13.8 % to $ 586.0 million for 2012 , up from $ 515.0 million in 2011. the increase was primarily driven by a 14.1 % increase in scheduled service passengers as the scheduled service average base fare was relatively flat year over year . passenger growth was driven by a 10.4 % increase in the number of scheduled service departures , as we increased the average number of aircraft in service by 15.3 % and we also added more 166 seat md-80 aircraft and boeing 757 aircraft to our operating fleet . scheduled service load factor declined by 2.3 points from 2011 to 2012 as our 20.0 % increase in scheduled service asms outpaced our 14.1 % increase in scheduled service passengers . the addition of routes to our florida markets were a significant driver of this year-over-year departure increase , as a result of profitability from these markets and identified opportunities for service from certain markets previously served by airtran which were discontinued after its acquisition by southwest . the relatively flat year-over-year scheduled service average base fare was impacted by revenue softness we experienced in markets outside of florida , such as new markets where we have recently begun service . 25 ancillary revenue . ancillary revenue increased 29.3 % to $ 271.6 million for 2012 , up from $ 210.0 million in 2011 , driven by a 14.1 % increase in scheduled service passengers and a 13.3 % increase in ancillary revenue per scheduled passenger from $ 36.36 to $ 41.20. the increase in our ancillary revenue per scheduled service passenger of $ 4.84 was primarily attributable to the implementation of a new carry-on bag fee in april 2012 and our new boarding process rolled out during the year . the following table details ancillary revenue per scheduled service passenger from air-related charges and third party products : replace_table_token_10_th the following table details the calculation of ancillary revenue from third party products . third party products consist of revenue from the sale of hotel rooms , ground transportation ( rental cars and hotel shuttle products ) , attraction and show tickets and fees we receive from other merchants selling products through our website : replace_table_token_11_th ( a ) includes payment expenses and travel agency commissions during 2012 , we generated gross revenue of $ 119.0 million from the sale of third party products , which resulted in net revenue of $ 36.1 million . a major contributor to our 20.8 % increase in third party products net revenue was the sale of rental car days , which grew 32.1 % year-over-year and outpaced our scheduled service passenger growth of 14.1 % . the increase in sale of rental car days was driven by an increase in scheduled service passengers to those markets where more rental car days are typically sold , such as florida and phoenix , and increased promotions with our national rental car operator . fixed fee contract revenue . fixed fee contract revenue decreased 1.8 % to $ 42.9 million in 2012 , down from $ 43.7 million in 2011. the decrease was the result of a reduction in total fixed fee block hours flown of 10.4 % , offset by a 9.6 % increase in our per-block hour rate . the reduction in block hours flown was driven by our decision to reduce the availability of aircraft for ad-hoc flying compared to the prior year . we typically seek out additional ad-hoc flying during periods when aircraft are not utilized for scheduled service flying . with the expiration of the caesars contract in december 2012 , we expect significantly lower fixed fee revenue at the current time . other revenue . we generated other revenue of $ 8.2 million for 2012 , compared to $ 10.5 million in the same period of 2011 , primarily from lease revenue for aircraft and flight equipment . in the first quarter of 2011 , we leased three boeing 757-200 aircraft to third parties on a short term basis . during 2012 , these aircraft were returned to us , one in the second quarter and two in the fourth quarter . operating expenses our operating expenses increased only 11.9 % to $ 776.4 million in 2012 compared to $ 693.7 million in 2011 despite a 17.6 % increase in system capacity . we primarily evaluate our expense management by comparing our costs per passenger and per asms across different periods which enable us to assess trends in each expense category . the following table presents operating expense per passenger for the indicated periods ( โ per-passenger costs โ ) . the table also presents operating expense per passenger , excluding fuel , which represents operating expenses , less aircraft fuel expense , divided by the number of passengers carried . this statistic provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility . both the cost and availability of fuel are subject to many economic and political factors beyond our control .
| our capacity growth , driven by an increase in our average number of aircraft and larger gauge aircraft , and a load factor year-over-year decline of 2.3 percentage points , impacted our rasm which declined from 12.24ยข in 2011 to 12.14ยข in 2012. our load factor was negatively impacted during 2012 by expanded service to oakland ( san francisco bay area ) and our new service to hawaii . our casm , excluding fuel , decreased 6.7 % from 5.70ยข in 2011 to 5.32ยข in 2012 , mainly attributable to a 17.6 % increase in system capacity which outpaced a 9.7 % increase in non-fuel operating expenses . drivers of improved casm , excluding fuel , were reduced engine repair expense in 2012 due to the completion of our 2011 engine overhaul program , better crew efficiency in 2012 and the impact of our variable pilot base pay scale . 21 as of december 31 , 2012 , we had $ 352.7 million in unrestricted cash and investment securities . we were able to grow our unrestricted cash position during 2012 as cash generated by our operations more than covered investments in our fleet and information technology and payments to shareholders . during the fourth quarter of 2012 , we decided to return capital to shareholders . we paid $ 38.6 million in the form of a one-time special cash dividend of $ 2.00 per share to stockholders of record on november 30 , 2012 and $ 4.0 million to purchase company stock in the open market under our share repurchase program . as of the end of 2012 , we are near completion of our md-80 aircraft seat reconfiguration program which began during the third quarter of 2011. as of december 31 , 2012 , we had 45 md-80 aircraft with 166 seats in revenue service . the remaining six md-80 aircraft , for a total of 51 reconfigured aircraft , are expected to be in revenue service by the end of the first quarter of 2013 .
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provisions for losses on uncompleted contracts are made in the period such losses become known . see note 2 of the notes to consolidated financial statements in part ii โ item 8 . โ financial statements and supplementary data โ of this 2017 form 10-k for discussion regarding the expected impact of our adoption of new guidance for revenue recognition effective in the first quarter of 2018. inventories : inventories are stated at the lower of cost and net realizable value . determining net realizable value of inventories involves judgments and assumptions , including projecting selling prices and cost of sales . to estimate net realizable value , we review recent sales and gross profit history , existing customer orders , current contract prices , industry supply and demand , forecasted steel prices , replacement costs , seasonal factors , general economic trends and other information , as applicable . if future market conditions are less favorable than those projected by us , inventory write-downs may be required . the cost of raw material inventories of steel is either on a specific identification basis or on an average cost basis . the cost of all other raw material inventories , as well as work-in-process and supplies is on an average cost basis . the cost of finished goods uses the first-in , first-out method of accounting . property and equipment : property and equipment are recorded at cost , and are depreciated using either the units of production method or a straight-line method depending on the classification of the asset . depreciation expense calculated under the units of production method may be less than , equal to , or greater than depreciation expense calculated under the straight-line method . we evaluate historical and projected units of production at each plant to reassess the units of production expected on an annual basis . we assess impairment of property and equipment whenever changes in circumstances indicate that the carrying values of the asset group may not be recoverable . the recoverable value of long-lived assets is determined by estimating future undiscounted cash flows using assumptions about our expected future operating performance . estimates of future cash flows used in the recoverability test incorporate our own assumptions about the use of the asset group and shall consider all available evidence . our estimates of undiscounted cash flows may differ from actual cash flow due to , among other things , technological changes , economic conditions or changes to our business operations . if we determine the carrying value of the property and equipment will not be recoverable , we calculate and record an impairment loss . share -based compensation : we recognize the compensation cost of employee and director services received in exchange for awards of equity instruments based on the grant date estimated fair value of the awards . share-based compensation cost is recognized over the period during which the employee or director is required to provide service in exchange for the award , and as forfeitures occur , the associated compensation cost recognized to date is reversed . we estimate the fair value of restricted stock units and performance share awards ( โ psas โ ) using the value of our stock on the date of grant , with the exception of market-based psas , for which a monte carlo simulation model is used . the monte carlo simulation model calculates many potential outcomes for an award and estimates fair value based on the most likely outcome . income taxes : we account for income taxes using an asset and liability approach that requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized . the determination of our provision for income taxes requires significant judgment , the use of estimates and the interpretation and application of complex tax laws . our provision for income taxes primarily reflects a combination of income earned and taxed in the various united states federal and state and , to a lesser extent , foreign jurisdictions . jurisdictional tax law changes , increases or decreases in permanent differences between book and tax items , accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances and our change in the mix of earnings from these taxing jurisdictions all affect the overall effective income tax rate . 18 we record income tax reserves for federal , state , local and international exposures relating to periods subject to audit . the development of reserves for these exposures requires judgments about tax issues , potential outcomes and timing , and is a subjective estimate . we assess our income tax positions and record income tax benefits for all years subject to examination based upon management 's evaluation of the facts , circumstances and information available at the reporting dates . for those income tax positions where it is more-likely-than-not that an income tax benefit will be sustained , we have recorded the largest amount of income tax benefit with a greater than 50 % likelihood of being realized upon settlement with a tax authority that has full knowledge of all relevant information . for those income tax positions where it is not more-likely-than-not that an income tax benefit will be sustained , no income tax benefit has been recognized in the consolidated financial statements . on december 22 , 2017 , the tax cuts and jobs act of 2017 ( the โ act โ ) was signed into law making significant changes to the internal revenue code . story_separator_special_tag changes include , but are not limited to , a federal corporate income tax rate decrease from 35 % to 21 % effective for tax years beginning after december 31 , 2017 , the transition of u.s. international taxation from a worldwide tax system to a territorial system , and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of december 31 , 2017. we have estimated our provision for income taxes in accordance with the act and guidance available as of the date of this filing and as a result have recorded $ 0.9 million as additional income tax expense in the fourth quarter of 2017 , the period in which the legislation was enacted . the provisional amount related to the remeasurement of certain deferred income tax assets and liabilities , based on the rates at which they are expected to reverse in the future , was $ 0.6 million . the provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was $ 0.2 million based on cumulative foreign earnings of $ 1.1 million . on december 22 , 2017 , staff accounting bulletin no . 118 ( `` sab 118 '' ) was issued to address the application of united states generally accepted accounting principles in situations when a registrant does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the act . in accordance with sab 118 , we have determined that the $ 0.6 million of the deferred income tax expense recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the $ 0.2 million of current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimate as of december 31 , 2017. additional work is necessary for a more detailed analysis of our deferred income tax assets and liabilities and our historical foreign earnings as well as potential correlative adjustments . any subsequent adjustment to these amounts will be recorded to current income tax expense when the analysis is complete . allowance for doubtful accounts : we maintain allowances for estimated losses resulting from the inability of our customers to make required payments based on historical experience and management 's judgment . the extension and revision of credit is determined by obtaining credit rating reports or financial information on the customer . an allowance is recorded based on a variety of factors , including our historical collection experience and our historical product quality claims . at least monthly , we review past due balances to identify the reasons for non-payment . we will write down or write off a receivable account once the account is deemed uncollectible for reasons such as customer quality claims , a contract dispute , deterioration in the customer 's financial position , a bankruptcy filing or other events . we believe the reported allowances as of december 31 , 2017 are adequate . if the customer 's financial conditions were to deteriorate resulting in their inability to make payments , additional allowances may need to be recorded which would result in additional expense being recorded for the period in which such determination was made . 19 story_separator_special_tag style= '' font-family : times new roman , times , serif ; font-size : 10pt ; '' > 31 , 201 6 compared to year ended december 31 , 201 5 net sales . net sales from continuing operations decreased 13.7 % to $ 149.4 million in 2016 from $ 173.2 million in 2015. one customer accounted for 28 % of total net sales from continuing operations in 2016 and two customers accounted for 16 % and 13 % of total net sales from continuing operations in 2015. we do not believe the potential loss of these customers would have had an adverse effect on our business due to the nature of the industry and the competition between installation contractors . the decrease in sales was due to a 27 % decrease in average selling price per ton offset in part by a 19 % increase in tons produced . the decrease in selling prices per ton was due to a 15 % decrease in material costs per ton and increased competition , as well as a change in product mix . bidding activity , backlog and production levels may vary significantly from period to period affecting sales volumes . gross profit ( loss ) . gross profit decreased 152.3 % to a $ 0.3 million gross loss ( negative 0.2 % of net sales from continuing operations ) in 2016 from a $ 0.6 million gross profit ( 0.3 % of net sales from continuing operations ) in 2015. the decrease in gross profit was due to the significant competition that we experienced on our project bids , which led to decreased selling prices , combined with the mix of projects produced in 2016. selling , general and administrative expense . selling , general and administrative expense decreased 17.0 % to $ 16.9 million ( 11.3 % of net sales from continuing operations ) in 2016 from $ 20.4 million ( 11.7 % of net sales from continuing operations ) in 2015. the decrease was due primarily to $ 1.4 million in lower wages and benefits due to lower headcount and a $ 1.4 million decrease in professional fees . gain on sale of facility . on october 4 , 2016 , we completed the sale of our denver , colorado facility and recorded a gain on the sale of $ 7.9 million in the fourth quarter of 2016. interest expense .
| higher material costs generally lead to higher contract values and , therefore , higher net sales as contractors and municipalities are aware of the input costs and market conditions . bidding activity , backlog and production levels may vary significantly from period to period affecting sales volumes . gross profit ( loss ) . gross profit increased to a $ 5.8 million gross profit ( 4.4 % of net sales from continuing operations ) in 2017 from a $ 0.3 million gross loss ( negative 0.2 % of net sales from continuing operations ) in 2016. during 2017 , we did not pursue projects that did not meet our gross profit goals , which contributed to the lower volumes noted in net sales above . the increase in gross profit was due to improved pricing as well this focus on margin over volume . selling , general and administrative expense . selling , general and administrative expense decreased 16.4 % to $ 14.1 million ( 10.6 % of net sales from continuing operations ) in 2017 from $ 16.9 million ( 11.3 % of net sales from continuing operations ) in 2016. the decrease was due primarily to $ 2.4 million in lower wages and benefits due to lower headcount and a $ 0.8 million decrease in professional fees . restructuring expense . in response to adverse market conditions , the decision was made in the second quarter of 2016 to close the denver , colorado facility , which was subsequently sold in october 2016. in 2017 and 2016 , we incurred restructuring expenses of $ 0.9 million and $ 1.0 million , respectively , which includes employee severance and termination related restructuring expenses of $ 0 and $ 0.5 million , respectively , and expense related to demobilization activities of $ 0.9 million and $ 0.5 million , respectively . we completed the demobilization project and vacated the facility in the first quarter of 2017 . 20 income taxes . the income tax benefit from continuing operations was
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on november 30 , 2013 , we acquired ziegler lotsoff capital management , llc ( ยzlcmย ) , an asset management firm that provides investment solutions for institutions , mutual fund sub-advisory clients , municipalities , pension plans , taft-hartley plans , and individual investors . on january 30 , 2014 , we entered into an agreement to acquire de la rosa & co. ( ยde la rosaย ) , a california-based public finance investment banking boutique . the addition of the de la rosa team is expected to further strengthen our company 's position in a number of key underwriting markets in california . results for the year ended december 31 , 2013 for the year ended december 31 , 2013 , net revenues from continuing operations increased 23.8 % to a record $ 1.97 billion compared to $ 1.59 billion during the comparable period in 2012. net income , including continuing and discontinued operations , increased 16.9 % to $ 162.0 million , or $ 2.20 per diluted common share for the year ended december 31 , 2013 , compared to $ 138.6 million , or $ 2.20 per diluted common share in 2012. net income from continuing operations increased 19.0 % to $ 172.9 million , or $ 2.35 per diluted common share for the year ended december 31 , 2013 compared to $ 145.3 million , or $ 2.31 per diluted common share in 2012. our revenue growth was primarily attributable to higher investment banking revenues as a result of improved m & a activity ; an increase in commission revenue ; an increase in principal transactions ; growth in asset management and service fees as a result of an increase in investment advisory revenues ; and increased net interest revenues as a result of the growth of net interest-earning assets at stifel bank . our revenue growth was impacted by our recent acquisitions of kbw , inc. , miller buckfire , and the knight capital fixed income business . the results from continuing operations for the year ended december 31 , 2013 were significantly impacted by the expensing of stock awards issued as retention as part of the acquisitions of the kbw and knight capital fixed income business , and certain non-recurring and merger-related expenses . the aggregate impact of these items for the year ended december 31 , 2013 was a reduction to net income of $ 66.9 million ( after-tax ) or $ 0.91 per diluted share . in connection with discontinuing the business operations of sn canada during the third quarter , we realized a $ 58.2 million u.s. tax benefit due to a realized loss on our investment in sn canada . the reduction in the financial statement carrying amount , which was recorded in 2008 , became realizable for u.s. tax purposes in the foreseeable future as a result of our decision to exit the canadian market . the tax benefit was the excess of the tax basis of our investment in the subsidiary over the financial statement carrying amount ( the deductible outside basis difference ) . 35 external factors impacting our business performance in the financial services industry in which we operate is highly correlated to the overall strength of economic conditions and financial market activity . overall market conditions are a product of many factors , which are beyond our control and mostly unpredictable . these factors may affect the financial decisions made by investors , including their level of participation in the financial markets . in turn , these decisions may affect our business results . with respect to financial market activity , our profitability is sensitive to a variety of factors , including the demand for investment banking services as reflected by the number and size of equity and debt financings and merger and acquisition transactions , the volatility of the equity and fixed income markets , the level and shape of various yield curves , the volume and value of trading in securities , and the value of our customers ' assets under management . the municipal underwriting market is challenging as state and local governments reduce their debt levels . investors are showing a lack of demand for longer-dated municipals and are reluctant to take on credit or liquidity risks . investor confidence has been dampened by continued uncertainty surrounding the u.s. fiscal and debt ceiling , the debt concerns in europe , and sluggish employment growth . our overall financial results continue to be highly and directly correlated to the direction and activity levels of the united states equity and fixed income markets . at december 31 , 2013 , the key indicators of the markets ' performance , the dow jones industrial average , s & p 500 , and the nasdaq closed 26.5 % , 29.6 % , and 38.3 % higher than their december 31 , 2012 closing prices , respectively . as a participant in the financial services industry , we are subject to complicated and extensive regulation of our business . the recent economic and political environment has led to legislative and regulatory initiatives , both enacted and proposed , that could substantially intensify the regulation of the financial services industry and may significantly impact us . on july 21 , 2010 , the dodd-frank act was signed into law . the dodd-frank act will have a broad impact on the financial services industry and will impose significant new regulatory and compliance requirements , including the designation of certain financial companies as systemically significant , the imposition of increased capital , leverage , and liquidity requirements , and numerous other provisions designed to improve supervision and oversight of , and strengthen safety and soundness within , the financial services sector . the expectation is that this new legislation will significantly restructure and increase regulation in the financial services industry , which could increase our cost of doing business , change certain business practices , and alter the competitive landscape . story_separator_special_tag in addition , the volcker rule provision of the dodd-frank act will have an impact on us , including potentially limiting various aspects of our business . we are continuing our review of activities that may be affected by the volcker rule , including our trading operations and asset management activities , and are taking steps to establish the necessary compliance programs to comply with the volcker rule . given the complexity of the new framework , the full impact of the volcker rule is still uncertain , and will ultimately depend on the interpretation and implementation by the five regulatory agencies responsible for its oversight . 36 story_separator_special_tag font-size:10pt ; font-family : times new roman '' > capital raising revenues increased 66.9 % to $ 185.8 million for the year ended december 31 , 2012 , from $ 111.3 million in 2011. for the year ended december 31 , 2012 , equity capital raising increased 54.2 % to $ 118.9 million from $ 77.1 million in 2011. for the year ended december 31 , 2012 , fixed income capital-raising revenues increased 117.9 % to $ 55.4 million from $ 25.4 million in 2011. strategic advisory fees increased 28.4 % to $ 95.5 million for the year ended december 31 , 2012 , from $ 74.4 million in 2011. asset management and service fees ย for the year ended december 31 , 2012 , asset management and service fee revenues increased 12.7 % to $ 258.0 million from $ 228.8 million in 2011. the increase is primarily a result of an increase in the value of assets in fee-based accounts and the number of managed accounts from december 31 , 2011 , as a result of market performance . see ยasset management and service feesย in the global wealth management segment discussion for information on the changes in asset management and service fees revenues . other income ย for the year ended december 31 , 2012 , other income increased 251.9 % to $ 69.1 million from $ 19.7 million in 2011. other income primarily includes investment gains , including gains on our private equity investments , and mortgage banking fee income . the increase in other income is primarily attributable to $ 39.0 million in gains recognized on our investment in knight capital group , inc. 39 net interest income the following tables present average balance data and operating interest revenue and expense data , as well as related interest yields for the periods indicated ( in thousands , except rates ) : replace_table_token_6_th * see distribution of assets , liabilities , and shareholders ' equity ; interest rates and interest rate differential table included in ยresults of operations ย global wealth managementย for additional information on stifel bank 's average balances and interest income and expense . year ended december 31 , 2013 compared with year ended december 31 , 2012 net interest income ย net interest income is the difference between interest earned on interest-earning assets and interest paid on funding sources . net interest income is affected by changes in the volume and mix of these assets and liabilities , as well as by fluctuations in interest rates and portfolio management strategies . for the year ended december 31 , 2013 , net interest income increased 27.7 % to $ 96.2 million from $ 75.3 million in 2012. for the year ended december 31 , 2013 , interest revenue increased 31.1 % to $ 142.5 million from $ 108.7 million in 2012 , principally as a result of a $ 26.6 million increase in revenue generated from the interest-earning assets of stifel bank . the average interest-earning assets of stifel bank increased to $ 4.7 billion during the year ended december 31 , 2013 compared to $ 2.9 billion in 2012 at average interest rates of 2.18 % and 2.60 % , respectively . for the year ended december 31 , 2013 , interest expense increased 39.0 % to $ 46.4 million from $ 33.4 million in 2012. the increase is primarily attributable to the interest expense associated with our december 2012 issuance of $ 150.0 million of 5.375 % senior notes . year ended december 31 , 2012 compared with year ended december 31 , 2011 net interest income ย for the year ended december 31 , 2012 , net interest income increased 17.9 % to $ 75.3 million from $ 63.9 million in 2011. for the year ended december 31 , 2012 , interest revenue increased 21.9 % to $ 108.7 million from $ 89.2 million in 2011 , principally as a result of a $ 17.9 million increase in revenue generated from the interest-earning assets of stifel bank . the average interest-earning assets of stifel bank increased to $ 2.9 billion during the year ended december 31 , 2012 , compared to $ 1.9 billion in 2011 at weighted-average interest rates of 2.60 % and 2.94 % , respectively . 40 for the year ended december 31 , 2012 , interest expense increased 31.9 % to $ 33.4 million from $ 25.3 million in 2011. the increase is primarily attributable to the interest expense associated with our january 2012 issuance of $ 175.0 million of 6.70 % senior notes , offset by a reduction in interest expense on $ 47.5 million of our debentures to stifel financial capital trusts , whose interest rates converted from fixed rate of 6.8 % per year to a floating rate equal to the three-month libor plus 1.85 % per annum during 2012. non-interest expenses the following table presents consolidated non-interest expenses for the periods indicated ( in thousands , except percentages ) : replace_table_token_7_th year ended december 31 , 2013 compared with year ended december 31 , 2012 except as noted in the following discussion of variances , the underlying reasons for the increase in non-interest expenses can be attributed principally to our continued expansion , both organically and through our acquisitions of kbw , inc. on february 15 , 2013 , the knight capital fixed income business on july 1 , 2013 , and miller buckfire on december 20 , 2012 , and increased
| investment banking ย investment banking revenues include : ( i ) capital raising revenues representing fees earned from the underwriting of debt and equity securities , and ( ii ) strategic advisory fees related to corporate debt and equity offerings , municipal debt offerings , merger and acquisitions , private placements and other investment banking advisory fees . for the year ended december 31 , 2013 , investment banking revenues increased 59.3 % , to $ 448.1 million from $ 281.3 million in 2012. the increase was attributable to an increase in equity capital raising revenues and an increase in strategic advisory fees . our investment banking revenues were positively impacted by our acquisition of kbw , inc. and miller buckfire . capital raising revenues increased 32.8 % to $ 246.6 million for the year ended december 31 , 2013 from $ 185.8 million in 2012. during the year ended december 31 , 2013 , equity capital raising revenues increased 40.4 % to $ 166.9 million from $ 118.9 million in 2012. the increase is primarily attributable to improved equity capital markets during 2013. for the year ended december 31 , 2013 , fixed income capital raising revenues decreased 2.6 % to $ 53.9 million from $ 55.4 million in 2012. fixed income capital raising revenues were impacted by a decrease in the municipal bond origination business in 2013. strategic advisory fees increased 110.9 % to $ 201.4 million for the year ended december 31 , 2013 from $ 95.5 million in 2012. the increase is primarily attributable to an increase in the number of completed equity transactions over the comparable period in 2012 . 38 asset management and service fees ย asset management and service fee revenues comprise the revenues generated through management and investment advisory services performed for separately managed accounts , and registered funds . fluctuations in financial markets and client asset inflows and outflows have a direct effect on management and service fee revenues . management fees are generally based on the level of assets under management in our fee-based accounts measured quarterly , and
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during the years ended december 31 , 2019 and 2018 , approximately 12 % and 15 % of the company 's consolidated revenues were derived from the cpg sale of product to a large base of retail customers . there was an increase in 2019 from 2018 of approximately $ 8,104,000 in shipments at the atg and a decrease of approximately $ 689,000 in shipments at the cpg . the company 's commercial business is affected by such factors as uncertainties in today 's global economy , global competition , the vitality and ability of the commercial aviation industry to purchase new aircraft , the effects and threats of terrorism , market demand and acceptance both for the company 's products and its customers ' products which incorporate company made components . the atg engages its business development efforts in its primary markets and is broadening its activities to include new domestic and foreign markets that are consistent with its core competencies . we believe our business remains particularly well positioned in the strong commercial aircraft market driven by the replacement of older aircraft with more fuel efficient alternatives and the increasing demand for air travel in emerging markets . although the atg backlog continues to be strong , actual scheduled shipments may be delayed/changed as a function of the company 's customers ' final delivery determinations based on changes in the global economy and other factors . - 10 - the cpg continues to diversify its revenue streams with new commercial channels , including the addition of national retailers , international accounts , and a direct-to-consumer business line , in response to recent and ongoing reductions in military spending . the atg and cpg continue to respond to u.s. government procurement requests for quotes . new product development activities are ongoing along with the acquisition and development of new product lines . see also note 11 , business segments , of the accompanying consolidated financial statements for information concerning business segment operating results . outlook for 2020 in 2020 , we will continue to execute our long-term strategy as we align and focus our resources to increase growth and profitability while addressing known and unknown factors in an ever-changing global environment . impact of covid-19 outbreak subsequent to year-end 2019 , the world health organization declared the novel coronavirus ( covid-19 ) outbreak a public health emergency . there have been mandates from international , federal , state and local authorities requiring forced closures of various schools , businesses and other facilities and organizations . while the closures and limitations on movement , domestically and internationally , are expected to be temporary , if the outbreak continues on its current trajectory the duration of the supply chain disruption could reduce the availability , or result in delays , of materials or supplies to or from the company , which in turn could materially interrupt the company 's business operations . given the speed and frequency of continuously evolving developments with respect to this pandemic , the company can not reasonably estimate the magnitude of the impact to its results of operations . aircraft liability insurance we are required to maintain certain levels of aircraft liability insurance pursuant to our long-term agreements with customers . in 2020 , our aircraft liability insurance increased by approximately $ 1,272,000. if we can not offset this expense increase with cost savings or productivity improvements this could negatively impact our gross margin percent by approximately 2.5 % based on 2019 revenues . story_separator_special_tag approximately 1,026,000. this consolidated decrease is the result of decreases in gross margin percentage and increases in sg & a costs as discussed earlier . liquidity and capital resources the company 's primary liquidity and capital expenditure requirements relate to working capital needs ; primarily inventory , accounts receivable , accounts payable , capital expenditures for property , plant and equipment and principal payments on debt . at december 31 , 2019 , the company had working capital of approximately $ 27,659,000 ( $ 23,141,000 โ 2018 ) of which approximately $ 2,029,000 ( $ 2,598,000 โ 2018 ) was comprised of cash . the company used approximately $ 620,000 in cash from operations during the year ended december 31 , 2019 as compared to generating approximately $ 833,000 during the year ended december 31 , 2018. cash was generated primarily through net income of approximately $ 2,109,000 , adjustments to reconcile net income to net cash of approximately $ 1,962,000 and timing of accounts payable . the primary use of cash for the company 's operating activities for the year ended december 31 , 2019 include working capital requirements , mainly an increase in accounts receivables and inventories of approximately $ 2,764,000 and $ 4,895,000 , respectively . - 13 - the company 's primary use of cash in its financing and investing activities in the year ended december 31 , 2019 included approximately $ 833,000 of current principal payments on long-term debt , approximately $ 409,000 for cash dividends as well as approximately $ 157,000 for the purchase of treasury shares . the company also expended approximately $ 1,550,000 , net of proceeds from equipment financing , for capital expenditures . at december 31 , 2019 , the company had a $ 4,000,000 line of credit . as of march 20 , 2020 , the company increased its line of credit to $ 6,000,000. the line of credit expires on june 19 , 2021. there was approximately $ 3,000,000 balance outstanding at december 31 , 2019. the company established a lease line of credit for equipment financing in the amount of $ 1,000,000 available until june 28 , 2018. the lease term for equipment covered by the lease line of credit is sixty 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 was approximately $ 468,000 outstanding at december story_separator_special_tag during the years ended december 31 , 2019 and 2018 , approximately 12 % and 15 % of the company 's consolidated revenues were derived from the cpg sale of product to a large base of retail customers . there was an increase in 2019 from 2018 of approximately $ 8,104,000 in shipments at the atg and a decrease of approximately $ 689,000 in shipments at the cpg . the company 's commercial business is affected by such factors as uncertainties in today 's global economy , global competition , the vitality and ability of the commercial aviation industry to purchase new aircraft , the effects and threats of terrorism , market demand and acceptance both for the company 's products and its customers ' products which incorporate company made components . the atg engages its business development efforts in its primary markets and is broadening its activities to include new domestic and foreign markets that are consistent with its core competencies . we believe our business remains particularly well positioned in the strong commercial aircraft market driven by the replacement of older aircraft with more fuel efficient alternatives and the increasing demand for air travel in emerging markets . although the atg backlog continues to be strong , actual scheduled shipments may be delayed/changed as a function of the company 's customers ' final delivery determinations based on changes in the global economy and other factors . - 10 - the cpg continues to diversify its revenue streams with new commercial channels , including the addition of national retailers , international accounts , and a direct-to-consumer business line , in response to recent and ongoing reductions in military spending . the atg and cpg continue to respond to u.s. government procurement requests for quotes . new product development activities are ongoing along with the acquisition and development of new product lines . see also note 11 , business segments , of the accompanying consolidated financial statements for information concerning business segment operating results . outlook for 2020 in 2020 , we will continue to execute our long-term strategy as we align and focus our resources to increase growth and profitability while addressing known and unknown factors in an ever-changing global environment . impact of covid-19 outbreak subsequent to year-end 2019 , the world health organization declared the novel coronavirus ( covid-19 ) outbreak a public health emergency . there have been mandates from international , federal , state and local authorities requiring forced closures of various schools , businesses and other facilities and organizations . while the closures and limitations on movement , domestically and internationally , are expected to be temporary , if the outbreak continues on its current trajectory the duration of the supply chain disruption could reduce the availability , or result in delays , of materials or supplies to or from the company , which in turn could materially interrupt the company 's business operations . given the speed and frequency of continuously evolving developments with respect to this pandemic , the company can not reasonably estimate the magnitude of the impact to its results of operations . aircraft liability insurance we are required to maintain certain levels of aircraft liability insurance pursuant to our long-term agreements with customers . in 2020 , our aircraft liability insurance increased by approximately $ 1,272,000. if we can not offset this expense increase with cost savings or productivity improvements this could negatively impact our gross margin percent by approximately 2.5 % based on 2019 revenues . story_separator_special_tag approximately 1,026,000. this consolidated decrease is the result of decreases in gross margin percentage and increases in sg & a costs as discussed earlier . liquidity and capital resources the company 's primary liquidity and capital expenditure requirements relate to working capital needs ; primarily inventory , accounts receivable , accounts payable , capital expenditures for property , plant and equipment and principal payments on debt . at december 31 , 2019 , the company had working capital of approximately $ 27,659,000 ( $ 23,141,000 โ 2018 ) of which approximately $ 2,029,000 ( $ 2,598,000 โ 2018 ) was comprised of cash . the company used approximately $ 620,000 in cash from operations during the year ended december 31 , 2019 as compared to generating approximately $ 833,000 during the year ended december 31 , 2018. cash was generated primarily through net income of approximately $ 2,109,000 , adjustments to reconcile net income to net cash of approximately $ 1,962,000 and timing of accounts payable . the primary use of cash for the company 's operating activities for the year ended december 31 , 2019 include working capital requirements , mainly an increase in accounts receivables and inventories of approximately $ 2,764,000 and $ 4,895,000 , respectively . - 13 - the company 's primary use of cash in its financing and investing activities in the year ended december 31 , 2019 included approximately $ 833,000 of current principal payments on long-term debt , approximately $ 409,000 for cash dividends as well as approximately $ 157,000 for the purchase of treasury shares . the company also expended approximately $ 1,550,000 , net of proceeds from equipment financing , for capital expenditures . at december 31 , 2019 , the company had a $ 4,000,000 line of credit . as of march 20 , 2020 , the company increased its line of credit to $ 6,000,000. the line of credit expires on june 19 , 2021. there was approximately $ 3,000,000 balance outstanding at december 31 , 2019. the company established a lease line of credit for equipment financing in the amount of $ 1,000,000 available until june 28 , 2018. the lease term for equipment covered by the lease line of credit is sixty 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 was approximately $ 468,000 outstanding at december
| the 14.8 % decrease in gross margin as a percentage of cpg revenue is primarily attributed to a reduction in revenue and lower factory utilization at the company 's facility in franklinville , ny . in terms of dollar value , the company 's consolidated gross margin increased slightly by approximately $ 41,000 or 0.3 % for the year ended december 31 , 2019 when compared to the same period in 2018. gross margin improved in the twelve month period ended december 31 , 2019 due to the increase in units shipped at the atg of approximately $ 1,494,000 , at the atg offset by a decrease in units shipped at the cpg of approximately $ 129,000 and increased production costs per unit sold at both the atg and cpg of approximately $ 434,000 and $ 890,000 , respectively , when compared to the same period in 2018 . - 12 - selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses as a percentage of revenues increased to 16.8 % in 2019 compared to 16.2 % in 2018. in terms of dollar value , sg & a increased approximately $ 1,570,000 or 20.3 % for the twelve month period ended december 31 , 2019 compared to the same period in 2018. this is primarily driven by the increase of approximately $ 1,165,000 at the atg and by the increase of approximately $ 405,000 at the cpg in 2019 compared to the same period in 2018. the increase in sg & a at the atg is predominantly driven by an increase in headcount , wages and employee related benefits of approximately $ 597,000 ; bad debt expense of approximately $ 314,000 ; professional fees of approximately $ 176,000 and directors ' fees of $ 77,000 offset by a net increase of approximately $ 1,000 in all other sg & a accounts in 2019 as compared to the same period in 2018. the increase in sg & a at the cpg is predominantly driven by an increase for the non-recurring costs of a business venture that was terminated of approximately $ 237,000 and media advertising
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revenue recognized in any quarter is primarily from customer agreements entered into in prior quarters . in addition , the mix of customers paying monthly , quarterly , or annually varies from quarter to quarter and impacts our deferred revenue balance . as a result of variability in our billing and implementation timelines , the deferred revenue balance does not represent the total value of our customer contracts , nor do changes in deferred revenue serve as a reliable indicator of our future subscription revenue . key business metrics we review a number of operating metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , and make strategic decisions . 38 signed annual recurring revenue as of december 31 , 2015 december 31 , 2014 ( in millions ) signed annual recurring revenue ( arr ) $ 110.0 $ 77.8 our ability to recognize and increase subscription revenue in the future depends in part upon our ability to add new customers , retain and renew existing customers and expand the number of offerings to which our new and existing customers subscribe over time . as discussed above , we begin recognizing revenue from new customer agreements when we have implemented our offering , which can take from approximately three to twelve months . therefore , revenue recognized in any quarter is largely derived from customer agreements signed in prior quarters . accordingly , management measures sales performance and forecasts future subscription revenue based on signed annual recurring revenue ( arr ) . arr represents the annualized value of subscription revenue under contract with customers at the end of a quarter , which we refer to for this purpose as a measurement date . to calculate arr , we first calculate the annualized subscription value for each signed customer ( whether implemented or not ) , as of the applicable measurement date , by multiplying the monthly contract value of the subscription services under contract by 12. we exclude from this calculation any customers that have provided us with formal notice of termination or non-renewal as of the measurement date . arr does not take into account the ( i ) potential for customers to terminate , or decline to renew , their agreements with us , ( ii ) achievement of non-recurring or yet-to-be-earned performance guarantees , ( iii ) one-time engagement bonuses included within our customer contracts or ( iv ) revenues related to professional services , such as implementation and communications services . arr is not determined in reference to us gaap . arr is a forward-looking metric based on contractual terms in existence as of the applicable measurement date and is subject to change resulting from a number of factors including , but not limited to , changes in user counts , terminations or non-renewals , as well as upsells and cross-sells . for all of these reasons , the amount of subscription revenue we actually recognize during periods following the measurement date may be different from arr recorded at a measurement date . our arr at december 31 , 2015 was $ 110.0 million , compared to $ 77.8 million at december 31 , 2014 , representing an increase of approximately 41 % . we expect arr to increase as we sign additional customers and cross-sell to existing customers . annual net dollar retention rate replace_table_token_5_th our revenue growth rate and long-term profitability are affected by our ability to add customers , retain and renew existing customers , and expand the number of offerings our customers use over time . we believe that our ability to retain our customers and expand their subscription revenue growth over time will be an indicator of the stability of our revenue base and the long-term value of our customer relationships . we assess our performance on customer retention by measuring our annual net dollar retention rate ( ndr ) . our ndr provides a measurement of our ability to increase revenue across our existing customer base through expansion of our additional products to existing customers , increases in user count for existing customers and customer renewals , as offset by terminations . we observed an annual net dollar retention rate of 116 % and 103 % for our signed customer base , for the years ended december 31 , 2015 and 2014 , respectively . we calculate annual net dollar retention rate for a given period as the aggregate annualized subscription contract value as of the last day of that year from those customers that were also customers as of the last day of the prior year , divided by the aggregate annualized subscription contract value from all customers as of the last day of the prior year . in calculating ndr , we exclude one-time fees . ndr does not include subscriptions by new customers contracted since the end of the most recently completed year . components of results of operations 39 revenue we generate revenue from subscription fees from customers for access to the products they select , including basic customer service support . we also earn revenue from professional services primarily related to the implementation of our offering , including extensive communications support to drive adoption by our customers ' employees and their dependents . historically , we have derived a substantial majority of our subscription revenue from our core castlight platform . our subscription fees are based primarily on the number of employees and adult dependents that employers identify as eligible to use our offering , which typically includes all of our customers ' u.s. employees and adult dependents that receive health benefits . we recognize subscription fees on a straight-line basis ratably over the contract term beginning when our products are implemented and ready for launch , which is based on the implementation timelines discussed above . our customer agreements generally have a term of three years . we generally invoice our customers in advance on a monthly , quarterly or annual basis . story_separator_special_tag amounts that have been invoiced are initially recorded as deferred revenue . amounts that have not been invoiced are not reflected in our consolidated financial statements . we generally invoice our implementation services upon contract signing on a fixed-fee basis , which is generally when we commence work . as a result of variability in our billing terms , the deferred revenue balance does not represent the total value of our customer contracts , nor do changes in deferred revenue serve as a reliable indicator of our future subscription revenue in a given period . costs and operating expenses cost of revenue . cost of revenue consists of the cost of subscription revenue and cost of professional services revenue . cost of subscription revenue primarily consists of data fees , hosting costs of our cloud-based service , cost of subcontractors , expenses for service delivery ( which includes call center support ) , employee-related expenses ( including salaries , benefits and stock-based compensation ) , allocated overhead , the costs of data center capacity , amortization of internal-use software and depreciation of owned computer equipment and software . cost of professional services revenue consists primarily of employee-related expenses ( including salaries , benefits and stock-based compensation ) associated with these services , the cost of subcontractors and travel costs , and allocated overhead . the time and costs of our customer implementations vary based on the source and condition of the data we receive from third parties , the configurations that we agree to provide and the size of the customer . our cost of revenue is expensed as we incur the costs . however , the related revenue is deferred until our products are ready for use by the customer and then recognized as revenue ratably over the related contract term . therefore , we expense the cost incurred to provide our products and services prior to the recognition of the corresponding revenue . sales and marketing . sales and marketing expenses consist primarily of employee-related expenses ( including salaries , sales commissions and bonuses , benefits and stock-based compensation ) , travel-related expenses and marketing programs . commissions earned by our sales force that can be associated specifically with the noncancellable portion of a subscription contract are deferred and amortized over the noncancellable period . accordingly , commission expense can be materially impacted by changes in the termination provisions of customer contracts that we execute in a given period compared with previous periods . research and development . research and development expenses consist primarily of employee-related expenses ( including salaries , bonuses , benefits and stock-based compensation ) and costs associated with subcontractors . general and administrative . general and administrative expenses consist primarily of employee-related expenses ( including salaries and bonuses , benefits and stock-based compensation ) for finance and accounting , legal , human resources and management information systems personnel , legal costs , professional fees and other corporate expenses . 40 story_separator_special_tag style= '' line-height:120 % ; padding-top:16px ; text-align : justify ; text-indent:41px ; font-size:10pt ; '' > 2014 compared to 2013 research and development expense increased $ 7.7 million or 51 % , primarily attributable to a $ 5.6 million increase in employee-related expenses as we continued to hire engineering talent to drive innovation and new products , and a $ 0.9 million increase in expenses related to the use of sub-contractors to assist in our development efforts , such as our monthly releases of new features and functionality on existing products , development of implementation tools and new products like castlight dental . general and administrative 43 replace_table_token_11_th 2015 compared to 2014 general and administrative expense increased $ 5.3 million or 28 % , primarily attributable to a $ 3.2 million increase in employee-related expenses driven by an increase in headcount , a $ 2.6 million increase in facilities and it-related expenses , and a $ 1.8 million increase in recruiting , accounting , legal and other professional services to support the growth of our business and public company infrastructure . also contributing to the increase was $ 0.4 million in insurance fees , $ 0.3 million in travel and entertainment and $ 0.2 million in contractor expense . the increase was offset by $ 3.7 million in allocated overhead expenses , primarily related to an increase in headcount and rent expense attributable to new office spaces leased in the current year . 2014 compared to 2013 general and administrative expense increased $ 10.0 million or 110 % , primarily attributable to an $ 8.2 million increase in employee-related expenses associated with an increase in personnel and a $ 1.4 million increase in accounting and legal services to support the growth of our business and public company infrastructure . liquidity and capital resources replace_table_token_12_th as of december 31 , 2015 , our principal sources of liquidity were cash , cash equivalents and marketable securities totaling $ 133.8 million , which were held for working capital purposes . our cash , cash equivalents and marketable securities are comprised primarily of u.s. agency obligations , u.s. treasury securities and money market funds . since our inception , we have financed our operations primarily through sales of equity securities and to a lesser extent , payments from our customers . we believe that our existing cash , cash equivalents and marketable securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months . our future capital requirements will depend on many factors including our growth rate , subscription renewal activity , the timing and extent of spending to support development efforts , our expansion of sales and marketing activities , the introduction of new and enhanced services offerings and the continuing market acceptance of our cloud-based products . we may in the future enter into arrangements to acquire or invest in complementary businesses , services and technologies and intellectual property rights . we may be required to seek additional equity or debt financing .
| cost of professional services revenue increased $ 4.1 million or 23 % , primarily due to a $ 3.5 million increase in employee-related expenses as we invested in people , resources and technology to enable more efficient implementations of our existing products and to further expand our ability to work with additional data sources associated with our newest products . in addition , allocated overhead expenses accounted for $ 0.7 million of the increase , primarily related to an increase in headcount and rent expense attributable to new office spaces leased in the current year . gross margin for the year ended december 31 , 2015 improved primarily due to revenue growth of 65 % compared to a 22 % growth in the associated costs . additionally , the cost of subscription revenue , as a percentage of total revenue , continued to decrease primarily due to certain fixed cost elements such as data center operations representing a smaller proportion of a growing revenue base . we expect to continue to see favorable overall gross margin trends as we continue to grow the number of launched customers in relation to customers in the implementation phase . 2014 compared to 2013 cost of subscription revenue increased $ 4.2 million or 68 % primarily due to increased data and infrastructure costs and increased customer support related to our growing customer base . data and infrastructure costs accounted for $ 2.9 million of the increase , and customer support costs increased $ 1.0 million in 2014 compared with the prior year . cost of professional services revenue increased $ 6.2 million or 56 % primarily due to more than a 100 % increase in the number of implementations we completed during 2014 . employee-related expenses accounted for $ 2.7 million of the increase and third party services costs increased $ 3.0 million in 2014 compared with the prior year . the impact of the increase in launch activity was partially offset by efficiencies we derived from improved processes and automation related to implementations of our core castlight
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rig count the baker hughes u.s. rotary rig count was 756 active rigs at march 3 , 2017 , a greater than 8 % increase from 698 active rigs at december 31 , 2015. the 698 active rig count at december 31 , 2015 is a greater than 61 % decline from 1,811 active rigs at december 31 , 2014. in addition , according to the baker hughes u.s. rotary rig count , rig activity in the 20 states in which we own mineral and royalty interests has increased , with a greater than 9 % increase from 630 active rigs at december 31 , 2015 to 687 active rigs at march 3 , 2017. sources of our revenue our revenues are derived from royalty payments we receive from our operators based on the sale of oil , natural gas and natural gas liquids production , as well as the sale of natural gas liquids that are extracted from natural gas during processing . our predecessor 's revenues are primarily derived from mineral and royalty interests , which , together with its non-operated working interests ( which were not contributed to us ) , we refer to as ยinterests.ย for the year ended december 31 , 2016 , our predecessor 's revenues were generated 60 % from oil sales , 30 % from natural gas sales and 10 % from natural gas liquid sales . for the year ended december 31 , 2015 , our predecessor 's revenues were generated 63 % from oil sales , 29 % from natural gas sales and 8 % from natural gas liquid 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 . neither we nor our predecessor entered into hedging arrangements to establish , in advance , a price for the sale of the oil , natural gas and natural gas liquids produced from our mineral and royalty interests . as a result , we may realize the benefit of any short-term increase in the price of oil , natural gas and natural gas liquids , but we will not be protected against decreases in price , and if the price of oil , natural gas and natural gas liquids decreases significantly , our business , results of operation and cash available for distribution may be materially adversely effected . we may enter into hedging arrangements in the future . 68 reserves and pricing the table below identifies our predecessor 's proved reserves at december 31 , 2016 , 2015 and 2014 , in each case based on our management 's estimates . the prices used to estimate proved reserves for all periods were held constant throughout the life of the properties and have been adjusted for quality , transportation fees , geographical differentials , marketing bonuses or deductions and other factors affecting the price received at the wellhead . replace_table_token_12_th replace_table_token_13_th adjusted ebitda adjusted ebitda is used as a supplemental non-gaap financial measure by management and external users of our financial statements , such as industry analysts , investors , lenders and rating agencies . we believe adjusted ebitda is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations period to period without regard to our financing methods or capital structure . in addition , management uses adjusted ebitda to evaluate cash flow available to pay distributions to our unitholders . we define adjusted ebitda as net income ( loss ) plus interest expense , net of capitalized interest , non-cash unit-based compensation , impairment of oil and natural gas properties , income taxes and depreciation , depletion and accretion expense . adjusted ebitda is not a measure of the income ( loss ) as determined by gaap . we exclude the items listed above from net income ( loss ) in arriving at adjusted ebitda because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets , capital structures and the method by which the assets were acquired . certain items excluded from adjusted ebitda are significant components in understanding and assessing a company 's financial performance , such as a company 's cost of capital and tax structure , as well as historic costs of depreciable assets , none of which are components of adjusted ebitda . adjusted ebitda should not be considered an alternative to net income , oil , natural gas and natural gas liquids revenues , net cash flows provided by operating activities or any other measure of financial performance or liquidity presented in accordance with gaap . our computations of adjusted ebitda may not be comparable to other similarly titled measures of other companies . factors affecting the comparability of our results to the historical results of our predecessor our predecessor 's historical financial condition and results of operations may not be comparable , either from period to period or going forward , to the partnership 's future results of operations , for the reasons described below : no effect given to formation transactions in connection with initial public offering the historical financial statements included in this annual report of our predecessor , rivercrest royalties , llc , do not reflect the financial condition or results of operations of kimbell royalty partners , lp . these historical financial statements do not give effect to the formation transactions that were completed in connection with the initial public offering of kimbell royalty partners , lp . in connection with our initial public offering , our predecessor assigned all of its non-operating working interests to an affiliate that was not contributed to us and the member of our 69 predecessor contributed all of its membership interests in rivercrest royalties , llc to us in exchange for common units and a portion of the net proceeds from the offering . story_separator_special_tag in addition , the contributing parties directly or indirectly contributed to us the other assets that make up our initial assets in exchange for common units and a portion of the net proceeds from the offering . the combination of the assets contributed to us by the contributing parties was accounted for at fair value as asset acquisitions . the fair value of the purchase consideration was based upon the fair value of the common units issued in the formation transactions . the historical financial data of our predecessor included in this ยmanagement 's discussion and analysis of financial condition and results of operationsย does not include the results of kimbell royalty partners and may not give you an accurate indication of what our actual results would have been if these formation transactions had been completed at the beginning of the periods presented or of what our future results of operations are likely to be . the interests underlying the oil , natural gas and natural gas liquids production revenues of our predecessor only represent approximately 11 % of our partnership 's total future undiscounted cash flows , based on the reserve report prepared by ryder scott as of december 31 , 2016. impairment of oil and natural gas properties accounting rules require that we periodically review the carrying value of our properties for possible impairment . based on specific market factors and circumstances at the time of prospective impairment reviews , and the continuing evaluation of development plans , production data , economics and other factors , we may be required to write down the carrying value of our properties . the net capitalized costs of proved oil and natural gas properties are subject to a full cost ceiling limitation for which the costs are not allowed to exceed their related estimated future net revenues discounted at 10 % . to the extent capitalized costs of evaluated oil and natural gas properties , net of accumulated depreciation , depletion , amortization and impairment , exceed estimated discounted future net revenues of proved oil and natural gas reserves , the excess capitalized costs are charged to expense . the risk that we will be required to recognize impairments of our oil and natural gas properties increases during periods of low commodity prices . in addition , impairments would occur if we were to experience sufficient downward adjustments to our estimated proved reserves or the present value of estimated future net revenues . an impairment recognized in one period may not be reversed in a subsequent period even if higher oil and gas prices increase the cost center ceiling applicable to the subsequent period . during the years ended december 31 , 2016 and december 31 , 2015 , our predecessor recorded non-cash impairment charges of approximately $ 5.0 million and $ 28.7 million , respectively , primarily due to changes in reserve values resulting from the drop in commodity prices and other factors . we may incur impairment charges in the future , which could materially adversely affect our results of operations for the periods in which such charges are taken . all of our oil and natural gas properties that were acquired in connection with the consummation of our initial public offering are subject to a step-up in value based on the fair value given to those assets at the initial public offering . in calculating the fair value of our assets ( as reflected in our pro forma financial statements in the prospectus for our initial public offering ) , we utilized a forward oil and natural gas price curve and applied a discount rate to future net revenues that was based on the yield of our common units at the pricing of our initial public offering ( which was 8.05 % ) . however , these factors are significantly different from those that we must use in performing our full cost ceiling test in the future , which will require us to use a historical twelve-month average price and a 10 % discount rate , which is higher than the initial yield on our common units . furthermore , using the historical twelve-month average price will result in a lower average price than using the forward oil and natural gas price curve . therefore , based on the application of the sec reserve pricing rules , the application of a 10 % discount rate to future net revenues and the step-up in value of our assets , in each case as described above , we currently estimate that a non-cash impairment charge in excess of $ 100 million could be recognized in the quarter ending march 31 , 2017. this potential impairment charge could materially affect our results of operations for such period . however , this non-cash impairment charge will not have an effect on the amount of cash available for distribution at each quarter end date . we intend to seek an exemption from the sec staff in applying the test described above in the quarter ending march 31 , 2017 , but there is no guarantee that the exemption will be granted . credit agreements in january 2014 , our predecessor entered into a credit agreement with frost bank , as lender . for the year ended december 31 , 2016 , our predecessor 's interest expense was $ 0.4 million . our predecessor had outstanding borrowings of $ 10.6 million as of december 31 , 2016. we did not assume any indebtedness of our predecessor in connection with the initial public offering . in connection with our initial public offering , we entered into a new $ 50.0 million secured revolving credit facility with an accordion feature permitting aggregate commitments under the facility to be increased up to $ 100.0 million ( subject to the satisfaction of certain conditions and the procurement of additional commitments 70 from new or existing lenders ) .
| our predecessor 's production volumes for the year ended december 31 , 2016 were 160,743 boe , or 440 boe/d , a decrease from 173,070 boe , or 474 boe/d , for the year ended december 31 , 2015. our predecessor 's operators received an average of $ 38.69 per bbl of oil , $ 2.21 per mcf of natural gas and $ 15.99 per bbl of natural gas liquids for the volumes sold during the year ended december 31 , 2016. our predecessor 's operators received an average of $ 49.79 per bbl of oil , $ 2.44 per mcf of natural gas and $ 17.56 per bbl of natural gas liquids and for the volumes sold during the year ended december 31 , 2015. production and ad valorem taxes our predecessor 's production and ad valorem taxes decreased by $ 146,411 to $ 280,474 for the year ended december 31 , 2016 , from $ 426,885 for the year ended december 31 , 2015. the decrease in production and ad valorem taxes was attributable to a decline in oil , natural gas and natural gas liquids revenues . depreciation , depletion and accretion expense our predecessor 's depreciation , depletion and accretion expense decreased by $ 2.4 million to $ 1.6 million for the year ended december 31 , 2016 from $ 4.0 million for the year ended december 31 , 2015. the average depletion rate per barrel was $ 9.86 and $ 23.16 for the years ended december 31 , 2016 and 2015 , respectively . the decrease in the average depletion rate per barrel was primarily attributable to a $ 28.7 million impairment recorded on oil , natural gas and natural gas liquids properties in 2015 , which resulted in a lower depletable base in oil , natural gas and natural gas liquids properties for the year ended december 31 , 2016. depletion is the amount of cost basis of oil and natural gas properties at the beginning of a period attributable to the volume of hydrocarbons extracted during such period , calculated on a units-of-production basis . estimates of proved developed producing reserves are a major component in the calculation of depletion . our predecessor has historically adjusted its depletion rates in the fourth quarter of each year based upon the year end reserve report and other times during the year when circumstances indicate that there has been a significant change in reserves or costs . impairment of oil , natural gas and natural gas liquids expense our predecessor utilizes the full cost method of accounting for our oil
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ascendant had assets under management of approximately $ 74,900,000 and $ 59,100,000 as of december 31 , 2011 and december 31 , 2010 , respectively . during 2009 , the company determined that the present value of expected cash flows from the ascendant revenue interest was nominal and therefore the revenue interest is carried at $ 0 in the accompanying balance sheet at december 31 , 2011 and 2010. results of operations of the company for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 the key financial indicators that the company reviews to monitor the business are gross billings , revenues , model costs , operating expenses and cash flows . the company analyzes revenue by reviewing the mix of revenues generated by the different โ boards โ ( each a specific division of the fashion model management operations which specializes by the type of model it represents ( women , men , select , s2 , runway , curve , lifestyle , kids , etc . ) ) of the business , revenues by geographic locations and revenues from significant clients . wilhelmina has three primary sources of revenue : revenues from principal relationships whereby the gross amount billed to the client is recorded as revenue , when the revenues are earned and collectability is reasonably assured ; revenues from agent relationships whereby the commissions paid by models as a percentage of their gross earnings are recorded as revenue when earned and collectability is reasonably assured ; and separate service charges , paid by clients in addition to the booking fees , which are calculated as a percentage of the models ' booking fees and are recorded as revenues when earned and collectability is reasonably assured . see critical accounting policies - revenue recognition . gross billings are an important business metric that ultimately drive revenues , profits and cash flows . 11 because wilhelmina provides professional services , salary and service costs represent the largest part of the company 's operating expenses . salary and service costs are comprised of payroll and related costs and travel costs required to deliver the company 's services and to enable new business development activities . gross billings gross billings for the year ended december 31 , 2011 increased approximately $ 6,521,000 , or 12.4 % , to approximately $ 59,005,000 , compared to approximately $ 52,484,000 for the year ended december 31 , 2010. generally , gross billings increased due to the company 's clients spending more on advertising and the company having the desired talent available to its clients . during the year ended december 31 , 2011 , the wilhelmina companies experienced a significant increase in gross billings across the core modeling business , which was partially offset by a year over year decrease in gross billings in the wam business . gross billings of the wam division represented approximately 10 % of total gross billings for the year ended december 31 , 2011 , compared to approximately 12 % for the year ended december 31 , 2010. during the year ended december 31 , 2011 , gross billings of the various boards of the core modeling business experienced positive growth ranging from 3 % to 92 % , and two boards experienced negative growth of 2 % , compared to the year ended december 31 , 2010. story_separator_special_tag 31 , 2011 , compared to 17.0 % for the year ended december 31 , 2010. the company has consistently leveraged its employees to meet the increased demands from customers for wilhelmina talent in 2011 . 13 the company experienced increased travel costs in connection with delivering services to its customers and models due to increased gross billings and also in pursuit of generating new revenues . the company also incurred additional incentive compensation for the year ended december 31 , 2011 , as compared to the year ended december 31 , 2010 , due to the achievement of performance targets by certain employees . office and general expenses office and general expenses consist of office and equipment rents , advertising and promotion , insurance expenses , administration and technology cost . these costs are less directly linked to changes in the company 's revenues than are salaries and service costs . during the year ended december 31 , 2011 , office and general expenses decreased approximately $ 63,000 , or 2.1 % , to approximately $ 2,912,000 , compared to approximately $ 2,975,000 during the year ended december 31 , 2010. office and general expenses decreased due to a decrease in costs associated with advertising , promotion and contest related activities . the amount of office and general expenses represented 5.3 % of revenues for the year ended december 31 , 2011 , compared to 6.1 % for the year ended december 31 , 2010. the majority of fixed asset purchases for the year ended december 31 , 2011 related to leasehold improvements and furniture for the new los angeles office . amortization and depreciation depreciation and amortization expense is incurred with respect to certain assets , including computer hardware , software , office equipment , furniture , and other intangibles . during the year ended december 31 , 2011 , depreciation and amortization expense totaled $ 1,642,000 ( of which $ 1,540,000 relates to amortization of intangibles acquired in connection with the wilhelmina transaction ) , compared to $ 1,919,000 during the year ended december 31 , 2010 ( of which $ 1,855,000 relates to amortization of intangibles acquired in connection with the wilhelmina transaction ) . fixed asset purchases totaled approximately $ 354,000 and $ 105,000 during the year ended december 31 , 2011 and december 31 , 2010 , respectively . the majority of fixed asset purchaser during 2011 related to leasehold improvements and furniture for the los angeles office . corporate overhead corporate overhead expenses include public company costs , director and executive officer compensation , compensation and consulting fees to esch , directors ' and officers ' insurance , legal , audit and professional fees , corporate office rent and travel . story_separator_special_tag during the year ended december 31 , 2011 , corporate overhead approximated $ 1,406,000 , compared to $ 1,390,000 for the year ended december 31 , 2010. the increase in corporate overhead for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 is mostly attributable to increases in directors fees and stock exchange fees partially offset by decreases in accounting and tax fees . miami earn-out adjustment and settlement expenses in connection with the settlement agreement reached october 18 , 2010 , ( a ) approximately 39 % ( representing the amount that would otherwise be paid to krassner l.p. ) of the first $ 2 million of the miami earnout was cancelled and ( b ) approximately 69 % ( representing the amounts that would otherwise be paid in the aggregate to krassner l.p. and lorex ) of any such miami earnout obligation over $ 2 million was cancelled . 14 the miami earnout , payable in accordance with the acquisition agreement and settlement agreement , was to be calculated based on the three year average of audited wilhelmina miami ebitda beginning january 1 , 2009 and ending december 31 , 2011 , multiplied by 7.5 , and payable in cash or stock . as of december 31 , 2010 , the fair value of the miami earnout was approximately $ 2,063,000 , which management determined based on a number of factors . at december 31 , 2011 , management computed the actual amount to be paid on the miami earnout based on the financial results of the miami division for the three years ended december 31 , 2011 to be $ 2,174,000. as a result , for the year ended december 31 , 2011 , the company recorded adjustments to the previously estimated fair value of $ 111,000 , of which $ 36,000 was recorded in the quarter ended december 31 , 2011. asset impairment charge each reporting period , the company assesses whether events or circumstances have occurred which indicate that the carrying amount of an intangible asset exceeds its fair value . if the carrying amount of the intangible asset exceeds its fair value , an asset impairment charge will be recognized in an amount equal to that excess . no asset impairment charges were incurred during the year ended december 31 , 2011 and december 31 , 2010. interest income interest income totaled approximately $ 6,000 and $ 4,000 for the years ended december 31 , 2011 and 2010 , respectively . the increase in interest income is the result of increased cash balances . interest expense interest expense totaled approximately $ 28,000 for the year ended december 31 , 2011 , compared to approximately $ 64,000 for the year ended december 31 , 2010. the decrease in interest expense for the year ended december 31 , 2011 , compared to the year ended december 31 , 2010 , is attributable to the principal repayment on the esch note partially offset by the borrowing of $ 500,000 under the amegy credit agreement . see liquidity and capital resources below for further discussion note 4 of the accompanying financial statements for a discussion relating to the repayment of the esch note . income tax expense during the year ended december 31 , 2011 , the company 's combined federal and state effective tax rate was approximately 19 % . the company 's effective tax rate would be substantially higher if it were not for federal net operating loss carryforwards . as of december 31 , 2011 , the company had a federal income tax loss carryforward of approximately $ 7,400,000 , which begins expiring in 2019. realization of the company 's carryforwards is dependent on future taxable income and capital gains . a valuation allowance has been recorded to reflect the tax effect of the net loss carryforwards not used to offset a portion of the deferred tax liability resulting from the wilhelmina transaction . ownership changes , as defined in the internal revenue code , may limit the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income . subsequent ownership changes could further affect the limitation in future years . 15 liquidity and capital resources the company 's cash balance increased to $ 3,128,000 at december 31 , 2011 , from $ 1,732,000 at december 31 , 2010. the increase is primarily attributable to cash flow from operations and borrowings under the amegy credit facility somewhat offset by principal payments under the esch note totaling $ 600,000 and leasehold improvements costs associated with the new lease for office space located in los angeles , ca effective july 1 , 2011. the company 's accounts receivable and due to models balances as of december 31 , 2011 reflect significant increases when compared to the corresponding balances as of december 31 , 2010. this increase is attributable to the growth in revenues and model cost during the year ended december 31 , 2011 and also reflects accounts receivable and due to models balances of approximately $ 1,300,000 and $ 1,000,000 , respectively , from two large customer contract payments which were received and paid shortly after december 31 , 2011. currently , the company 's primary liquidity need is to fund the miami earnout payment of approximately $ 2,174,000 , which is payable ( subject to the provisions of the acquisition agreement ) in april 2012. the company expects to fund the earn-out obligation with cash on hand and borrowings under the amegy credit facility ( see below ) . amegy credit agreement on april 29 , 2011 , the company closed the amegy credit agreement for a new $ 500,000 revolving credit facility with amegy with a maturity date of february 28 , 2012. borrowings under the facility are to be used for working capital and other general business purposes of the company . during the three months ended september 30 , 2011 , the company drew $ 500,000 under the amegy credit agreement .
| during the year ended december 31 , 2011 , revenue from these licensing agreements totaled approximately $ 880,000 , compared to $ 780,000 for the year ended december 31 , 2010. other income includes the following : fees derived from participants in the company 's model search contests and television syndication royalties and a production series contract . in 2005 , the wilhelmina companies produced the television show โ the agency โ and in 2007 the wilhelmina companies entered into an agreement with a television network to develop a television series titled โ she 's got the look โ , which , in 2010 , completed its third season on the network channel tv land prime . the television series documented the lives of women competing in a modeling competition . the company provided the television series with the talent and the โ wilhelmina โ brand image , and agreed to a modeling contract with the winner of the competition , in consideration of a fee per episode produced , plus certain fees , as defined . model costs model costs consist of costs associated with relationships with models where the key indicators suggest that the company acts as a principal . therefore , the company records the gross amount billed to the client as revenue when the revenues are earned and collectability is reasonably assured , and the related costs incurred to the model as model cost . during the year ended december 31 , 2011 , model costs increased approximately $ 4,714,000 , or 14.4 % , to approximately $ 37,552,000 , compared to approximately $ 32,838,000 during the year ended december 31 , 2010. increases in model costs are a direct result of an increase in the utilization of models by the customers of the company and an increase in average billing rates for models . during the year ended december 31 , 2011 , model costs as a percentage of revenues were approximately 67.7 % , compared to 67.1 % during the year ended december 31 , 2010. margins declined slightly from the prior year
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for instance , the net interest spread of our debt investments increases if we sell assets with lower yields relative to other assets in our portfolio or repay debt ( such as in connection with an asset sale or refinancing ) that has a higher interest rate relative to other financing on our portfolio ( assuming no other changes to the composition of our portfolio ) . conversely , the net interest spread of our portfolio decreases if we sell assets with higher yields relative to other assets in our portfolio or repay debt ( such as in connection with an asset sale ) that has a lower interest rate relative to other financing on our portfolio ( again , assuming no other changes to the composition of our portfolio ) . management continually monitors market conditions to opportunistically effect purchases and sales of debt investments . golf business with respect to our golf business , trends in consumer discretionary spending as well as climate and weather patterns have a significant impact on the markets in which we operate . we believe improving economic conditions and improvements in local housing markets will help drive membership growth and golf rounds played . application of critical accounting policies management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( โ gaap โ ) . the preparation of financial statements in conformity with gaap requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses . actual results could differ from these estimates . management believes that the estimates and assumptions utilized in the preparation of the consolidated financial statements are prudent and reasonable . actual results historically have been in line with management 's estimates and judgments used in applying each of the accounting policies described below , as modified periodically to reflect current market conditions . a summary of our significant accounting policies is presented in note 2 to our consolidated financial 50 statements , which appear in part ii , item 8 , โ financial statements and supplementary data. โ the following is a summary of our accounting policies that are most affected by judgments , estimates and assumptions . general variable interest entities variable interest entities ( โ vies โ ) are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties . a vie is required to be consolidated by its primary beneficiary , and only by its primary beneficiary , which is defined as the party who has the power to direct the activities of a vie that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the vie that could potentially be significant to the vie . the vies in which we have a significant interest include our cdos . we do not have the power to direct the relevant activities of cdo v , as a result of an event of default which allows us to be removed as collateral manager of this cdo and prevents us from purchasing or selling certain collateral within this cdo , and therefore we deconsolidated this cdo as of june 17 , 2011. similar events of default in the future , if they occur , could cause us to deconsolidate additional financing structures . our subprime securitizations are also considered vies , but we do not control the decisions that most significantly impact their economic performance and no longer receive a significant portion of their returns , and therefore do not consolidate them . in addition , our investments in rmbs , cmbs , cdo securities and real estate related and other loans may be deemed to be variable interests in vies , depending on their structure . we monitor these investments and analyze the potential need to consolidate the related securitization entities pursuant to the vie consolidation requirements . these analyses require considerable judgment in determining whether an entity is a vie and determining the primary beneficiary of a vie since they involve subjective determinations of significance , with respect to both power and economics . the result could be the consolidation of an entity that otherwise would not have been consolidated or the deconsolidation of an entity that otherwise would have been consolidated . debt investments valuation of securities we have classified all of our real estate securities as available for sale . as such , they are carried at fair value with net unrealized gains or losses reported as a component of accumulated other comprehensive income , to the extent impairment losses are considered temporary as described below . fair value may be based upon broker quotations , counterparty quotations or pricing services quotations , which provide valuation estimates based upon reasonable market order indications or a good faith estimate thereof and are subject to significant variability based on market conditions , such as interest rates , credit spreads and market liquidity . a significant portion of our securities are currently not traded in active markets and therefore have little or no price transparency . for a further discussion of this trend , see โ - market considerations โ above . as a result , we have estimated the fair value of these illiquid securities based on internal pricing models rather than the sources described above . the determination of estimated cash flows used in pricing models is inherently subjective and imprecise . changes in market conditions , as well as changes in the assumptions or methodology used to determine fair value , could result in a significant and immediate increase or decrease in our book equity . story_separator_special_tag for securities valued with pricing models , these inputs include the discount rate , assumptions relating to prepayments , default rates and loss severities , as well as other variables . see note 10 to our consolidated financial statements in part ii , item 8 , โ financial statements and supplementary data โ for information regarding the fair value of our investments , and its estimation methodology , as of december 31 , 2014 . our securities must be categorized by the โ level โ of inputs used in estimating their fair values . level 1 would be assets or liabilities valued based on quoted prices for identical instruments in active markets . we have no level 1 assets or liabilities . level 2 would be assets or liabilities valued based on quoted prices in active markets for similar instruments , on quoted prices in less active or inactive markets , or on other โ observable โ market inputs . level 3 would be assets or liabilities valued based significantly on โ unobservable โ market inputs . fair value under gaap represents an exit price in the normal course of business , not a forced liquidation price . if we were forced to sell assets in a short period to meet liquidity needs , the prices we receive could be substantially less than the recorded fair values . we generally classify the broker and pricing service quotations we receive as level 3 inputs , except for certain liquid securities . such quotations are quoted prices in generally inactive and illiquid markets for identical or similar securities . these quotations are generally received via email and contain disclaimers which state that they are โ indicative โ and `` not actionable โ - meaning that 51 the party giving the quotation is not bound to actually purchase the security at the quoted price . these quotations are generally based on models prepared by the brokers , and we have little visibility into the inputs they use . based on quarterly procedures we have performed with respect to quotations received from these brokers , including comparison to the outputs generated from our internal pricing models and transactions we have completed with respect to these securities , as well as on our knowledge and experience of these markets , we have generally determined that these quotes represent a reasonable estimate of fair value . for the $ 631.5 million carrying value of securities valued using quotations as of december 31 , 2014 , a 100 basis point change in credit spreads would impact estimated fair value by approximately $ 24.0 million . our estimation of the fair value of level 3 assets valued using internal models ( as described below ) involves significant judgment . we validated the inputs and outputs of our models by comparing them to available independent third party market parameters and models for reasonableness , as well as historical performance . we believe the assumptions we used are within the range that a market participant would use and factor in the liquidity conditions currently in the markets . in 2014 , the inputs to our models , including discount rates , prepayment speeds , default rates and severity assumptions , have generally improved compared to assumptions used at december 31 , 2013. in 2014 , newcastle increased the prepayment assumptions based on actual prepayment speeds rising throughout the year as rates remained historically low and lenders were able to lend to a broader lender base due to improved creditworthiness of borrowers . default assumptions decreased due to lower levels of delinquent underlying loans . loss severity assumptions were decreased based on observed decreases in recent loss severities . decreasing projected delinquency , default , and severity rates was a result of rising property values throughout the year and an increased incentive for borrowers to remain current as they gained more equity in their properties . in 2013 , the inputs to our models , including discount rates , prepayment speeds , default rates and severity assumptions , generally remained consistent with the assumptions used at december 31 , 2012 , other than certain modifications we have made to the assumptions to reflect conditions relevant to specific assets . for securities valued with internal models , which have an aggregate fair value of $ 8.0 million as of december 31 , 2014 , a 10 % unfavorable change in our assumptions would result in the following decreases in such aggregate fair value ( in thousands ) : cdo outstanding face amount $ 14,413 fair value $ 7,956 effect on fair value with 10 % unfavorable change in : discount rate $ ( 316 ) prepayment rate $ ( 45 ) default rate $ ( 23 ) loss severity $ ( 80 ) the sensitivity analysis is hypothetical and should be used with caution . in particular , the results are calculated by stressing a particular economic assumption independent of changes in any other assumption ; in practice , changes in one factor may result in changes in another , which might counteract or amplify the sensitivities . also , changes in the fair value based on a 10 % variation in an assumption generally may not be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear . impairment of securities we must also assess whether unrealized losses on securities , if any , reflect a decline in value which is otherโthanโtemporary and , if so , write the impaired security down to its fair value through earnings .
| on cdo bonds during 2014. the increase was partially offset by ( i ) a $ 4.9 million decrease in interest swap expense as a result of decreasing swap notional balances during 2014 , ( ii ) a decrease of $ 5.9 million resulting from the payoff of the debt following the sale of the manufactured housing loan portfolio in may 2014 , ( iii ) a decrease of $ 3.8 million in cdo bond interest expense due to paydowns of cdo debt , and ( iv ) decrease of $ 3.9 million in interest expense from repurchase agreements as a result of contributions made to new residential in may 2013 and repayment of repurchase agreements as a result of the sale of fnma/fhlmc securities in january 2014. valuation ( reversal ) allowance on loans the valuation allowance ( reversal ) on loans decreased by $ 22.6 million primarily due to ( i ) a $ 6.4 million decrease in the reversal of the valuation allowance on our manufactured housing loans and residential mortgage loans in 2014 compared to 2013 as a result of the paydowns and sale of these portfolios during 2013 and 2014 and ( ii ) a decrease of $ 16.2 million in the reversal of the valuation allowance on our real estate related and other loans as a result of stabilizing market conditions during 2014 and their effect on loan valuations . other-than-temporary impairment on securities , net the other-than-temporary impairment on securities decreased by $ 5.3 million as there were no impairments taken in 2014. in 2013 , the $ 5.3 million of other-than-temporary impairment on securities was primarily due to impairments taken on agency and non-agency rmbs securities in connection with the spin-off of new residential in may 2014. operating revenues operating revenues increased by $ 291.5 million due to the acquisitions of the golf business at the end of december 2013. gain on settlement of investments , net the net
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the following table sets forth information regarding our patient accounts receivable as of the dates indicated ( in thousands ) : replace_table_token_9_th 27 the following table presents our patient accounts receivable aging by payor class as of the dates indicated ( in thousands ) : replace_table_token_10_th * workers compensation is paid by state administrators or their designated agents . * * other includes primarily litigation claims and , to a lesser extent , vehicular insurance claims . reimbursement for medicare beneficiaries is based upon a fee schedule published by hhs . for a more complete description of our third party revenue sources , see ยbusiness โ sources of revenueย in item 1. provision for doubtful accounts . we determine our provision for doubtful accounts based on the specific agings and payor classifications at each clinic . we review the accounts receivable aging and rely on prior experience with particular payors to determine an appropriate reserve for doubtful accounts . historically , clinics that have a large number of aged accounts generally have less favorable collection experience , and thus , require a higher provision . accounts that are ultimately determined to be uncollectible are written off against our bad debt provision . the amount of our aggregate provision for doubtful accounts is regularly reviewed for adequacy in light of current and historical experience . accounting for income taxes . we account for income taxes under the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . the company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit . for tax positions meeting the more-likely-than-not threshold , the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority . the tax cuts and jobs act of 2017 ( the ยtcjaย ) was passed by congress on december 20 , 2017 and signed into law by president trump on december 22 , 2017. the tcja makes significant changes to u.s. corporate income tax laws including a decrease in the corporate income tax rate to 21 % effective january 1 , 2018. as a result , we revalued our deferred tax assets and liabilities . based on a review and analysis as of december 31 , 2017 , we estimated a reduction our net deferred tax liabilities by $ 4.3 million thereby reducing our provision for income taxes by such amount for the 2017 year . we do not believe that we have any significant uncertain tax positions at december 31 , 2017 , nor is this expected to change within the next twelve months due to the settlement and expiration of statutes of limitation . we did not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the twelve months ended december 31 , 2017 and 2016. carrying value of long-lived assets . our property and equipment , intangible assets and goodwill ( collectively , our ยlong-lived assetsย ) comprise a significant portion of our total assets . the accounting standards require that we periodically , and upon the occurrence of certain events , assess the recoverability of our long-lived assets . if the carrying value of our property and equipment exceeds their undiscounted cash flows , we are required to write the carrying value down to estimated fair value . 28 goodwill . the fair value of goodwill and other intangible assets with indefinite lives are tested for impairment annually and upon the occurrence of certain events , and are written down to fair value if considered impaired . we evaluate goodwill for impairment on at least an annual basis ( in the third quarter ) by comparing the fair value of its reporting units to the carrying value of each reporting unit including related goodwill . the company evaluates indefinite lived tradenames using the relief from royalty method in conjunction with its annual goodwill impairment test . we operate a one segment business which is made up of various clinics within partnerships . the partnerships are components of regions and are aggregated to that operating segment level for the purpose of determining reporting units when performing the annual goodwill impairment test . in 2017 , 2016 and 2015 , we had six regions . in addition to the six regions , in 2017 , the impairment test included a separate analysis for the workforce performance solutions business . an impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit , inclusive of goodwill and other intangible assets , exceeds the estimated fair value of the reporting unit . the estimated fair value of a reporting unit is determined using two factors : ( i ) earnings prior to taxes , depreciation and amortization for the reporting unit multiplied by a price/earnings ratio used in the industry and ( ii ) a discounted cash flow analysis . a weight is assigned to each factor and the sum of each weight times the factor is considered the estimated fair value . for 2017 , the factors ( i.e. , price/earnings ratio , discount rate and residual capitalization rate ) were updated to reflect current market conditions . the evaluation of goodwill in 2017 , 2016 and 2015 did not result in any goodwill amounts that were deemed impaired . story_separator_special_tag in 2017 , the company wrote off the goodwill of $ 0.5 million related to the closure of a single clinic acquired partnership due to the loss of a significant management contract . redeemable non-controlling interests โ the non-controlling interests that are reflected as redeemable non-controlling interests in the consolidated financial statements consist of those owners and the company who have certain redemption rights , whether currently exercisable or not , and which currently , or in the future , require that we purchase or the owner sell the non-controlling interest held by the owner , if certain conditions are met and the owners request the purchase ( ยput rightย ) . we also have a call right ( ยcall rightย ) . the put right or call right may be triggered by the owner or us , respectively , at such time as both of the following events have occurred : 1 ) termination of the owner 's employment , regardless of the reason for such termination , and 2 ) the passage of specified number of years after the closing of the transaction , typically three to five years , as defined in the limited partnership agreement . the put rights and call rights are not automatic ( even upon death ) and require either the owner or us to exercise our rights when the conditions triggering the put or call rights have been satisfied . the purchase price is derived at a predetermined formula based on a multiple of trailing twelve months earnings performance as defined in the respective limited partnership agreements . on the date we acquire a controlling interest in a partnership and the limited partnership agreement for such partnerships contains redemption rights not under the control of the company , the fair value of the non-controlling interest is recorded in the consolidated balance sheet under the caption โ redeemable non-controlling interests . then , in each reporting period thereafter until it is purchased by the company , the redeemable non-controlling interest is adjusted to the greater of its then current redemption value or initial value , based on the predetermined formula defined in the respective limited partnership agreement . as a result , the value of the non-controlling interest is not adjusted below its initial value . the company records any adjustment in the redemption value , net of tax , directly to retained earnings and are not reflected in the consolidated statements of income . although the adjustments are not reflected in the consolidated statements of income , current accounting rules require that the company reflects the adjustments , net of tax , in the earnings per share calculation . the amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the consolidated income statement . management believes the redemption value ( i.e . the carrying amount ) and fair value are the same . mandatorily redeemable non-controlling interests โ the non-controlling interests that were reflected as mandatorily redeemable non-controlling interests in the consolidated financial statements are subject to required redemption ( as defined in footnote 5 โ mandatorily redeemable non-controlling interest ) , whether currently exercisable or not , and which currently , or in the future , require that we purchase the non-controlling interest of those owners at a predetermined formula based on a multiple of trailing twelve months earnings performance as defined in the respective limited partnership agreements . the required redemption is triggered at such time as both of the following events have occurred : 1 ) termination of the holder 's employment with newco ( as defined 29 in footnote 5โ mandatorily redeemable non-controlling interest ) , regardless of the reason for such termination , and 2 ) the passage of specified number of years after the closing of the transaction , typically three to five years , as defined in the applicable limited partnership agreement . effective december 31 , 2017 , we entered into amendments to our limited partnership agreements for our acquired partnerships replacing the mandatory redemption feature . no monetary consideration was paid to the partners to amend the agreements . the amended limited partnership agreements provide that , upon the triggering events , we have a call right and the selling entity or individual has a put right for the purchase and sale of the limited partnership interest held by the partner . once triggered , the put right and the call right do not expire , even upon an individual partner 's death , and contain no mandatory redemption feature . the purchase price of the partner 's limited partnership interest upon the exercise of either the put right or the call right is calculated per the terms of the respective agreements . we accounted for the amendment of the limited partnership agreements as an extinguishment of the outstanding mandatorily redeemable non-controlling interests , which were classified as liabilities , through the issuance of new redeemable non-controlling interests classified in temporary equity . pursuant to accounting standards codification ( ยascย ) 470-50-40-2 , we removed the outstanding liabilities at their carrying amounts , recognized the new temporary equities at their fair value , and recorded no gain or loss on extinguishment as management believes the redemption value ( i.e . the carrying amount ) and fair value are the same . in summary , the redemption values of the mandatorily redeemable non-controlling interest ( previously classified as liabilities ) were reclassified as redeemable non-controlling interest ( temporary equity ) at fair value on the december 31 , 2017 consolidated balance sheet . the remaining balance of $ 327,000 in the line item โ mandatorily redeemable non-controlling interests โ relates to one limited partnership agreement that was not amended as the non-controlling interest was purchased by the company in january 2018. non-controlling interests โ we recognize non-controlling interests , in which we have no obligation but the right to purchase the non-controlling interests , as equity in the consolidated financial statements separate from the parent entity 's equity .
| we believe providing operating results to investors is 31 useful information for comparing the company 's period-to-period results . we use operating results , which eliminates the mrnci โ change in redemption which is a current non-cash item that can be subject to volatility and unusual costs , as one of the principal measures to evaluate and monitor financial performance period over period . we believe that operating results is useful information for investors to use in comparing the company 's period-to-period results as well as for comparing with other similar businesses since most do not have mandatorily redeemable instruments and therefore have different liability and equity structures . operating results is not a measure of financial performance under generally accepted accounting principles and this measurement should not be considered in isolation or an alternative to , or substitute for , net income attributable to our shareholders presented in our consolidated financial statements . net patient revenues net patient revenues increased to $ 389.2 million for 2017 from $ 348.8 million for 2016 , an increase of $ 40.4 million , or 11.6 % . the increase in net patient revenues of $ 40.4 million consisted of an increase of $ 19.3 million from new clinics and $ 21.1 million from mature clinics . during 2017 , we acquired four multi-clinic groups for a total of 39 clinics . the net patient revenues from these multi-clinic groups are included in our results of operations since the respective date of their acquisition . see above table under ยโ executive summaryย detailing our multi-clinic acquisitions . total patient visits increased to 3,705,000 for 2017 from 3,317,000 for 2016. the growth in patient visits was attributable to 229,000 visits in new clinics and an increase of 159,000 visits for mature clinics primarily due to 2016 new clinics . the average net patient revenue per visit slightly decreased to $ 105.05 in 2017 from $ 105.18 in 2016. net patient revenues are based on established
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if a loan is impaired , a portion of the allowance is allocated 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 sale of the collateral . troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan 's effective rate at inception . if a troubled debt restructuring is considered to be a collateral dependent loan , the loan is reported , net , at the fair value of the collateral . for troubled debt restructurings that subsequently default , we determine the amount of reserve in accordance with the accounting policy for the allowance for loan losses . the general component of the allowance for loan losses covers non-impaired loans and is based on historical loss experience adjusted for current factors . the historical loss experience is determined by portfolio and class and is based on the actual loss history experienced by us . this actual loss experience is then adjusted by comparing current conditions to the conditions that existed during the loss history . we consider the changes related to ( i ) lending policies , ( ii ) economic conditions , ( iii ) nature and volume of the loan portfolio and class , ( iv ) lending staff , ( v ) volume and severity of past due , non-accrual , and risk graded loans , ( vi ) loan review system , ( vii ) value of underlying collateral for collateral dependent loans , ( viii ) concentration levels and ( ix ) effects of other external factors . goodwill : goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets . core deposit intangibles : core deposit intangibles are acquired customer relationships arising from whole bank and branch acquisitions . core deposit intangibles are initially measured at fair value and then are amortized over their estimated useful lives using an accelerated method . the useful lives of the core deposits are estimated to generally be between seven and ten years . goodwill and core deposit intangibles are assessed at least annually for impairment and any such impairment is recognized and expensed in the period identified . we have selected december 31 as the date to perform our annual goodwill impairment test . goodwill is the only intangible asset with an indefinite useful life . emerging growth company : pursuant to the jobs act , an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by the financial accounting standards board ( โ fasb โ ) or the sec either ( i ) within the same periods as those otherwise applicable to non-emerging growth companies or ( ii ) within the same time periods as private companies . we have irrevocably elected to adopt new accounting standards within the public company adoption period . 53 we may take advantage of some of the reduced regulatory and reporting requirements that are available to us so long as the company qualifies as an emerging growth company , including , but not limited to , not being required to comply with the auditor attestation requirements of section 404 ( b ) of the sarbanes-oxley act , reduced disclosure obligations regarding executive compensation , and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments . results of operations we generate most of our revenue from interest income and fees on loans , interest and dividends on investment securities and non-interest income , such as service charges and fees , debit card income and mortgage banking income . we incur interest expense on deposits and other borrowed funds and non-interest expense , such as salaries and employee benefits and occupancy expenses . changes in interest rates earned on interest-earning assets or incurred on interest-bearing liabilities , as well as the volume and types of interest-earning assets , interest-bearing and non-interest-bearing liabilities and stockholders ' equity , are usually the largest drivers of periodic change in net interest income . fluctuations in interest rates are driven by many factors , including governmental monetary policies , inflation , deflation , macroeconomic developments , changes in unemployment , the money supply , political and international conditions and conditions in domestic and foreign financial markets . periodic changes in the volume and types of loans in our loan portfolio are affected by , among other factors , economic and competitive conditions in arkansas , kansas and missouri , as well as developments affecting the consumer , commercial and real estate sectors within these markets . net income year ended december 31 , 2016 compared with year ended december 31 , 2015 : net income for the year ended december 31 , 2016 was $ 9.4 million compared to $ 10.3 million for year ended december 31 , 2015. net income allocable to common stockholders was $ 9.4 million for the year ended december 31 , 2016 , compared to $ 10.1 million for the year ended december 31 , 2015 , a decrease of $ 750 thousand , or 7.4 % . during the year ended december 31 , 2016 , increases in net interest income of $ 6.3 million , non-interest income of $ 664 thousand and a reduction of $ 928 thousand in the provision for loan loss were offset by $ 8.5 million in higher non-interest expenses when compared to the year ended december 31 , 2015. the changes in the components of net income are discussed in more detail in the following sections of โ results of operations. โ year ended december 31 , 2015 compared with year ended december 31 , 2014 : net income for the year ended december 31 , 2015 was $ 10.3 million compared to $ 9.0 million for year ended december 31 , 2014. story_separator_special_tag net income allocable to common stockholders was $ 10.1 million for the year ended december 31 , 2015 , compared to $ 8.3 million for the year ended december 31 , 2014 , an increase of $ 1.8 million , or 22.3 % . in july 2014 , we redeemed $ 15.5 million of preferred stock which reduced dividends on preferred stock by $ 531 thousand in 2015 as compared to 2014. this redemption replaced preferred stock that had a 9.0 % dividend rate with a bank stock loan carrying a 4.0 % interest rate . during the year ended december 31 , 2015 , increases in net interest income of $ 4.9 million and non-interest income of $ 1.1 million were partially offset by $ 2.9 million in higher non-interest expenses and an increase of $ 1.8 million in the provision for loan loss when compared to the year ended december 31 , 2014. the changes in the components of net income are discussed in more detail in the following sections of โ results of operations. โ net interest income and net interest margin analysis net interest income is the difference between interest income on interest-earning assets , including loans and securities , and interest expense incurred on interest-bearing liabilities , including deposits and other borrowed funds . to evaluate net interest income , management measures and monitors ( 1 ) yields on loans and other interest-earning assets , ( 2 ) the costs of deposits and other funding sources , ( 3 ) the net interest spread and ( 4 ) net interest margin . 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 net interest income divided by average interest-earning assets . because non-interest-bearing sources of funds , such as non-interest-bearing deposits and stockholders ' equity also fund interest-earning assets , net interest margin includes the benefit of these non-interest-bearing sources of funds . net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities , referred to as a โ volume change , โ and it is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds , referred to as a โ yield/rate change. โ 54 the following table shows the average balance of each principal category of assets , liabilities , and stockholders ' equity and the average yields on interest-earning assets and average rates on interest-bearing liabilities for the years ended december 31 , 2016 , 2015 and 2014. the yields and rates are calculated by dividing income or expense by the average daily balances of the associated assets or liabilities . average balance sheets and net interest analysis replace_table_token_5_th ( 1 ) average loan balances include nonaccrual loans . ( 2 ) net interest margin is calculated by dividing net interest income by average interest-earning assets for the period . ( 3 ) tax exempt income is not included in the above table on a tax equivalent basis . ( 4 ) actual unrounded values are used to calculate the reported yield or rate disclosed . accordingly , recalculations using the amounts in thousands as disclosed in this report may not produce the same amounts . 55 increases and decreases in interest income and interest expense result from changes in average balances ( volume ) of interest-earning assets and interest-bearing liabilities , as well as changes in average interest yields/rates . the following table analyzes the change in volume variances and yield/rate variances for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 , and the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. analysis of changes in net interest income replace_table_token_6_th ( 1 ) the effect of changes in volume is determined by multiplying the change in volume by the previous year 's average rate . similarly , the effect of rate changes is calculated by multiplying the change in average rate by the prior year 's volume . the changes attributable to both volume and rate , which can not be segregated , have been allocated to the volume variance and the rate variance in proportion to the relationship of the absolute dollar amount of the change in each . year ended december 31 , 2016 compared with year ended december 31 , 2015 : net interest income before the provision for loan losses for the year ended december 31 , 2016 was $ 52.6 million compared with $ 46.3 million for the year ended december 31 , 2015 , an increase of $ 6.3 million , or 13.7 % . the increase in net interest income is primarily due to the increase in the volume of interest-earnings assets partially offset by a decrease in yields on interest-earning assets . the increase in average volume of interest-earning assets was primarily due to increases in loans , investment securities and federal funds sold and other . interest expense for the year ended december 31 , 2016 was $ 9.2 million , an increase of $ 2.4 million , or 36.0 % , from the interest expense of $ 6.8 million for the year ended december 31 , 2015. the increase in interest expense was primarily due to an increase in the average volume and rates of interest bearing liabilities incurred to fund the increased volume of interest-earning assets . interest income was $ 61.8 million for the year ended december 31 , 2016 and $ 53.0 million for the year ended december 31 , 2015 , an increase of $ 8.8 million , or 16.5 % . interest income on loans , including loan fees which consist of fees for loan origination , renewal , prepayment , covenant breakage and loan modification , was $ 50.3 million for the year ended december 31 , 2016 , an increase of $ 6.9 million , or 15.9 % , compared to the year ended december 31 , 2015.
| as of december 31 , 2016 , we had , on a consolidated basis , total assets of $ 2.19 billion , total deposits of $ 1.63 billion , total loans held for investment of $ 1.38 billion ( net of allowances ) and total stockholders ' equity of $ 258.0 million . net income for the year ended december 31 , 2016 was $ 9.4 million compared to $ 10.3 million for the prior year ended december 31 , 2015 , a decrease of $ 926 thousand , or 9.0 % . history and background since 2003 , we have completed a series of ten acquisitions and two charter consolidations . we have sought to integrate the banks we acquire into our existing operational platform and enhance stockholder value through the creation of efficiencies within the combined operations . in conjunction with our strategic acquisition growth , we strive to reposition and improve the loan portfolio and deposit mix of the banks we acquire . following our acquisitions , we focus on identifying and disposing of problematic loans and replacing them with higher quality loans generated organically . in addition , we have focused on growth in our commercial loan portfolio , which we believe generally offers higher return opportunities than our consumer loan portfolio , primarily by hiring additional talented bankers , particularly in our metropolitan markets , and incentivizing our bankers to expand their commercial banking relationships . we also seek to increase our most attractive deposit accounts primarily by growing deposits in our community markets and cross-selling our depository products to our loan customers . our principal objective is to continue to increase stockholder value and generate consistent earnings growth by expanding our commercial banking franchise both organically and through strategic acquisitions . we believe our strategy of selectively acquiring and integrating community banks has provided us with economies of scale and improved our overall franchise efficiency . we expect to continue to pursue strategic acquisitions and believe our targeted market areas present us with many and varied acquisition opportunities . we are also focused on continuing to grow organically and believe the markets in which we operate currently provide
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24 service margin service gross margin as a percentage of revenue was 46 % in 2011 compared to 41 % in 2010. this increase was due to higher sisd service margins as described above . operating expenses research , development , and engineering expenses research , development , and engineering ( rd & e ) expenses in 2011 increased by $ 7,866,000 , or 24 % , from the prior year . mvsd rd & e expenses increased by $ 7,857,000 , or 26 % , while sisd rd & e expenses were relatively flat . the table below details the $ 7,857,000 net increase in mvsd rd & e in 2011 : replace_table_token_5_th during 2011 , the company increased mvsd rd & e headcount in strategic areas , resulting in higher personnel-related costs , such as salaries and fringe benefits . the company also recorded increased stock-based compensation expense due to a higher valuation of stock options granted during 2011 , increased spending on outsourced engineering services and materials related to engineering activities , and higher costs to patent new technology . in addition , a weaker u.s. dollar relative to the euro , on average , in 2011 compared to 2010 resulted in higher rd & e costs when expenses of the company 's foreign engineering centers , primarily in hungary , were translated to u.s. dollars . rd & e expenses as a percentage of revenue were 13 % in 2011 and 11 % in 2010. we believe that a continued commitment to rd & e activities is essential in order to maintain or achieve product leadership with our existing products and to provide innovative new product offerings . in addition , we consider our ability to accelerate time-to-market for new products to be critical to our revenue growth . therefore , we expect to continue to make significant rd & e investments in the future . although we target our rd & e spending to be between 10 % and 15 % of total revenue , this percentage is impacted by revenue levels . selling , general , and administrative expenses selling , general , and administrative ( sg & a ) expenses in 2011 increased by $ 13,459,000 , or 13 % , from the prior year . mvsd sg & a expenses increased by $ 15,463,000 , or 20 % , and sisd sg & a expenses increased by $ 576,000 , or 5 % . corporate expenses that are not allocated to either division decreased by $ 2,580,000 , or 16 % . 25 the table below details the $ 15,463,000 net increase in mvsd sg & a in 2011 : replace_table_token_6_th during 2011 , the company increased mvsd sg & a headcount in strategic areas , resulting in higher personnel-related costs , such as salaries , fringe benefits , commissions , and travel expenses . the company also recorded increased stock-based compensation expense due to a higher valuation of stock options granted during 2011 , increased spending on marketing and promotional activities intended to grow factory automation revenue , and higher spending on sales demonstration equipment . in addition , a weaker u.s. dollar relative to the euro and japanese yen , on average , in 2011 compared to 2010 resulted in higher sg & a costs when expenses of the company 's foreign sales and support offices were translated to u.s. dollars . offsetting the increase in sales commissions associated with additional personnel was a decrease in sales commissions as a result of fewer sales employees exceeding their bookings quotas compared to the prior year . the increase in sisd sg & a expenses was primarily due to the unfavorable impact of changes in foreign currency exchange rates ( $ 365,000 ) and increased stock-based compensation expense ( $ 150,000 ) . the decrease in corporate expenses was due to lower legal fees related to patent-infringement actions ( $ 4,273,000 ย refer to note 10 to the consolidated financial statements in part ii ย item 8 of this annual report on form 10-k ) . this decrease was partially offset by increased stock-based compensation expense ( $ 1,003,000 ) and costs associated with the company 's 30 th anniversary parties held in the first quarter of 2011 ( $ 480,000 ) . nonoperating income ( expense ) the company recorded foreign currency losses of $ 504,000 in 2011 and $ 328,000 in 2010. the foreign currency fluctuations in each period resulted primarily from the revaluation and settlement of accounts receivable and intercompany balances that are reported in one currency and collected in another . although the foreign currency exposure of accounts receivable is largely mitigated through the use of forward contracts , this program depends upon forecasts of sales and collections , and therefore , gains or losses on the underlying receivables may not perfectly offset losses or gains on the contracts . investment income in 2011 increased by $ 1,481,000 , or 104 % , from the prior year . the increase was primarily due to an increase in cash generated from operations that was available for investment , as well as a shift in investment mix to higher-yielding securities . beginning in the second quarter of 2010 , the board of directors approved a change to the company 's investment policy to allow management to invest excess cash accumulated in the company 's international entities in debt securities . prior to this change , these funds were invested in lower-yielding savings accounts . the company recorded other expense of $ 636,000 in 2011 and $ 703,000 in 2010. other expense includes rental income , net of associated expenses , from leasing buildings adjacent to the company 's corporate headquarters . for a majority of 2011 , these buildings were partially unoccupied . story_separator_special_tag 26 income tax expense the company 's effective tax rate was a provision of 20 % in 2011 , compared to a provision of 19 % in 2010. the effective tax rate for 2011 included the impact of the following discrete events : ( 1 ) a decrease in tax expense of $ 808,000 from the expiration of the statutes of limitations for certain reserves for income taxes , ( 2 ) a decrease in tax expense of $ 155,000 from the finalization of the advanced pricing agreement between japan and ireland , partially offset by , ( 3 ) an increase in tax expense of $ 574,000 from the final true-up of the prior year 's tax accrual upon filing the actual tax returns , and ( 4 ) an increase in tax expense of $ 201,000 from the write down of a noncurrent deferred tax asset based upon a change in the tax rate in japan . the effective tax rate in 2011 was a provision of 20 % , with or without these discrete events . the effective tax rate for 2010 included the impact of the following discrete events : ( 1 ) a decrease in tax expense of $ 462,000 from the settlement of the competent authority case with japan , ( 2 ) a decrease in tax expense of $ 151,000 from the final true-up of the prior year 's tax accrual upon filing the actual tax returns , ( 3 ) a decrease in tax expense of $ 124,000 from the receipt of a state refund , and ( 4 ) a decrease in tax expense of $ 105,000 from the expiration of the statutes of limitations for certain reserves for income taxes . these discrete events changed the effective tax rate in 2010 from a provision of 20 % to a provision of 19 % . the company 's effective tax rate excluding discrete events in both 2011 and 2010 remained a provision of 20 % . results of operations year ended december 31 , 2010 compared to year ended december 31 , 2009 revenue revenue for the year ended december 31 , 2010 increased by $ 114,964,000 , or 65 % , from the prior year due to higher sales in all of the company 's primary markets . a stronger u.s. dollar relative to the euro , on average , in 2010 compared to 2009 , resulted in lower revenue , as sales denominated in euros were translated to u.s. dollars . this impact was offset , however , by the favorable impact on revenue of a weaker u.s. dollar relative to the japanese yen . factory automation market sales to manufacturing customers in the factory automation market represented 69 % of total revenue in 2010 compared to 70 % of total revenue in 2009. sales to these customers increased by $ 76,303,000 , or 62 % , from the prior year . revenue in 2009 included $ 4,400,000 related to an arrangement with a single customer for which product was shipped in 2007 and 2008 , but revenue was deferred until the final unit was delivered in the first quarter of 2009. revenue in 2010 included $ 6,500,000 related to an arrangement with another customer for which the work was performed over the prior four years , but revenue was deferred until the final obligation was completed in the fourth quarter of 2010. in addition , revenue in 2010 included $ 2,505,000 related to the adoption of new revenue recognition rules that would have been deferred under the previous guidance . excluding the recognition of the revenue noted above , sales to these customers increased by $ 71,698,000 , or 60 % , from the prior year . management believes that excluding this revenue from the growth in factory automation sales allows investors to more accurately assess business trends . revenue levels in 2009 were adversely impacted by the worldwide economic slowdown that first began to affect the company 's business in the third quarter of 2008. during the slowdown , the company continued to invest in developing and marketing new factory automation products and expanding its global factory automation sales force and partner network . demand for the company 's factory automation 27 products increased sequentially in each quarter of 2010 and was at a record level during the fourth quarter of 2010. the largest dollar increases year over year were experienced in the americas and europe , where the company has a broad base of factory automation customers . the largest percentage increases were experienced in japan , where the company has invested in a partnership with mitsubishi electric corporation to help grow its factory automation business in this region , and in southeast asia , where the company has expanded its sales and support infrastructure , particularly in china , in order to access more of the machine vision market for this high-potential region . semiconductor and electronics capital equipment market sales to customers who make automation equipment for the semiconductor and electronics industries represented 16 % of total revenue in 2010 compared to 9 % of total revenue in 2009. sales to these customers increased by $ 31,828,000 , or 208 % , from the prior year . geographically , revenue increased most significantly in japan where many of the company 's semiconductor and electronics capital equipment customers are located . the adoption of the new revenue recognition rules did not have a material impact on revenue from these customers in 2010. although revenue levels were significantly higher than the prior year , business in this market in 2009 was adversely impacted by the worldwide economic slowdown . furthermore , demand in this market has declined sequentially in each quarter since the second quarter of 2010. this business continues to be impacted by the shift to software-only products , which have higher gross margins but average lower selling prices than a complete vision system with embedded hardware .
| revenue in japan was lower than the prior year , as business levels in 2011 were negatively impacted by the earthquake that hit this region earlier in the year , as well as a slowdown in the consumer electronics industry during the second half of 2011. by product , the majority of the growth in factory automation revenue came from sales of the company 's id products and in-sight general-purpose vision systems . sales of id products , which are used in manufacturing applications as well as in the logistics industry for package sorting and distribution , increased $ 16,301,000 , or 38 % , from the prior year . the company expects its id business to continue to be a growth engine into 2012. sales to factory automation customers increased by $ 3,429,000 , or 6 % , in the fourth quarter 2011 from the third quarter of 2011. during the fourth quarter of 2011 , the u.s. dollar strengthened relative to the euro , resulting in lower revenue as sales denominated in euros were translated to u.s. dollars . excluding the impact of foreign currency exchange rate changes on revenue , sales to factory automation customers increased by $ 4,496,000 , or 8 % , in the fourth quarter of 2011 from the third quarter of 2011 , primarily from customers in the americas and to a lesser extent europe , where economic conditions are more uncertain . revenue trends in japan and asia during the second half of 2011 have been negatively impacted by a slowdown in the consumer electronics industry , which overshadowed positive forward momentum in the broader factory automation market . semiconductor and electronics capital equipment market sales to customers who make automation equipment for the semiconductor and electronics industries represented 12 % of total revenue in 2011 compared to 16 % of total revenue in 2010. sales to these customers decreased by $ 9,058,000 , or 19 % , from the prior year . excluding the impact of foreign currency exchange rate changes on revenue , sales to semiconductor and electronics capital equipment customers decreased by $ 10,414,000 , or 22 % , from 2010. geographically , revenue decreased most significantly in japan where many of the company 's semiconductor and electronics capital equipment customers are located . revenue for this market has declined sequentially in each quarter of 2011. the semiconductor
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we expect to generate operating losses for the foreseeable future , but intend to try to limit the extent of these losses by entering into co-development or collaboration agreements with one or more strategic partners . although we have raised capital in the past and with net proceeds of $ 29 million , $ 15.4 million and $ 19.4 million through the sale of common stock in 2013 , 2012 and 2011 , respectively , we can not assure you that we will be able to secure such additional financing , if needed , or that it will be adequate to execute our business strategy . even if we obtain additional financing , it may be costly and may require us to agree to covenants or other provisions that will favor new investors over existing shareholders . 37 our primary focus is advancing the clinical development of our core assets : ampion and optina . we have previously announced the initiation of a phase iii final pivotal trial of ampion in osteoarthritis of the knee and a phase iib clinical trial of optina in diabetic macular edema . these trials will be blinded and conducted by third party clinical research organizations . on december 16 , 2013 , we announced a ten-year lease of a multi-purpose facility containing 19,346 square feet . this facility will include an fda compliant clean room to manufacture ampion and will be our new headquarters . the facility is expected to be operational by the summer of 2014. significant accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting policies generally accepted in the united states of america . the preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments , including those related to recoverability of long-lived assets , fair value of our derivative instruments , allowances and contingencies . management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the methods , estimates , and judgments used by us in applying these most critical accounting policies have a significant impact on the results we report in our consolidated financial statements . patents costs of establishing patents consisting of legal fees paid to third parties and related costs are currently expensed as incurred . we will continue this practice unless we can demonstrate that such costs add economic value to our business , in which case we will capitalize such costs as part of intangible assets . the primary consideration in making this determination is whether or not we can demonstrate that such costs have , in fact , increased the economic value of our intellectual property . legal and related costs which do not meet the above criteria will be expensed as incurred . the $ 500,000 fair value of the zertane patents acquired in connection with the march 2011 acquisition of biosciences is being amortized over the remaining u.s. patent lives of approximately 11 years beginning april 2011. in-process research and development in-process research and development ( ยiprdย ) relates to the zertane product and clinical trial data acquired in connection with the march 2011 business combination of biosciences . the $ 7,500,000 recorded was based on an independent third party appraisal of the fair value of the assets acquired . iprd is considered an indefinite-lived intangible asset and its fair value will be assessed for impairment annually and written down if impaired . once the zertane product obtains regulatory approval and commercial production begins , iprd will be amortized over its estimated useful life . if the commercialization of zertane becomes impracticable or we abandon this drug , we will expense the $ 7.5 million iprd asset . research and development research and development costs are expensed as incurred . these costs consist primarily of expenses for personnel engaged in the design and development of product candidates ; the scientific research necessary to produce commercially viable applications of our proprietary drugs or compounds ; early stage clinical testing of product candidates or compounds ; expenditures for design and engineering of the orp product ; and development equipment and supplies , facilities costs and other related overhead . stock-based compensation we account for stock-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant . we determine the estimated grant fair value of options using the black-scholes option pricing model and recognize compensation costs ratably over the vesting period using the straight-line method . common stock issued in exchange for services is recorded at the fair value of the common stock at the date at which we become obligated to issue the shares . the value of the shares is expensed over the requisite service period . derivatives we account for hybrid financial instruments ( debentures with embedded derivative features ย conversion options , down-round protection and a mandatory conversion provision ) and related warrants by recording the fair value of each hybrid instrument in its entirety and recording the fair value of the warrant derivative liability . the fair value of the hybrid financial instruments and warrants 38 was calculated using a binomial-lattice-based valuation model . we recorded a derivative expense at the inception of each instrument reflecting the difference between the fair value and cash received . changes in the fair value in subsequent periods were recorded as unrealized gain or loss on fair value of derivative instruments for the hybrid financial instruments and to derivative income or expense for the warrants . story_separator_special_tag the warrants associated with these financial instruments expired on december 31 , 2013 and the warrant derivative liability was eliminated . income taxes we use the liability method of accounting for income taxes . under this method , we recognize deferred assets and liabilities based on the differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years . we establish a valuation allowance for all deferred tax assets for which there is uncertainty regarding realization . results of operationsยyear ended december 31 , 2013 , 2012 and 2011 see notes to consolidated financial statements . results of operations for the years ended december 31 , 2013 , 2012 and 2011 reflected losses of $ 24.0 million , $ 11.6 million and $ 18.4 million , respectively . these losses include non-cash charges related to depreciation and amortization expense , derivative expense , stock-based compensation , stock issued for services and losses on the fair value of debt instruments in the amount of $ 4.2 million in 2013 , $ 1.5 million in 2012 and $ 9.2 million in 2011. revenue we are a development stage enterprise and have not generated material revenue in our operating history . the $ 50,000 license revenue recognized in 2013 and 2012 represents the amortization of the upfront payment received from our license agreement . the initial payment of $ 500,000 from the license agreement with a korean pharmaceutical company was deferred and being recognized over 10 years . expenses research and development research and development costs consist of labor , research and development of patents and intellectual property , stock-based compensation as well as drug development and clinical trials . these costs relate solely to research and development without an allocation of general and administrative expenses and are summarized as follows : replace_table_token_3_th comparison of years ended december 31 , 2013 and 2012 research and development expenses increased $ 10,795,000 , or 144 % , in 2013 over 2012. this was due primarily to costs associated with the production of study drugs , clinical trials of ampion and optina and the luoxis development of its orp platform . labor and stock-based compensation increased due to bonuses paid/accrued and stock options granted in both ampio and luoxis as well as the continuing vesting of stock option awards granted in previous years . we continue to maintain and increase our patent portfolio . comparison of years ended december 31 , 2012 and 2011 research and development expenses increased approximately 13 % in 2012 over 2011. this was due primarily to costs associated with fda pre-ind filings for our three major drug candidates , the ind submissions for ampion and optina , and clinical trials of ampion and optina . we also incurred costs related to the production of the study drugs for the ampion and optina trials . we continue to maintain and strengthen our patent portfolio while labor and stock compensation costs were relatively flat . 39 general and administrative general and administrative expenses consist of personnel costs for employees in executive , business development and operational functions ; professional fees include legal , auditing and accounting ; occupancy , travel and other includes rent , governmental and regulatory compliance , insurance , investor/public relations and professional subscriptions . these costs are summarized as follows : replace_table_token_4_th comparison of years ended december 31 , 2013 and 2012 general and administrative costs increased $ 1,408,000 , or 32 % , in 2013 over 2012. the increase in labor costs and stock-based compensation primarily relates to the addition of our chief operating officer in december 2012 , increased professional staffing in luoxis , bonuses paid/accrued and stock options granted in both ampio and luoxis as well as the continuing vesting of stock option awards granted in previous years . the labor costs in 2012 includes an employment agreement payout to our former ceo . the increase in professional fees is associated with the formation of the subsidiaries for luoxis and vyrix and the fees associated with legal defense costs . occupancy , travel and other increased primarily due to insurance premiums , regulatory and compliance fees and travel expenses . comparison of years ended december 31 , 2012 and 2011 there was an overall decrease of approximately 3 % in general and administrative costs in 2012 from 2011. labor costs increased in 2012 as the result of the employment agreement payout to our former ceo upon the granting of an indefinite compassionate leave of absence in january 2012. stock-based compensation decreased in 2012 due to longer vesting periods being incorporated into new awards , resulting in straight line amortization of the fair value over a longer period . professional fees consist primarily of legal , audit and accounting costs , public company compliance costs , and consulting related to capital formation . professional fees decreased in 2012 as compared to 2011 since we had only routine filing and reporting requirements in 2012. in 2011 we had additional professional fees related to the filing of a form s-4 with the sec and the acquisition of biosciences . travel and investor/public relations costs increased in 2012 as we pursued business development and financing opportunities . directors ' fees decreased because only regularly scheduled meetings were held during 2012 , compared to 2011 when additional meetings were required . no general and administrative costs are currently being allocated to the research and development activities . derivative expense we recorded approximately ( $ 517,000 ) , $ 206,000 and ( $ 1.6 ) million in non-cash derivative income ( expense ) in 2013 , 2012 and 2011 , respectively , in connection with our hybrid financial instruments consisting of debentures and related warrants .
| patients receiving ampion achieved significantly greater reduction in pain , womac a , across 12 weeks compared to saline vehicle control ( p = 0.01 ) patients receiving ampion also achieved significantly greater improvement in function , ( ยwomac cย ) , from baseline to 12 weeks compared to saline vehicle control ( p = 0.044 ) . patients receiving ampion also demonstrated significantly greater improvement in patient global assessment ( ยpgaย ) of disease severity from baseline to 12 weeks compared to saline vehicle control ( p = 0.012 ) . clinical efficacy defined as pain reduction was evident as early as four weeks after the injection ( p = 0.025 ) and continued to show improvement through 12 weeks ( p = 0.0038 ) . severe patients , defined as kellgren-lawrence iv , receiving ampion achieved significantly greater reduction in pain , womac a , from baseline to 12 weeks compared to severe patients receiving saline vehicle control ( p = 0.017 ) ampion was well tolerated with minimal adverse events ( ยaesย ) reported in the study . aes were well balanced between ampion and control groups . there were no drug-related serious adverse events ( ยsaesย ) . on february 4 , 2014 , we announced that an article reporting the results of the spring study was published in plose one , an international , open-access , online publication . the article entitled : ยa randomized clinical trial to evaluate two doses of an intra-articular injection of lmwf-5a in adults with pain due to osteoarthritis of the kneeย details the efficacy and safety outcomes of the use of ampion in the spring study . we decided to follow 97 patients who were administered either 4 ml ampion or saline vehicle control for an additional 8 weeks past the original 12 week primary endpoint . at week twenty , 50 % of patients in the kellgren-lawrence grades of 3 and 4 ( severe osteoarthritis ) had improvement of 40 % or more in the womac a pain scale compared to 25 % in the vehicle control group ( p=0.04 ) . patients were also classified as ยrespondersย if they achieved 40 % or greater improvement
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the company 's current drilling and exploration efforts are focused in west texas where the company holds an approximate 2 percent working interest in 49,015 gross acres located in irion and crockett counties , texas for the purpose of developing the wolfcamp shale . a total of 234 wells have been drilled through december 31 , 2014 with 222 wells on production and 12 wells awaiting completion . production from the wolfcamp area is oil-rich with large amounts of gas and natural gas liquids . with the present low price environment for both crude oil and natural gas , a reduced level of wolfcamp drilling is anticipated in 2015 with seven wells scheduled for drilling during the year . in addition to the continued , but reduced , wolfcamp development effort , the company believes that conventional oil and gas drilling opportunities may materialize during 2015 in texas , kansas , wyoming and north dakota . the company also holds an interest in approximately 46,000 acres in fayette and lavaca counties , texas with a goal of extending the producing area of the eagle ford shale trend . however , given the current price environment , significant development of this property is not likely at present . the company also maintains a fractional interest in 98 wells on approximately 76,157 acres in the east texas โ haynesville trend . the haynesville program is a natural gas development play with all acreage currently held by production . further development of this property is contingent on increased natural gas prices . - oil and gas property sales during 2014 , the company sold , to third parties , its interest in certain oklahoma and texas properties for proceeds totaling $ 2,553,000 and half of its interest in certain south texas ( lavaca county ) properties for proceeds totaling $ 1,509,000. combined , the company recorded a $ 2,528,000 pre-tax gain from these transactions . the company retained an interest in the south texas properties as development of such project continues , although the company chose to reduce its level of risk associated with the development . the other texas and oklahoma properties were sold because they were nearing the end of their economic life . 22 in 2012 , the company sold , to third parties , its interest in two separate oil and gas producing properties . one of the properties was located on-shore in texas with the second property located in federal waters offshore louisiana . proceeds from these two sales totaled $ 3,049,000 and the company recorded a $ 1,728,000 pre-tax gain . because both properties had depleted substantially from their initial productive period , the sales were consummated before the properties lost further value . additionally in 2012 , the company sold to a third party fifty percent of its interest in certain kansas oil and gas properties in order to spur further development on the properties . total proceeds were $ 578,000 and the company recorded a $ 475,000 pre-tax gain on this sale . - general and administrative expense , interest income and income tax general and administrative expenses and interest income were generally consistent during the periods presented . the provision for income taxes is based on federal and state tax rates and variations are consistent with taxable income in the respective accounting periods . - discontinued operations during 2012 , the company sold contracts , inventory and certain equipment associated with its former refined products marketing segment and discontinued that operation . a 2012 pre-tax gain totaling $ 808,000 net of wind-down costs , resulted from this sale . in 2014 , the company sold the warehouse and real estate used by this former operation for $ 664,000 in cash resulting in a pre-tax gain on sale of $ 533,000 , with such gain reported in discontinued operations for 2014. additionally , effective october 31 , 2013 the company completed an orderly wind-down and closure of its natural gas marketing segment due to inadequate earnings . the company incurred employee severance and other shut-down costs totaling $ 416,000 as a result of this event . all obligations were satisfied and no further matters are anticipated . see also note ( 9 ) โ โdiscontinued operations โ to consolidated financial statements . - outlook recent declines in crude oil prices could adversely impact the crude oil marketing operations as the company 's suppliers curtail drilling efforts . although the goal is to at least maintain current supply volumes . such effort may be at the expense of reduced unit margins . demand for transportation services remains strong but driver shortages and persistently high operating costs have limited profitability within this segment . for the oil and gas production business , declining volumes and reduced prices will suppress earnings . however , the periodic charges for depletion and amortization expenses will be reduced in 2015 following the write-down of oil and gas property costs in 2014. the company has the following major objectives for 2015 : - manage declining marketing segment unit margins to maintain operating earnings at the $ 25 million level exclusive of inventory valuation gains or losses . - solve the driver shortage problem and establish transportation segment operating earnings at the $ 5 million level . this initiative may be aided by the expected slowdown in the 2015 demand for oil and gas field services . - restrict oil and gas segment operating activity to limited development drilling and only those projects that are economically viable in the current low price scenario . given the present low price environment , an operating loss at the $ 2 million level is anticipated in 2015 for this segment . 23 liquidity and capital resources the company 's liquidity primarily derives from net cash provided from operating activities , which was $ 47,133,000 , $ 43,976,000 and $ 54,494,000 for each of 2014 , 2013 and 2012 , respectively . as of december 31 , 2014 and 2013 , the company had no bank debt or other forms of debenture obligations . story_separator_special_tag cash and cash equivalents totaled $ 80,184,000 as of december 31 , 2014 , and such balances are maintained in order to meet the timing of day-to-day cash needs . working capital , the excess of current assets over current liabilities , totaled $ 82,342,000 as of december 31 , 2014. the company relies on its ability to obtain open-line trade credit from its suppliers especially with respect to its crude oil marketing operation . in this regard , the company generally maintains substantial cash balances and avoids debt obligations . cash balances were increased during the current period from $ 60,733,000 as of year-end 2013 when the company was able to reduce prepayments and early payments for crude oil supply consistent with the reduced year-end 2014 commodity value for crude oil . at various times during each month , the company makes cash prepayments and or early payments in advance of the normal due date to certain suppliers of crude oil within the marketing operations . crude oil supply prepayments totaled $ 7,872,000 as of december 31 , 2014 and such amounts will be recouped and advanced from month to month as the suppliers deliver product to the company . in addition , in order to secure crude oil supply , the company may also โearly pay โ its suppliers in advance of the normal payment due date of the twentieth of the month following the month of production . such โearly payments โ reduce cash and accounts payable as of the balance sheet date and totaled $ 35,500,000 as of december 31 , 2014. the company also requires certain counterparties to make similar early payments or to post cash collateral with the company in order to support their purchases from the company . early payments and cash collateral received from customers increases cash and reduces accounts receivable as of the balance sheet date . early payments received totaled $ 57,404,000 and cash collateral held by the company totaled $ 8,594,000 as of december 31 , 2014 , respectively . the company maintains a stand-by letter of credit facility with wells fargo bank to provide for the issuance of up to $ 60 million in stand-by letters of credit to suppliers of crude oil . the issuance of stand-by letters of credit enables the company to avoid posting cash collateral when procuring crude oil supply . as of december 31 , 2014 , letters of credit outstanding totaled $ 15.3 million . the issued stand-by letters of credit are cancelled as the underlying purchase obligations are satisfied by cash payment when due . management believes current cash balances , together with expected cash generated from future operations , and the ease of financing truck and trailer additions through leasing arrangements ( should the need arise ) will be sufficient to meet short-term and long-term liquidity needs . the company utilizes cash from operations to make discretionary investments in its marketing , transportation and exploration businesses , which comprise substantially all of the company 's investing cash outflows for each of the periods in this filing . the company does not look to proceeds from property sales to fund its cash flow needs . except for commitments totaling $ 18,273,000 associated with barge affreightment contracts , storage tank terminal arrangements and office lease space , the company 's future commitments and planned investments can be readily curtailed if operating cash flows contract . capital expenditures during 2014 included $ 22,592,000 for marketing and transportation equipment additions , primarily consisting of truck-tractors , and $ 7,931,000 in property additions associated with oil and gas exploration and production activities . for 2015 , the company anticipates expending approximately $ 3.5 million on oil and gas development and exploration projects and approximately $ 4.6 million within the transportation segment for facilities expansion and upgrades . capital expenditures in 2015 for the marketing segment will in large part depend on the evolving situation for crude oil prices . opportunities exist for expansion of both the trucking and barging aspects of the company 's marketing business and such capital expenditure decision will be made at the time of implementation . funding for 2015 projects will be from operating cash flow and available working capital . 24 historically , the company paid an annual dividend in the fourth quarter of each year , and a $ .62 per common share dividend or $ 2,615,000 was paid to shareholders of record as of december 3 , 2012. on june 17 , 2013 , the company initiated a quarterly dividend of $ .22 per common share or $ 928,000. quarterly dividends of $ .22 per common share or $ 928,000 were also paid during both the third and fourth quarters of 2013 and during each of the four quarters of 2014. the most significant item affecting future increases or decreases in liquidity is earnings from operations and such earnings are dependent on the success of future operations ( see โitem 1a . risk factors โ ) . off-balance sheet arrangements the company maintains certain operating lease arrangements with independent truck owner-operators for use of their equipment and driver services on a month-to-month basis . in addition , the company has entered into certain lease and terminal access contracts in order to provide tank storage and dock access for its crude oil marketing business . such contracts require certain minimum monthly payments for the term of the contracts . all operating lease commitments qualify for off-balance sheet treatment . rental expense for the years ended december 31 , 2014 , 2013 , and 2012 was $ 9,755,000 , $ 8,281,000 and $ 8,110,000 , respectively . as of december 31 , 2014 , rental commitments under long-term non-cancelable operating leases and terminal arrangements for the next five years are payable as follows : 2015 - $ 6,075,000 ; 2016 - $ 6,118,000 ; 2017 - $ 4,106,000 ; 2018 - $ 1,666,000 ; 2019 โ $ 308,000 and none thereafter . contractual cash obligations the company has no capital lease obligations .
| as a result , during periods of increasing crude oil prices , the company recognizes inventory liquidation gains while during periods of falling prices , the company recognizes inventory liquidation and valuation losses . over time , these gains and losses tend to offset and have limited impact on cash flow . while crude oil prices fluctuated during 2014 , 2013 and 2012 , the net impact yielded inventory valuation losses totaling $ 14,247,000 , $ 3,824,000 and $ 1,596,000 , respectively . as of december 31 , 2014 , the company held 292,355 barrels of crude oil inventory at a composite average price of $ 46.11 per barrel . as of december 31 , 2013 , the company held 303,633 barrels of crude oil inventory at a composite average price of $ 90.06 per barrel . crude oil marketing operating earnings are also affected by the valuations of the company 's forward month commodity contracts ( derivative instruments ) as of the various report dates . such non-cash valuations are calculated and recorded at each period end based on the underlying data existing as of such date . the company generally enters into these derivative contracts as part of a pricing strategy based on crude oil purchases at the wellhead ( field level ) . only those contracts qualifying as derivative instruments are accorded fair value treatment while the companion contracts to purchase crude oil at the wellhead ( field level ) are not subject to fair value treatment . for derivative instruments , the recognition of โmark-to-market โ gains and losses is required at each period end . the impact on crude oil segment operating earnings of inventory liquidations and derivative valuations is summarized in the following reconciliation from a gaap to a non-gaap measure ( in thousands ) : replace_table_token_11_th ( 1 ) such designation is unique to the company and is not comparable to any similar measures developed by industry participants . the company utilizes such data to evaluate the profitability of its operations . field level operating earnings
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on july 31 , 2012 , we acquired 100 % of infuscience for a cash payment of $ 38.3 million . the purchase price could increase by an additional $ 3.0 million based on the results of operations during the 24 month period through july 31 , 2014. as of december 31 , 2013 , the company has made additional cash payments of $ 1.7 million based on the achievement of expected operating results . infuscience historically acquired , developed and operated businesses providing alternate site infusion pharmacy services through five infusion centers located in eagan , minnesota ; omaha , nebraska ; chantilly , virginia ; charleston , south carolina ; and savannah , georgia . on february 1 , 2013 , we acquired 100 % of the ownership interest in homechoice . the homechoice purchase price was $ 72.9 million at closing . the homechoice purchase price may also be increased in an amount up to $ 20.0 million if homechoice reaches certain performance milestones in the two years following the closing . we funded the acquisition with a combination of cash on hand and drawing on the prior credit facility . homechoice is a provider of alternate-site infusion pharmacy services . prior to our acquisition , homechoice serviced approximately 15,000 patients annually and had 14 infusion pharmacy locations in pennsylvania , district of columbia , maryland , virginia , north carolina , south carolina , georgia , missouri , and alabama . on august 23 , 2013 , we acquired the carepoint business from carepoint and its subsidiaries . the total consideration to the sellers at closing was $ 211.1 million paid in cash plus a contingent payment of up to $ 10.0 million . the sellers of the carepoint business will be eligible to receive the contingent payment if the carepoint business achieves a specified level of product gross profit during the one-year period following the closing date . we funded the cash payment at closing with a combination of cash on hand and $ 150.0 million in borrowings under the senior credit facilities ( as defined below ) . prior to our acquisition , the carepoint business was a provider of home and alternate-site infusion therapy for patients with complex , acute and chronic illnesses , servicing approximately 20,500 patients annually with 28 sites of service in nine states in the east coast and gulf coast regions . on february 1 , 2014 , we entered into a stock purchase agreement with lhc group , inc. and certain of its subsidiaries who have agreed to acquire substantially all of the assets and entities that make up our home health services segment for a total cash purchase price of approximately $ 60.0 million , subject to a net working capital adjustment . the closing on this transaction is expected to occur on march 31 , 2014. we intend to pay down our debt with the net proceeds from the sale of our home health services segment . the agreement to sell our home health services segment is consistent with our continuing strategic evaluation of our businesses and our decision to continue to focus growth initiatives and capital in the infusion services segment . regulatory matters update approximately 26 % of revenue for the year ended december 31 , 2013 was derived directly from medicare , state medicaid programs and other government payors . we also provide services to beneficiaries of medicare , medicaid and other government-sponsored healthcare programs through managed care entities . medicare part d , for example , is administered through managed care entities . in the normal course of business , we and our customers are subject to legislative and regulatory changes impacting the level of reimbursement received from the medicare and state medicaid programs . medicare in august 2011 , congress passed a deficit reduction agreement that created a committee tasked with proposing legislation to reduce the federal deficit by november 23 , 2011. because the committee did not act , automatic medicare cuts were scheduled to go into effect january 1 , 2013. however , congress passed legislation extending the time for such cuts by two months . thus , medicare reimbursement to providers was reduced overall by 2 % ( as part of sequestration ) beginning april 1 , 2013. the automatic spending cuts did not and will not have an impact on medicaid reimbursement . the reductions in medicare reimbursement could 40 have an adverse impact on our results of operations , although the magnitude of the impact can not yet be predicted . there may also be other impacts from the automatic spending reductions that we can not predict . also , the staff at cms and medicare administrative contractors may be reduced , which could result in delays in claims processing . these reductions will be in addition to reductions mandated by the health reform law , which provides for material reductions in the growth of medicare program spending , including reductions in medicare market basket updates . further , from time to time , cms revises the reimbursement systems used to reimburse health care providers , which may result in reduced medicare payments . we have been impacted by cms rule revisions which reduced reimbursement rates applicable to the home health division of our business . in october 2011 , cms issued a final rule to update and revise medicare home health rates for calendar year 2012. the 2012 final rule reduced our home health segment revenue and gross profit by $ 1.9 million on an annual basis compared to 2011. in november 2012 , cms issued a final rule for home health agency reimbursement for 2013 that resulted in a 0.01 % decrease in reimbursement . in december 2013 , cms issued a final rule for home health agency reimbursement that would result in a 1.05 % decrease in reimbursement . we estimate that this rule will have a limited impact on revenue . story_separator_special_tag state medicaid programs because most states must operate with balanced budgets and because the medicaid program is often a state 's largest program , some states have enacted or may consider enacting legislation designed to reduce their medicaid expenditures . further , many states have also adopted , or are considering , legislation designed to reduce coverage and or enroll medicaid recipients in managed care programs . the current economic environment has increased the budgetary pressures on many states , and these budgetary pressures have resulted , and likely will continue to result , in decreased spending , or decreased spending growth , for medicaid programs and the children 's health insurance program in many states . no single state medicaid program represents greater than 4 % of our consolidated revenue for the year ended december 31 , 2013 and no individual state medicaid reimbursement reduction to us as a provider is expected to have a material effect on our consolidated financial statements . we are continually assessing the impact of the state medicaid reimbursement cuts as states propose , finalize and implement various cost-saving measures . given the reimbursement pressures , we continue to improve operational efficiencies and reduce costs to mitigate the impact on results of operations where possible . in some cases , reimbursement rate reductions may result in negative operating results , and we would likely exit some or all services where rate reductions result in unacceptable returns to the company . critical accounting estimates our consolidated financial statements have been prepared in accordance with united states generally accepted accounting principles ( โ gaap โ ) . in preparing our financial statements , we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . we evaluate our estimates and judgments on an ongoing basis . we base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources . our actual results may differ from these estimates , and different assumptions or conditions may yield different estimates . the following discussion highlights what we believe to be the critical accounting estimates and judgments made in the preparation of our consolidated financial statements . the following discussion is not intended to be a comprehensive list of all the accounting estimates or judgments made in the preparation of our financial statements and in many cases the accounting treatment of a particular transaction is specifically dictated by gaap , with no need for management 's judgment on its application . see our audited consolidated financial statements and notes thereto appearing elsewhere in this annual report , which contain a description of our accounting policies and other disclosures required by gaap . revenue recognition we generate revenue principally through the provision of home infusion and other home healthcare services to provide clinical management services and the delivery of cost effective prescription medications . prescription drugs are dispensed through pharmacies owned by us . fee-for-service agreements include : ( i ) pharmacy agreements , where we dispense prescription medications through our pharmacy facilities and ( ii ) pbm agreements , where prescription medications are dispensed through pharmacies participating in our retail pharmacy network . 41 financial accounting standards board accounting standards codification ( โ asc โ ) subtopic 605-25 , revenue recognition : multiple-element arrangements ( โ asc 605-25 โ ) , addresses situations in which there are multiple deliverables under one revenue arrangement with a customer and provides guidance in determining whether multiple deliverables should be recognized separately or in combination . for infusion-related therapies , we frequently provide multiple deliverables of drugs and related nursing services . after applying the criteria of asc 605-25 , we concluded that separate units of accounting exist in revenue arrangements with multiple deliverables . if the drug is shipped , the drug revenue is recognized at the time of shipment , and nursing revenue is recognized on the date of service . we allocate revenue consideration based on the relative fair value as determined by our best estimate of selling price to separate the revenue where there are multiple deliverables under one revenue arrangement . we recognize infusion nursing revenue as the estimated net realizable amounts from patients and payors for services rendered and products provided . this revenue is recognized as the treatment plan is administered to the patient and is recorded at amounts estimated to be received under reimbursement or payment arrangements with payors . home health net revenue is recorded based on a reimbursement rate under the medicare prospective payment system program which varies based on the severity of the patient 's condition , service needs and certain other factors . revenue is recognized ratably over a 60-day episode period and is subject to adjustment during this period if there are significant changes in the patient 's condition during the treatment period or if the patient is discharged but readmitted to another agency within the same 60-day episodic period . medicare cash receipts under the prospective payment system are initially recognized as deferred revenue and are subsequently recognized as revenue over the 60-day episode period . revenue generated under pbm agreements is classified as either gross or net based on whether we are acting as a principal or an agent in the fulfillment of prescriptions through our pharmacy network .
| cost of revenue for the year ended december 31 , 2013 was $ 570.4 million compared to $ 437.7 million for the same period in 2012 or an increase of $ 132.7 million or 30.3 % . the increase in cost of revenue primarily results from the acquisitions and organic growth in the infusion services segment partially offset by declines in discount card volumes . gross profit . gross profit for the year ended december 31 , 2013 was $ 271.8 million compared to $ 225.0 million for the same period in 2012 , an increase of $ 46.9 million , or 20.8 % . the increase in gross profit is due to the acquisitions of homechoice and carepoint and organic growth . gross profit as a percentage of revenue declined to 32.3 % in the year ended december 31 , 2013 as compared to 33.9 % in the year ended december 31 , 2012 . the decline in gross profit as a percentage of revenue is due to the growth in revenue in the lower margin infusion services segment as a percentage of total revenue as compared to the higher margin home health and pbm services segments . selling , general and administrative expenses . selling , general and administrative expenses ( `` sg & a '' ) for the year ended december 31 , 2013 were $ 233.0 million , or 27.7 % of total revenue , compared to $ 184.5 million , or 27.8 % of total revenue , for the same period in 2012 . the increase in sg & a was primarily related to support for the infusion segment growth change in fair value of contingent consideration . for the year ended december 31 , 2013 , change in the fair value of contingent consideration was $ 5.8 million or 0.7 % of total revenue . there was no change in the fair value of contingent consideration for the year ended december 31 , 2012. the amount recorded in 2013 was
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to the extent that disruption to the business continues , we will evaluate additional cost management initiatives which will be dependent on the severity and duration of the covid-19 pandemic . see note 15. restructuring plan of the notes to our consolidated financial statements included elsewhere in this annual report on form 10-k for further discussion of the 2020 restructuring plan . while the situation caused by covid-19 is unprecedented and dynamic , we have considered its impact when developing our estimates and assumptions . actual results and outcomes may differ from our estimates and assumptions . for additional information of risks related to covid-19 , refer to part i , item 1a . risk factors . key metrics in addition to the measures presented in our consolidated financial statements , we use the following key metrics to evaluate our business , measure our performance , identify trends affecting our business and assist us in making strategic decisions . our key metrics are total revenue , products sold , adjusted ebitda and adjusted ebitda margin . the most directly comparable financial measure calculated under u.s. gaap for adjusted ebitda is net income ( loss ) . in the fiscal years ended october 3 , 2020 , september 28 , 2019 and september 29 , 2018 , we had a net loss of $ 20.1 million , $ 4.8 million and $ 15.6 million , respectively . replace_table_token_7_th ( 1 ) for additional information regarding adjusted ebitda and adjusted ebitda margin ( which are non-gaap financial measures ) , including reconciliations of net income ( loss ) , to adjusted ebitda , see the sections titled `` adjusted ebitda and adjusted ebitda margin '' below and `` non-gaap financial measures '' above . 35 table of contents revenue we generate substantially all of our revenue from the sale of sonos speakers and sonos system products . we also generate a portion of revenue from partner products and other revenue sources , such as module revenue from our ikea partnership , architectural speakers from our sonance partnership , accessories such as speaker stands and wall mounts , professional services , licensing , and advertising revenue . for a description of our revenue recognition policies , see the section titled `` critical accounting policies and estimates . '' products sold products sold represents the number of products that are sold during a period , net of returns . products sold has been redefined to align with our new product revenue categories and includes the sale of products in the sonos speakers and sonos system products categories , as well as module units sold through our partners , such as ikea and sonance . except where noted otherwise , our historical products sold metric has been recast to reflect the change in product revenue categorization and now includes sonos boost and module units . products sold excludes accessories , which have not materially contributed to our revenue historically . growth rates between products sold and revenue are not perfectly correlated because our revenue is affected by other variables , such as the mix of products sold during the period , promotional discount activity and the introduction of new products that may have higher or lower than average selling prices . adjusted ebitda and adjusted ebitda margin we define adjusted ebitda as net income ( loss ) adjusted to exclude the impact of stock-based compensation expense , depreciation , interest , other income ( expense ) , taxes , and other items that we do not consider representative of our underlying operating performance . we define adjusted ebitda margin as adjusted ebitda divided by revenue . see the section titled `` selected consolidated financial and other dataโnon-gaap financial measures '' for information regarding our use of adjusted ebitda and adjusted ebitda margin , and a reconciliation of net loss to adjusted ebitda . factors affecting our performance new product introductions . since 2005 , we have released a number of products in multiple home audio categories . we intend to introduce new products that appeal to a broad set of consumers , as well as bring our differentiated listening platform and experience to all the places and spaces where our customers listen to the breadth of audio content available , including inside and outside their homes . seasonality . historically , we have experienced the highest levels of revenue in the first fiscal quarter of the year coinciding with the holiday shopping season and our promotional activities . for example , revenue in the first quarter of fiscal 2020 accounted for 42.4 % of our revenue for fiscal 2020. our promotional discounting activity is higher in the first fiscal quarter as well , which negatively impacts gross margin during this period . for example , gross margin in the first quarter of fiscal 2020 was 40.5 % , compared to gross margin of 43.1 % for all of fiscal 2020. however , our higher sales volume in the holiday shopping season has historically resulted in a higher operating margin in the first fiscal quarter due to positive operating leverage . ability to sell additional products to existing customers . as our customers add sonos to their homes and listen to more audio content , they typically increase the number of our products in their homes . in fiscal 2020 , follow-on purchases represented approximately 41.2 % of new product registrations . as we execute on our product roadmap to address evolving consumer preferences , we believe we can expand the number of products in our customers ' homes . our ability to sell additional products to existing customers is a key part of our business model , as follow-on purchases indicate high customer engagement and satisfaction , decrease the likelihood of competitive substitution and result in higher customer lifetime value . we will continue to innovate and invest in product development in order to enhance customer experience and drive sales of additional products to existing customers . expansion of partner ecosystem . expanding and maintaining strong relationships with our partners will remain important to our success . story_separator_special_tag our ability to develop , manufacture and sell voice-enabled speakers that deliver differentiated consumer experiences will be a critical driver of our future performance , particularly as we compete in a larger market with an expanding number of competitors . we currently compete with , and will continue to compete with , companies that have greater resources than we do , many of which have already brought voice-enabled speakers to market . to date , our agreements 36 table of contents with these partners have all been on a royalty-free basis . we believe our partner ecosystem improves customer experience , attracting more customers to sonos , which in turn attracts more partners to the platform further enhancing customer experience . we believe partners choose to be part of the sonos platform because it provides access to a large , engaged customer base on a global scale . we look to partner with a wide variety of streaming music services , voice assistants , connected home integrators , content creators and podcast providers . we are also partnering with certain companies in the development of our own voice-enabled products . our competitiveness in the voice-enabled speaker market will depend on successful investment in research and development , market acceptance of our products and our ability to maintain and benefit from these technology partnerships . as competition increases , we believe our ability to give users the freedom to choose across the broadest set of streaming services and voice control partners will be a key differentiating factor . channel strategy . we are focused on reaching and converting prospective customers through third-party retail stores , e-commerce retailers , custom installers of home audio systems , and our website sonos.com . we are investing in our e-commerce capabilities and in-app experience to drive direct sales . sales through sonos.com increased 84.3 % and represented 21.4 % of our revenue in fiscal 2020 compared to 12.2 % in fiscal 2019. we believe the growth of our own e-commerce channel will continue to be important to supporting our overall growth and profitability as consumers continue the shift from physical to online sales channels . our physical retail distribution relies on third-party retailers . while we seek to increase sales through our direct-to-consumer sales channel , we expect that our future sales will continue to be substantially dependent on our third-party retailers . we will continue to seek retail partners that can deliver differentiated in-store experiences to support customer demand for product demonstrations . international expansion . our products are sold in over 50 countries and in fiscal 2020 , 47.4 % of our revenue was generated outside the united states . our international growth will depend on our ability to generate sales from the global population of consumers , develop international distribution channels and diversify our partner ecosystem to appeal to a more global audience . we are committed to strengthening our brand in global markets and our future success will depend in part on our growth in international markets . investing in product and software development . our investments in product and software development consist primarily of expenses in personnel who support our research and development efforts and capital expenditures for new tooling and production line equipment to manufacture and test our products . we believe that our financial performance will significantly depend on the effectiveness of our investments to design and introduce innovative new products and services and enhance existing products and software . if we fail to innovate and expand our product and software offerings or fail to maintain high standards of quality in our products , our brand , market position and revenue will be adversely affected . further , if our development efforts are not successful , we will not recover the investments made . investing in sales and marketing . we intend to invest resources in our marketing and brand development efforts . our marketing investments are focused on increasing brand awareness through advertising , public relations and brand promotion activities . while we maintain a base level of investment throughout the year , significant increases in spending are highly correlated with the holiday shopping season , new product launches and software introductions . we also invest in capital expenditures on product displays to support our retail channel partners . sales and marketing investments are typically incurred in advance of any revenue benefits from these activities . 37 table of contents components of results of operations revenue in the first quarter of fiscal 2020 , we began reporting our product revenue under the following new categories : sonos speakers , sonos system products and partner products and other revenue . this change further aligned revenue reporting with the evolving nature of our products , how customers purchase across multiple categories , and how we evaluate our business . we generate substantially all of our revenue from the sale of sonos speakers and sonos system products . we also generate a portion of revenue from partner products and other revenue sources , such as module revenue from our ikea partnership , architectural speakers from our sonance partnership , and accessories such as speaker stands and wall mounts , as well as professional services , licensing and advertising revenue . we attribute revenue from our ikea partnership to our asia pacific ( `` apac '' ) region , as our regional revenue is defined by the shipment location . our revenue is recognized net of allowances for returns , discounts , sales incentives , and any taxes collected from customers . we also defer a portion of our revenue that is allocated to unspecified software upgrades and cloud-based services . our revenue is subject to fluctuation based on the foreign currency in which our products are sold , principally for sales denominated in the euro and the british pound . the introduction of new products may result in an increase in revenue but may also impact revenue generated from existing products as consumers shift purchases to new products .
| volume of products sold decreased while revenue increased primarily due to product mix as there was a shift to higher-priced products in fiscal 2020 compared to fiscal 2019. the decrease in volume of products sold for fiscal 2020 compared to fiscal 2019 was driven by a decrease in the sale of select sonos speakers products and the decline in ikea module units orders . the decline in ikea module units orders resulted from the retailer 's store closures , smaller online presence , and lapping the anniversary of the launch of our ikea partnership . revenue for fiscal 2020 compared to fiscal 2019 increased 11.4 % in the americas , decreased 2.9 % in europe , middle east and africa ( `` emea '' ) , and increased 1.8 % in apac . 40 table of contents cost of revenue and gross profit replace_table_token_11_th cost of revenue increased $ 20.9 million , or 2.8 % , from $ 733.5 million for fiscal 2019 to $ 754.4 million for fiscal 2020. the increase was due to an additional $ 31.0 million of tariffs on products imported from china to the u.s. excluding the impact of tariffs , the cost of revenue would have declined $ 10.1 million compared to the prior year due to product and materials cost reduction . gross margin increased 130 basis points for fiscal 2020 compared to fiscal 2019. the increase was driven by a shift in product mix into higher margin products and channels as well as product and material cost reductions associated with the consolidation of our supplier base and successful cost negotiations . this increase was partially offset by the introduction of tariffs in september 2019. excluding the effects of tariffs , gross margin would have been 45.6 % or 370 basis points greater than fiscal 2019. research and development replace_table_token_12_th research and development expenses increased $ 43.5 million , or 25.4 % , for fiscal 2020 compared to fiscal 2019. excluding the impact of $ 5.1 million related to the 2020
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we are also evaluating additional potential preclinical candidates and continuing discovery efforts aimed at identifying other potential product candidates under our channel agreement with intrexon . our current plans involve using our principal internal financial resources to develop palifosfamide and to extend the synthetic biology program , with the intention of ultimately partnering or otherwise raising additional resources to support further development activities for all of our product candidates . based on these plans , we expect to incur the following expenses during the next twelve months : approximately $ 123.2 million on research and development expenses and approximately $ 29.1 million on general corporate and administrative expenses . as of december 31 , 2012 , we had approximately $ 73.3 million of cash and cash equivalents . this forecast of expenses is forward-looking information that involves risks and uncertainties , and the actual amount of our expenses over the next twelve months could vary materially and adversely as a result of a number of factors , including the factors discussed in the ยยrisk factors '' section of this report and the uncertainties applicable to our forecast for the overall sufficiency of our capital resources , which are discussed under ยย liquidity and capital resources ย below . we have based our estimates on assumptions that may prove to be wrong , and our expenses could prove to be significantly higher than we currently anticipate . furthermore , the successful development of our product candidates is highly uncertain . product development costs and timelines can vary significantly for each product candidate , are difficult to accurately predict , and will require us to obtain additional funding , either alone or in connection with partnering arrangements . various statutes and regulations also govern or influence the manufacturing , safety , labeling , storage , record keeping and marketing of each product . the lengthy process of seeking approval and the subsequent compliance with applicable statutes and regulations require the expenditure of substantial resources . any failure by us to obtain , or any delay in obtaining , regulatory approvals could materially , adversely affect our business . to date , we have not received approval for the sale of any product candidates in any market and , therefore , have not generated any revenues from our product candidates . financial overview story_separator_special_tag td > year ended december 31 , 2012 2011 change ( $ in thousands ) general and administrative $ 19,523 $ 14,984 $ 4,539 30 % general and administrative expenses for the year ended december 31 , 2012 increased by $ 4.5 million from the year ended december 31 , 2011. the increase was primarily due to higher salary and higher employee-related costs of $ 2.0 million to support increased activity in clinical studies , non-employee contracted costs of $ 1.2 million , costs of $ 1.0 million related to our restructuring and other costs of $ 0.3 million . we expect our general and administrative expenses to increase moderately to support increased activity in clinical studies . other income ( expense ) . other income ( expense ) during the years ended december 31 , 2012 and 2011 were as follows : replace_table_token_4_th the decrease in other income ( expense ) from the year ended december 31 , 2012 compared to the year ended december 31 , 2011 was due primarily to the change in the fair value of liability-classified warrants , which yielded a gain of $ 6,050 thousand in 2012 as compared to a gain of $ 7,583 thousand in 2011. the change in liability-classified warrants is attributable to the decrease in our stock price , decrease in remaining term and a decrease in volatility . additional changes are attributable to increased state tax refunds and decreased interest rates on invested funds . results of operations for the fiscal year ended december 31 , 2011 versus december 31 , 2010 revenues . revenues for the years ended december 31 , 2011 and 2010 were as follows : replace_table_token_5_th revenue for the year ended december 31 , 2011 increased by $ 0.7 million from the year ended december 31 , 2010. the increase was due to our receipt of funds under our collaboration agreement with solasia to further the research and development of darinaparsin . we recognize the research and development funding revenue relating to this collaboration agreement in equal monthly amounts over the estimated period of performance of 75 months commencing march 2011 . 49 research and development expenses . research and development expenses during the years ended december 31 , 2011 and 2010 were as follows : year ended december 31 , change 2011 2010 ( $ in thousands ) research and development $ 57,083 $ 12,910 $ 44,173 342 % research and development expenses for the year ended december 31 , 2011 increased by $ 44.2 million from the year ended december 31 , 2010. the increase was primarily due to a one-time $ 17.5 million non-cash expense related to our channel partnership arrangement with intrexon , including our associated license of intrexon technology , along with increased clinical costs of $ 14.4 million , of which $ 10.5 million related to the phase 3 palifosfamide study , $ 3.4 million related to dna based therapeutics projects and $ 0.5 million related to other clinical trials , increased preclinical costs of $ 2.8 million , increased manufacturing activity of $ 3.9 million to replenish drug supplies and further develop palifosfamide , increased salary and employee-related costs of $ 5.3 million resulting from additional headcount and other costs of $ 0.3 million . exclusive of the one-time $ 17.5 million non-cash expense related to our channel partnership arrangement with intrexon , we expect our research and development expenses to increase , as compared to prior periods , as we continue our pivotal phase 3 study of palifosfamide and other studies for palifosfamide , dna therapeutics , indibulin and darinaparsin . general and administrative expenses . story_separator_special_tag general and administrative expenses during the years ended december 31 , 2011 and 2010 were as follows : year ended december 31 , change 2011 2010 ( $ in thousands ) general and administrative $ 14,984 $ 11,636 $ 3,348 29 % general and administrative expenses for the year ended december 31 , 2011 increased by $ 3.3 million from the year ended december 31 , 2010. the increase was primarily due to increased consulting fees of $ 2.1 million and increased salary and employee-related costs of $ 1.6 million , offset by certain cost reductions of ( $ 0.4 ) million . the increased general and administrative activity was related to increased support for clinical studies . we expect our general and administrative expenses to increase moderately to support increased activity in clinical studies . other income ( expense ) . other income ( expense ) during the years ended december 31 , 2011 and 2010 were as follows : replace_table_token_6_th the increase in other income ( expense ) from the year ended december 31 , 2011 compared to the year ended december 31 , 2010 was due primarily to the change in the fair value of liability-classified warrants , which 50 yielded a gain of $ 7,583 thousand in 2011 as compared to a loss of $ 8,889 thousand in 2010. the change in liability-classified warrants is attributable to the decrease in our stock price , decrease in remaining term and a decrease in volatility . additional changes are attributable to increased state tax refunds and decreased interest rates on invested funds . liquidity and capital resources as of december 31 , 2012 , we had approximately $ 73.3 million in cash and cash equivalents , compared to $ 104.7 million in cash and cash equivalents as of december 31 , 2011. we anticipate that our cash resources will be sufficient to fund our operations into the second half of 2013. as a result , our independent registered public accounting firm has expressed a substantial doubt about our ability to continue as a going concern in their report on our financial statements . the results from the company 's picasso 3 pivotal trial in first-line sts are expected in the last week of march 2013. the company has various dilutive and non-dilutive funding alternatives if the results are positive . if the results are negative , alternative cost-cutting efficiencies are planned in an attempt to extend our cash resources as long as possible , though there are no assurances that such efforts , if necessary , would be realized . in addition , changes may occur that would consume our existing capital prior to the second half of 2013 , including expansion of the scope of , and or slower than expected progress of , our research and development efforts and changes in governmental regulation . actual costs may ultimately vary from our current expectations , which could materially impact our use of capital and our forecast of the period of time through which our financial resources will be adequate to support our operations . we have estimated the sufficiency of our cash resources based in part on the trial design for our picasso 3 pivotal trial in first-line sts and our adaptive phase 3 trial in first-line sclc for iv palifosfamide and our current timing expectations for the results of the picasso 3 pivotal trial and enrollment in our adaptive phase 3 trial in first-line sclc for iv palifosfamide , which may change based on the progression of enrollment . we also assumed responsibility for the advancement of two product candidates in the clinic under our channel agreement with intrexon , and we expect that the costs associated with these and additional product candidates will increase the level of our overall research and development expenses significantly going forward . although our forecasts for expenses and the sufficiency of our capital resources takes into account our plans to develop the intrexon products , we assumed development responsibility for these products on january 6 , 2011 , and the actual costs associated therewith may be significantly in excess of forecasted amounts . although all human clinical trials are expensive and difficult to design and implement , we believe that due to complexity , costs associated with clinical trials for synthetic biology products are greater than the corresponding costs associated with clinical trials for small molecule candidates . in addition to increased research and development costs , we have added , and will continue to add , headcount to support our exclusive channel partnership endeavors , which will add to our general and administrative expenses going forward . in addition to these factors , our actual cash requirements may vary materially from our current expectations for a number of other factors that may include , but are not limited to , changes in the focus and direction of our development programs , competitive and technical advances , costs associated with the development of our product candidates , our ability to secure partnering arrangements , and costs of filing , prosecuting , defending and enforcing our intellectual property rights . if we exhaust our capital reserves more quickly than anticipated , regardless of the reason , and we are unable to obtain additional financing on terms acceptable to us or at all , we will be unable to proceed with development of some or all of our product candidates on expected timelines and will be forced to prioritize among them . we expect that we will need additional financing to support our long-term plans for clinical trials and new product development . we expect to finance our cash needs through the sale of equity securities , strategic collaborations and or debt financings , or through other sources that may be dilutive to existing stockholders .
| our future research and development expenses in support of our current and future programs will be subject to numerous uncertainties in timing and cost to completion . we test potential products in numerous pre-clinical studies for safety , toxicology and efficacy . we may conduct multiple clinical trials for each product . as we obtain results from trials , we may elect to discontinue or delay clinical trials for certain products in order to focus our resources on more promising products or indications . completion of clinical trials may take several years or more , and the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product . it is not unusual for pre-clinical and clinical development of each of these types of products to require the expenditure of substantial resources . we estimate that clinical trials of the type generally needed to secure new drug approval are typically completed over the following timelines : clinical phase estimated completion period phase i 1 - 2years phase ii 2 - 3years phase iii 2 - 4years the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development , including , among others , the following : the number of clinical sites included in the trials ; the length of time required to enroll suitable patents ; the number of patients that ultimately participate in the trials ; the duration of patient follow-up to ensure the absence of long-term product-related adverse events ; and the efficacy and safety profile of the product . as a result of the uncertainties discussed above , we are unable to determine the duration and completion costs of our programs or when and to what extent we will receive cash inflows from the commercialization and sale of a product . our inability to complete our programs in a timely
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as a result of the enactment date of december 22 , 2017 , we were required to remeasure the deferred tax assets and liabilities at the rate in which they are expected to reverse . we provisionally recorded an income tax benefit in the amount of $ 23.4 million related to the remeasurement of the net deferred tax liability as of december 31 , 2017. during the third quarter of 2018 , we completed the accounting for the income tax effect of the tcja 's limit on compensation under internal revenue code sec . 162 ( m ) and stock-based compensation for covered employees . this resulted in a $ 0.4 million reduction in deferred tax assets that had been recorded as a provisional amount as of december 31 , 2017 . there are no remaining provision amounts associated with the tcja as of december 31 , 2018 . in connection with the ipo in october 2016 , our accounting predecessor , extraction oil & gas holdings , llc ( `` 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 code , prior to the tcja enactment , 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 ( โ loe โ ) ; capital expenditures ; and adjusted ebitdax ( a non-gaap measure ) . 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 , 2018 , our revenues were derived 79 % from oil sales , 10 % from natural gas sales and 11 % from ngl sales . for the year ended december 31 , 2017 , our revenues were derived 70 % from oil sales , 15 % from natural gas sales and 15 % 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 . 58 sales volumes the following table presents historical sales volumes for our properties for the periods indicated : replace_table_token_9_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 or develop 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 . we estimate that midstream constraints negatively impacted our production by approximately 18.5 mboe/d , or 24 % , during the year ended december 31 , 2018. we are currently working with various midstream providers to address processing constraints in the dj basin . please read โ risks related to the oil , natural gas and ngl industry and our business โ 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 , 2018 , average daily prices for 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 also during 2018 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 . story_separator_special_tag 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 . 59 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 . 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_10_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 . ( 2 ) as a result of the adoption of asc 606 - revenue from contracts with customers ( `` asc 606 '' ) on january 1 , 2018 , certain costs previously classified as transportation and gathering expenses are presented on a net basis for proceeds expected to be received . see `` โhistorical results of operations and operating expense '' for more information . 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 . by removing a significant portion of price volatility associated with our oil production , we believe we will mitigate , but not eliminate , the potential negative effects of reductions in oil prices on our cash flow from operations for those periods . however , in a portion of our current positions , our hedging activity may also reduce our ability to benefit from increases in oil and natural gas prices . we will sustain losses to the extent our derivatives contract prices are lower than market prices and , conversely , we will realize gains to the extent our derivatives contract prices are higher than market prices . in certain circumstances , where we have unrealized gains in our derivative portfolio , we may choose to restructure existing derivative contracts or enter into new transactions to modify the terms of current contracts in order to realize the current value of our existing positions . see โ โquantitative and qualitative disclosure about market riskโcommodity price risk โ for information regarding our exposure to market risk , including the effects of changes in commodity prices , and our commodity derivative contracts . we will continue to use commodity derivative instruments to hedge our price risk in the future . our hedging strategy and future hedging transactions will be determined at our discretion and may be different than what we have done on a historical basis . as a result of recent volatility in the price of oil and natural gas , we have relied on a variety of hedging strategies and instruments to hedge our future price risk . we have utilized swaps , put options , and call options , which in some 60 instances require the payment of a premium , to reduce the effect of price changes on a portion of our future oil and natural gas production . we expect to continue to use a variety of hedging strategies and instruments for the foreseeable future . a swap has an established fixed price . when the settlement price is below the fixed price , the counterparty pays us an amount equal to the difference between the settlement price and the fixed price multiplied by the hedged contract volume . when the settlement price is above the fixed price , we pay our counterparty an amount equal to the difference between the settlement price and the fixed price multiplied by the hedged contract volume . a put option has an established floor price . the buyer of the put option pays the seller a premium to enter into the put option . when the settlement price is below the floor price , the seller pays the buyer an amount equal to the difference between the settlement price and the strike price multiplied by the hedged contract volume . when the settlement price is above the floor price , the put option expires worthless . some of our purchased put options have deferred premiums . for the deferred premium puts , we agreed to pay a premium to the counterparty at the time of settlement . a call option has an established ceiling price . the buyer of the call option pays the seller a premium to enter into the call option .
| the increase in other g & a expenses on a per boe basis is partially offset by increased sales volumes for the year ended december 31 , 2018 . commodity derivative loss . primarily due to the change in fair value from the execution of new positions during the year ended december 31 , 2018 , partially offset by a decrease in nymex crude oil futures prices at december 31 , 2018 as compared to december 31 , 2017 , we incurred a net loss on our commodity derivatives of $ 8.6 million and $ 36.3 million for the years ended december 31 , 2018 and 2017 , respectively . these losses are a result of our hedging program , which is used to mitigate our exposure to commodity price fluctuations . the fair value of the open commodity derivative instruments will continue to change in value until the transactions are settled and we will likely add to our hedging program in the future . therefore , we expect our net income ( loss ) to reflect the volatility of commodity price forward markets . our cash flow will only be affected upon settlement of the transactions at the current market prices at that time . for the year ended december 31 , 2018 and 2017 , we paid cash settlements of commodity derivatives totaling $ 123.5 million and $ 18.0 million , respectively . interest expense . interest expense consists of interest expense on our long-term debt and debt issuance costs , net of capitalized interest . for the year ended december 31 , 2018 , we recognized interest expense of approximately $ 123.3 million as compared to $ 51.9 million for the year ended december 31 , 2017 , as a result of borrowings under our revolving credit facility , our 2021 senior notes and the associated make-whole premium and accelerated amortization of debt issuance costs upon redemption , our 2024 senior notes , our 2026 senior notes , and the amortization of other debt issuance costs . we incurred interest expense for
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the transaction closed on november 22 , 2019 and included certain assets held by the u.s. parent company and all the outstanding stock of the uk subsidiary , schmitt europe limited . as a result , the financial position , results of operations , and cash flows relating to our sbs business line are reported as discontinued operations in the accompanying financial statements . further , in q1 of fiscal year 2020 , we announced that the board of directors adopted a stockholder rights plan in an effort to protect its net operating loss carryforwards ( โ nols โ ) under section 382 of the internal revenue code . schmitt had federal and state nols of approximately $ 5.6 million and $ 6.1 million , respectively , which could be used in certain circumstances to offset schmitt 's future taxable income or otherwise payable taxes and therefore reduce its federal and state income tax liabilities , as of may 31 , 2019. our ability to use the nols would be limited in the event of an โ ownership change โ under section 382 of the internal revenue code and related u.s. treasury regulations . the stockholder rights plan is intended to reduce the likelihood of an unintended ownership change occurring through the buying of schmitt common stock and was not meant to be an anti-takeover measure . as disclosed in โ item 1. businessโrecent developments โ , the company acquired the ample hills ice cream business as of july 9 , 2020. following the transaction , ample hills has begun reopening retail locations , rehiring ample hills team members , and reopening the red hook ice cream factory in brooklyn , new york . as the transaction occurred after may 31 , 2020 , the results of ample hills are not reflected in the company 's results but are anticipated to be a significant component of the company 's results in subsequent periods . key leadership changes on june 26 , 2019 , we announced the appointment of steven strom as the fifth member of the company 's board , effective june 21 , 2019. steven strom is an โ independent director โ according to the rules of the securities and exchange commission and the nasdaq and his appointment created a majority of independent directors on the board in compliance with nasdaq requirements . mr. strom is the founder of odinbrook global advisors and has more than thirty years of experience advising companies in the us , canada , latin america , europe and asia . on august 1 , 2019 , we announced the appointment of michael r. zapata as president and chief executive officer , effective july 30 , 2019. on january 15 , 2020 , jamie schmidt was appointed chief financial officer of the company . story_separator_special_tag sequence ; type : arabic ; name : pageno -- > 16 reconciliation of ebitda to adjusted ebitda โ adjusted ebitda for fiscal 2020 and 2019 is calculated as follows : replace_table_token_4_th provision for income taxes โ the effective tax rate in fiscal 2020 was 1.2 % , as compared ( -2.2 ) % in fiscal 2019. the effective tax rate on consolidated net income in fiscal 2020 and 2019 differs from the federal statutory tax rate primarily due to changes in the deferred tax valuation allowance and the impact of certain expenses not being deductible for income tax reporting purposes . net income ( loss ) โfor fiscal 2020 , net loss from continuing operations was $ ( 1,842,304 ) , or $ ( 0 . 47 ) , and income from discontinued operations and gain on sale , net of tax , of $ 5 , 722 , 879 , or $ 1 . 45 per fully diluted share , for fiscal 2020 . liquidity and capital resources the company 's working capital increased $ 3,683,547 to $ 10,953,464 as of may 31 , 2020 compared to $ 7,269,917 as of may 31 , 2019. the increase in working capital in fiscal 2020 was primarily impacted by the sale of sbs . primarily as a result of the sale , cash , cash equivalents and restricted cash increased $ 9,009,096 from $ 1,467,435 as of may 31 , 2019 to $ 10,566,531 as of may 31 , 2020. accounts payable increased $ 165,094 from $ 102,566 at may 31 , 2019 to $ 267,660 at may 31 , 2020 , which was primarily related to an increase at year end in professional and legal expenses incurred related to planning and execution of strategic business opportunities . inventories decreased $ 181,775 to $ 1,059,337 as of may 31 , 2020 compared to $ 1,241,132 as of may 31 , 2019. the decrease was due , in part , to inventory adjustments of $ ( 76,099 ) and $ ( 213,253 ) , in fiscal years 2020 and 2019 , respectively . these inventory adjustments were the outcome of management 's requirement to complete an in-depth review of the inventory , with standards of the review focused on more current turnover . additional reduction in inventory is a reflection of the company 's efforts to streamline inventory purchases as they focus on increased turns and lean purchasing . other items that impacted working capital included the changes in accounts receivable , other accrued liabilities , and accrued taxes . at may 31 , 2020 , accounts receivable decreased $ 56,200 to $ 574,926 compared to $ 631,126 as of may 31 , 2019. the decrease in accounts receivable was primarily due to the impacts of covid-19 , which was a driver in the decrease in year over year sales . other accrued liabilities increased $ 459,139 to $ 587,492 at may 31 , 2020 compared to $ 128,353 at may 31 , 2019. the increase was driven an increase in professional and legal fees at year end related to strategic business planning opportunities , including the acquisition of ample hills story_separator_special_tag the transaction closed on november 22 , 2019 and included certain assets held by the u.s. parent company and all the outstanding stock of the uk subsidiary , schmitt europe limited . as a result , the financial position , results of operations , and cash flows relating to our sbs business line are reported as discontinued operations in the accompanying financial statements . further , in q1 of fiscal year 2020 , we announced that the board of directors adopted a stockholder rights plan in an effort to protect its net operating loss carryforwards ( โ nols โ ) under section 382 of the internal revenue code . schmitt had federal and state nols of approximately $ 5.6 million and $ 6.1 million , respectively , which could be used in certain circumstances to offset schmitt 's future taxable income or otherwise payable taxes and therefore reduce its federal and state income tax liabilities , as of may 31 , 2019. our ability to use the nols would be limited in the event of an โ ownership change โ under section 382 of the internal revenue code and related u.s. treasury regulations . the stockholder rights plan is intended to reduce the likelihood of an unintended ownership change occurring through the buying of schmitt common stock and was not meant to be an anti-takeover measure . as disclosed in โ item 1. businessโrecent developments โ , the company acquired the ample hills ice cream business as of july 9 , 2020. following the transaction , ample hills has begun reopening retail locations , rehiring ample hills team members , and reopening the red hook ice cream factory in brooklyn , new york . as the transaction occurred after may 31 , 2020 , the results of ample hills are not reflected in the company 's results but are anticipated to be a significant component of the company 's results in subsequent periods . key leadership changes on june 26 , 2019 , we announced the appointment of steven strom as the fifth member of the company 's board , effective june 21 , 2019. steven strom is an โ independent director โ according to the rules of the securities and exchange commission and the nasdaq and his appointment created a majority of independent directors on the board in compliance with nasdaq requirements . mr. strom is the founder of odinbrook global advisors and has more than thirty years of experience advising companies in the us , canada , latin america , europe and asia . on august 1 , 2019 , we announced the appointment of michael r. zapata as president and chief executive officer , effective july 30 , 2019. on january 15 , 2020 , jamie schmidt was appointed chief financial officer of the company . story_separator_special_tag sequence ; type : arabic ; name : pageno -- > 16 reconciliation of ebitda to adjusted ebitda โ adjusted ebitda for fiscal 2020 and 2019 is calculated as follows : replace_table_token_4_th provision for income taxes โ the effective tax rate in fiscal 2020 was 1.2 % , as compared ( -2.2 ) % in fiscal 2019. the effective tax rate on consolidated net income in fiscal 2020 and 2019 differs from the federal statutory tax rate primarily due to changes in the deferred tax valuation allowance and the impact of certain expenses not being deductible for income tax reporting purposes . net income ( loss ) โfor fiscal 2020 , net loss from continuing operations was $ ( 1,842,304 ) , or $ ( 0 . 47 ) , and income from discontinued operations and gain on sale , net of tax , of $ 5 , 722 , 879 , or $ 1 . 45 per fully diluted share , for fiscal 2020 . liquidity and capital resources the company 's working capital increased $ 3,683,547 to $ 10,953,464 as of may 31 , 2020 compared to $ 7,269,917 as of may 31 , 2019. the increase in working capital in fiscal 2020 was primarily impacted by the sale of sbs . primarily as a result of the sale , cash , cash equivalents and restricted cash increased $ 9,009,096 from $ 1,467,435 as of may 31 , 2019 to $ 10,566,531 as of may 31 , 2020. accounts payable increased $ 165,094 from $ 102,566 at may 31 , 2019 to $ 267,660 at may 31 , 2020 , which was primarily related to an increase at year end in professional and legal expenses incurred related to planning and execution of strategic business opportunities . inventories decreased $ 181,775 to $ 1,059,337 as of may 31 , 2020 compared to $ 1,241,132 as of may 31 , 2019. the decrease was due , in part , to inventory adjustments of $ ( 76,099 ) and $ ( 213,253 ) , in fiscal years 2020 and 2019 , respectively . these inventory adjustments were the outcome of management 's requirement to complete an in-depth review of the inventory , with standards of the review focused on more current turnover . additional reduction in inventory is a reflection of the company 's efforts to streamline inventory purchases as they focus on increased turns and lean purchasing . other items that impacted working capital included the changes in accounts receivable , other accrued liabilities , and accrued taxes . at may 31 , 2020 , accounts receivable decreased $ 56,200 to $ 574,926 compared to $ 631,126 as of may 31 , 2019. the decrease in accounts receivable was primarily due to the impacts of covid-19 , which was a driver in the decrease in year over year sales . other accrued liabilities increased $ 459,139 to $ 587,492 at may 31 , 2020 compared to $ 128,353 at may 31 , 2019. the increase was driven an increase in professional and legal fees at year end related to strategic business planning opportunities , including the acquisition of ample hills
| operating expenses โ operating expenses increased $ 893,140 , or 27.6 % to $ 4,130,470 in fiscal 2020 compared to $ 3,237,330 in fiscal 2019. items that impacted operating expenses in fiscal 2020 include : increase in professional fees of $ 318,934 , or 28.6 % , to $ 1,435,035 in fiscal 2020 as compared to $ 1,116,101 in 2019. the increase was due in part to $ 842,162 in turnaround and restructuring costs related to the sale of the sbs business and business planning initiatives in fiscal 2020 as compared to $ 752,481 in fiscal 2019 for reorganization and turnaround costs . decrease in commission expense in the amount of $ 108,192 , or 35.9 % , to $ 193,231 in fiscal 2020 as compared to $ 301,423 in fiscal 2019 due to the restructuring of the company 's sales commissions programs and a decrease in revenue . increase in stock compensation expense of $ 259,426 , or 274.2 % . the majority of the stock compensation was due to issuance and vesting of performance based restricted stock units . accrued taxes at year end were $ 265,349 as of fiscal year end may 31 , 2020 as compared to $ 0 as of fiscal year end 2019. the increase is related to a tax accrual booked to reserve for estimated tax liabilities . increase in bad debt expense in the amount of $ 64,106 , or 383.6 % , to $ 80,818 in fiscal 2020 as compared to $ 16,712 in fiscal 2019. the increase is primarily due to a change in reserve policy , where the company now reserves for 100 % of customer balances over 90 days . the slow payment of customers is also related to the impacts of covid-19 . other income ( expense ) โ other income ( expense ) consists of rent income , interest income and expense , foreign currency exchange gain ( loss ) and other income ( expense ) . rental income for fiscal 2020 increased $ 187,664 , due to rent collected under the lease executed with tosei engineering in november of 2019. interest income was $ 67,129 for the year ended may 31 , 2020 as compared to $ 24,221 in 2019. interest income was offset by interest expense of $ 2,435
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revenue under technology licenses and collaborative agreements typically consists of nonrefundable and or guaranteed technology license fees , collaborative research funding , and various milestone and future product royalty or profit-sharing payments . revenue associated with research and development funding payments under collaborative agreements is recognized ratably over the relevant periods specified in the agreement , generally the research and development period . revenue from up-front license fees , milestones and product royalties are recognized as earned based on the completion of the milestones and product sales , as defined in the respective agreements . payments received in advance of recognition as revenue are recorded as deferred revenue . business combinations in october 2011 , we acquired all of the outstanding common stock of roche madison , inc. and certain related intellectual property assets for a $ 50,000 promissory note and 1,288,158 shares of arrowhead common stock , an estimated consideration value of $ 5.1 million on the date of the acquisition . we assigned the value of the consideration to the tangible assets and identifiable intangible assets and the liabilities assumed on the basis of their fair values on the date of acquisition . the excess of net assets over the consideration was recorded as a nonoperating gain . in april 2012 , we acquired all of the outstanding common stock of alvos therapeutics , inc. in exchange for the issuance of 315,457 shares of arrowhead common stock , valued at $ 2.0 million at the time of acquisition . the consideration was assigned to its tangible and intangible assets , and liabilities based on estimated fair values at the time of acquisition . the allocation of value to certain items , including property and equipment , intangible assets and certain liabilities require management judgment , and is based upon the information available at the time of acquisition . impairment of long-lived assets we review long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of assets may not be fully recoverable or that our assumptions about the useful lives of these assets are no longer appropriate . if impairment is indicated , recoverability is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated future cash flows , an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset . 27 impairment of intangible assets intangible assets consist of in-process research and development , patents and license agreements acquired in conjunction with a business acquisition . intangible assets are monitored for potential impairment whenever events or circumstances indicate that the carrying amount may not be recoverable , and are also reviewed annually to determine whether any impairment is necessary . based on early adoption of asu 2012-02 , the annual review of intangible assets is performed via a two-step process . first , a qualitative assessment is performed to determine if it is more likely than not that the intangible asset is impaired . if required , a quantitative assessment is performed and , if necessary , impairment is recorded . stock-based compensation we recognize stock-based compensation expense based on the grant date fair value using the black-scholes options pricing model , which requires us to make assumptions regarding certain variables including the risk-free interest rate , expected stock price volatility , and the expected life of the award . the assumptions used in calculating stock-based compensation expense represent management 's best estimates , but these estimates involve inherent uncertainties , and if factors change or the company used different assumptions , its stock-based compensation expense could be materially different in the future . derivative assets and liabilities we account for warrants and other derivative financial instruments as either equity or assets/liabilities based upon the characteristics and provisions of each instrument . warrants classified as equity are recorded as additional paid-in capital on our consolidated balance sheet and no further adjustments to their valuation are made . some of our warrants were determined to be ineligible for equity classification because of provisions that may result in an adjustment to their exercise price . warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as assets or liabilities are recorded on our consolidated balance sheet at their fair value on the date of issuance and are revalued on each subsequent balance sheet date until such instruments are exercised or expire , with any changes in the fair value between reporting periods recorded as other income or expense . we estimate the fair value of these assets/liabilities using option pricing models that are based on the individual characteristics of the warrants or instruments on the valuation date , as well as assumptions for expected volatility , expected life and risk-free interest rate . changes in the assumptions used could have a material impact on the resulting fair value . the primary input affecting the value of our derivatives liabilities is the company 's stock price . for example , at september 30 , 2012 , a 50 % change in the value of the company 's stock price would affect the value of the derivative liability by approximately $ 0.3 million to $ 0.4 million , depending on other inputs . reverse stock split as of november 17 , 2011 , the company effected a 1 for 10 reverse stock split ( the ยreverse stock splitย ) . as a result of the reverse stock split , each ten shares of the company 's common stock issued and outstanding immediately prior to the reverse split was combined into one share of common stock . story_separator_special_tag also , as a result of the reverse stock split , the per share exercise price of , and the number of shares of common stock underlying outstanding company stock options , warrants , series a preferred and any common stock based equity grants outstanding immediately prior to the reverse stock split was proportionally adjusted , based on the one-for-ten split ratio , in accordance with the terms of such options , warrants or other common stock based equity grants as the case may be . no fractional shares of common stock were issued in connection with the reverse stock split . stockholders instead received cash payment in lieu of any fractional shares . unless otherwise noted , all share and per share amounts in these have been retrospectively adjusted to reflect the reverse stock split . full year review on october 21 , 2011 , the company acquired roche madison , inc. and other intangible assets from roche . the acquisition included a laboratory research facility in madison , wisconsin comprising over 24,000 square feet . roche madison inc. employed 41 employees at the time of the acquisition . due to the significant new costs associated with the facility , its people and research programs , salary costs , general and administrative costs , and research and development costs increased significantly relative to prior periods . going forward , we expect this increased cost structure to continue as research and development efforts are accelerated . on april 11 , 2012 , the company acquired alvos therapeutics , inc. , a targeted therapeutics company . prior to the acquisition , alvos licensed a large platform proprietary human-derived homing peptides and the method for their discovery from md anderson cancer center . the company hired one employee as a result of the acquisition , and the operations of alvos are being integrated into our research facility in madison , wisconsin . story_separator_special_tag license renewal fees on software related to the operation of laboratory equipment . office expenses are administrative costs to facilitate the operations of the company 's office facilities in pasadena and madison , and include office supplies , copier/printing costs , postage/delivery , professional dues/memberships , books/subscriptions , staff amenities , and professional training . office expenses were $ 91,000 during the year ended september 30 , 2012 , compared to $ 54,000 in the comparable prior period . the increase in office expenses was related to costs incurred at its newly acquired madison facility . other expense was $ 2.6 million during the year ended september 30 , 2012 compared to $ 95,000 in the comparable prior period . during the year ended september 30 , 2012 , the company recorded reserves against receivable from its unconsolidated affiliates , nanotope and leonardo in the amount of $ 2.5 million . research and development expensesยfiscal 2012 compared to fiscal 2011 r & d expenses are related to the company 's on-going research and development efforts , primarily related to its laboratory research facility in madison , wisconsin , and also include outsourced r & d services . the following table provides detail of research and development expense for the years ended september 30 , 2012 and 2011 . 30 ( in thousands ) replace_table_token_6_th outside lab and services expense was $ 1,096,000 during the year ended september 30 , 2012 , compared to $ 605,000 in the comparable prior period . the increase is due to outside services contracted to complement the research performed at our madison facility , which was acquired in october 2012 , and not part of the prior period expenses . in vivo studies expense was $ 302,000 during the year ended september 30 , 2012 , compared to 29,000 in the comparable prior period . the current period expense relates to preclinical animal studies at our madison research facility , and we expect this increased level of expense for such studies to continue at an elevated level as the company accelerates its product development efforts . the prior period expense related to certain limited outsourced in vivo studies related to calando . drug manufacturing expense was $ 1,256,000 during the year ended september 30 , 2012 , compared to $ 68,000 in the comparable prior period . approximately half of the drug manufacturing expense related to raw materials , specifically , polymer components for rondel . prior year costs for this program were $ 68,000. the other half of the drug manufacturing costs relate to our manufacturing campaign related to the company 's hepatitis b virus ( hbv ) program , which began in the fourth quarter of fiscal 2012 , for use in upcoming glp toxicity studies planned in the first half of fiscal 2013. the company is utilizing outside manufacturers to produce these components ; these costs will continue until the manufacturing campaign is completed in 2013. consulting expense was $ 655,000 during the year ended september 30 , 2012 , compared to $ 440,000 in the comparable prior period . the increase in consulting expense was primarily related to fees paid to our consultants monitoring our clinical trial at calando , as well as clinical consulting costs for a planned clinical trial in hbv , as well as higher costs associated with the scientific advisory board at ablaris . license , royalty & milestone expense was $ 274,000 during the year ended september 30 , 2012 , compared to $ 2,045,000 in the comparable prior period . the licensing fees , royalty and milestones expenses during the prior year reflect a one-time to $ 2 million in licensing fees paid to university of texas m.d . anderson cancer center for the anti-obesity compound licensed by ablaris . the current year expense also relates to ablaris and was payable to the university of texas m.d .
| for purposes of comparison , the amounts for the years ended september 30 , 2012 and 2011 are shown in the table below . salary & wage expensesยfiscal 2012 compared to fiscal 2011 the company employs management , administrative , and scientific and technical staff at its corporate offices and its research facility . salaries and wages expense consists of salary and related benefits . salary and benefits include two major categories : general and administrative compensation expense , and research and development compensation expense , based on the primary activities of each employee . the following table provides detail of salary and related benefits expenses for the years ended september 30 , 2012 and 2011 . ( in thousands ) replace_table_token_4_th during the year ended september 30 , 2012 , g & a compensation expense increased $ 1,963,000. during the fiscal year , upon the acquisition of roche madison , the company expanded its senior management team . its g & a headcount also increased due to several madison employees classified as g & a . during the year ended september 30 , 2012 , r & d compensation expense increased $ 3,044,000. this increase was due to employees hired upon the acquisition of roche madison . general & administrative expensesยfiscal 2012 compared to fiscal 2011 the following table provides details of our general and administrative expenses for the fiscal years 2012 and 2011 . ( in thousands ) replace_table_token_5_th professional/outside services include legal , accounting and other outside services retained by arrowhead and its subsidiaries . all periods include normally occurring legal and accounting expenses related to sec compliance and other corporate matters . professional/outside services expense was $ 1,800,000 during the year ended september 30 , 2012 , compared to $ 2,383,000 in the comparable prior period . in the prior period , the company recorded expenses of $ 663,000 related to stock issued for financing commitments in association with the september 2011 financing in conjunction with the acquisition of roche madison , inc. 29 patent expense was $ 1,024,000 during the year ended september 30 , 2012 , compared
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we also provide advisory/consulting services , which help our customers get more value out of our analytics and their subscriptions . in addition , certain of our solutions are paid for by our customers on a transactional basis , recurring and non-recurring . for example , we have solutions that allow our customers to access property-specific rating and underwriting information to price a policy on a commercial building , or compare a p & c insurance or a workers ' compensation claim with information in our databases , or use our repair cost estimation solutions on a case-by-case basis . for the years ended december 31 , 2018 and 2017 , approximately 20 % and 19 % , respectively , of our revenues were derived from providing transactional and advisory/consulting solutions . principal operating costs and expenses personnel expenses are a major component of both our cost of revenues and selling , general and administrative expenses . personnel expenses , which represented approximately 58 % and 59 % of our total operating expenses for the years ended december 31 , 2018 and 2017 , respectively , include salaries , benefits , incentive compensation , equity compensation costs , sales commissions , employment taxes , recruiting costs , and outsourced temporary agency costs . we assign personnel expenses between two categories , cost of revenues and selling , general and administrative costs , based on the actual costs associated with each employee . we categorize employees who maintain our solutions as cost of revenues , and all other personnel , including executive managers , sales people , marketing , business development , finance , legal , human resources , and administrative services , as selling , general and administrative expenses . a significant portion of our other 30 operating costs , such as facilities and communications , are either captured within cost of revenues or selling , general and administrative expense based on the nature of the work being performed . while we expect to grow our headcount over time to take advantage of our market opportunities , we believe that the economies of scale in our operating model will allow us to grow our personnel expenses at a lower rate than revenues . historically , our ebitda margin has improved because we have been able to increase revenues without a proportionate corresponding increase in expenses . however , part of our corporate strategy is to invest in new solutions and new businesses , which may offset margin expansion . cost of revenues . our cost of revenues consists primarily of personnel expenses . cost of revenues also includes the expenses associated with the acquisition and verification of data , the maintenance of our existing solutions and the development and enhancement of our next-generation solutions . our cost of revenues excludes depreciation and amortization . selling , general and administrative expense . our selling , general and administrative expense also consists primarily of personnel costs . a portion of the other operating costs such as facilities , insurance and communications are allocated to selling , general and administrative costs based on the nature of the work being performed by the employee . our selling , general and administrative expenses excludes depreciation and amortization . trends affecting our business we serve customers in three primary vertical markets : p & c insurance , energy and specialized markets , and financial services . the industry trends in each of those markets can affect our business . a significant change in p & c insurers ' profitability could affect the demand for our solutions . for insurers , the keys to profitability include increasing investment income , premium growth and disciplined underwriting of risks . investment income remains under pressure as a result of low interest rates . growth in p & c insurers ' direct written premiums is cyclical , with total industry premium growth receding from a peak of 14.8 % in 2002 to a trough of negative 3.1 % in 2009 and subsequently recovering to 4.4 % in 2012 , 4.3 % in 2013 , 4.4 % in 2014 , 3.7 % in 2015 , 3.7 % in 2016 and 4.7 % in 2017. in recent years , we have signed multi-year contracts with certain customers , and pricing is fixed at the beginning of each multi-year period ; pricing for other customers is still linked to prior years ' premiums . based on the most recent results available , direct premium growth and net premium growth accelerated in 2018. however , insurers were also challenged by heightened catastrophic losses in 2018 associated with major hurricanes , such as florence and michael , and several devastating wildfires in the state of california , coupled with additional losses reported from the three major hurricanes in 2017 - harvey , irma , and maria . these events illustrate the need for broader coverages , such as flood to meet the changing needs of communities . we continue to provide the necessary resources to meet insurer needs . trends in catastrophe and non-catastrophe weather losses can have an effect on our customers ' profitability , and therefore on their appetite for buying analytics to help them manage their risks . any increase or decrease in frequency or severity of weather events over time could lead to an increased or decreased demand for our catastrophe modeling , catastrophe loss information , and repair cost solutions . likewise , any structural changes in the reinsurance and related brokerage industry from the recent influx of alternative capital or newer technologies could affect demand for our products . we also have a portion of our revenue related to the number of claims processed due to losses , which can be impacted by seasonal storm activity . the need by our customers to fight insurance fraud - both in claims and at policy inception - could lead to increased demand for our underwriting and claims solutions . trends in the energy , chemicals , and metals and mining sectors and activity in financial markets can influence our revenues . story_separator_special_tag during 2018 , the brent oil price reached a peak of over approximately 80 dollar per barrel before falling under approximately 60 dollar per barrel by year end reflecting an oversupply in the market . the organization of the petroleum exporting countries , or opec , announced a significant cut in production beginning january 1 , 2019 to help balance the market . in the upstream sector there are five global trends . first , capital investments have recovered from the cyclical low , the start of spend on a new global phase of significant liquefied natural gas projects adding momentum in 2019. second , the industry 's ongoing progress in reducing costs have been boosted by digitalization initiatives as well as over-capacity in the service sector in many regions , leading to improved economics and more projects reaching a final investment decision . third , tight oil production in the u.s. lower 48 is still on a strong growth trajectory and remains a focus of global merger and acquisition activity as the industry consolidates . fourth , resource capture continues to be focused on lower risk opportunities with competitive bidding in 2019 to develop discovered fields in qatar ( gas ) and brazil ( oil ) . fifth , many countries are reviewing their existing fiscal policies to ensure that they are competitive and attract investment . in the wider energy sector the energy transition is gaining momentum , most evidently in the rapid penetration of renewables into power and the emergence of electric vehicles โ the latter set to present a competitive challenge to the internal combustion engine in the coming decades and 31 with implications for oil demand in the long term . petrochemicals is a key growth segment for oil demand , but the disposal of plastics is increasingly in the public eye as a social and environmental concern . new legislation limiting sulphur content in marine fuels comes into effect in 2020 with profound implications for refiners and major fuel consumers , such as airlines . as environmental concerns and the move to decarbonization gather pace , we will continue to evolve our offerings to meet the needs of our customers in a dynamic market and remain increasingly well positioned to serve our customers ' information and analytical needs . market trends continue to influence our financial services segment in important ways . as we look forward towards 2019 , increasing fraud and delinquency loss rates worldwide are strengthening demand for robust risk solutions which we are addressing via a range of new fraud solutions , which we have initially launched in mexico . additionally , higher levels of regulatory scrutiny as well as greater regulatory alignment worldwide is increasing demand for compliance and reporting tools , which we are tackling via our range of compliance products developed both within our financial services segment . in order to better serve our customers , add to our data asset , and expand our expertise , we made a number of acquisitions in the past year , including marketview , which provides analytical solutions for banks , acquirers , merchants and government in new zealand . these new businesses offer new solutions for existing and new clients of our core business , and enable us to develop product and cost synergies going forward , and join our existing businesses that we acquired earlier and have integrated during 2018. description of acquisitions we acquired twenty-two businesses since january 1 , 2016. these acquisitions affect the comparability of our consolidated results of operations between periods . see note 10 to our consolidated financial statements included in this annual report on form 10-k for further discussions on the below acquisitions . 2018 acquisitions on december 14 , 2018 , we acquired rulebook , whose proprietary pricing engine can be used for internal pricing and underwriting as well as external distribution for the insurance market through its platform . rulebook furthers our goal of providing solutions to the global insurance market , including a comprehensive chain of solutions to specialty insurers for mitigating risk and optimizing total cost of operations . rulebook is part of the underwriting and ratings category within the insurance segment . on june 20 , 2018 , we acquired 100 percent of the stock of validus-ivc limited , or validus , a provider of claims management solutions and developer of the subrogation portal in the uk , verify tm . validus has become part of the claims category within our insurance segment . the integration of validus ' verify tm platform with our global claims analytic services allows insurers to take advantage of enhanced analytic and technology tools to help improve and automate the claims settlement process . on february 21 , 2018 , we acquired 100 percent of the stock of business insight limited , business insight , a provider of predictive analytics for insurers in the u.k. and ireland . business insight has become part of the underwriting and ratings category within the insurance segment . business insight offers a comprehensive set of peril models to support underwriting and rating for the commercial property and homeowners insurance market . on january 5 , 2018 , we acquired 100 percent of the stock of marketview limited , or marketview . marketview is a provider of consumer spending analysis and insights across the retail , hospitality , property , and government sectors in new zealand . marketview has become part of the financial services segment . the acquisition helps expand the our solutions related to consumer spending analytics across the australasia and oceania regions by combining its domain expertise and proprietary data assets with those of marketview . 2017 acquisitions on december 29 , 2017 , we acquired 100 percent of the stock of poweradvocate , a provider of market , cost intelligence , and supply chain solutions serving the energy sector . within our energy and specialized markets segment , poweradvocate expands our offerings to the energy sector by adding proprietary spend data and cost models and providing insight into customers ' cost savings opportunities .
| this current liability is deferred revenue that does not require a direct cash outflow since our customers have prepaid and are obligated to purchase the services . in most businesses , growth in revenue typically leads to an increase in the accounts receivable balance causing a use of cash as a company grows . unlike these businesses , our cash position is favorably affected by revenue growth , which results in a source of cash due to our customers prepaying for most of our services . our consolidated capital expenditures as a percentage of consolidated revenues for the years ended december 31 , 2018 and 2017 , were 9.6 % and 8.6 % , respectively . expenditures related to developing and enhancing our solutions are predominately related to internal-use software and are capitalized in accordance with asc 350-40 , โ accounting for costs of computer software developed or obtained for internal use . โ we also capitalize amounts in accordance with asc 985-20 , โ software to be sold , leased or otherwise marketed . โ 43 we have also historically used a portion of our cash for repurchases of our common stock from our stockholders . for the years ended december 31 , 2018 , 2017 and 2016 , we repurchased $ 438.6 million , $ 276.3 million and $ 326.8 million , respectively , of our common stock . financing and financing capacity we had total debt , excluding capital lease obligations , unamortized discounts and debt issuance costs of $ 2,715.0 million and $ 3,015.0 million at december 31 , 2018 and 2017 , respectively . the debt at december 31 , 2018 primarily consists of senior notes issued in 2015 , 2012 and 2011 and borrowings outstanding under our committed senior unsecured syndicated revolving credit facility , or the credit facility , described below . interest on the senior notes is payable semi-annually each year . the unamortized discount and debt issuance costs were recorded as `` long-term debt '' in the accompanying consolidated balance sheets ,
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although during the financial crisis and economic downturn , commercial real estate transactions experienced a sharp decline in volume , the recent trends show a rebound in activity as more commercial properties come into the market as loans mature and marginally performing properties default and banks increase their foreclosures . additionally , new lending is improving . the commercial mortgage-backed securities market has again become a source of liquidity and debt capital and we have seen additional debt capital provided by lenders such as life insurance companies , local and regional banks and debt funds . the availability of additional capital has improved the volume of transactions in the commercial real estate market . 2011 highlights following are some highlights from fiscal 2011 : we acquired seven retail properties ( six multi-tenant and one single tenant ) , encompassing 723,000 rentable square feet in seven states , for an aggregate purchase price of $ 101,935,000 ; we acquired one of the retail properties , constitution trail centre , after we purchased three distressed notes secured by the property , and successfully completed a consent foreclosure to obtain fee simple title to the constitution trail centre during the fourth quarter of 2011 ; we acquired one of the retail properties , pinehurst square east shopping center , through an upreit transaction in which the acquisition price was paid with common units and cash ; we raised $ 36,185,000 in gross offering proceeds from our continuous public offering ; and we improved our leverage ratio at the end of fiscal 2011 to 62.9 % , compared to 63.5 % at the end of 2010. 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 acquire a diversified portfolio of income producing properties , thereby reducing risk in its portfolio ; ( 2 ) our executive officers , directors and affiliates of the advisor have expertise with the type of real estate investments we seek ; and ( 3 ) borrowings should enable us to purchase 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 . 37 revenue recognition real estate we recognize minimum rent , including rental abatements , lease incentives and contractual fixed increases attributable to operating leases , on a straight-line basis over the term of the related leases when collectibility is reasonably assured and record amounts expected to be received in later years as deferred rent receivable . if the lease provides for tenant improvements , we determine whether the tenant improvements , for accounting purposes , are owned by the tenant or by 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 . we record property operating expense reimbursements due from tenants for common area maintenance , real estate taxes , and other recoverable costs in the period the related expenses are incurred . we make estimates of the collectibility of our tenant receivables related to base rents , including deferred rent receivable , expense reimbursements and other revenue or income . management specifically analyzes accounts receivable , deferred rent receivable , historical bad debts , customer creditworthiness , current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts . in addition , with respect to tenants in bankruptcy , management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectibility of the related receivable . in some cases , the ultimate resolution of these claims can exceed one year . when a tenant is in bankruptcy , we will record a bad debt reserve for the tenant 's receivable balance and generally will not recognize subsequent rental revenue until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments . during the years ended december 31 , 2011 and 2010 , we recorded bad debt expense related to our tenant receivables of $ 228,000 and $ 147,000 , respectively . story_separator_special_tag real estate depreciation and amortization real estate costs related to the acquisition and improvement of properties are capitalized and amortized over the expected useful life of the asset on a straight-line basis . repair and maintenance costs are charged to expense as incurred and significant replacements and betterments are capitalized . repair and maintenance costs include all costs that do not extend the useful life of the real estate asset . we consider the period of future benefit of an asset to determine its appropriate useful life . expenditures for tenant improvements are capitalized and amortized over the shorter of the tenant 's lease term or expected useful life . we anticipate the estimated useful lives of our assets by class to be generally as follows : years buildings and improvements 5-48 years exterior improvements 10-20 years equipment and fixtures 5-10 years 38 real estate acquisition valuation we record the acquisition of income-producing real estate or real estate that will be used for the production of income as a business combination . all assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values . acquisition costs are expensed as incurred and restructuring costs that do not meet the definition of a liability at the acquisition date are expensed in periods subsequent to the acquisition date . estimates of the fair values of the tangible assets , identifiable intangibles and assumed liabilities require us to make significant assumptions to estimate market lease rates , property-operating expenses , carrying costs during lease-up periods , discount rates , market absorption periods , and the number of years the property will be held for investment . the use of inappropriate assumptions would result in an incorrect valuation of our acquired tangible assets , identifiable intangibles and assumed liabilities , which would impact the amount of our net income . impairment of real estate and related intangible assets and liabilities we continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related intangible assets and liabilities may not be recoverable or realized . when indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable , we assess the recoverability by estimating whether we will recover the carrying value of the real estate and related intangible assets and liabilities through its undiscounted future cash flows and its eventual disposition . if , based on this analysis , we do not believe that we will be able to recover the carrying value of the real estate and related intangible assets and liabilities , we would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets and liabilities . during the years ended december 31 , 2011 and 2010 , we did not recognize any impairment charges . projecting future cash flows involves estimating expected future operating income and expenses related to the real estate and its related intangible assets and liabilities as well as market and other trends . using inappropriate assumptions to estimate cash flows could result in incorrect fair values of the real estate and its related intangible assets and liabilities and could result in the overstatement of the carrying values of our real estate and related intangible assets and liabilities and an overstatement of our net income . real estate held for sale and discontinued operations we generally consider non-foreclosed real estate to be ยheld for saleย when the following criteria are met : ( i ) management commits to a plan to sell the property , ( ii ) the property is available for sale immediately , ( iii ) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value , ( iv ) the sale of the property within one year is considered highly probable and ( v ) significant changes to the plan to sell are not expected . real estate that is held for sale and its related assets are classified as ยreal estate held for saleย and ยassets related to real estate held for sale , ย respectively , for all periods presented in the accompanying consolidated financial statements . notes payable and other liabilities related to real estate held for sale are classified as ยnotes payable related to real estate held for saleย and ยliabilities related to real estate held for sale , ย respectively , for all periods presented in the accompanying consolidated financial statements . real estate classified as held for sale is no longer depreciated and reported at the lower of its carrying value or its estimated fair value less costs to sell . additionally , we record the operating results related to real estate that has either been disposed of or is deemed to be held for sale as discontinued operations for all periods presented if the operations have been or are expected to be eliminated and we will not have any significant continuing involvement in the operations of the property following the sale . as further discussed in note 12 , certain amounts from the prior year have been reclassified to conform to current year presentation . 39 fair value measurements under gaap , we are required to measure certain financial instruments at fair value on a recurring basis . in addition , we are required to measure other financial instruments and balances at fair value on a non-recurring basis ( e.g. , carrying value of impaired real estate loans receivable and long-lived assets ) . fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . the gaap fair value framework uses a three-tiered approach .
| comparison of the year ended december 31 , 2011 to the year ended december 31 , 2010 the following table provides summary information about our results of operations for the years ended december 31 , 2011 and 2010 : replace_table_token_10_th 41 revenue revenues increased by $ 5,983,000 to $ 10,776,000 during the year ended december 31 , 2011 compared to revenues of $ 4,793,000 for the year ended december 31 , 2010. this increase was primarily due to the acquisition of seven properties during fiscal 2011 and having a full year of operating results for properties acquired in 2010. the occupancy rate for our property portfolio was 81.4 % based on 1,131,000 rentable square feet as of december 31 , 2011 compared to occupancy of 83.0 % based on 409,000 rentable square feet as of december 31 , 2010. we expect rental income to increase in future periods as we acquire additional real estate investments and have full period operations from existing real estate investments . interest income interest income increased by $ 594,000 to $ 598,000 during the year ended december 31 , 2011 compared to interest income of $ 4,000 for the year ended december 31 , 2010. this increase was primarily related to interest earned from the mortgage loans acquired on june 29 , 2011 , which were later extinguished in connection with a consent foreclosure . operating and maintenance expenses operating and maintenance expense increased by $ 1,634,000 to $ 3,671,000 during the year ended december 31 , 2011 compared to operating and maintenance expense of $ 2,037,000 for the year ended december 31 , 2010. this increase was primarily due to the acquisition of seven properties since december 31 , 2010 and having a full year of operating results for properties acquired in 2010 , and was partially offset in 2011 by the reversal of $ 213,000 of asset management fees that had been accrued by us . asset management fees expensed during the year ended december 31 , 2010 were $ 204,000. included in operating and maintenance expenses are property management fees paid to an affiliate of our advisor of $ 492,000 and $ 204,000 for the years ended december 31 , 2011 and 2010 , respectively . we expect these expenses to increase in future periods as a result of the acquisition of additional properties . general and administrative expenses general and administrative expenses increased by $ 435,000 to $ 2,167,000 during the year ended december 31 , 2011 compared to general and administrative expenses
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the key strategies include focusing on street sales and performance brands , pursuing new customers for all three of our business segments , utilizing our infrastructure to gain further operating and purchasing efficiencies , and making strategic acquisitions . how we assess the performance of our business in assessing the performance of our business , we consider a variety of performance and financial measures . the key measures used by our management are discussed below . the percentages on the results presented below are calculated based on rounded numbers . net sales net sales is equal to gross sales minus sales returns ; sales incentives that we offer to our customers , such as rebates and discounts that are offsets to gross sales ; and certain other adjustments . our net sales are driven by changes in case volumes , product inflation that is reflected in the pricing of our products , and mix of products sold . gross profit gross profit is equal to our net sales minus our cost of goods sold . cost of goods sold primarily includes inventory costs ( net of supplier consideration ) and inbound freight . cost of goods sold generally changes as we incur higher or lower costs from our suppliers and as our customer and product mix changes . 36 ebitda and adjusted ebitda management measures operating performance based on our ebitda , defined as net income ( loss ) before interest expense ( net of interest income ) , income taxes , and depreciation and amortization . ebitda is not defined under u.s. gaap and is not a measure of operating income , operating performance , or liquidity presented in accordance with u.s. gaap and is subject to important limitations . our definition of ebitda may not be the same as similarly titled measures used by other companies . we believe that the presentation of ebitda enhances an investor 's understanding of our performance . we use this measure to evaluate the performance of our segments and for business planning purposes . we present ebitda in order to provide supplemental information that we consider relevant for the readers of our consolidated financial statements included elsewhere in this report , and such information is not meant to replace or supersede u.s. gaap measures . in addition , our management uses adjusted ebitda , defined as net income ( loss ) before interest expense , interest income , income and franchise taxes , and depreciation and amortization , further adjusted to exclude certain items that we do not consider part of our core operating results . such adjustments include certain unusual , non-cash , non-recurring , cost reduction , and other adjustment items permitted in calculating covenant compliance under our credit agreement and indenture ( other than certain pro forma adjustments permitted under our credit agreement and indenture relating to the adjusted ebitda contribution of acquired entities or businesses prior to the acquisition date ) . under our credit agreement and indenture , our ability to engage in certain activities such as incurring certain additional indebtedness , making certain investments , and making restricted payments is tied to ratios based on adjusted ebitda ( as defined in the credit agreement and indenture ) . our definition of adjusted ebitda may not be the same as similarly titled measures used by other companies . adjusted ebitda is not defined under u.s. gaap and is subject to important limitations . we believe that the presentation of adjusted ebitda is useful to investors because it is frequently used by securities analysts , investors , and other interested parties in their evaluation of the operating performance of companies in industries similar to ours . in addition , targets based on adjusted ebitda are among the measures we use to evaluate our management 's performance for purposes of determining their compensation under our incentive plans . ebitda and adjusted ebitda have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under u.s. gaap . for example , ebitda and adjusted ebitda : exclude certain tax payments that may represent a reduction in cash available to us ; do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future ; do not reflect changes in , or cash requirements for , our working capital needs ; and do not reflect the significant interest expense , or the cash requirements , necessary to service our debt . in calculating adjusted ebitda , we add back certain non-cash , non-recurring , and other items that are included in ebitda and net income as permitted or required by our credit agreements . adjusted ebitda among other things : does not include non-cash stock-based employee compensation expense and certain other non-cash charges ; does not include cash and non-cash restructuring , severance , and relocation costs incurred to realize future cost savings and enhance our operations ; and does not reflect management fees paid to blackstone and wellspring . we have included the calculations of ebitda and adjusted ebitda for the periods presented . 37 results of operations , ebitda , and adjusted ebitda the following table sets forth a summary of our results of operations , ebitda , and adjusted ebitda for the periods indicated ( dollars in millions , except per share data ) : replace_table_token_5_th we believe that the most directly comparable gaap measure to ebitda and adjusted ebitda is net income . the following table reconciles ebitda and adjusted ebitda to net income for the periods presented : replace_table_token_6_th 38 ( 1 ) includes a $ 9.4 million loss on extinguishment and $ 5.5 million of accelerated amortization of original issuance discount and deferred financing costs during fiscal 2016 . ( 2 ) includes adjustments for non-cash charges arising from employee equity compensation , interest rate swap hedge ineffectiveness , and adjustments to reflect certain assets held for sale to their net realizable value . story_separator_special_tag equity compensation cost was $ 17.2 million , $ 1.2 million and $ 0.7 million for fiscal 2016 , fiscal 2015 and fiscal 2014 , respectively . in addition , this includes a ( decrease ) increase in the lifo reserve of $ ( 1.5 ) million , $ 1.7 million and $ 3.0 million for fiscal 2016 , fiscal 2015 , and fiscal 2014 , respectively . ( 3 ) includes professional fees and other costs related to completed and abandoned acquisitions ; in fiscal 2015 these fees are net of a $ 25.0 million termination fee related to the terminated agreement to acquire 11 us foods facilities from sysco and us foods , costs of integrating certain of our facilities , facility closing costs , certain equity transactions , and advisory fees paid to blackstone and wellspring . ( 4 ) consists primarily of an expense related to our withdrawal from a purchasing cooperative , pre-acquisition worker 's compensation claims related to an insurance company that went into liquidation , a legal settlement expense , and the impact of business interruption insurance due to hurricane and other weather related and other one-time events . ( 5 ) consists primarily of professional fees and related expenses associated with the winning together program and other productivity initiatives . ( 6 ) includes amounts related to the withdrawal from the central states southeast and southwest areas pension fund . see note 15 commitments and contingencies to the audited consolidated financial statements included in item 8. financial statements and supplementary data . ( 7 ) consists primarily of changes in fair value and costs related to settlements on our fuel collar derivatives , certain financing transactions , lease amendments , and franchise tax expense and other adjustments permitted by our credit agreements . story_separator_special_tag within performance foodservice , case growth to street customers positively affected gross profit per case . street customers typically receive more services from us , cost more to serve , and pay a higher gross profit per case than other customers . also , within performance foodservice , we were able to grow our performance brand sales , which have higher gross profit per case compared to other brands , from fiscal 2014 to fiscal 2015. see ยยsegment resultsยperformance foodserviceย below for additional discussion . operating expenses operating expenses increased $ 106.6 million , or 6.7 % , for fiscal 2015 compared to fiscal 2014. the increase in operating expenses was primarily caused by the 6.4 % increase in case volume and an increase in bonus expenses , professional fees , and it expenses , partially offset by a decrease in fuel expense and amortization as discussed in the segment results below . moreover , we believe that , during fiscal 2015 , the operating expense reduction initiative within our winning together program approximately offset operating expense inflation associated with employees ' salaries and benefits , rent , utilities and other operating expenses . in addition , our estimated withdrawal liability was increased by $ 2.8 million during fiscal 2015 to reserve the full value of the withdrawal liability related to a multiemployer pension plan from which we had withdrawn during fiscal 2013. the estimated withdrawal liability for this multiemployer pension plan had increased by $ 0.4 million during fiscal 2014. all of these factors resulted in a net increase in operating expenses for fiscal 2015 compared to fiscal 2014. depreciation and amortization of intangible assets decreased from $ 132.7 million in fiscal 2014 to $ 121.3 million in fiscal 2015 , a decrease of 8.6 % . the decrease in amortization of intangible assets , since certain intangibles are now fully amortized , more than offset the increases in depreciation in fixed assets resulting from capital outlays to support our growth . net income net income increased by $ 41.0 million to $ 56.5 million for fiscal 2015 compared to fiscal 2014. this increase in net income was attributable to a $ 44.5 million increase in operating profit and a $ 21.9 million decrease in other expense , partially offset by a $ 25.4 million increase in income tax expense . the increase in operating profit was a result of the increase in gross profit discussed above , partially offset by an increase in operating expenses . the decrease in other expense , net related primarily to a $ 25.0 million termination fee in connection with the termination of the sysco and us foods merger and lower interest expense in the amount of $ 0.4 million for fiscal 2015. the decrease in interest expense was primarily a result of lower average interest rates partially offset by an increase in average borrowings during fiscal 2015 compared to fiscal 2014. these decreases in other expense , net were partially offset by $ 1.9 million less non-cash income related to the change in fair value of our derivatives for fiscal 2015 compared to fiscal 2014 and $ 1.2 million of expense during fiscal 2015 related to settlements on our derivatives . the increase in income tax expense was primarily a result of the increase in income before taxes , partially offset by a decrease in the effective tax rate . the effective tax rate was 41.5 % for fiscal 2015 compared to 48.7 % for fiscal 2014. the decrease in the effective tax rate was a result of the reduction of non-deductible expenses and state income taxes as a percentage of income before taxes . since non-deductible expenses tend to be relatively constant , there is a favorable rate impact as income before taxes increases . 41 segment results we have three segments as described aboveยperformance foodservice , pfg customized , and vistar . management evaluates the performance of these segments based on their respective sales growth and ebitda . for pfg customized , ebitda includes certain allocated corporate expenses that are included in operating expenses . the allocated corporate expenses are determined based on a percentage of total sales .
| also , in fiscal 2016 , performance foodservice grew our performance brand sales , which have higher gross profit per case compared to the other brands we sell . see ยยsegment resultsยperformance foodserviceย below for additional discussion . the company estimates that the gross profit for the extra week in fiscal 2016 was approximately $ 40.1 million . 39 operating expenses operating expenses increased $ 119.6 million , or 7.1 % , for fiscal 2016 compared to fiscal 2015. the increase in operating expenses was primarily driven by the 53 rd week in fiscal 2016 , the increase in case volume , an increased investment in our sales force , and increases in stock compensation expense of $ 16.0 million , bonus expense of $ 13.8 million , and insurance expense of $ 7.0 million , as discussed in the segment results below . the increase was partially offset by leverage of our fixed costs , improved productivity in our warehouse and transportation operations , and decreases in fuel expense and amortization of intangible assets . operating expenses for the extra week is fiscal 2016 were approximately $ 35.3 million . depreciation and amortization of intangible assets decreased from $ 121.3 million in fiscal 2015 to $ 118.6 million in fiscal 2016 , a decrease of 2.2 % . decreases in amortization of intangible assets , since certain intangibles are now fully amortized compared to the prior year , more than offset the increases in depreciation in fixed assets resulting from larger capital outlays to support our growth . net income net income increased by $ 11.8 million , or 20.9 % , to $ 68.3 million for fiscal 2016 compared to fiscal 2015. the increase in net income was attributable to a $ 42.1 million increase in operating profit and a $ 1.8 million decrease in interest expense , partially offset by a $ 26.0 million increase in other expense and a $ 6.1 million increase in income tax expense . the company estimates that net income for the extra
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fasb amended asc 740 - 10 - 15 - 4 ( a ) to state that an entity should include the amount of tax based on income in the tax provision and should record any incremental amount recorded as a tax not based on income . this amendment effectively reverses the order in which an entity determines the type of tax under current u.s. gaap . the company does not have a hybrid tax regime currently . fasb also removed the previous guidance that prohibit recognition of a dta for a step up in tax basis โ except to the extent that the newly deductible goodwill amount exceeds the story_separator_special_tag the following discussion and analysis of the results of operations and financial condition should be read in conjunction with the accompanying consolidated financial statements included elsewhere in this annual report . overview startek is a global business process outsourcing company that provides omnichannel customer interactions , technology and back-office support solutions for some of the world 's most iconic brands in a variety of vertical markets . operating under startek and aegis brand , we help these large global companies connect emotionally with their customers , solve issues , and improve net promoter scores and other customer-facing performance metrics . through consulting and analytics services , technology-led innovation , and engagement solutions powered by the science of dialogue , we deliver personalized experiences at the point of conversation between our clients and their customers across every interaction channel and phase of the customer journey . startek has proven results for the multiple services we provide , including sales , order management and provisioning , customer care , technical support , receivables management , and retention programs . we manage programs using a variety of multi-channel customer interactions , including voice , chat , email , social media and back-office support . startek has facilities in india , united states , malaysia , philippines , australia , south africa , canada , honduras , jamaica , kingdom of saudi arabia , argentina , peru and sri lanka . significant developments none 19 results of operations โ twelve months ended december 31 , 2019 and nine months ended december 31 , 2018 pursuant to the completion of the aegis acquisition on july 20 , 2018 , the aegis stockholder became the holder of 20,766,667 shares of common stock , representing approximately 55 % of the outstanding common stock . for accounting purposes , the aegis acquisition is treated as a reverse acquisition and aegis is considered the accounting acquirer . accordingly , aegis ' historical financial statements replace the company 's historical financial statements following the completion of the aegis transactions , and the results of operations of both companies will be included in the company 's financial statements for all periods following the completion of the aegis transactions . the historical financial information presented for the periods and dates prior to july 20 , 2018 is that of aegis , and for periods subsequent to july 20 , 2018 is that of the combined company . upon filing of the 8-k/a on october 5 , 2018 , the fiscal year end of the company was changed from march 31 to december 31 by the board of directors . consequently , the fiscal year ending december 31 , 2018 comprises of 9-months of operations from april 1 , 2018 to december 31 , 2018. as a result , the financials discussed below are not strictly comparable as the financials for the nine months period ended december 31 , 2018 represent only aegis operations until july 20 , 2018 and the twelve months period ended december 31 , 2019 represents the combined operations of aegis and startek for the full period . revenue our gross revenues for the twelve months ended december 31 , 2019 increased by 56.8 % to $ 659,205 as compared to $ 420,317 for the nine months ended december 31 , 2018. the increase in revenues is due to the consolidation of startek with aegis and also as we are comparing twelve months period for 2019 with nine months period for 2018. the nine months ended december 31 , 2018 includes only aegis until july 20 , 2018 while the current twelve months ended december 31 , 2019 includes both startek and aegis . in order to promote a better understanding of the overall results of the combined business , we are providing below pro forma revenues for the twelve months ended december 31 , 2018 combining the revenues for aegis and startek for full period . the financial information presented below is presented for illustrative purposes only and does not purport to represent what the results of operations of operations would actually have been had the combination of aegis and startek occurred on january 1 , 2018 , or to project the combined results of operations for any future periods . replace_table_token_3_th our net revenues for the twelve months ended december 31 , 2019 was $ 657,910 compared to $ 674,165 for the twelve months ended december 31 , 2018 on a pro forma basis . the breakdown of our revenues from various industry verticals for twelve months ended december 31 , 2019 and december 31 , 2018 on a pro forma basis is as follows : replace_table_token_4_th 20 the decrease in revenue was driven by the lower revenues in telecommunications vertical partly offset by higher revenues in other verticals . story_separator_special_tag we have been successful in our strategy to diversify outside of telecommunication vertical which contributed around 38 % of our revenue for the twelve months ended december 31,2019 as compared to 49 % for the comparable twelve months ended december 31 , 2018. we continue to focus on providing value added services to our telecom clients and shifting our business mix towards the premium market rather than the mass market . we have been growing steadily in the e-commerce and consumer industry with our existing customers continue to increase their business with us . we continue to grow new business lines from our large clients in the media and cable industry vertical . our revenue decline in the twelve months ended december 31 , 2019 as compared to the proforma revenues for the twelve months ended december 31 , 2018 was also impacted negatively by fluctuations in foreign exchange particularly that of argentine peso and indian rupee relative to the us dollar . cost of services and gross profit overall , cost of services as a percentage of revenue decreased to 83.1 % for the twelve months ended december 31 , 2019 as compared to 84.6 % for the nine months ended december 31 , 2018. employee benefit expense , rent costs and depreciation and amortization are the most significant costs for the company , representing 76.3 % , 5.5 % and 4.0 % of total cost of services , respectively . the breakdown of cost of services is listed in the table below : replace_table_token_5_th employee benefit expenses : our business heavily relies on our employees to provide professional services to our clients . thus , our most significant costs are payments made to agents , supervisors , and trainers who are directly involved in delivering services to the clients . for the twelve months ended december 31 , 2019 , employee benefit expenses as a percentage of revenues increased to 63.5 % as compared to 62.6 % for the nine months ended december 31 , 2018. this was due to the impact of the increase in minimum wages across several geographies . we continue pursuing the strategy to diversify into more value-added premium services and high margin verticals and away from telecommunication . rent expense : rent expense as a percentage of revenue increased to 4.6 % for the twelve months ended december 31 , 2019 as compared to 4.1 % for nine months ended december 31 , 2018. the increase was largely due to the combination of startek with aegis since the rent cost as a percentage of sales is higher for the legacy startek business taking the consolidated rent costs as a percentage of sales higher . we also added a new site in jamaica and a second center in tegucigalpa in the current financial year . depreciation and amortization : depreciation and amortization expense as a percentage of revenue for the twelve months ended december 31 , 2019 was lower at 3.3 % as compared 3.6 % for the nine months ended december 31 , 2018. other expense includes technology , utility , travel and outsourcing costs . as a percentage of revenue , these costs reduced from 14.3 % to 11.8 % . the reduction was due to mainly lower outsourcing and traveling expenses . as a result , gross profit as a percentage of revenue for the twelve months ended december 31 , 2019 increased to 16.9 % as compared to 15.4 % for the nine months ended december 31 , 2018. selling , general and administrative expenses selling , general and administrative expenses ( sg & a ) as a percentage of revenue decreased from 14.3 % in the nine months ended december 31 , 2018 to 13.9 % in the twelve months ended december 31 , 2019. the decrease was largely due to the full year impact of the cost optimization and rationalization efforts undertaken by the company as part of the post-merger integration of the startek and aegis . 21 impairment losses and restructuring charges , net impairment losses and restructuring costs , net totaled $ 9,827 for the twelve months ended december 31 , 2019 as compared to $ 3,962 for the nine months ended december 31 , 2018. the expense for the year 2019 primarily relates to goodwill impairment losses and restructuring of our u.s. and latin america operations where we closed one delivery center each . our annual impairment testing resulted in an impairment loss of $ 7,146 in argentina owing primarily to the devaluation of the local currency and south africa due to the business outlook . acquisition related cost acquisition related cost for the nine month ended december 31 , 2018 consist of professional and advisory fees related to the aegis transactions . interest expense , net interest expense , net totaled $ 15,824 for the twelve months ended december 31 , 2019 as compared to $ 11,220 for the nine months ended december 31 , 2018. the increase is primarily due to interest expense on our term debt and revolving line of credit facilities . income tax expense ( benefit ) income tax expense for the twelve months ended december 31 , 2019 was $ 4,791 compared to $ 3,570 for the nine months ended december 31 , 2018. income tax expense for the current period is primarily related to our malaysia , india and south africa operations . additionally , we also pay withholding taxes related to movement of funds between various geographies primarily to service our debt facilities .
| variability of operating results we have experienced and expect to continue to experience some quarterly variations in revenue and operating results due to a variety of factors , many of which are outside our control , including : ( i ) timing and amount of costs incurred to expand capacity in order to provide for volume growth from existing and future clients ; ( ii ) changes in the volume of services provided to principal clients ; ( iii ) expiration or termination of client projects or contracts ; ( iv ) timing of existing and future client product launches or service offerings ; ( v ) seasonal nature of certain clients ' businesses ; and ( vi ) variability in demand for our services by our clients depending on demand for their products or services and or depending on our performance . 23 critical accounting policies and estimates in preparing our consolidated financial statements in conformity with us-gaap , management must undertake decisions that impact the reported amounts and related disclosures . such decisions include the selection of the appropriate accounting principles to be applied and assumptions upon which accounting estimates are based . management applies its best judgment based on its understanding and analysis of the relevant circumstances to reach these decisions . by their nature , these judgments are subject to an inherent degree of uncertainty . accordingly , actual results may vary significantly from the estimates we have applied . please refer to note 2 of the notes to the consolidated financial statements in our form 10-k for the year ended december 31 , 2019 for a complete description of our critical accounting policies and
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tempered by the current economic climate , during fiscal 2014 , the company expects to achieve revenue growth across all three of its business segments with consolidated revenue growth for the year anticipated to be in the mid-single-digit range . the company expects to grow ebitda and eps at rates in excess of expected revenue growth , reflecting anticipated continued improvements in gross profit margin and operating leverage . the company 's fiscal 2014 guidance is based on the positive trends ยboth top and bottom-line ยthat the company has seen over the past three years , balanced by the continued uncertainty in the global economy . the company plans to continue to focus on managing those aspects of the business where it can drive revenue growth and enhanced earnings results , including : ยท merchandising initiatives featuring truly original products and designs that have helped drive increased orders , average order value and gross profit margins ; ยท marketing programs that are designed to engage directly with our customers to deepen our relationships with them and help them deliver smiles ; ยท efforts in manufacturing , sourcing and shipping that have helped absorb rising commodity and fuel costs , combined with enhanced operating cost leverage ; ยท initiatives to improve the operational performance of our fannie may brand ; and ยท innovation for the future , including its industry leading efforts in social and mobile arenas , bloomnet , fruit bouquets and fannie may berries . the company believes these efforts , and others underway , will help continue the positive trends seen in the business as the company deepens its relationships with its customers , helping them deliver smiles , and build shareholder value . 29 category information the following table presents the contribution of net revenues , gross profit and category contribution margin from each of the company 's business segments , as well as consolidated ebitda and adjusted ebitda . as noted previously , the company 's wine fulfillment services business , as well as its e-commerce and procurement businesses of the winetasting network , which had previously been included within its gourmet foods & gift baskets category , has been classified as discontinued operations and therefore excluded from category information below . replace_table_token_5_th replace_table_token_6_th 30 replace_table_token_7_th replace_table_token_8_th due to certain one-time charges , the following non-gaap reconciliation table has been included within md & a . reconciliation of net income from continuing operations to adjusted ebitda from continuing operations : ( * ) corporate expenses consist of the company 's enterprise shared service cost centers , and include , among other items , information technology , human resources , accounting and finance , legal , executive and customer service center functions , as well as stock-based compensation . in order to leverage the company 's infrastructure , these functions are operated under a centralized management platform , providing support services throughout the organization . the costs of these functions , other than those of the customer service center , which are allocated directly to the above categories based upon usage , are included within corporate expenses as they are not directly allocable to a specific segment . ( * * ) performance is measured based on segment contribution margin or segment adjusted ebitda , reflecting only the direct controllable revenue and operating expenses of the segment . as such , management 's measure of profitability for these segments does not include the effect of corporate overhead , described above , depreciation and amortization , other income ( net ) , nor does it include one-time gains or charges . management utilizes ebitda , and adjusted financial information , as a performance measurement tool because it considers such information a meaningful supplemental measure of its performance and believes it is frequently used by the investment community in the evaluation of companies with comparable market capitalization . the company also uses ebitda and adjusted financial information as one of the factors used to determine the total amount of bonuses available to be awarded to executive officers and other employees . the company 's credit agreement uses ebitda and adjusted financial information to measure compliance with covenants such as interest coverage and debt incurrence . ebitda and adjusted financial information is also used by the company to evaluate and price potential acquisition candidates . ebitda and adjusted financial information have limitations as an analytical tool , and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap . some of these limitations are : ( a ) ebitda does not reflect changes in , or cash requirements for , the company 's working capital needs ; ( b ) ebitda does not reflect the significant interest expense , or the cash requirements necessary to service interest or principal payments , on the company 's debts ; and ( c ) although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future , and ebitda does not reflect any cash requirements for such capital expenditures . because of these limitations , ebitda should only be used on a supplemental basis combined with gaap results when evaluating the company 's performance . ( * * * ) gourmet food & gift baskets segment contribution margin during the fiscal year ended july 1 , 2012 , includes a $ 3.8 million gain ( $ 2.4 million , net of tax ) on the sale of 17 fannie may retail stores , which are being operated as franchised locations post-sale . 31 replace_table_token_9_th 32 results of operations the company 's fiscal year is a 52- or 53-week period ending on the sunday nearest to june 30. fiscal years 2013 and 2012 consisted of 52 weeks which ended on june 30 , 2013 and july 1 , 2012 , respectively , whereas fiscal year 2011 consisted of 53 weeks , which ended on july 3 , 2011 . story_separator_special_tag net revenues replace_table_token_10_th net revenues consist primarily of the selling price of the merchandise , service or outbound shipping charges , less discounts , returns and credits . during the fiscal year ended june 30 , 2013 , revenues increased by 4.0 % in comparison to the prior year as a result of : ( i ) continued growth within the consumer floral segment , specifically due to strong 1-800-flowers brand sales during the key floral holidays , and ( ii ) growth within the gourmet food & gift baskets segment , attributable to strong e-commerce growth from cheryl 's and the popcorn factory brands , as well as by designpac 's wholesale gift baskets business , which rebounded after several years of declines , ( iii ) partially offset by a decline within the bloomnet segment . during the fiscal year ended july 1 , 2012 revenues increased by 7.0 % over the prior year period , as a result of growth across all segments , including the consumer floral category , reversing the trend after two years of revenue declines . these improvements were due to growth within the consumer floral category , which increased 7.9 % as a result of strong year over year growth during the company 's key floral holidays , as well as contributions from several small acquisitions , including fine stationery in may 2011 and flowerama in august 2011. further contributing to the revenue growth were : ( i ) an increase in shop-to-shop order volume and wholesale product sales within the bloomnet wire service category , ( ii ) higher sales from the gourmet food & gift baskets category , including contributions from mrs. beasley 's , which was acquired in march 2011 , and stockyards.com , whose brandname the company licensed in late november 2011 , offset in part by the impact of the 53 rd week in fiscal 2011 , and the sale of 17 fannie may stores which are currently being operated as franchised locations . excluding the impact of the acquisitions and new license agreements noted above , net of the impact of the fannie may store sales , and adjusting for the 53 rd week in fiscal 2011 , the company 's revenues increased by 5.5 % during the fiscal year ended july 1 , 2012. e-commerce revenues ( combined online and telephonic ) increased by 4.7 % and 6.4 % during the years ended june 30 , 2013 and july 1 , 2012 , respectively . the company fulfilled approximately 8.7 million , 8.2 million and 8.1 million e-commerce orders during fiscal 2013 , 2012 and 2011 , respectively , while average order value was $ 61.60 in fiscal 2013 compared to $ 62.26 in fiscal 2012 and $ 59.38 in fiscal 2011. revenue growth was attributed to improved merchandising programs , including the development of innovative and original products such as the expanded line of a-dog-ables , cheryl 's cookie cards and fannie may berries , designed to ยwowย our customers ' gift recipients and our ยnever settle for lessย marketing campaigns , which also enabled the company to reduce its promotional activities . other revenues , comprised of the company 's bloomnet wire service category , as well as the wholesale and retail channels of its consumer floral and gourmet food and gift baskets categories , increased by 1.9 % and 8.5 % during fiscal 2013 and fiscal 2012 , respectively . the increase in this sales channel during fiscal 2013 , compared to fiscal 2012 , was primarily attributable to growth by the designpac wholesale gift baskets business , partially offset by a decline in fannie may wholesale volume . the increase in this sales channel during fiscal 2012 , in comparison to the prior year , was primarily due to growth in the bloomnet wire service business , as well as the contributions from flowerama , a floral franchise operation purchased in august 2011 . 33 additionally , during the second quarter of fiscal 2012 , the company completed a 62-store franchise agreement between fannie may and gb chocolates . the agreement includes development rights for 45 new stores to be opened over the next three years in several mid-west states as well as specific cities in florida and ohio , as well as the sale of 17 existing fannie may retail stores located in areas outside of its core chicago market . while the sale of these stores reduced our fiscal 2012 revenues in comparison to fiscal 2011 , it provides a platform for our franchisor to successfully complete its fannie may development plan , while providing the company with future revenue streams through franchise and area development fees and product sales . the consumer floral category includes the operations of the 1-800-flowers brand which derives revenue from the sale of consumer floral products through its e-commerce sales channels ( telephonic and online sales ) , royalties from its franchise operations , as well as the operations of fine stationery , an e-commerce retailer of personalized stationery , invitations and announcements . net revenues during the fiscal years ended june 30 , 2013 and july 1 , 2012 , increased by 3.4 % and 7.9 % over the respective prior year periods , due to a combination of increased order volumes and a higher average order value , driven by enhanced marketing and merchandising programs that encourage our customers to ยwowย their gift recipients and ยnever settle for less.ย fiscal 2012 also benefited from the better tuesday date placement of the valentine 's day holiday , compared to monday in fiscal 2011 , as well as the revenue contributions of several small acquisitions , including fine stationery in may 2011 and flowerama in august 2011 , offset in part by the impact of the 53 rd week in fiscal 2011. for the fiscal year ended july 1 , 2012 , revenue growth for the consumer floral category , excluding the impact of the above acquisitions and the 53 rd week in fiscal 2011 , was approximately 5.6 % .
| net cash provided by operating activities of $ 34.6 million for the fiscal year ended june 30 , 2013 was primarily related to net income , adjusted for non-cash charges for depreciation and amortization , deferred income taxes , and stock-based compensation , offset in part by a net increase in working capital , including inventory , accounts receivable and prepaid expenses . increases in inventory and accounts payable relate to an increase in wholesale volume and earlier delivery requirements for designpac gift basket customers , as well as earlier manufacturing of cheryl 's components due to production capacity constraints . net cash used in investing activities of $ 24.5 million for the fiscal year ended june 30 , 2013 was primarily attributable to capital expenditures related to the company 's technology infrastructure , as well as the acquisition of pingg corp. , and payments related to the acquisition of 1-800-flowers ' european trademarks . as noted above , as a result of production capacity constraints at the company 's cheryl 's manufacturing facility , the company will be expanding the facility during fiscal 2014 , resulting in incremental capital of approximately $ 5.0 million . the company believes that it will be able to fund this incremental capital requirement through cash generated from operations . net cash used in financing activities of $ 38.8 million for the fiscal year ended june 30 , 2013 reflects : ( i ) scheduled repayments of the company 's term loan , and ( ii ) the prepayment of the $ 13.5 million balance , which would have been remaining on its term loan at june 30 , 2013 , during the fourth quarter of fiscal 2013 , as well as ( iii ) the acquisition of $ 9.6 million of treasury stock under the company 's stock repurchase plan . credit facility on april 16 , 2010 , the company entered into a second amended and restated credit agreement ( the ย2010 credit facilityย ) with jpmorgan chase bank n.a. , as administrative agent , and a group of lenders . the 2010 credit facility consisted of a $ 60.0 million term loan with a maturity date of march 30 , 2014 , and a revolving credit line which extended through april 16 , 2014 , and included a seasonally
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our biological indicators division manufactures and markets biological indicators and distributes chemical indicators used to assess the effectiveness of sterilization processes , including steam , gas , hydrogen peroxide and radiation , in the hospital , dental , medical device and pharmaceutical industries . we follow a philosophy of manufacturing a high quality product and providing a high level of on-going service for those products . our revenues come from two main sources ย products sales , and parts and services . product sales are dependent on several factors , including general economic conditions , both domestic and international , customer capital spending trends , competition , introduction of new products and acquisitions . biological indicator products are disposable and are used on a routine basis for quality control , thus product sales are less sensitive to general economic conditions . instrument products have a longer life , and their purchase by our customers is somewhat discretionary , so sales are more sensitive to general economic conditions . parts and service demand is driven by our customers ' quality control and regulatory environments , which require periodic repair and recalibration or certification of our instrument products . we typically evaluate costs and pricing annually . our policy is to price our products competitively and , where possible , we try to pass along cost increases in order to maintain our margins . as part of the integration of our previous biological indicator acquisitions we have been adjusting prices to achieve price parity for similar products . gross profit is affected by our product mix , manufacturing efficiencies and price competition . historically , as we have integrated our acquisitions and taken advantage of manufacturing efficiencies , our gross margins for some of the products have improved . there are , however , differences in gross margins between different product lines , and ultimately the mix of sales may continue to impact our overall gross margin . selling expense is driven primarily by labor costs , including salaries and commissions . accordingly , it may vary with sales levels . labor costs and amortization of intangible assets drive 70-80 % of general and administrative expense . research and development expense is predominantly comprised of labor costs and third party consultants . in may 2012 , we completed the bios acquisition by acquiring specific assets and assuming certain liabilities of bios , a new jersey corporation . the purchase price for the acquired net assets was $ 16,660,000 and potential contingent consideration based on revenue growth over a three year earn-out period . the contingent consideration arrangement requires us to pay bios if cumulative revenues related to the acquisition for the three years subsequent to the acquisition exceed $ 22,127,000. the potential undiscounted future payment that we could be required to make ranges from $ 0 to $ 6,710,000. we borrowed $ 11,000,000 under our line of credit to finance the acquisition , with the balance being paid from available cash . on december 21 , 2010 , we acquired the assets associated with the biological indicator line of products of apex laboratories , inc. ( the ยapex acquisitionย ) for $ 6,490,000. on april 27 , 2010 , we acquired all of the common stock of sgm biotech , inc. ( the ยsgm acquisitionย ) , another biological indicator business , for $ 12,083,000. general trends and outlook acquisitions in may 2012 , december 2010 , and april 2010 impacted our current assets and working capital , as we used available cash and incurred debt to complete those transactions . our key indicators were impacted following each acquisition as we integrated the acquired operations . revenues , gross profit and net income have all increased due to the acquisitions and organic growth . our strategic objectives include both growth organically and through further acquisitions . during the year ended march 31 , 2013 , we continued to build our infrastructure to prepare for future growth , including the addition of key personnel to our operations , research and development , and finance teams . we also invested in upgrading our information systems and intend to continue doing so . 13 the markets for our biological indicators remain strong , as the disposable nature of these products makes them less sensitive to general economic conditions . the worldwide market for biological indicators is growing , as more countries focus on verifying the effectiveness of sterilization processes . recent general economic conditions have slowed the organic growth of our instruments business , due to the discretionary nature of these products . demand for our instruments products , however , is still strong and we strive to maintain or grow revenue going forward . we are working on several research and development projects that , if completed , may result in new products for both existing customers and in new markets . we are hopeful that both our biological indicators and instruments divisions will have new products available for sale in the coming year . story_separator_special_tag expenses . liquidity and capital resources our sources of liquidity may include cash generated from operations , working capital , capacity under our credit facility and potential equity and debt offerings . we believe that cash generated from these sources will be sufficient to meet our short-term and long-term needs . our more significant uses of resources include quarterly dividends to stockholders , payment of debt obligations , long-term capital equipment expenditures and potential acquisitions . working capital is the amount by which current assets exceed current liabilities . story_separator_special_tag we had working capital of $ 14,793,000 and $ 14,899,000 , respectively , at march 31 , 2013 and 2012. the decrease in working capital is due to the use of cash for the bios acquisition and repayment of long-term debt , partially offset by cash flows from operations . in february 2012 , we entered into the credit facility , which is comprised of a three year agreement for a $ 20,000,000 revolving line of credit and up to $ 1,000,000 of letters of credit . funds from the credit facility may be used for general working capital and corporate needs , retiring existing debt , or to support acquisitions and capital expenditures . in february 2012 , we also extinguished our obligations under our previous debt agreement . in may 2012 , we borrowed $ 11,000,000 against the line of credit to partially finance the bios acquisition . at march 31 , 2013 , we had unused capacity under our credit facility of $ 16,000,000. in april 2013 , we made an additional principal payment of $ 1,000,000 . 17 on october 1 , 2012 , we amended our articles of incorporation to increase the number of authorized shares of common stock from 8 million to 25 million . we routinely evaluate opportunities for strategic acquisitions . future material acquisitions may require that we obtain additional capital , assume third party debt or incur other long-term obligations . we believe that have the option to utilize both equity and debt instruments as vehicles for the long-term financing of our investment activities and acquisitions . on november 7 , 2005 , our board of directors authorized a program to repurchase up to 300,000 shares of our outstanding common stock . under the plan , the shares may be purchased from time to time in the open market at prevailing prices or in negotiated transactions off the market . shares purchased will be canceled and repurchases will be made with existing cash reserves . we do not maintain a set policy or schedule for our buyback program . we have purchased 159,522 shares of common stock under this program from inception through march 31 , 2013. we have been paying regular quarterly dividends since 2003. dividends per share paid by quarter were as follows : replace_table_token_10_th on april 11 , 2013 , our board of directors declared a quarterly cash dividend of $ 0.14 per share of common stock , payable on june 14 , 2013 , to stockholders of record at the close of business on may 27 , 2013. cash flow ย operating , investing and financing activities were as follows ( in thousands ) : replace_table_token_11_th generally , net cash provided by operating activities changes primarily due to increases in revenues and corresponding net income , offset by the timing of certain working capital expenditures related to inventory and income taxes . the year ended march 31 , 2013 saw an increase in accounts receivable due to our expanding international customer base , which has extended payment terms , and an increase in inventory , as we strive to take advantage of volume discounts for raw materials . the year ended march 31 , 2012 saw an increase in sales levels , which resulted in a reduction in inventory levels . net cash used in investing activities was driven by the bios acquisition in may 2012 , the apex acquisition in december 2010 , and the sgm acquisition in april 2010. the final payment for the apex acquisition was made in december 2011. purchases of property , plant and equipment were $ 908,000 , $ 683,000 and $ 2,645,000 , respectively , for the years ended march 31 , 2013 , 2012 and 2011. financing activities for the year ended march 31 , 3013 resulted from borrowings under our line of credit of $ 11,000,000 and proceeds from the exercise of stock options of $ 894,000 , partially offset by payments on long-term debt of $ 7,000,000 and the payment of dividends of $ 1,815,000. activity for the year ended march 31 , 2012 resulted from the repayment of debt of $ 6,500,000 and the payment of dividends of $ 1,645,000 , partially offset by proceeds from the exercise of stock options of $ 813,000. activity for the year ended march 31 , 2011 , resulted from net borrowings under our debt agreement of $ 6,222,000 and payment of dividends of $ 1,488,000. at march 31 , 2013 , we had contractual obligations for open purchase orders for routine purchases of supplies and inventory , which were payable in less than one year . in september 2011 , we entered into a license agreement for certain biological indicator technology . under the terms of this agreement , we made payments of $ 175,000 for rights to the technology . up to 18 $ 225,000 of additional payments may be made in the future , depending on meeting certain development and performance milestones . in may 2012 , we completed the bios acquisition by acquiring specific assets and assuming certain liabilities of bios , a new jersey corporation . the purchase price for the acquired net assets was $ 16,660,000 and potential contingent consideration based on revenue growth over a three year earn-out period . the contingent consideration arrangement requires us to pay bios if cumulative revenues related to the acquisition for the three years subsequent to the acquisition exceed $ 22,127,000. the potential undiscounted future payment that we could be required to make ranges from $ 0 to $ 6,710,000. critical accounting policies and estimates our financial statements are prepared in accordance with accounting principles generally accepted in the united states , which require management to make estimates , judgments ,and assumptions that affect the amounts reporting in our financial statements and accompanying notes .
| gross profit the following table summarizes our gross profit by segment ( in thousands , except percent data ) replace_table_token_8_th year ended march 31 , 2013 versus march 31 , 2012 biological indicator gross profit increased as a result of improved manufacturing efficiencies , driven by successfully completing the integration of the sgm acquisition and apex acquisition , and increased sales . instruments gross profit increased as a result of the bios acquisition , while legacy instruments product line gross profit remained relatively unchanged . year ended march 31 , 2012 versus march 31 , 2011 biological indicator gross profit increased due to the apex acquisition in december 2010 and organic revenue growth . the improvement in instruments gross profit was driven by relatively flat fixed costs with increased sales volumes , coupled with manufacturing efficiencies . we also integrated manufacturing of one instruments product line from a third party to our lakewood , colorado facility in december 2010 , which reduced manufacturing costs and contributed an additional gross profit of approximately $ 500,000 for the year ended march 31 , 2012 . 15 operating expenses the following table summarizes the change in our operating expenses ( in thousands ) : replace_table_token_9_th selling year ended march 31 , 2013 versus march 31 , 2012 selling expense increased due to the bios acquisition , with minor increases in other product lines . as a percent of revenues , selling expense remained relatively flat . year ended march 31 , 2012 versus march 31 , 2011 selling expense increased due to higher commissions , driven by increased revenues , and adding individuals to the sales force . as a percent of revenues , selling expense remained relatively flat . general and administrative year ended march 31 , 2013 versus march 31 , 2012 as part of our chief financial officer transition , certain unvested options were modified , resulting in incremental stock option expense of approximately $ 240,000. the balance of the chief financial officer transition impact includes a severance package and miscellaneous other costs . all costs associated with the transition were expensed during the year
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refer to risk factors ( part i , item 1a of this form 10-k ) for a discussion of these factors and other risks . client verticals our financial services client vertical has been challenged by a number of factors in the past , including the limited availability of high quality media at acceptable margins caused by the acquisition of media sources by competitors , increased competition for high quality media and changes in search engine algorithms . these factors may impact our business in the future again . to offset this impact , we have enhanced our product set to provide greater segmentation , matching , transparency and right pricing of media that have enabled better monetization to provide greater access to high quality media sources . moreover , we have entered into strategic partnerships and acquisitions to increase and diversify our access to quality media and client budgets . our financial services client vertical also benefits from more spending by clients in digital media and performance marketing as digital marketing continues to evolve . our education client vertical has been significantly challenged by regulations and enforcement activity affecting u.s. for-profit education institutions over the past several years . for example , in july 2015 , the federal trade commission initiated an investigation of a publicly traded u.s. for-profit education client with respect to its recruiting and enrollment practices . these and other similar regulatory and enforcement activities have affected and are expected to continue to affect our clients ' businesses and marketing practices , which have , and may continue to , result in a decrease in these clients ' spending with us and other vendors and fluctuations in the volume and mix of our business with these clients . to offset the impact these regulatory and investigative activities have had on the u.s. for-profit education clients , we have broadened our product set from our traditional lead business with the addition of better qualified clicks , leads , inquiries , calls , applications , and customers ; we believe these new enhanced products better match u.s. for-profit education client needs in the current regulatory environment . we have also broadened our markets in education to include not-for-profit schools . moreover , we have entered into strategic partnerships and acquisitions to increase and diversify our access to quality media and client budgets . the covid-19 pandemic is also affecting our client verticals to varying degrees . for example , within our financial services client vertical , certain lines of business including personal loans , credit cards , and banking , have seen and may continue to see reductions in near-term demand for our services due to weakening economic and employment conditions , and the uncertainty over the length and depth of the economic downturn . development , acquisition and retention of high quality targeted media one of the primary challenges of our business is finding or creating media that is high quality and targeted enough to attract prospects for our clients at costs that provide a sound financial outcome for us . in order to grow our business , we must be able to find , develop , or acquire and retain quality targeted media on a cost-effective basis . consolidation of media sources , changes in search engine algorithms and increased competition for available media has , during some periods , limited and may continue to limit our ability to generate revenue at acceptable margins . to offset this impact , we have developed new sources of media , including entering into strategic partnerships with other marketing and media companies and acquisitions . such partnerships include takeovers of performance marketing functions for large web media properties ; backend monetization of unmatched traffic for clients with large media buys ; and white label products for other performance marketing companies . we have also focused on growing our revenue from call center , email , mobile and social media traffic sources . 36 seasonality our results are subject to significant fluctuation as a result of seasonality . in particular , our quarters ending december 31 ( our second fiscal quarter ) are typically characterized by seasonal weakness . in our second fiscal quarters , there is generally lower availability of media during the holiday period on a cost effective basis and some of our clients have lower budgets . in our quarters ending march 31 ( our third fiscal quarter ) , this trend generally reverses with better media availability and often new budgets at the beginning of the year for our clients with fiscal years ending december 31. our results are also subject to fluctuation as a result of seasonality in our clients ' business . for example , revenue in our home services client vertical is subject to cyclical and seasonal trends , as the consumer demand for home services typically rises during the spring and summer seasons and declines during the fall and winter seasons . other factors affecting our clients ' businesses include macro factors such as credit availability in the market , interest rates , the strength of the economy and employment . regulations our revenue has fluctuated in part as a result of federal , state and industry-based regulations and developing standards with respect to the enforcement of those regulations . our business is affected directly because we operate websites and conduct telemarketing and email marketing , and indirectly affected as our clients adjust their operations as a result of regulatory changes and enforcement activity that affect their industries . clients in our financial services vertical have been affected by laws and regulations and the increased enforcement of new and pre-existing laws and regulations . in addition , our education client vertical has been significantly affected by the adoption of regulations affecting u.s. for-profit education institutions over the past several years , and a high level of governmental scrutiny is expected to continue . the effect of these regulations , or any future regulations , may continue to result in fluctuations in the volume and mix of our business with these clients . story_separator_special_tag an example of a regulatory change that may affect our business is the amendment of the telephone consumer protection act ( the โ tcpa โ ) that affects telemarketing calls . our clients may make business decisions based on their own experiences with the tcpa regardless of our products and compliance practices . those decisions may negatively affect our revenue and profitability . 37 basis of presentation net revenue our business generates revenue from fees earned through the delivery of qualified clicks , leads , inquiries , calls , applications , customers and , to a lesser extent , display advertisements , or impressions . we deliver targeted and measurable results through a vertical focus that we classify into the following client verticals : financial services , education and โ other โ ( which includes home services and business-to-business technology ) . cost of revenue cost of revenue consists primarily of media and marketing costs , personnel costs , amortization of intangible assets , depreciation expense and facilities expense . media and marketing costs consist primarily of fees paid to third-party publishers , media owners or managers , or to strategic partners that are directly related to a revenue-generating event and of pay-per-click , or ppc , ad purchases from internet search companies . we pay these third-party publishers , media owners or managers , strategic partners and internet search companies on a revenue-share , a cost-per-lead , or cpl , cost-per-click , or cpc , or cost-per-thousand-impressions , or cpm , basis . personnel costs include salaries , stock-based compensation expense , bonuses , commissions and employee benefit costs . personnel costs are primarily related to individuals associated with maintaining our servers and websites , our call center operations , our editorial staff , client management , creative team , content , compliance group and media purchasing analysts . costs associated with software incurred in the development phase or obtained for internal use are capitalized and amortized to cost of revenue over the software 's estimated useful life . operating expenses we classify our operating expenses into three categories : product development , sales and marketing , and general and administrative . our operating expenses consist primarily of personnel costs and , to a lesser extent , professional services fees , facilities fees and other costs . personnel costs for each category of operating expenses generally include salaries , stock-based compensation expense , bonuses , commissions and related taxes , and employee benefit costs . product development . product development expenses consist primarily of personnel costs , facilities fees and professional services fees related to the development and maintenance of our products and media management platform . we are constraining expenses generally to the extent practicable . sales and marketing . sales and marketing expenses consist primarily of personnel costs , facilities fees and professional services fees . we are constraining expenses generally to the extent practicable . general and administrative . general and administrative expenses consist primarily of personnel costs of our finance , legal , employee benefits and compliance , technical support and other administrative personnel , accounting and legal professional services fees , facilities fees and bad debt expense . we are constraining expenses generally to the extent practicable . interest and other income , net interest and other income , net , consists primarily of interest expense , interest income , and other income and expense . interest expense is related to imputed interest on post-closing payments related to our acquisitions in fiscal year 2019. we have no borrowing agreements outstanding as of june 30 , 2020 ; however interest expense could increase if , among other things , we enter into a new borrowing agreement to manage liquidity or make additional acquisitions through debt financing . interest income represents interest earned on our cash and cash equivalents , which may increase or decrease depending on market interest rates and the amounts invested . other income and expense includes gains and losses on foreign currency exchange , gains and losses on divestitures that were not considered to be strategically important to our business , impairment of investment and other non-operating items . ( provision for ) benefit from income taxes we are subject to tax in the united states as well as other tax jurisdictions or countries in which we conduct business . earnings from our limited non-u.s. activities are subject to local country income tax and may be subject to u.s. income tax . 38 story_separator_special_tag primarily due to the acquisitions of intangible assets in fiscal year 2019. gross profit margin was 14 % for both fiscal years 2019 and 2018. operating expenses replace_table_token_12_th product development expenses product development expenses increased $ 1.9 million , or 15 % in fiscal year 2020 compared to fiscal year 2019 primarily due to increased personnel costs of $ 1.8 million as a result of annual compensation increases . product development expenses decreased $ 1.5 million , or 11 % in fiscal year 2019 compared to fiscal year 2018 primarily due to decreased personnel costs of $ 0.7 million as a result of decreased incentive compensation expense , and decreased stock-based compensation expense of $ 0.3 million . sales and marketing expenses sales and marketing expenses increased $ 0.1 million , or 1 % in fiscal year 2020 compared to fiscal year 2019. sales and marketing expenses decreased $ 1.7 million , or 16 % in fiscal year 2019 compared to fiscal year 2018 primarily due to decreased personnel costs of $ 1.5 million as a result of lower headcount and decreased incentive compensation expense . 40 general and administrative expenses general and administrative expenses decreased $ 6.6 million , or 22 % , in fiscal year 2020 compared to fiscal year 2019 , primarily due to a charge of $ 8.7 million for bad debt expense related to a large former education client recorded in fiscal year 2019 , offset by increased personnel costs including stock-based compensation expense of $ 1.4 million , and increased facilities expense of $ 0.6 million .
| net revenue increased by $ 50.8 million , or 13 % , in fiscal year 2019 compared to fiscal year 2018. revenue from our financial services client vertical increased by $ 47.3 million , or 17 % , primarily due to our enhanced product set that provides greater 39 segmentation , transparency , and right pricing of media which have enabled access to more media and client budgets . the change in revenue from our financial services client vertical was also driven by increased revenue from our personal loans business , primarily as a result of the acquisition of amone , and increased revenue from our credit card s business driven by expanding media sources , offset by a decline in revenue from our mortgage business due to lower refinancing activity . revenue from our education client vertical revenue decreased by $ 8.8 million , or 11 % , primarily due to the loss of a large not-for-profit education client who entered federal receivership , lower availability of high quality media at acceptable margins due to competitor acquisitions of media sources , and decreased client budgets due to school closures . revenues from our other client vertical increased by $ 12.3 million , or 28 % , primarily due to increased client demand in our home services and business-to-business technology client verticals . cost of revenue and gross profit margin cost of revenue increased by $ 44.4 million , or 11 % , in fiscal year 2020 compared to fiscal year 2019. this was primarily driven by increased media and marketing costs of $ 34.0 million , increased personnel costs including stock-based compensation expense of $ 7.6 million , and increased amortization of intangible assets of $ 2.5 million . the increase in media and marketing costs was due to higher revenue volumes . the increase in personnel costs and stock-based compensation is primarily due to higher headcount as a result of the acquisitions completed in fiscal year 2019. the increase in amortization expense is primarily due to the acquisitions of intangible assets in
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at the 141 livingston street property , in the downtown brooklyn neighborhood , the city of new york confirmed in october 2019 that it will continue its commercial lease at the property through expiration at the end of 2025 ; per the terms of the lease , the annual rent will increase 25 % at the end of 2020. at the nearby 250 livingston street property , the city of new york signed a lease in may 2019 for renewal of its commercial leases at the property ; the new lease will have a ten-year term commencing upon expiration of the current leases in august 2020 , and provides for an initial 57 % increase in blended rent per square foot and a 16 % increase in rentable square feet through a remeasurement . the company continues to benefit from renters ' increasing preference to live in or near urban centers and the flexibility that rental apartments offer . at the flatbush gardens residential apartment complex , the company increased average rent per square foot from $ 20.63 at december 31 , 2015 , to $ 21.24 at december 31 , 2016 , to $ 22.47 at december 31 , 2017 , to $ 23.77 at december 31 , 2018 , to $ 24.61 at december 31 , 2019. at the tribeca house property , the company increased average residential rent per square foot from $ 65.50 at december 31 , 2015 , to $ 68.05 at december 31 , 2016 , to $ 69.18 at december 31 , 2017 , to $ 69.58 at december 31 , 2018 , to $ 70.52 at december 31 , 2019. at the aspen property , the company increased average residential rent per square foot from $ 30.72 at acquisition in june 2016 , to $ 33.05 at december 31 , 2016 , to $ 35.07 at december 31 , 2017 , to $ 36.26 at december 31 , 2018 , to $ 36.60 at december 31 , 2019. the company did not have any significant retail lease renewals during this time period . throughout 2019 , 2018 and 2017 , we continued to benefit from relatively low interest rates . our weighted average interest rate as of december 31 , 2019 , was approximately 3.9 % per annum . interest rates continue to be at relatively low levels versus historical norms . factors that may influence future results of operations we derive approximately 75 % of our revenues from rents received from residents in our apartment rental properties and the remainder from commercial and retail rental customers . we believe that we have expertise in operating , renovating and repositioning our properties . as we grow , we will likely add personnel as necessary to provide outstanding customer service to our residents in order to maintain or increase occupancy levels at our apartment communities and to preserve the ability to increase rents . this is likely to result in an increase in our operating and general and administrative expenses over time . a majority of the leases at our apartment communities are for approximately one-year terms , which generally enables us to seek increased rents upon renewal of existing leases or commencement of new leases . this may offset the potential adverse effect of inflation or deflation on rental revenue , although residents may leave without penalty at the end of their lease terms for any reason . our ability to seek increased rents at our flatbush gardens property , our aspen property and a portion of our 10 west 65 th street property is limited , however , as a result of the rent stabilization laws and regulations of new york city , including the housing stability and tenant protection act of 2019 , which was signed into law in new york in june 2019. these regulations generally limit rental increases that we can charge at our flatbush gardens property , our aspen property and a portion of our 10 west 65 th street property upon lease renewal ; effective october 1 , 2019 , such increases are 1.5 % for a one-year lease and 2.5 % for a two-year lease . the regulations also limit the maximum rent we can charge at our flatbush gardens property , our aspen property and a portion of our 10 west 65 th street property on new leases . at our aspen property , the residential units are subject to regulations established by the hdc , under which there are no rental restrictions on approximately 55 % of the units and low- and middle-income restrictions on approximately 45 % of the units . there are no rent stabilization restrictions at our tribeca house properties , our 250 livingston street property , our clover house property and a portion of our 10 west 65 th street property . we also incur costs on turnover of residents when one resident moves out and we prepare the apartment for a new resident . the costs include the costs of repainting and repairing apartment units , replacing obsolete or damaged appliances and re-leasing the units . while we budget for turnover and the costs associated therewith , our turnover cost may be affected by certain factors we can not control . excessive turnover and failure to properly manage turnover cost may adversely affect our operations and could adversely affect our financial condition , results of operations , cash flows and ability to pay distributions on , and the market price of , our common stock . 46 we seek earnings growth primarily through increasing rents and occupancy at existing properties , and acquiring additional apartment communities in markets complementing our existing portfolio locations . our apartment and commercial operating properties are concentrated in six neighborhoods within the boroughs of manhattan and brooklyn in new york city , which makes us susceptible to adverse developments in these markets . story_separator_special_tag as a result , we are particularly affected by the local economic conditions in these markets , including , but not limited to , changes in supply of or demand for apartment units in our markets , competition for real property investments in our markets , changes in government rules , regulations and fiscal policies , including those governing real estate usage and tax , and any environmental risks related to the presence of hazardous or toxic substances or materials at or in the vicinity of our properties , which could negatively affect our overall performance . we may be unable to accurately predict future changes in national , regional or local economic , demographic or real estate market conditions . for example , continued volatility and uncertainty in the global , national , regional and local economies could make it more difficult for us to lease apartment , commercial and retail space and may require us to lease our apartment , commercial and retail space at lower rental rates than projected and may lead to an increase in resident defaults . in addition , these conditions may also lead to a decline in the value of our properties and make it more difficult for us to dispose of these properties at competitive prices . these conditions , or others we can not predict , could adversely affect our financial condition , results of operations , cash flows and ability to pay distributions on , and the market price of , our common stock . as a public company with shares listed on a u.s. exchange , we incur general and administrative expenses , including legal , accounting and other expenses , related to corporate governance , public reporting and compliance with various provisions of the sarbanes-oxley act , related regulations of the sec , including compliance with the reporting requirements of the exchange act , and the requirements of the national securities exchange on which our stock is listed . story_separator_special_tag margin-bottom : 0pt ; '' > replace_table_token_6_th the dollar amounts in the narrative disclosure below are in thousands , other than per square foot figures . revenue . residential rental income , excluding 10 west 65 th street , increased from $ 74,315 for the year ended december 31 , 2017 , to $ 78,120 for the year ended december 31 , 2018 , primarily due to increases in rental rates and occupancy at the flatbush gardens and tribeca house properties . base rent per square foot increased at the flatbush gardens property from $ 22.47 ( 96.4 % leased occupancy ) at december 31 , 2017 , to $ 23.77 ( 98.4 % leased occupancy ) at december 31 , 2018. base rent per square foot increased at the tribeca house property from $ 69.18 ( 91.1 % leased occupancy ) at december 31 , 2017 , to $ 69.58 ( 95.5 % leased occupancy ) at december 31 , 2018. commercial rental income , excluding 10 west 65 th street , was essentially flat for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017. property operating expense s . property operating expenses include property-level costs such as compensation costs for property-level personnel , repairs and maintenance , supplies , utilities and landscaping . property operating expenses , excluding 10 west 65 th street , decreased slightly from $ 26,934 for the year ended december 31 , 2017 , to $ 26,806 for the year ended december 31 , 2018. real estate taxes and insurance . real estate taxes and insurance expenses , excluding 10 west 65 th street , increased from $ 20,542 for the year ended december 31 , 2017 , to $ 21,456 for the year ended december 31 , 2018 , primarily due to increased real estate taxes at all properties , substantially offset by the cessation of amortization of real estate tax intangible assets relating to the purchase of the tribeca house property . general and administrative . general and administrative expenses , excluding 10 west 65 th street , decreased from $ 9,925 for the year ended december 31 , 2017 , to $ 9,587 for the year ended december 31 , 2018 , primarily due to a decrease in ltip amortization expense , partially offset by an increase in other fees and expenses . depreciation and amortization . depreciation and amortization expense , excluding 10 west 65 th street , increased from $ 16,346 for the year ended december 31 , 2017 , to $ 16,922 for the year ended december 31 , 2018 , due to additions to real estate . interest expense , net . interest expense , net , excluding 10 west 65 th street , decreased from $ 35,278 for the year ended december 31 , 2017 , to $ 31,535 for the year ended december 31 , 2018. the decrease resulted from lower rates obtained in refinancing the tribeca house and flatbush gardens properties in february 2018 , partially offset by an increase in debt outstanding and a higher rate from the refinancing of the 250 livingston street property in december 2018 , and lower amortization of loan costs . interest expense , excluding 10 west 65 th street , included amortization of loan costs and changes in fair value of interest rate caps of $ 993 and $ 3,146 for the year ended december 31 , 2018 and 2017 , respectively . 49 loss on extinguishment of debt . loss on extinguishment of debt related to the repayment of the flatbush gardens and tribeca house loans in february 2018 and the defeasance of the 250 livingston street loan in december 2018. the amount included charges for early extinguishment of the debt and the write-off of unamortized debt costs . gain on involuntary conversion . gain on involuntary conversion represented insurance proceeds in excess of the carrying value of assets disposed of related to fire damage suffered by two units at the flatbush gardens property . net loss .
| property operating expenses , excluding clover house , increased from $ 27,267 for the year ended december 31 , 2018 , to $ 28,214 for the year ended december 31 , 2019 , primarily due to a higher provision for bad debts and a larger amount of make-ready apartment improvements at the tribeca house and flatbush gardens properties . real estate taxes and insurance . real estate taxes and insurance expenses , excluding clover house , increased from $ 22,293 for the year ended december 31 , 2018 , to $ 24,524 for the year ended december 31 , 2019 , primarily due to increased real estate taxes and insurance expense across the portfolio . general and administrative . general and administrative expenses , excluding clover house , decreased from $ 9,873 for the year ended december 31 , 2018 , to $ 8,946 for the year ended december 31 , 2019 , primarily due to decreases in overhead costs , executive cash bonuses and ltip amortization expense , partially offset by non-recurring litigation-related expenses , which increased from $ 0 for the year ended december 31 , 2018 , to $ 966 for the year ended december 31 , 2019. depreciation and amortization . depreciation and amortization expense , excluding clover house , increased from $ 18,005 for the year ended december 31 , 2018 , to $ 18,874 for the year ended december 31 , 2019 , due to additions to real estate , partially offset by reduced intangibles amortization at the 10 west 65th street property . interest expense , net . interest expense , net , excluding clover house , increased from $ 32,781 for the year ended december 31 , 2018 , to $ 34,131 for the year ended december 31 , 2019. the increase in interest expense from the may 2019 and december 2018 refinancings of the 250 livingston street property was partially offset by the lower interest rate and loan amount obtained in refinancing the tribeca house property in february 2018 and increased interest expense capitalization in connection with property development . interest expense , excluding clover house , included amortization of loan costs and changes in fair value of interest rate caps of $ 1,472 and $ 1,081 for the years ended december 31 , 2019 and 2018 , respectively . loss
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these non-gaap financial measures assist management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our underlying operations . for additional information and reconciliations from our consolidated financial statements see supplemental unaudited pro forma condensed combined financial information and non-gaap financial measures . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > united states segment adjusted ebitda growth was primarily driven by savings from the integration program and favorable pricing net of key commodity costs , partially offset by volume/mix declines and the impact of a 53rd week of shipments ( approximately 1.5 pp ) in the prior period . canada segment adjusted ebitda growth was primarily driven by savings from the integration program and favorable pricing net of key commodity costs , partially offset by higher input costs in local currency , unfavorable impact of foreign currency ( 4.4 pp ) , and a 53rd week of shipments ( approximately 1.5 pp ) in the prior period . europe segment adjusted ebitda decreased primarily due to unfavorable impact of foreign currency ( 6.5 pp ) , lower pricing , impact of a 53rd week of shipments ( approximately 1.0 pp ) in the prior period as well as an increase in marketing investments , partially offset by savings in manufacturing costs . rest of world segment adjusted ebitda decreased due to unfavorable impact of foreign currency ( 17.4 pp ) , increased marketing investments , and a 53rd week of shipments ( approximately 1.0 pp ) in the prior period , partially offset by organic sales growth . year ended january 3 , 2016 compared to the year ended december 28 , 2014 : operating income increased 68.3 % to $ 2.6 billion in 2015 compared to 2014 driven primarily by the 2015 merger , as well as a $ 64 million favorable impact due to a 53rd week of shipments in 2015 , which were partially offset by the following : integration program and other restructuring expenses , merger costs , and depreciation and amortization expense that were higher in 2015 than 2014. non-cash costs of $ 347 million relating to the fair value adjustment of kraft 's inventory in purchase accounting in 2015. unfavorable impact from foreign currency of $ 284 million . nonmonetary currency devaluation loss of $ 49 million related to the write-down of inventory for our venezuelan subsidiary in 2015. net income/ ( loss ) attributable to common shareholders decreased $ 203 million to a loss of $ 266 million in 2015 compared to a loss of $ 63 million in 2014. the decrease was due to higher interest expense , higher other expense/ ( income ) , net , more series a preferred stock dividend payments , and a higher effective tax rate , which , combined , more than offset growth in operating income . these drivers are detailed as follows : interest expense increased to $ 1.3 billion in 2015 compared to $ 686 million in 2014. this increase was primarily due to a $ 236 million write-off of debt issuance costs related to 2015 debt refinancing activities and a $ 227 million loss released from accumulated other comprehensive income/ ( losses ) due to the early termination of certain interest rate swap contracts . the remaining increase was due to the assumption of $ 8.6 billion aggregate principal amount of kraft 's long-term debt obligations in the 2015 merger , partially offset by interest savings following our 2015 debt refinancing activities . other expense/ ( income ) , net increased to $ 305 million in 2015 compared to $ 79 million in 2014. this increase was primarily due to a $ 234 million nonmonetary currency devaluation loss related to our venezuelan subsidiary and call premiums of $ 105 million related to our 2015 debt refinancing activities , compared to currency losses of $ 99 million in the prior year . 24 series a preferred stock dividend cash distributions increased to $ 900 million in 2015 compared to $ 720 million in 2014. due to the december 8 , 2015 common stock dividend declaration , we were required to accelerate payment of the series a preferred stock dividend from march 7 , 2016 to december 8 , 2015. accordingly , there were two cash distributions for series a preferred stock during the fourth quarter of 2015. this resulted in five series a preferred stock dividend payments in 2015 compared to four payments in 2014. the effective tax rate was 36.2 % in 2015 compared to 16.3 % in 2014 , primarily driven by higher earnings repatriation charges and the nondeductible nonmonetary currency devaluation loss related to our venezuelan subsidiary in 2015 , partially offset by increased benefits from statutory tax rate changes . see note 7 , income taxes , to the consolidated financial statements for a discussion of effective tax rates . adjusted ebitda increased 3.3 % to $ 6.7 billion in 2015 compared to 2014 , driven primarily by savings from the integration program and other restructuring activities , favorable pricing net of key commodity costs , and the benefit of a 53rd week of shipments ( approximately 1.0 pp ) , partially offset by the unfavorable impact of foreign currency ( 6.3 pp ) and unfavorable volume/mix . segment adjusted ebitda results were as follows : united states segment adjusted ebitda growth was primarily driven by favorable pricing net of key commodity costs , savings from the integration program and other restructuring activities , and the favorable impact of a 53rd week of shipments ( approximately 1.0 pp ) , partially offset by unfavorable volume/mix . rest of world segment adjusted ebitda growth was primarily driven by savings from restructuring activities and other ongoing productivity efforts as well as the favorable impact of a 53rd week of shipments ( approximately 1.0 pp ) , partially offset by the unfavorable impact of foreign currency ( 27.6 pp ) and higher local input costs . story_separator_special_tag canada segment adjusted ebitda decreased primarily due to the unfavorable impact of foreign currency ( 14.6 pp ) , unfavorable volume/mix , and higher input costs in local currency , partially offset by savings from the integration program and other restructuring activities , lower marketing spending , and the favorable impact of a 53rd week of shipments ( approximately 1.0 pp ) . europe segment adjusted ebitda decreased primarily due to unfavorable impact of foreign currency ( 15.0 pp ) and increased marketing investments partially offset by lower input costs , savings from restructuring activities and other ongoing productivity efforts , favorable product mix and the favorable impact of a 53rd week of shipments ( approximately 1.0 pp ) . diluted eps : replace_table_token_8_th ( a ) adjusted eps is a non-gaap financial measure . see the non-gaap financial measures section at the end of this item . year ended december 31 , 2016 compared to the year ended january 3 , 2016 : diluted eps increased to earnings of $ 2.81 in 2016 compared to a loss of $ 0.34 in 2015. the increase in diluted earnings/ ( loss ) per share was driven primarily by the net income/ ( loss ) attributable to common shareholders factors discussed above , partially offset by the effect of an increase in the weighted average shares of common stock outstanding compared to the prior period and a 53rd week of shipments in the prior period . 25 replace_table_token_9_th ( a ) there were no pro forma adjustments in 2016 , as kraft and heinz were a combined company for the entire period . see the supplemental unaudited pro forma condensed combined financial information at the end of this item . ( b ) adjusted eps is a non-gaap financial measure . see the non-gaap financial measures section at the end of this item . adjusted eps increased 52.1 % to $ 3.33 in 2016 compared to $ 2.19 in 2015 , primarily driven by adjusted ebitda growth despite the unfavorable impact of foreign currency , fewer series a preferred stock dividends and a lower effective tax rate , partially offset by higher interest expense , higher other expense/ ( income ) , net , and a 53rd week of shipments in the prior period . year ended january 3 , 2016 compared to the year ended december 28 , 2014 : diluted eps decreased to a loss of $ 0.34 in 2015 compared to a loss of $ 0.17 in 2014. the decrease was driven primarily by the net income/ ( loss ) attributable to common shareholders factors discussed above , partially offset by the effect of an increase in the weighted average shares of common stock outstanding following the 2015 merger and a 53rd week of shipments . 26 replace_table_token_10_th ( a ) there were no pro forma adjustments in 2016 , as kraft and heinz were a combined company for the entire period . see the supplemental unaudited pro forma condensed combined financial information at the end of this item . ( b ) adjusted eps is a non-gaap financial measure . see the non-gaap financial measures section at the end of this item . adjusted eps increased 10.6 % to $ 2.19 in 2015 compared to $ 1.98 in 2014 , driven primarily by higher adjusted ebitda despite the unfavorable impact of foreign currency , lower other expense/ ( income ) , net , lower interest expense , and a 53rd week of shipments , partially offset by a higher effective tax rate . results of operations by segment management evaluates segment performance based on several factors including net sales and segment adjusted earnings before interest , tax , depreciation , and amortization ( โ segment adjusted ebitda โ ) . management uses segment adjusted ebitda to evaluate segment performance and allocate resources . segment adjusted ebitda is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations . these items include depreciation and amortization ( including amortization of postretirement benefit plans prior service credits ) , equity award compensation expense , integration and restructuring expenses , merger costs , unrealized gains/ ( losses ) on commodity hedges ( the unrealized gains and losses are recorded in general corporate expenses until realized ; once realized , the gains and losses are recorded in the applicable segment 's operating results ) , impairment losses , gains/ ( losses ) on the sale of a business , and nonmonetary currency devaluation ( e.g. , remeasurement gains and losses ) . in addition , consistent with the manner in which management evaluates segment performance and allocates resources , segment adjusted ebitda includes the operating results of kraft on a pro forma basis , as if kraft had been acquired as of december 30 , 2013. net sales : replace_table_token_11_th 27 pro forma net sales : replace_table_token_12_th ( a ) there were no pro forma adjustments in 2016 , as kraft and heinz were a combined company for the entire period . see the supplemental unaudited pro forma condensed combined financial information at the end of this item . organic net sales : replace_table_token_13_th ( a ) organic net sales is a non-gaap financial measure . see the non-gaap financial measures section at the end of this item . drivers of the changes in pro forma net sales and organic net sales were : replace_table_token_14_th ( a ) there were no pro forma adjustments in 2016 , as kraft and heinz were a combined company for the entire period . see the supplemental unaudited pro forma condensed combined financial information at the end of this item . 28 adjusted ebitda : replace_table_token_15_th united states : replace_table_token_16_th ( a ) there were no pro forma adjustments in 2016 , as kraft and heinz were a combined company for the entire period . see the supplemental unaudited pro forma condensed combined financial information at the end of this item .
| pro forma net sales decreased 5.8 % , primarily due to the unfavorable impacts of foreign currency ( 5.2 pp ) and divestitures ( 0.2 pp ) , partially offset by the favorable impact of a 53rd week of shipments ( 1.2 pp ) . excluding these impacts , organic net sales declined 1.6 % as unfavorable volume/mix ( 2.6 pp ) was partially offset by higher net pricing ( 1.0 pp ) . unfavorable volume/mix was driven primarily by lower shipments in refreshment beverages , frozen meals , foodservice , and boxed dinners in the united states and canada , partially offset by growth in rest of world . net pricing was higher in nearly all segments despite deflation in key commodities in united states and canada . net income : replace_table_token_7_th ( a ) adjusted ebitda is a non-gaap financial measure . see the non-gaap financial measures section at the end of this item . year ended december 31 , 2016 compared to the year ended january 3 , 2016 : operating income increased 132.7 % to $ 6.1 billion in 2016 compared to $ 2.6 billion in 2015. this increase was primarily driven by the 2015 merger , as well as the following : savings from the integration program and other restructuring activities and favorable pricing net of key commodity costs in united states and canada . non-cash costs of $ 347 million relating to the fair value adjustment of kraft 's inventory in purchase accounting in the prior period . the increase in operating income was partially offset by unfavorable impacts of $ 188 million from foreign currency and $ 62 million from a 53rd week of shipments in the prior period . net income/ ( loss ) attributable to common shareholders increased $ 3.7 billion to income of $ 3.5 billion in 2016 compared to a loss of $ 266 million in 2015. the increase was due to the growth in operating income , fewer series a preferred stock dividend payments , lower other expense/ ( income ) , net , lower interest expense , and a lower effective tax rate , detailed as follows : series a preferred stock dividend cash distributions decreased to $ 180 million
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31 , 2012 from $ 2,498,000 for the year ended december 31 , 2011 ; total assets as of december 31 , 2012 were $ 441,381,000 compared to $ 427,436,000 at the end of 2011 , an increase of $ 13,945,000 or 3.26 % ; loans ( excluding loans held for sale ) , net of unearned income and loan loss provision , increased to $ 319,922,000 as of december 31 , 2012 from $ 318,754,000 as of the end of december 31 , 2011 , an increase of 0.37 % ; and the net interest margin increased 14 basis points to 4.03 % for 2012 , compared to 3.89 % for 2011. the following table sets forth selected financial ratios : replace_table_token_2_th 20 effect of economic trends the year ended december 31 , 2012 continued to reflect the turbulent economic conditions and continued weakness in the financial markets which have negatively impacted the liquidity and credit quality of financial institutions in the united states . although the banking industry began to see some improvements regarding credit quality , concerns regarding credit losses from the weak economy continued to be a concern . nationally , financial institutions have seen significant declines in the value of collateral for real estate loans and heightened credit losses . these declines have resulted in continued high levels of nonperforming assets , charge-offs and foreclosures . although management can not be certain , it expects difficult economic conditions to persist in 2013. financial institutions likely will continue to experience some credit losses and levels of nonperforming assets , charge-offs and foreclosures that are higher than historical averages . in light of these conditions , financial institutions also face heightened levels of scrutiny from federal and state regulators . financial institutions experienced , and are expected to continue to experience , pressure on credit costs , loan yields , deposit and other borrowing costs , liquidity , and capital . a variety and wide scope of economic factors affect financial 's success and earnings . although interest rate trends are one of the most important of these factors , financial believes that interest rates can not be predicted with a reasonable level of confidence and therefore does not attempt to do so with complicated economic models . management believes that the best defense against wide swings in interest rate levels is to minimize vulnerability at all potential interest rate levels . rather than concentrate on any one interest rate scenario , financial prepares for the opposite as well , in order to safeguard margins against the unexpected . the downward trend in short term interest rates beginning in the last quarter of 2007 was due to the actions of the federal open market committee ( ยfomcย ) resulting from a deteriorating economy . the federal funds target rate set by the federal reserve has remained at 0.00 % to 0.25 % since december 2008 , following a decline from 4.25 % in december 2007 through a series of rate reductions . as liquidity increased as a result of open market operations and other government actions , longer-term interest rates decreased and the yield curve remains positively sloped . although it can not be certain , as discussed below under ยresults of operations - net interest incomeย management believes that short term interest rates will remain stable for the foreseeable future . an increase in long-term interest rates likely would have an adverse impact on the mortgage division , primarily due to reduced refinancing opportunities . stock dividends on may 19 , 2010 , financial declared a 10 % stock dividend , which was paid on july 23 , 2010 to shareholders of record on june 21 , 2010. except as otherwise described in this report , all share amounts and dollar amounts per share in this report with regard to the common stock have been adjusted to reflect these and all prior stock dividends . critical accounting policies financial 's financial statements are prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . the financial information contained within our statements is , to a significant extent , based on measures of the financial effects of transactions and events that have already occurred . a variety of factors could affect the ultimate value that is obtained either when earning income , recognizing an expense , recovering an asset or relieving a liability . the bank uses historical loss factors as one factor in determining the inherent loss that may be present in the loan portfolio . actual losses could differ significantly from the historical factors that the bank uses in estimating risk . in addition , gaap itself may change from one previously acceptable method to another method . although the economics of financial 's transactions would be the same , the timing of events that would impact the transactions could change . 21 the allowance for loan losses is management 's estimate of the losses that may be sustained in our loan portfolio . the allowance is based on two basic principles of accounting : ( i ) asc 450 , contingencies , which requires that losses be accrued when they are probable of occurring and are reasonably estimable and ( ii ) asc 310 , impairment of a loan , which requires that losses on impaired loans be accrued 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 . guidelines for determining allowances for loan losses are also provided in the sec staff accounting bulletin no . 102 - ยselected loan loss allowance methodology and documentation issuesย and the federal financial institutions examination council 's interagency guidance , ยinteragency policy statement on the allowance for loan and lease lossesย ( the ยffiec policy statementย ) . because financial has a relatively short operating history , historical trends alone do not provide sufficient information to judge the adequacy of the allowance for loan losses . story_separator_special_tag therefore , management considers industry trends , peer comparisons , as well as individual classified impaired loans , in addition to historical experience to evaluate the allowance for loan losses . our method for determining the allowance for loan losses is discussed more fully under ยasset qualityย below . story_separator_special_tag noninterest income can be increased . noninterest income ( excluding securities gains and losses ) consists of mortgage loan origination fees , service fees , distributions from a title insurance agency in which we have an 25 ownership interest , and fees generated by the investment services of investment . service fees consist primarily of monthly service and minimum account balance fees and charges on transactional deposit accounts , overdraft charges , and atm service fees . the bank , through the mortgage division originates both conforming and non-conforming consumer residential mortgage loans primarily in the region 2000 area . as part of the bank 's overall risk management strategy , all of the loans originated and closed by the mortgage division are presold to mortgage banking or other financial institutions . the mortgage division assumes no credit or interest rate risk on these mortgages . the mortgage division originated 335 mortgage loans , totaling $ 59,286,000 in 2012 as compared with 290 mortgage loans , totaling $ 49,481,000 during the year ended december 31 , 2011. in 2012 , the mortgage division faced an improving real estate market and loans for new home purchase comprised 37 % of the total volume . refinancing increased significantly in response to continued historical low interest rates . for the year ended december 31 , 2012 , the mortgage division accounted for 5.62 % of financial 's total revenue as compared with 4.49 % of financial 's total revenue for the year ended december 31 , 2011. mortgage contributed $ 270,000 and $ 159,000 to financial 's pre-tax net income in 2012 and 2011 , respectively . although management anticipates that residential mortgage rates will remain low by historical standards throughout 2013 , management also anticipates that if rates trend higher , the loan mix will shift towards new home purchases and away from refinancing . the mortgage division continues to improve its market share in region 2000. management expects that low rates coupled with the mortgage division 's reputation in region 2000 will allow us to continue to grow revenue at the mortgage division . service charges and fees and commissions increased to $ 1,230,000 for the year ended december 31 , 2012 from $ 1,149,000 for the year ended december 31 , 2011. this increase was due in large part to an increase in debit card fees , which increased $ 86,000 from $ 505,000 for the year ended december 31 , 2011 to $ 591,000 for the year ended december 31 , 2012. the increase was offset in part by a decrease in commissions earned on the sale of securities to $ 51,000 for the year ended december 31 , 2012 from $ 69,000 for the year ended december 31 , 2011. our investment division provides brokerage services through an agreement with a third-party broker-dealer . pursuant to this arrangement , the third party broker-dealer operates a service center adjacent to one of the branches of the bank . the center is staffed by dual employees of the bank and the broker-dealer . investment receives commissions on transactions generated and in some cases ongoing management fees such as mutual fund 12b-1 fees . the investment division 's financial impact on our consolidated revenue has been immaterial . although management can not predict the financial impact of investment with certainty , management anticipates it will continue to be an immaterial component of revenue in 2013. in the third quarter of 2008 , we began providing insurance and annuity products to bank customers and others , through the bank 's insurance subsidiary . the bank has one full-time and one part-time employee that are dedicated to selling insurance products through insurance . insurance generates minimal revenue and its financial impact on our consolidated revenue has been immaterial . management anticipates that insurance 's impact on noninterest income will remain immaterial in 2013. noninterest income , exclusive of gains and losses on sale of securities , increased to $ 2,944,000 in 2012 from $ 2,498,000 in 2011. inclusive of gains and losses on sale of securities , noninterest income decreased slightly to $ 3,618,000 in 2012 from $ 3,680,000 in 2011. the following table summarizes our noninterest income for the periods indicated . 26 replace_table_token_5_th the decrease in noninterest income for 2012 as compared to 2011 was due to a decrease in gains on sales of available-for-sale securities . these gains were largely offset by increases in the other categories of non-interest income , particularly mortgage fee income . mortgage fee income increased due to the factors discussed previously . noninterest expense of financial noninterest expenses increased from $ 13,693,000 for the year ended december 31 , 2011 to $ 14,391,000 for the year ended december 31 , 2012. the following table summarizes our noninterest expense for the periods indicated . replace_table_token_6_th the increase in noninterest expense was due in large part to an increase in salaries . the increase in these costs was partially offset by a decrease in professional , data processing , and other outside expenses and the loss on the sale or writedown of oreo . our total personnel expense , net of fees collected from borrowers to cover direct salary costs incurred in originating certain loans ( in accordance with current accounting rules ) , increased to $ 6,529,000 for the year ended december 31 , 2012 , from $ 5,668,000 for the twelve months ended december 31 , 2011. compensation for some employees of the mortgage division and investment is commission-based and therefore subject to fluctuation .
| the significant categories of earning assets are loans , federal funds sold , and investment securities , while deposits , fed funds purchased , and other borrowings represent interest-bearing liabilities . the level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities , as well as changes in interest rates when compared to previous periods of operation . 22 interest income decreased to $ 18,753,000 for the year ended december 31 , 2012 from $ 19,519,000 for the year ended december 31 , 2011. this decrease was due to a decrease in the yields on average earning assets which primarily consist of loans and investment securities , as discussed below . interest expense decreased , as discussed more fully below . net interest income for 2012 increased slightly $ 410,000 to $ 15,737,000 or 2.68 % from net interest income of $ 15,327,000 in 2011. the growth in net interest income was due in large part to a decrease in our interest expense of $ 1,176,000 from $ 4,192,000 for the year ended december 31 , 2011 to $ 3,016,000 for the year ended december 31 , 2012. this decrease in interest expense was primarily due to reductions in the interest rate paid on time deposits and savings accounts , specifically savings accounts . the average interest rate paid on time deposits decreased by 36 basis points during 2012 as compared to 2011. the net interest margin increased to 4.03 % in 2012 from 3.89 % in 2011. the average rate on earning assets decreased 15 basis points from 4.95 % in 2011 to 4.80 % in 2012 and the average rate on interest-bearing liabilities decreased from 1.20 % in 2011 to 0.88 % in 2012. although management can not predict with certainty future interest rate decisions by the fomc , statements from the federal reserve board indicate that interest rates will remain low at least as long as the unemployment rate remains above 6-1/2 percent , inflation ( between one and
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the company is restating its financial statements for fiscal 2015 , fiscal 2016 , certain quarterly data for fiscal 2015 , certain quarterly data for fiscal 2016 , and the first three fiscal quarters of fiscal 2017 , in this annual report on form 10-k for fiscal 2017. the restated financial statements correct the following errors : equity-based payments- stock options ยท a $ 4,514,158 overstatement of stock option expense which was a result from applying the incorrect accounting guidance for equity-based payments for employees as compared to the proper guidance for non-employees for the full year ended december 31 , 2016 ; ยท a $ 15,329,588 overstatement of stock option expense which was a result from applying the incorrect accounting guidance for equity-based payments for non-employees for the full year ended december 31 , 2016 ; ยท a $ 264,795 overstatement of stock option expense which was a result from applying the incorrect accounting guidance for equity-based payments for non-employees for the full year ended december 31 , 2015 ; ยท a $ 2,499,457 overstatement of stock option expense which was a result from applying the incorrect accounting guidance for equity-based payments for non-employees for the full year ended december 31 , 2015 ; equity-based payments โ stock compensation ยท a $ 1,215,188 understatement of stock compensation expense in connection with our agent growth incentive program for the full year ended december 31 , 2016. the error was the result of an incorrect application of the equity-based payments for non-employees which requires remeasurement of each award at each reporting date throughout the vesting period ; ยท a $ 121,704 understatement of stock compensation expense in connection with our agent growth incentive program for the full year ended december 31 , 2015. the error was the result of an incorrect application of the equity-based payment for non-employees which requires remeasurement of each award at each reporting date throughout the vesting period ; 23 other adjustments ยท the company also made corrections related to certain errors in revenue and cost of sales which decreased previously reported net revenues and cost of revenues by approximately $ 0.6 million and approximately $ 0.4 million for the years ended december 31 , 2016 and 2015 , respectively . the following discussion should be read together with our consolidated financial statements and related notes included elsewhere within this report . the management 's discussion and analysis of financial condition and results of operations contain forward-looking statements . our actual results could differ materially from those anticipated in these forward-looking statements . see โ forward-looking statements โ and โ item 1 a . โ risk factors โ for a discussion of certain risks , uncertainties and assumptions associated with these statements . overview exp world holdings , inc. , ( the โ company โ , โ exp โ , โ we โ , โ us โ , โ our โ ) , is a holding company with our main operating division being a cloud-based international residential real estate brokerage ( โ exp realty โ ) operating across the united states and in the provinces of alberta and ontario , canada . our operations are focused on the use of cloud-based technologies in order to grow an international brokerage without the burden of physical brick and mortar offices or redundant staffing costs . our technology focus includes the development of a proprietary cloud based real estate transactional platform . continued accelerated growth beginning in 2016 and throughout 2017 , we increased our net real estate brokerage agent and broker base by 171.2 % , from 2,401 at december 31 , 2016 to 6,511 at december 31 , 2017. these increases occurred in both new and existing geographical markets and contributed to our net revenue increase of 191.5 % for the year ended december 31 , 2017 as compared to the prior year-ended december 31 , 2016. agent ownership the company maintains equity incentive programs whereby agents and brokers of exp realty can become eligible for awards of the company 's common stock through the achievement of production and agent attraction benchmarks . under this program , agents and brokers who qualify can be issued shares of the company 's common stock . the company also administers a program whereby agents and brokers could elect to receive 5 % of their commission payable in the form of company common stock which is issued at a 20 % discount to market on the date of issuance . in 2017 , approximately 2,700 exp realty agents and brokers took advantage of this program resulting in 1,464,997 shares of common stock being issued . this agent equity program continues to be another element in creating a culture of agent-ownership . recent business developments initiatives advancements during the year ended december 31 , 2017 centered on the addition of scaling the corporate operations of the company to match current and ongoing growth of the business . during this period the company hired a new chief operating officer for our exp realty division who most recently held leadership positions at both realty executives and homesmart international . this new role will focus on cross collaboration efforts across the entire organization in addition to working with our agent advisory council . we also hired a new chief product and technology officer with extensive industry experience to lead our continued development efforts of product and services for our agents and employees . we also hired a new vice president of employee experience . as the organization continues to grow and in an effort to support our rapidly growing agent base , we believe it is important to continue building our culture in alignment with long term goals of the company . 24 the company continues to build out its exp enterprise ( โ enterprise โ ) operating platform . enterprise is a proprietary platform that manages all of the company 's critical processes and information , including agent details , transactions , commissions and revenue share . story_separator_special_tag it allows for a flow of real time information to exp agents , while also providing a singular platform for exp staff to perform a variety of back office functions in a scalable and efficient manner . the platform has already led to improvements in the areas of agent onboarding , transaction processing and financial oversight . this platform will lend itself to constantly enhance and build out capabilities that meet the needs of company stakeholders into the future . during the year ended december 31 , 2017 , the company also created a variety of new marketing and communications collateral , allowing stakeholders to have more transparency into the organization while providing more ways to provide feedback . collateral provided to agents included tools to assist with social media , public relations , and a variety of internal communication pieces to help agents be more productive and in-the-know . the company continues to focus its efforts on the quality of our services and recruiting and retaining top performing talent with the overall goal of growing and improving overall profitability . tax cuts and jobs act of 2017 the tax cuts and jobs act of 2017 became law on december 22 , 2017. the law includes provisions that , among other things : ยท reduce individual federal tax brackets at most income levels ; ยท increase the standard deduction from $ 12,700 to $ 24,000 for married taxpayers filing a joint tax return ; ยท caps the amount of property , sales and state and local income tax deductions at $ 10,000 ; ยท reduce the limit on deductible mortgage debt to $ 750,000 , from $ 1 million on mortgage loans entered into after december 15 , 2017 , while entirely suspending interest deductibility of home equity loans ; and ยท suspend the deductibility of certain home moving expenses . the provisions of the 2017 tax act may cause changes in the residential real estate market , the prices taxpayers are willing to pay for new homes and the terms of their financing . the effects of the 2017 tax act on average home sale prices may be more impactful in states with particularly high state income tax and property values . the impact of the income tax changes on individuals and potential impact on home sale transactions is difficult to predict . market conditions and industry trends according to the nar , home sale transactions of single family homes volume increased 8.4 % in 2017 as compared to the same period in 2016 as a result of both an increase in the number of home sale transactions , combined with average home sale price growth . also , according to nar , the housing affordability index has continued to be at historically favorable levels . when the index is above 100 , it indicates that a family earning the median income has sufficient income to purchase a median-priced home , assuming a 20 percent down payment and ability to qualify for a mortgage . the composite housing affordability index was 157.5 for 2017 and 167.1 for 2016. the favorable housing affordability index is due in part to favorable mortgage rate conditions . mortgage rates increased approximately 40 basis points from december 31 , 2016 to december 31 , 2017 but continue to be at historically low levels . while any increase to mortgage rates can adversely impact housing affordability , we believe that rising wages , improving consumer confidence and continued low inventory levels will result in favorable demand conditions and existing home sale volume growth . according to the federal housing finance agency , mortgage rates on commitments for 30-year , conventional , fixed-rate first mortgages averaged 3.88 % for 2016 and the rate rose to 4.17 % in december 2017. to the extent mortgage rates increase further , consumers continue to have financing alternatives such as adjustable rate mortgages or shorter-term mortgages which can be utilized to obtain a mortgage rate that is lower than a comparable 30-year fixed-rate mortgage . 25 partially offsetting the positive impact of low mortgage rates are low housing inventory levels . according to nar , the inventory of existing homes for sale in the u.s. decreased to 1.3 million ( preliminary ) , from 1.7 million at year ended december 31 , 2016. the inventory represents a national average supply of 3.1 months at the current home sales pace which is down from 4.4 months for 2016. additional factors offsetting the positive impact of low mortgage rates include the ongoing rise in home prices , less than favorable mortgage underwriting standards and some would-be home sellers having limited or negative equity in homes . mortgage credit conditions tightened significantly during the housing downturn , with banks limiting credit availability to more creditworthy borrowers and requiring larger down payments , stricter appraisal standards , and more extensive mortgage documentation . although mortgage credit conditions appear to be easing , mortgages remain less available to some borrowers and it frequently takes longer to close a residential transaction due to current mortgage and underwriting requirements . existing home sales according to nar , existing home sale transactions increased 1.1 % to 5.5 million for year ended december 31 , 2017 compared to the same period in 2016. exp realty home sale transactions increased 217 % to 25,055 for the year ended december 31 , 2017 , from 7,905 compared to the same period in 2016. our increase in homes sale transactions was attained by the growth of our agent base which grew approximately 171 % to over 6,500 for the year ended december 31 , 2017 from approximately 2,400 at year ended 2016. as of their most recent releases , nar is forecasting existing home sales to decrease .2 % in 2018 and increase 3.1 % in 2019. existing home sales price we believe primary drivers to the long-term demand for housing and the growth of our company to support that demand are housing affordability , the general economic health of the u.s. economy , demographic trends such as population growth , the
| the increase in general and administrative costs was driven primarily by the increase in compensation expenses of $ 5.3 million , increase in stock options expense of $ 4.8 million , from $ 2.1 million ( as restated ) for the year ended december 31 , 2016 to $ 6.9 million for the year ended december 31 , 2017 , and an increase in stock compensation expense of $ 6.0 million , from $ 5.0 million ( as restated ) for the year ended december 31 , 2016 to $ 11.0 million for the year ended december 31 , 2017. the increase in stock options and stock compensation expense is affected by awards granted , awards exercised and or awards forfeited throughout the year . awards granted , issued and forfeited are more fully disclosed in note 8 , stockholders ' equity , of the consolidated financial statements . also impacting the increase in stock compensation expense was the increase in our stock price and the increase in shares granted for our equity incentive program whereby agents and brokers of exp realty become eligible for awards of the company 's common stock through the achievement of production and agent attraction benchmarks . professional fees were $ 1.3 million for the year ended december 31 , 2017 compared to $ 0.6 million for the year ended december 31 , 2016 , an increase of $ 0.6 million , or 97.6 % . professional fees include costs related to legal , accounting and other consultants . the increase in professional fees were primarily driven by an increase in audit costs of $ 0.3 million and an increase in legal fees of $ 0.2 million including fees for non-recurring transactions . non-recurring legal fees related to performing diligence and contract review and preparation to support the growth of new agent and broker bases as well as entry into new geographical markets . sales and marking expenses were $ 1.6 million for the year ended december 31 , 2017 compared to $ 0.6 million for the year ended december 31 , 2016 , an increase of $ 1.0 million , or 175.4 % . sales and marketing includes costs related to lead capture , digital and print media , and trade shows , in addition to other promotional materials . the increase in sales and marketing expenses was primarily due to increased cost in lead capture of $ 0.7 million and other internet marketing of $ 0.1 million related to our growth in agent and broker
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significant judgment is required when estimating total hours and progress to completion on these arrangements which determines the amount of revenue we recognize as well as whether a loss is recognized if one is expected to be incurred for the remainder of the project . revisions to hour and cost estimates are incorporated in the period in which the facts that give rise to the revision become known . 21 in certain situations when it is impractical for us to reliably estimate either specific amounts or ranges of contract revenues and costs , and where we anticipate that we will not incur a loss , a zero profit model is used for revenue re cognition . equal amounts of revenue and cost are recognized during the contract period , and profit is recognized when the project is completed and accepted . this method was used in 2013 and 2014 for two engineering service contracts in japan . the contracts were completed and accepted in the second and fourth quarters of 2014 and the profit from these contracts was recognized in 2014. we also enter into arrangements in which a customer purchases a combination of software licenses , engineering services and post-contract customer support and or maintenance ( โ pcs โ ) . as a result , contract interpretation is sometimes required to determine the appropriate accounting , including how the price should be allocated among the deliverable elements if there are multiple elements . pcs may include rights to upgrades , when and if available , telephone support , updates and enhancements . when vendor specific objective evidence ( โ vsoe โ ) of fair value exists for all elements in a multiple element arrangement , revenue is allocated to each element based on the relative fair value of each of the elements . vsoe of fair value is established by the price charged when the same element is sold separately . accordingly , the judgments involved in assessing the fair values of various elements of an agreement can impact the recognition of revenue in each period . changes in the allocation of the sales price between deliverables might impact the timing of revenue recognition , but would not change the total revenue recognized on the contract . when elements such as software and engineering services are contained in a single arrangement , or in related arrangements with the same customer , we allocate revenue to each element based on its relative fair value , provided that such element meets the criteria for treatment as a separate unit of accounting . in the absence of fair value for a delivered element , revenue is first allocated to the fair value of the undelivered elements and then allocated to the residual delivered elements . in the absence of fair value for an undelivered element , the arrangement is accounted for as a single unit of accounting , resulting in a delay of revenue recognition for the delivered elements until the undelivered elements are fulfilled . when engineering services and royalties are contained in a single arrangement , we recognize revenue from engineering services as earned in accordance with the criteria above even though the effective rate per hour may be lower than typical because the customer is contractually obligated to pay royalties on their device shipments . we recognize royalty revenue , classified as software revenue , when the royalty report from the customer is received or when such royalties are contractually guaranteed and the other revenue recognition criteria are met , particularly that collectability is reasonably assured . there are two items involving revenue recognition that require us to make more difficult and subjective judgments : the determination of vsoe of fair value in multiple element arrangements and the estimation of percentage of completion on fixed-price service contracts . historically , we have entered into very few multiple-element arrangements for proprietary software . we establish vsoe of fair value for proprietary software based on the price when pcs is sold separately . we establish vsoe of fair values for new proprietary software products for each separate product or service promised under a multiple-element contract , including software licenses , installation , training services and pcs . we measure our estimate of completion on fixed-price contracts , which in turn determines the amount of revenue we recognize , based primarily on actual hours incurred to date and our estimate of remaining hours necessary to complete the contract . the process of estimating the remaining hours on a contract involves detailed estimates of remaining hours by the engineers and project managers involved with the project , factoring in such variables as the remaining tasks , the complexity of the tasks , the contracted quality of the software to be provided , the customer 's estimated delivery date , integration of third-party software and quality thereof and other factors . every fixed-price contract requires various approvals within our company , including our chief executive officer if significant . this approval process takes into consideration a number of factors including the complexity of engineering . historically , our estimation processes related to fixed-price contracts have been accurate based on the information known at the time of the reporting of our results . however , percentage-of-completion estimates require significant judgment . as of december 31 , 2015 , we were delivering engineering services under six fixed-price service contracts . the percentage of completion calculations on these contracts represents management 's best estimates based on the facts and circumstances as of the filing of this report . if there are changes to the underlying facts and circumstances , revisions to the percentage-of-completion calculations will be recorded in the period the changes are noted . story_separator_special_tag for illustrative purposes only , if we were 10 % under in our estimates of completion on every fixed-bid contract active on december 31 , 2015 , our revenue could have been over-stated by approximately $ 198,000 for 2015. intangible assets and goodwill we evaluate our intangible assets for indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable . our intangible assets were acquired through business acquisitions . our intangible assets consist of customer relationships . factors that could trigger an impairment analysis include significant under-performance relative to historical or projected future operating results , significant changes in the manner of our use of the acquired assets or the strategy for our overall business or significant negative industry or economic trends . if this evaluation indicates that the value of the 22 intangible asset may be impaired , we make an assessment of the recoverab ility of the net carrying value of the asset over its remaining useful life . if this assessment indicates that the intangible asset is not recoverable , based on the estimated undiscounted future cash flows of the technology over the remaining useful life , we reduce the net carrying value of the related intangible asset to fair value . any such impairment charge could be significant and could have a material adverse effect on our reported financial results . we evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable . our annual testing date is december 31. we test goodwill for impairment by performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount . if it is more likely than not that the fair value of the reporting unit is greater than the carrying amount , further testing of impairment is not performed . if it is more likely than not that the fair value of the reporting unit is less than the carrying amount , we perform a quantitative two-step impairment test . stock-based compensation our stock-based compensation expense for stock options is estimated at the grant date based on the stock award 's fair value as calculated by the black-scholes-merton ( โ bsm โ ) option-pricing model and is recognized as expense over the requisite service period . the bsm model requires various highly judgmental assumptions including expected volatility and option life . if any of the assumptions used in the bsm model change significantly , stock-based compensation expense may differ materially in the future from that recorded in the current period . restricted stock units ( โ rsus โ ) and restricted stock awards ( โ rsas โ ) are measured based on the fair market values of the underlying stock on the dates of grant as determined based on the number of shares granted and the quoted price of our common stock on the date of grant . in addition , we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest . we estimate the forfeiture rate based on historical experience and expected future activity . to the extent our actual forfeiture rate is different from our estimates , stock-based compensation expense is adjusted accordingly . incentive compensation we make certain estimates , judgments and assumptions regarding the likelihood of attainment , and the level thereof , of bonuses payable under our annual incentive compensation programs . we accrue bonuses and recognize the resulting expense when the bonus is judged to be reasonably likely to be earned as of year-end and is estimable . the amount accrued , and expense recognized , is the estimated portion of the bonus earned on a year-to-date basis less any amounts previously accrued . these estimates , judgments and assumptions are made quarterly based on available information and take into consideration our year-to-date actual results and expected results for the remainder of the year . because we consider estimated future results in assessing the likelihood of attainment , significant judgment is required . if actual results differ materially from our estimates , the amount of bonus expense recorded in a particular quarter could be significantly over or under estimated . taxes as part of the process of preparing our consolidated financial statements , we are required to estimate income taxes in each of the countries and other jurisdictions in which we operate . this process involves estimating our current tax expense together with assessing temporary differences resulting from the differing treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities . net operating losses and tax credits , to the extent not already utilized to offset taxable income or income taxes , also give rise to deferred tax assets . we must then assess the likelihood that any deferred tax assets will be realized from future taxable income , and , to the extent we believe that recovery is not likely , we must establish a valuation allowance . we apply the guidance of accounting standards codification ( asc ) 740 , income taxes , which requires us to use judgment as to the appropriate weighting of all available evidence when assessing the need for the establishment or the release of valuation allowances . as part of this analysis , we examine all available evidence on a jurisdiction-by-jurisdiction basis and weigh the positive and negative information when determining the need for full or partial valuation allowances .
| software revenue for 2015 and 2014 was as follows ( dollars in thousands ) : replace_table_token_7_th the vast majority of our third-party software revenue is comprised of sales of microsoft embedded software and windows mobile operating systems . third-party software revenue increased $ 9.0 million , or 12 % , in 2015 compared to 2014. the increase in third-party software revenue was driven primarily by an increase in both microsoft windows embedded software sales and windows mobile sales partially offset by a reduction in sales of other third-party software . proprietary software revenue increased $ 1.0 million , or 44 % , in 2015 compared to 2014. this was driven by several large purchases of our legacy products . we expect that proprietary software revenue from our legacy products will continue to fluctuate in the future with generally lower overall volume in 2016 and beyond . service revenue service revenue for 2015 and 2014 was as follows ( dollars in thousands ) : replace_table_token_8_th service revenue increased $ 0.7 million , or 4 % , in 2015 compared to 2014 , due to increases in service revenue generated in north america offset partially by decreases in service revenue generated in both asia and emea . the increase in north american service revenue was driven largely by a significant increase from an existing fortune 500 customer as well as the addition of a new fortune 500 customer , partially offset by decreases due to the completion of existing projects with customers . the decrease in asia was driven by the completion of two large handheld programs in 2014. both programs were accounted for under the zero profit percentage of completion accounting method in which we recognized revenue during the project equal to our cost and recognized the remaining revenue , equal to the gross profit on the program , at completion . we continue to work on the myford touch , a project we began with ford during the second quarter of 2008 ; however , we now conduct these services through an agreement with
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clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors . we outsource a substantial portion of our clinical trial activities , utilizing external entities such as cros , independent clinical investigators , and other third-party service providers to assist us with the execution of our clinical studies . clinical activities which relate principally to clinical sites and other administrative functions to manage our clinical trials are performed primarily by cros . cros typically perform most of the start-up activities for our trials , including document preparation , site identification , screening and preparation , pre-study visits , training , and program management . clinical trial and pre-clinical trial expenses include regulatory and scientific consultants ' compensation and fees , research expenses , purchase of materials , cost of manufacturing of the oral insulin capsules , payments for patient recruitment and treatment , costs related to the maintenance of our registered patents , costs related to the filings of patent applications , as well as salaries and related expenses of research and development staff . in august 2009 , oramed ltd. was awarded a government grant amounting to a total net amount of nis 3.1 million ( approximately $ 813,000 ) , from the office of the chief scientist of the ministry of industry , trade and labor of israel , or ocs . this grant was used for research and development expenses for the period of february 2009 to june 2010. the funds were used by us to support further research and development and clinical study of our oral insulin capsule and oral glp-1-analog . in december 2010 , oramed ltd. was awarded a second grant , or the second grant , amounting to a total net amount of nis 2.9 million ( approximately $ 720,000 ) from the ocs , which was designated for research and development expenses for the period of july 2010 to november 2011. as a result of a delay in the research and development plan , as of november 30 , 2011 , oramed ltd. had used only nis 1,473,000 ( approximately $ 365,000 ) of the second grant . in may 2012 , oramed ltd. was awarded an extension of nine months to use the funds of the second grant until august 2012. in addition , in may 2012 , oramed ltd. was granted a third grant amounting to a total net amount of nis 595,000 ( approximately $ 148,000 ) from the ocs , which was designated for research and development expenses for the period of september 2012 to december 2012. we used the funds to support further research and development and clinical studies of our oral insulin capsule and oral glp-1 analog . the three grants are subject to repayment according to the terms determined by the ocs and applicable law . see โ โgovernment grants โ below . 31 during the year ended august 31 , 2012 , research and development expenses totaled $ 1,680,845 , compared to $ 1,159,309 for the year ended august 31 , 2011. the increase is mainly attributed to the preparation for the fda approved phase 2 study that will follow the expected ind filing in the fourth calendar quarter of 2012. the research and development costs include stock based compensation costs , which during the year ended august 31 , 2012 totaled $ 98,688 , as compared to $ 265,327 during the year ended august 31 , 2011. the decrease is mainly attributable to the end of the vesting period at january 31 , 2012 of the 864,000 options granted to dr. miriam kidron in april 2010. government grants the government of israel encourages research and development projects through the ocs , pursuant to the law for the encouragement of industrial research and development , 1984 , as amended , or the r & d law . under the r & d law , a research and development plan that meets specified criteria is eligible for a grant of up to 50 % of certain approved research and development expenditures . each plan must be approved by the ocs . in the years ended august 31 , 2012 and 2011 , we recognized research and development grants in an amount of $ 372,959 and $ 354,906 , respectively . as of august 31 , 2012 , we had no contingent liabilities to the ocs . under the terms of the grants we received from the ocs , we are obligated to pay royalties of 3 % to 3.5 % on all revenues derived from the sale of the products developed pursuant to the funded plans , including revenues from licensed ancillary services . pursuant to a proposed amendment to the r & d law , our royalty rate may be 3 % to 6 % per annum . royalties are payable up to 100 % of the amount of such grants , or up to 300 % as detailed below , linked to the u.s. dollar , plus annual interest at libor . the r & d law generally requires that a product developed under a program be manufactured in israel . however , upon notification to the ocs ( and provided that the ocs does not object within 30 days ) , up to 10 % of a company 's approved israeli manufacturing volume , measured on an aggregate basis , may be transferred outside of israel . in addition , upon the approval of the ocs , a greater portion of the manufacturing volume may be performed outside of israel , provided that the grant recipient pays royalties at an increased rate , which may be substantial , and the aggregate repayment amount is increased up to 300 % of the grant , depending on the portion of the total manufacturing volume that is performed outside of israel . story_separator_special_tag the r & d law further permits the ocs , among other things , to approve the transfer of manufacturing rights outside of israel in exchange for an import of different manufacturing into israel as a substitute , in lieu of the increased royalties . the r & d law also allows for the approval of grants in cases in which the applicant declares that part of the manufacturing will be performed outside of israel or by non-israeli residents and an ocs research committee is convinced that doing so is essential for the execution of the program . this declaration will be a significant factor in the determination of the ocs as to whether to approve a program and the amount and other terms of benefits to be granted . for example , an increased royalty rate and repayment amount might be required in such cases . 32 the r & d law also provides that know-how developed under an approved research and development program may not be transferred to third parties in israel without the approval of the research committee . such approval is not required for the sale or export of any products resulting from such research or development . the r & d law further provides that the know-how developed under an approved research and development program may not be transferred to any third parties outside israel absent ocs approval which may be granted under special circumstances such as those noted in the following cases : ( a ) the grant recipient pays to the ocs a portion of the sale price paid in consideration for such ocs-funded know-how or the price paid in consideration for the sale of the grant recipient itself , as the case may be ( according to certain formulas ; the portion to be paid in respect of a sale of the grant recipient itself changed under the applicable rules that came into effect in november 2012 ) ; ( b ) the grant recipient receives know-how from a third party in exchange for its ocs-funded know-how ; or ( c ) such transfer of ocs-funded know-how arises in connection with certain types of cooperation in research and development activities . the r & d law imposes reporting requirements with respect to certain changes in the ownership of a grant recipient . the r & d law requires the grant recipient and its controlling shareholders and foreign interested parties to notify the ocs of any change in control of the recipient or a change in the holdings of the means of control of the recipient that results in a non-israeli becoming an interested party in the recipient , and requires the new interested party to undertake to the ocs to comply with the r & d law . in addition , the rules of the ocs may require additional information or representations in respect of certain such events . for this purpose , โ control โ is defined as the ability to direct the activities of a company other than any ability arising solely from serving as an officer or director of the company . a person is presumed to have control if such person holds 50 % or more of the means of control of a company . โ means of control โ refers to voting rights or the right to appoint directors or the chief executive officer . an โ interested party โ of a company includes a holder of 5 % or more of its outstanding share capital or voting rights , its chief executive officer and directors , someone who has the right to appoint its chief executive officer or at least one director , and a company with respect to which any of the foregoing interested parties owns 25 % or more of the outstanding share capital or voting rights or has the right to appoint 25 % or more of the directors . accordingly , any non-israeli who acquires 5 % or more of our common stock will be required to notify the ocs that it has become an interested party and to sign an undertaking to comply with the r & d law . failure to meet the r & d law 's requirements may subject us to mandatory repayment of grants received by us ( together with interest and penalties ) , as well as expose us to criminal proceedings . in addition , the israeli government may from time to time audit sales of products which it claims incorporate technology funded through ocs programs which may lead to additional royalties being payable on additional products . grants from bio-jerusalem the bio-jerusalem fund was founded by the jerusalem development authority in order to support the biomed industry in jerusalem . we are committed to pay royalties to the bio-jerusalem fund on proceeds from future sales at a rate of 4 % and up to 100 % of the amount of the grants received by the company ( israeli cpi linked ) in the total aggregate amount of $ 52,733 as of august 31 , 2012. for the year ended august 31 , 2012 , there were no grants received from the bio-jerusalem fund and in the year ended august 31 , 2011 , we received $ 20,950 from said fund . as we have not yet realized any revenues since inception , we have not incurred any royalty liability to the bio-jerusalem fund . 33 general and administrative expenses general and administrative expenses include the salaries and related expenses of our management , consulting costs , legal and professional fees , traveling , business development costs , insurance expenses and other general costs . for the year ended august 31 , 2012 , general and administrative expenses totaled $ 1,203,164 compared to $ 1,275,960 for the year ended august 31 , 2011. the increase in costs incurred related to general and administrative activities during the year ended august 31 , 2012 was mainly due to an increase in investor relations costs , which was partially offset by a decrease in consulting fees .
| as of october 1 , 2011 , the securities are not restricted and the fair value of the securities is measured based on the quoted prices of the securities on an active market . changes in fair value , net of taxes , are reflected in other comprehensive income ( loss ) . factors considered in determining whether a loss is temporary include the extent to which fair value has been less than the cost basis , and the financial condition and near-term prospects of the investee based on our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value . the loss is recorded as a charge to earnings . valuation of options and warrants : we grant options to purchase shares of our common stock to employees and consultants and issue warrants in connection with some of our financings and to certain other consultants . 29 we account for share-based payments in accordance with the guidance that requires awards classified as equity awards be accounted for using the grant-date fair value method . the fair value of share-based payment transactions is recognized as an expense over the requisite service period , net of estimatedยญ forfeitures . we estimate forfeitures based on historical experience and anticipated future conditions . we elected to recognize compensation cost for an award with only service conditions that has a graded vesting schedule using the accelerated method based on the multiple-option award approach . when stock options are granted as consideration for services provided by consultants and other non-employees , the transaction is accounted for based on the fair value of the consideration received or the fair value of the stock options issued , whichever is more reliably measurable , pursuant to the guidance . the fair value of the options granted is measured on each reporting date , and the gains ( losses ) are recorded to earnings over the related service period using the straight-line method . valuation of warrants issued as part of capital raisings that are classified as a liability :
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in connection with our consideration of a potential spin-off of our u.s. and u.k. micro-loan businesses , one of our subsidiaries , purpose financial holdings , inc. , filed a form 10 registration statement and a related information statement with the sec on january 4 , 2010 and amended the form 10 registration statement and related information statement in response to sec comments most recently on november 30 , 2010. on april 13 , 2011 , we formally requested the withdrawal of this registration statement due to the completion of our mem sale . the most significant business changes or events for us during the year ended december 31 , 2011 were : ยท the sale of our retail micro-loans segment to a subsidiary of advance america , cash advance centers , inc. for $ 46.2 million on october 10 , 2011 , thereby resulting in ( 1 ) a gain ( net of related sales expenditures ) of $ 5.1 million that is included as a component of discontinued operations within our consolidated statement of operations for the year ended december 31 , 2011 , and ( 2 ) the classification our retail micro-loans segment 's operations as discontinued operations for all periods presented within our consolidated statements of operations ; ยท our repurchases in open market transactions of an aggregate of $ 62.0 million in face amount of our 3.625 % convertible senior notes due in 2025 and $ 1.0 million in face amount of our 5.875 % convertible senior notes due in 2035 for $ 59.3 million and $ 0.4 million , respectively , such amounts being inclusive of transaction costs and accrued interest through the dates of our repurchases of the notes ; ยท the closing of a tender offer in april 2011 , through which we repurchased 13,125,000 shares of our common stock at a purchase price of $ 8.00 per share for an aggregate cost of $ 105.0 million ; ยท the sale of our mem operations to a subsidiary of dollar financial corp for $ 195.0 million on april 1 , 2011 , thereby resulting in ( 1 ) a gain ( net of related sales expenditures ) of $ 106.0 million that is included as a component of discontinued operations within our consolidated statements of operations for the year ended december 31 , 2011 , ( 2 ) the classification of our mem operations as discontinued operations for all periods presented within our consolidated statements of operations , and ( 3 ) the confirmation of our classification of these operations on our consolidated balance sheet as of december 31 , 2010 as held for sale ; ยท our acquisition of a 50 % interest in a joint venture that purchased at discounted price in march 2011 all of the outstanding notes issued out of our u.k. portfolio structured financing trust and reported a gain in the three months ended march 31 , 2011 upon its marking of such notes to their fair value as of march 31 , 2011 under its fair value option election ( of which $ 17.1 million was our allocable share ) ; ยท our february 2011 sale of certain operating assets of our jras buy-here , pay-here lot subsidiaries in a transaction under which we retained its underlying loans and fees receivable , resulting in a loss of $ 4.6 million ; and ยท our january 2011 purchase of certain investor interests in our credit cards segment equity-method investees and substantially all of the noncontrolling interests in our credit cards segment majority-owned subsidiaries for $ 4.1 million . 15 as is customary in our industry , we historically financed most of our credit card receivables through the asset-backed securitization markets . these markets worsened significantly in 2008 and are not likely to return to any degree of efficient and effective functionality for us in the near termโparticularly given a current u.s. regulatory and economic environment in which sub-prime credit card lending returns on investment are not attractive enough for us to want to originate any significant level of new credit card receivables in the u.s. ( other than through our investment in previously charged-off receivables segment 's balance transfer program ) . we continue , however , to originate credit cards in the u.k. because we believe the u.k. regulatory environment to be more favorable than the u.s. toward possible significant credit card origination growth in the future . in the current environment , the only material recurring cash flows we receive within our credit cards segment are those associated with servicing compensation , distributions from one of our equity-method investees that in march 2011 purchased and now holds all of the outstanding notes issued out of our u.k. portfolio structured financing trust , and the modest cash flows we are receiving from unencumbered credit card receivables portfolios that have already generated enough cash to allow for the repayment of their underlying structured financing facilities . as such , we are closely monitoring and managing our liquidity position , reducing our overhead infrastructure ( which was built to accommodate higher account originations and managed receivables levels ) and further leveraging our global infrastructure in order to maximize returns to shareholders on existing assets . some of these actions , while prudent to maximize cash returns on existing assets , have had the effect of reducing our potential for profitability . our belief is that our reductions in personnel , overhead and other costs ( through increased outsourcing ) to levels that our credit cards segment can better support with its diminished cash inflows will not result in further impairments in the fair values of our credit card receivables ; however , this outcome can not be assured . our credit card and other operations are heavily regulated , and over time we change how we conduct our operations either in response to regulation or in keeping with our goals of continuing to lead the industry in the application of consumer-friendly practices . story_separator_special_tag we have made several significant changes to our practices over the past several years , and because our account management practices are evolutionary and dynamic , it is possible that we may make further changes to these practices , some of which may produce positive , and others of which may produce adverse , effects on our operating results and financial position . subject to the availability of growth capital at attractive terms and pricing , our shareholders should expect us to continue to evaluate and pursue a variety of activities that would be reflected predominantly within our credit cards segment : ( 1 ) the acquisition of additional credit card receivables portfolios , and potentially other financial assets that are complementary to our financially underserved credit card business ; ( 2 ) investments in other assets or businesses that are not necessarily financial services assets or businesses ; and ( 3 ) additional opportunities to repurchase our convertible senior notes and other debt or our outstanding common stock . absent the availability of investment alternatives ( in other portfolios , other non-financial assets or businesses , or our own debt ) at prices necessary to provide attractive returns for our shareholders , we will continue to look to maximize shareholder value through the distribution of excess cash to shareholders ( as has been done historically through dividends and tender offers , including our tender offer that closed in april 2011 , whereby we repurchased 13,125,000 shares of our common stock at a purchase price of $ 8.00 per share for an aggregate cost of $ 105.0 million ) . additionally , given that financing for growth and acquisitions currently is constrained , as well the potential conversions of our 3.625 % convertible senior notes , which would require us to repurchase the $ 83.9 million in face amount of such notes outstanding as of december 31 , 2011 , our shareholders should expect us to pursue less capital intensive activities , like servicing credit card receivables and other assets for third parties ( and in which we have limited or no equity interests ) , that allow us to leverage our expertise and infrastructure until we can finance and complete further acquisitions . story_separator_special_tag display : inline ; font-weight : bold '' > provision for losses on loans and fees receivable recorded at net realizable value . our provision for losses on loans and fees receivable recorded at net realizable value covers aggregate loss exposures on ( 1 ) principal receivable balances , ( 2 ) finance charges and late fees receivable underlying income amounts included within our total interest income category , and ( 3 ) other fees receivable . contractions in our auto finance loans and fees receivable combined with some modest effects of an improved economy over recent quarters account for the significant declines in our provisions for losses on loans and fees receivable recorded at net realizable value in the year ended december 31 , 2011 , compared to the year ended december 31 , 2010. similarly , we expect continued reductions in our provision for losses on loans and fees receivable recorded at net realizable value throughout 2012 attributable to the continued expected gradual net liquidation of our auto finance receivables . the level of contraction in these receivables is expected to outpace growth in receivables within our internet micro-loan business , receivables associated with our investment in previously charged-off receivables segment 's balance transfer program , and other receivables associated with new products we are testing ( e.g. , merchant and private label credit products ) . moreover , we do not expect any significant deviations in our credit risks , delinquencies and loss rates in 2012 versus 2011. total other operating expense . total other operating expense decreased for the year ended december 31 , 2011 relative to the year ended december 31 , 2010 , reflecting the following : ยท diminished salaries and benefits costs resulting from our ongoing cost-cutting efforts as we continue to adjust our internal operations to reflect the declining size of our existing portfolios ; ยท decreases within card and loan servicing expenses , primarily as a result of credit card and auto finance receivables portfolio liquidations ; ยท decreases in depreciation due to cost containment measures , specifically a diminished level of capital investments by us ; and ยท lower other expenses ( which include , for example , net rent and other occupancy costs , legal and professional fees , transportation and travel costs , telecom and data processing costs , insurance premiums , and other overhead cost categories ) as we continue to adjust our internal costs based on the declining size of our existing portfolios ; offset , however , by : ยท costs associated with our exploration and testing of various new business opportunities that largely utilize existing resources but prevent further downsizing of personnel costs . while we incur certain base levels of fixed costs , a large portion of our operating costs are variable based on the levels of accounts we market and receivables we service ( both for our own account and for others ) and the pace and breadth of our search for , acquisition of and introduction of new business lines , products and services . we also attempt to maximize the utility that we get from our incurrence of fixed costs by our testing and exploration of new products and services and areas of investment . given our current focus on cost-cutting and maximizing shareholder returns in light of the continuing dislocation in the liquidity markets and significant uncertainties as to when these markets and the economy will sufficiently improve , we expect further reductions in most cost categories discussed above over the next several quarters . we continue to perform extensive reviews of all areas of our businesses for cost savings opportunities to better align our costs with our net liquidating portfolio of managed receivables .
| the significant factors affecting our differing levels of fees and related income on earning assets include : ยท improved performance within our investments in previously charged-off receivables segment ; ยท reductions in fees earned on our credit card receivables due to continued liquidations offset slightly by the consolidation of former equity-method investees as a result of our january 2011 purchase of certain investor interests in these entities ; ยท reduced gross losses in 2011 on automotive vehicle sales corresponding to our minimization of additional inventory purchases within our jras operations and our ultimate suspension of operations and final sale of our remaining jras lot in february 2011 ; ยท our recognition of a $ 4.6 million loss in the three months ended march 31 , 2011 corresponding to our above-mentioned sale of certain assets associated with our jras operations ; and ยท our recognition of a $ 3.4 million loss in the third quarter of 2011 on an investment that we made in non-marketable debt securitiesโsuch loss representing 100 % of the face amount of the notes that we held from the issuer of the notes based on an other-than-temporary decline in their value , and our recognition of another $ 1.9 million loss in the third quarter of 2011 due to an other-than-temporary decline in the value of another issuer 's non-marketable debt securities in which we had previously invested . given expected net liquidations in our credit card receivables ( absent possible portfolio acquisitions ) in the future , we expect to experience declining levels of fee income on credit card receivables in the future . for the same reason , we also expect our change in fair value of credit card receivables recorded at fair value and our change in fair value of notes payable associated with structured financings recorded at fair value amounts to gradually diminish ( absent significant changes in the assumptions used to determine these fair values ) in the future . these amounts , however , are subject to potentially high levels of volatility if we experience changes in the quality of our credit card receivables or if there are significant changes in market valuation factors ( e.g. , interest rates and spreads ) in
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opportunistic acquisition possibilities are explored if we believe they would enhance the value of our franchise and yield potential financial benefits for our stakeholders . although we believe opportunities exist to increase our market share in our current banking locations , we will not be adverse to expanding into nearby markets , enlarging our current branch network , or adding loan production offices , provided we believe such efforts would enhance our competitive standing . consequently , in 2019 the company announced entering into a definitive agreement to acquire mortgage world bankers , inc. ; we are awaiting regulatory approval . non-u.s. gaap financial measures the following discussion contains certain non-u.s. gaap financial measures in addition to results presented in accordance with u.s. gaap . these non-u.s. gaap measures are intended to provide the reader with additional supplemental perspectives on operating results , performance trends , and financial condition . non-u.s. gaap financial measures are not a substitute for u.s. gaap measures ; they should be read and used in conjunction with the company 's u.s. gaap financial information . the company 's non-u.s. gaap measures may not be comparable to similar non-u.s. gaap information which may be presented by other companies . in all cases , it should be understood that non-u.s. gaap operating measures do not depict amounts that accrue directly to the benefit of shareholders . an item that management excludes when computing non-u.s. gaap adjusted earnings can be of substantial importance to the company 's results and condition for any particular year . a reconciliation of non-u.s. gaap financial measures to u.s. gaap measures is provided below . the sec has exempted from the definition of non-u.s. gaap financial measures certain commonly used financial measures that are not based on u.s. gaap . management believes that these non-u.s. gaap financial measures are useful in evaluating the company 's financial performance and facilitate comparisons with the performance of other financial institutions . however , that information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with u.s. gaap . the table below includes references to the company 's net income and earnings per share for the year ended december 31 , 2019 before deduction of expenses related to termination of the company 's defined benefit pension plan ( defined benefit plan โ ) . in management 's view , that information , which is considered non-u.s. gaap information , may be useful to investors as it will improve comparability of core operations year over year and in future periods . the non-u.s. gaap net income amount and earnings per share reflect adjustments of the non-recurring charges associated with termination of the defined benefit plan , net of tax effect . a reconciliation of the non-u.s. gaap information to u.s. gaap net income and earnings per share is provided below . 47 non- u.s. gaap reconciliation โ n et income b efore loss on termination of defined benefit plan ( unaudited ) replace_table_token_22_th ( 1 ) basic earnings per share were computed ( for the u.s. gaap and non-u.s. gaap basis ) based on the weighted average number of shares outstanding during the year ended december 31 , 2019 ( 17,432,318 shares ) . the assumed exercise of outstanding stock options and vesting of restricted stock units were included in computing the non-u.s. gaap diluted earnings per share and do not result in material dilution . critical accounting policies critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change . critical accounting policies are defined as those involving significant judgments and assumptions by management and that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions . management believes that the most critical accounting policy relates to the allowance for loan losses . the allowance for loan losses is established as probable losses are estimated to occurred through a provision for loan losses charged to earnings . loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . the discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements , which are prepared in conformity with u.s. gaap . the preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and the reported amounts of income and expenses . we consider the accounting policies discussed to be significant accounting policies . the estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions , resulting in a change that could have a material impact on the carrying value of the company 's assets and liabilities and results of operations . see note 1 , โ nature of business and summary of significant accounting policies , โ of the notes to the accompanying consolidated financial statements for a discussion of significant accounting policies . factors affecting the comparability of results defined benefit plan . as has previously been disclosed , on may 31 , 2007 , the company 's defined benefit plan was frozen and replaced with a qualified defined contribution plan . on may 31 , 2019 , the company 's board of directors approved the termination of the defined benefit plan which was liquidated on december 1 , 2019. during 2019 , we offered participants in the defined benefit plan with vested qualified benefits the option of receiving their benefits in a lump sum payment in lieu of receiving monthly annuity payments . story_separator_special_tag approximately 115 participants elected to receive the lump sum payments aggregating approximately $ 6.4 million which were paid from plan assets to these participants during the fourth quarter of 2019. also , during the fourth quarter of 2019 , the company transferred the remainder of the defined benefit plan 's pension obligations to a third party insurance provider by purchasing annuity contracts aggregating approximately $ 7.4 million which was fully funded directly by plan assets . the benefit obligations settled by the lump sum payments and annuity contracts resulted in payments from plan assets of approximately $ 13.9 million . the remaining previously unrecognized losses in accumulated other comprehensive loss relating to the defined benefit plan were recognized as an expense and a pre-tax charge of approximately $ 9.9 million ( $ 7.8 million after-tax ) was recorded in other income ( expense ) , net , in our consolidated statements of operations during the fourth quarter of 2019. share repurchases . the board of directors approved two repurchase programs of the company 's stock , the first on march 25 , 2019 and the second on november 13 , 2019. see note 9 , โ compensation and benefit plans , โ of the notes to consolidated financial statements included herein for additional information on our stock repurchase programs . for the year ended december 31 , 2019 , the 48 company repurchased approximately 1 . 1 million shares at an average price of $ 14 . 30 per share for a total value of $ 15 . 8 million pursuant to open market repurchases . basis of presentation . certain prior period amounts have been reclassified to conform to the current period presentation . financial conditions comparison of financial condition at december 31 , 2019 and december 31 , 2018 total assets . total assets remained essentially unchanged at $ 1.1 billion at december 31 , 2019 and 2018. cash and cash equivalents . cash and cash equivalents decreased $ 42.1 million , or 60.3 % , to $ 27.7 million at december 31 , 2019 , compared to $ 69.8 million at december 31 , 2018. the decrease in cash and cash equivalents was primarily driven by a repayment of $ 25.0 million of short-term advances from a correspondent bank , $ 15.8 million of repurchases of common stock , a decrease of $ 27.7 million in deposits , an increase of $ 42.2 million in gross loans and $ 34.0 million of purchases of available-for-sale securities , offset by an increase of $ 60.0 million in net advances from fhlbny , $ 39.6 million of maturities of available-for-sale securities and $ 3.6 million from the sale of loans . available-for-sale securities . the composition of available-for-sale securities at december 31 , 2019 and 2018 and the amounts maturing of each classification are summarized as follows : replace_table_token_23_th gross loans receivable . the composition of gross loans receivable at december 31 , 2019 and 2018 and the percentage of each classification to total loans are summarized as follows : replace_table_token_24_th the composition of the loan portfolio increased $ 36.3 million , or 3.9 % , to $ 966.1 million at december 31 , 2019 from $ 929.8 million at december 31 , 2018 . 49 commercial real estate mortgage loans , as defined by applicable banking regulations , include multifamily residential , nonresidential properties , and construction and land mortgage loans . at december 31 , 2019 , approximately 8 . 0 % of the outstanding principal balance of the bank 's commercia l real estate mortgage loans was secured by owner-occupied commercial real estate , compared to 10.1 % at december 31 , 2018 . owner-occupied commercial real estate is similar in many ways to commercial and industrial lending in that these loans are generally made to businesses predominantly on the basis of the cash flows of the business rather than on cash flows and valuation of the real estate . banking regulations have established guidelines relating to the amount of construction and land mortgage loans and investor-owned commercial real estate mortgage loans of 100 % and 300 % of total risk-based capital , respectively . should a bank 's ratios be in excess of these pronouncements , banking guidelines generally require an increased level of monitoring in these lending areas by bank management . the bank 's policy is to operate within the 100 % guideline for construction and land mortgage loans and up to 400 % for investor-owned commercial real estate mortgage loans . both ratios are calculated by dividing certain types of loan balances for each of the two categories by the bank 's total risk-based capital . at december 31 , 2019 and 2018 , the bank 's construction and land mortgage loans as a percentage of total risk-based capital was 67.4 % and 58.6 % , respectively . investor-owned commercial real estate mortgage loans as a percentage of total risk-based capital was 349.7 % and 313.1 % as of december 31 , 2019 and 2018 , respectively . at december 31 , 2019 , the bank was within the 100 % ratio for construction and land mortgage loans established by banking guidelines , but exceeded the 300 % guideline for investor-owned commercial real estate mortgage loans . however , the bank was within its 400 % policy limit established by the bank 's internal loan policy . management believes that it has established the appropriate level of controls to monitor the bank 's lending in these areas and is , accordingly , within the monitoring guidelines . deposits . the composition of deposits at december 31 , 2019 and 2018 and changes in dollars and percentages are summarized as follows : replace_table_token_25_th when wholesale funding is necessary to complement the bank 's core deposit base , management determines which source is best suited to address both liquidity risk and interest rate risk in line with management objectives . the bank 's interest rate risk policy imposes limitations on overall wholesale funding and noncore funding reliance .
| the average yield on loans increased 3 basis point to 5.21 % for the year ended december 31 , 2019 from 5.18 % for the year ended december 31 , 2018. replace_table_token_27_th interest income on deposits due from banks and available-for-sale securities and dividend income from fhlbny stock remained unchanged at $ 1.2 million for the years ended december 31 , 2019 and 2018. the average balance of deposits due from banks , available-for-sale securities and fhlbny stock decreased $ 9.1 million , or 13.1 % , to $ 60.3 million for the year ended december 31 , 2019 , from $ 69.4 million for the year ended december 31 , 2018. the average rate earned on deposits due from banks , available-for-sale securities and fhlbny stock increased 23 basis points to 1.97 % for the year ended december 31 , 2019 from 1.74 % for the year ended december 31 , 2018 . 51 replace_table_token_28_th interest expense . interest expense increased $ 2.9 million , or 30.2 % , to $ 12.4 million for the year ended december 31 , 2019 , from $ 9.5 million for the year ended december 31 , 2018. interest expense on money market accounts increased $ 1.8 million to $ 2.5 million for the year ended december 31 , 2019 from $ 701,000 for the same period in 2018. the average balance of money market accounts increased $ 64.6 million to $ 124.7 million for the year ended december 31 , 2019 from $ 60.1 million for the same period last year , while the average rate paid on money market accounts increased 87 basis points to 2.04 % for the year ended december 31 , 2019 from 1.17 % for the year ended december 31 , 2018. interest expense on certificates of deposit remained essentially unchanged at $ 7.6 million for the years ended december 31 , 2019 and 2018. the average balance on certificates of deposit decreased $ 36.7 million ,
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we will continue our dividend program as we believe that our cash flows can support our growth initiatives and also reward our shareholders at the same time . we will emphasize gross margin improvement through both cost improvements and through the sale of more complete motion control systems . we made good progress in the last few years in transforming the company from a component supplier to a more complete solutions provider and these efforts will continue well into the future . further development and promotion of our parent brand , allied motion , will continue in 2015. a global structure has been defined and we intend to use that to our advantage in the marketplace . last but not least , we are taking our commitment to ast to a new level as we have invested in additional resources as part of our operational excellence team . as always , we will continuously utilize ast to improve efficiencies and eliminate waste throughout our company . ast is critical to and helps create the path to success in all regions of the world . story_separator_special_tag management with a measure of financial performance of the company based on operational factors , including the profitability of assets on an economic basis , net of operating expenses , and the capital costs of the business on a consistent basis as it removes the impact of certain non-routine items from the company 's operating results . adjusted net income is a key metric used by senior management and the company 's board of directors to review the consolidated financial performance of the business . this 14 measure adjusts net income determined in accordance with gaap to reflect changes in financial results associated with the highlighted charges and income items . the company 's calculation of adjusted net income and adjusted diluted earnings per share for years ended december 31 , 2014 and 2013 is as follows ( in thousands ) : replace_table_token_7_th liquidity and capital resources ( in thousands ) the company 's liquidity position as measured by cash and cash equivalents increased by $ 2,942 , to a balance of $ 13,113 at december 31 , 2014 from $ 10,171 at december 31 , 2013 ( including $ 1,800 of restricted cash ) . the balance in restricted cash of $ 1,800 at december 31 , 2013 was reduced to $ 0 during the fourth quarter of 2014 due to the completion of the china facility refinancing ( refer to notes 1 and 6 of the notes to consolidated financial statements ) . during 2014 , operations provided $ 20,296 in cash compared to $ 10,779 of cash provided during 2013. the increase in cash provided is primarily due to the higher level of earnings , partially offset by an increase in working capital needs . the decrease in income taxes payable reflects a tax payment of $ 2,656 during the third quarter of 2014 related to the globe acquisition . net cash used in investing activities was $ 2,649 for 2014 compared to $ 94,694 of cash used for 2013. the net decrease of $ 92,045 in cash used is primarily due to the $ 90,000 paid for the acquisition of globe motors in 2013 , along with the receipt of a $ 1,434 purchase price adjustment related to the globe acquisition during the first quarter of 2014. during 2014 , purchases of property and equipment were $ 4,046 compared to $ 3,087 for 2013. net cash used in financing activities was $ 11,610 for 2014 compared to cash provided of $ 82,609 for 2013. during the fourth quarter of 2013 , we entered into a credit agreement that includes a revolving credit facility ( `` revolver '' ) for up to $ 15,000 and a term loan of $ 50,000. we also entered into a long term note agreement for $ 30,000. borrowings under these agreements facilitated the acquisition of globe ( refer to note 6 of the notes to consolidated financial statements ) . at december 31 , 2013 , we had $ 86,475 in obligations under these agreements , comprised of $ 7,725 of revolver borrowings and $ 78,750 under the term loan and the note agreement . during 2014 , we made payments of $ 12,975 for these obligations , $ 7,725 to completely pay the revolver and the remaining $ 5,250 for the term loan . at december 31 , 2014 , we had $ 73,500 in obligations under these agreements . 15 the credit agreement contains certain financial covenants related to maximum leverage and minimum fixed charge coverage . the credit agreement also includes other covenants and restrictions , including limits on the amount of certain types of capital expenditures . the company was in compliance with all covenants at december 31 , 2014. as of december 31 , 2014 , the amount available to borrow under the credit agreement was $ 15,000. the average china facility balance during 2014 was $ 1,310 ( rmb 8,100 ) . at december 31 , 2014 , there was approximately $ 605 ( rmb 3,700 ) available under the facility . during the year ended december 31 , 2014 , the company paid dividends of $ 0.10 per share . the company 's working capital , capital expenditure and dividend requirements are expected to be funded from cash provided by operations and amounts available under the credit agreement . price levels and the impact of inflation the effect of inflation on the company 's costs of production has been minimized through production efficiencies , lower costs of materials and surcharges passed on to customers . the company anticipates that these factors will continue to minimize the effects of any foreseeable inflation and other price pressures from the industries in which it operates . as the company 's manufacturing activities mainly utilize semi-skilled labor , which is relatively plentiful in the areas surrounding the company 's production facilities , the story_separator_special_tag we will continue our dividend program as we believe that our cash flows can support our growth initiatives and also reward our shareholders at the same time . we will emphasize gross margin improvement through both cost improvements and through the sale of more complete motion control systems . we made good progress in the last few years in transforming the company from a component supplier to a more complete solutions provider and these efforts will continue well into the future . further development and promotion of our parent brand , allied motion , will continue in 2015. a global structure has been defined and we intend to use that to our advantage in the marketplace . last but not least , we are taking our commitment to ast to a new level as we have invested in additional resources as part of our operational excellence team . as always , we will continuously utilize ast to improve efficiencies and eliminate waste throughout our company . ast is critical to and helps create the path to success in all regions of the world . story_separator_special_tag management with a measure of financial performance of the company based on operational factors , including the profitability of assets on an economic basis , net of operating expenses , and the capital costs of the business on a consistent basis as it removes the impact of certain non-routine items from the company 's operating results . adjusted net income is a key metric used by senior management and the company 's board of directors to review the consolidated financial performance of the business . this 14 measure adjusts net income determined in accordance with gaap to reflect changes in financial results associated with the highlighted charges and income items . the company 's calculation of adjusted net income and adjusted diluted earnings per share for years ended december 31 , 2014 and 2013 is as follows ( in thousands ) : replace_table_token_7_th liquidity and capital resources ( in thousands ) the company 's liquidity position as measured by cash and cash equivalents increased by $ 2,942 , to a balance of $ 13,113 at december 31 , 2014 from $ 10,171 at december 31 , 2013 ( including $ 1,800 of restricted cash ) . the balance in restricted cash of $ 1,800 at december 31 , 2013 was reduced to $ 0 during the fourth quarter of 2014 due to the completion of the china facility refinancing ( refer to notes 1 and 6 of the notes to consolidated financial statements ) . during 2014 , operations provided $ 20,296 in cash compared to $ 10,779 of cash provided during 2013. the increase in cash provided is primarily due to the higher level of earnings , partially offset by an increase in working capital needs . the decrease in income taxes payable reflects a tax payment of $ 2,656 during the third quarter of 2014 related to the globe acquisition . net cash used in investing activities was $ 2,649 for 2014 compared to $ 94,694 of cash used for 2013. the net decrease of $ 92,045 in cash used is primarily due to the $ 90,000 paid for the acquisition of globe motors in 2013 , along with the receipt of a $ 1,434 purchase price adjustment related to the globe acquisition during the first quarter of 2014. during 2014 , purchases of property and equipment were $ 4,046 compared to $ 3,087 for 2013. net cash used in financing activities was $ 11,610 for 2014 compared to cash provided of $ 82,609 for 2013. during the fourth quarter of 2013 , we entered into a credit agreement that includes a revolving credit facility ( `` revolver '' ) for up to $ 15,000 and a term loan of $ 50,000. we also entered into a long term note agreement for $ 30,000. borrowings under these agreements facilitated the acquisition of globe ( refer to note 6 of the notes to consolidated financial statements ) . at december 31 , 2013 , we had $ 86,475 in obligations under these agreements , comprised of $ 7,725 of revolver borrowings and $ 78,750 under the term loan and the note agreement . during 2014 , we made payments of $ 12,975 for these obligations , $ 7,725 to completely pay the revolver and the remaining $ 5,250 for the term loan . at december 31 , 2014 , we had $ 73,500 in obligations under these agreements . 15 the credit agreement contains certain financial covenants related to maximum leverage and minimum fixed charge coverage . the credit agreement also includes other covenants and restrictions , including limits on the amount of certain types of capital expenditures . the company was in compliance with all covenants at december 31 , 2014. as of december 31 , 2014 , the amount available to borrow under the credit agreement was $ 15,000. the average china facility balance during 2014 was $ 1,310 ( rmb 8,100 ) . at december 31 , 2014 , there was approximately $ 605 ( rmb 3,700 ) available under the facility . during the year ended december 31 , 2014 , the company paid dividends of $ 0.10 per share . the company 's working capital , capital expenditure and dividend requirements are expected to be funded from cash provided by operations and amounts available under the credit agreement . price levels and the impact of inflation the effect of inflation on the company 's costs of production has been minimized through production efficiencies , lower costs of materials and surcharges passed on to customers . the company anticipates that these factors will continue to minimize the effects of any foreseeable inflation and other price pressures from the industries in which it operates . as the company 's manufacturing activities mainly utilize semi-skilled labor , which is relatively plentiful in the areas surrounding the company 's production facilities , the
| sales from our us tus increased 122 % and sales from our foreign tus increased 65 % . the change in revenues was comprised of a 101 % increase in sales volume for the year combined with a 2 % decrease due to the dollar strengthening against the foreign currencies where we do business , primarily the euro and the swedish krona . backlog : the significant increase in orders in 2014 from 2013 relates primarily to the addition of globe , which contributed 94 % of the growth . gross margin : gross margin as a percentage of revenues was 29 % for both 2014 and 2013 , respectively . selling expenses : the 58 % increase in 2014 is primarily due to the acquisition of globe . however , selling expenses as a percentage of revenues declined to 3 % for 2014 from 4 % for 2013. general and administrative expenses : general and administrative expenses increased by 84 % primarily as a result of the addition of globe , incentive compensation , and consulting and depreciation expenses related to our erp implementation . as a percentage of sales , general and administrative expenses were 10 % for both 2014 and 2013. engineering and development expenses : engineering and development expenses increased by 75 % in 2014 due to the addition of globe . as a percentage of revenues , engineering and development expenses were 6 % for both 2014 and 2013. business development costs : the company incurred $ 1,913 of business development costs during 2013 related to the acquisition of globe . relocation costs : the company incurred $ 234 of relocation costs during 2013 for the move of the company 's corporate office and personnel to amherst , new york . this relocation occurred and was completed in the third quarter of 2013. amortization of intangible assets : the 229 % increase is the result of amortization for globe 's intangible assets . income taxes : the effective income tax rate as a percentage of income before income taxes was
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our research and development expenses consist of : 41 ยท external research and development expenses incurred under arrangements with third parties , such as contract research organizations , clinical sites , manufacturing organizations and consultants ; ยท license fees , including maintenance fees and patent expense paid to md anderson in connection with the license agreement ; and ยท costs of materials used during research and development activities . costs and expenses that can be clearly identified as research and development are charged to expense as incurred in accordance with generally accepted accounting policies ( โ gaap โ ) . advance payments , including nonrefundable amounts , for goods or services that will be used or rendered for future research and development activities are deferred and capitalized . such amounts will be recognized as an expense as the related goods are delivered or the related services are performed . if the goods will not be delivered , or services will not be rendered , then the capitalized advance payment is charged to expense . we expect research and development expenses associated with the completion of the associated clinical trials to be substantial and to increase over time . the successful development of our drug candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete development of our drug candidates or the period , if any , in which material net cash inflows from our drug candidates may commence . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : ยท the rate of progress , results and costs of completion of ongoing clinical trials of our drug candidates ; ยท the size , scope , rate of progress , results and costs of completion of any potential future clinical trials and preclinical trials of our drug candidates that we may initiate ; ยท competing technological and market developments ; ยท the performance of third-party manufacturers and suppliers ; ยท the ability of our drug candidates , if they receive regulatory approval , to achieve market success ; ยท disputes or other developments relating to proprietary rights , including patents , litigation matters and our ability to obtain patent protection for our drug candidates . a change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate . for example , if the fda or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of a drug candidate or if we experience significant delays in enrollment in any clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . general and administrative expenses our general and administrative expenses consist primarily of salaries and benefits for management and administrative personnel , professional fees for legal , accounting and other services , travel costs and facility-related costs such as rent , utilities and other general office expenses . story_separator_special_tag available cash at december 31 , 2014 will be sufficient to fund our liquidity and capital expenditure requirements through the first quarter of 2016 . 43 cash flows comparisons of the twelve months ended december 31 , 2014 to the twelve months ended december 31 , 2013 operating activities . net cash used in operating activities was approximately $ 3.82 million for the twelve-month period ended december 31 , 2014 , an increase of approximately $ 1.51 million compared to the twelve-month period ended december 31 , 2013. the increase in net cash used in operating activities is primarily due to an increase in cash operating loss of $ 1.5 million . financing activities . net cash provided by financing activities was approximately $ 14.25 million for the twelve-month period ended december 31 , 2014 , an increase of approximately $ 8.92 million compared to the twelve-month period ended december 31 , 2013. the increase in net cash provided by financing activities is primarily due to us selling an aggregate of 5.0 million shares of our common stock and warrants to purchase a total of 2.5 million shares of our common stock to an institutional investor for gross proceeds of approximately $ 15.0 million . comparisons of the twelve months ended december 31 , 2013 to the twelve months ended december 31 , 2012 operating activities . net cash used in operating activities was approximately $ 2.31 million for the twelve-month period ended december 31 , 2013 , an increase of approximately $ 0.3 million compared to the twelve-month period ended december 31 , 2012. the increase in net cash used in operating activities is primarily due to an increase of $ 0.4 million in cash operating loss offset to some extent by reductions of $ 0.1 million in cash required for current assets net of current liabilities . financing activities . net cash provided by financing activities was approximately $ 5.33 million for the twelve-month period ended december 31 , 2013 , in an increase of approximately $ 3.73 million compared to the twelve-month period ended december 31 , 2012. the increase in net cash provided by financing activities is primarily due to us selling shares of our common stock to accredited investors in private placements . 2014 shelf registration and registered direct offering on november 5 , 2013 , we filed a shelf registration statement on form s-3 with the sec , which was declared effective by the sec on january 13 , 2014. the shelf registration statement was filed to register the offering and sale of up to $ 100 million of our common stock , preferred stock , warrants to purchase common stock or preferred stock or any combination thereof , either individually or in units . story_separator_special_tag the foregoing does not constitute an offer to sell or the solicitation of an offer to buy securities , and shall not constitute an offer , solicitation or sale in any jurisdiction in which such offer , solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction . on january 15 , 2014 , we entered into a securities purchase agreement , as amended , with certain investors , pursuant to which we agreed to sell an aggregate of 5.0 million shares of our common stock and warrants to purchase a total of 2.5 million shares of our common stock to such certain investors for gross proceeds of approximately $ 15.0 million . the net proceeds to us from the registered direct public offering , after deducting the placement agent 's fees and expenses , our estimated offering expenses , and excluding the proceeds to us from the exercise of the warrants issued in the offering , were approximately $ 13.8 million . the offering closed on january 21 , 2014. future capital requirements we expect to continue to incur significant operating expenses in connection with our ongoing activities , including conducting clinical trials , manufacturing and seeking regulatory approval of our drug candidates , liposomal grb-2 and bcl-2 . accordingly , we will continue to require substantial additional capital to fund our projected operating requirements . such additional capital may not be available when needed or on terms favorable to us . in addition , we may seek additional capital due to favorable market conditions or strategic considerations , even if we believe we have sufficient funds for our current and future operating plan . there can be no assurance that we will be able to continue to raise additional capital through the sale of our securities in the future . our future capital requirements may change and will depend on numerous factors , which are discussed in detail in โ item 1a . risk factors โ of this annual report on form 10-k. off-balance sheet arrangements as of december 31 , 2014 , we did not have any material off-balance sheet arrangements . 44 contractual obligations and commitments the following table sets forth a summary of our commitments as of december 31 , 2014 : replace_table_token_2_th ( 1 ) in april 2014 , we entered into a lease for a larger office space , which we occupied as of august 2014. the remaining lease payments due under this lease as of december 31 , 2014 are approximately $ 382,000. critical accounting policies our management 's discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in conformity with gaap in the united states . the preparation of such financial statements has required our management to make assumptions , estimates and judgments that affect the amounts reported in the financial statements , including the notes thereto , and related disclosures of commitments and contingencies , if any . we consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements , including the following : principles of consolidation โ the consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiary , bio-path , inc. all intercompany accounts and transactions have been eliminated in consolidation . related party โ based on its stock ownership in us , md anderson meets the criteria to be deemed a related party of us . for the years ending december 31 , 2014 and 2013 , md anderson related party research and development expense was approximately $ 197,000 and $ 116,000 , respectively . md anderson related party research and development expense for the year ending december 31 , 2014 included license expense of approximately $ 50,000 for the license annual maintenance fee and approximately $ 31,000 for license patent expenses not capitalized in the technology license other asset and clinical trial hospital expense of approximately $ 116,000. as of december 31 , 2014 , we had approximately $ 67,000 in accrued research and development related expense for the clinical trial and approximately $ 100,000 in accrued license payments for past patent expenses and the annual license maintenance fee . see notes 4 , 5 , and 6 to the financial statements included elsewhere in this annual report on form 10-k. for the year ended december 31 , 2013 , we had approximately $ 116,000 in research and development related party expense , which consisted of clinical trial hospital expense of approximately $ 52,000 and license expense of approximately $ 63,700 , including license maintenance fees of approximately $ 50,000 and approximately $ 13,700 in patent expenses not capitalized in the technology license other asset . for the year ended december 31 , 2012 , we had approximately $ 464,000 in research and development related party expense for the clinical trial , license maintenance fee and technology impairment ; accounts payable related party of approximately $ 9,000 for patent expenses not capitalized in the technology license and accrued license payments payable related party of approximately $ 100,000 for the annual maintenance fee and past patent expenses , and approximately $ 26,000 accrued expense related party for clinical trial hospital expenses . cash and cash equivalents โ we consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents . concentration of credit risk โ financial instruments that potentially subject us to a significant concentration of credit risk consist of cash . the company maintains its cash balances with one major commercial bank , jpmorgan chase bank . the balances are insured by the federal deposit insurance corporation ( the โ fdic โ ) up to $ 250,000. as a result , as of december 31 , 2014 , approximately $ 13.61 million of our cash balances was not covered by the fdic .
| our net loss was approximately $ 4.5 million for the twelve-month period ended december 31 , 2014 , an increase of approximately $ 1.25 million compared the twelve-month period ended december 31 , 2013. the increase in the net loss was primarily due to increased research and development expense of $ 0.1 million and general and administrative expense of $ 1.1 million primarily resulting from our new organization established to take advantage of opportunities to accelerate development of our technology . net loss per share , both basic and diluted , was $ 0.05 per share for the twelve-month period ended decembers 31 , 2014 and for the twelve-month period ended december 31 , 2013. comparisons of the twelve months ended december 31 , 2013 to the twelve months ended december 31 , 2012 research and development expenses . our research and development expense was approximately $ 1.52 million for the twelve-month period ended december 31 , 2013 , an increase of approximately $ 0.4 million compared to the twelve-month period ended december 31 , 2012. the increase in research and development expense was primarily due to an approximate $ 0.3 million increase in expense for drug product material used in our clinical trial due to higher drug doses being administered to patients , and an approximate $ 0.1 million for new preclinical testing programs undertaken in 2013. research and development โ related party expense was approximately $ 0.1 million for the twelve-month period ended december 31 , 2013 , a decrease of approximately $ 0.3 million compared to the twelve-month period ended december 31 , 2012. the decrease in research and development โ related party expense was primarily due to a decrease in technology impairment expense for the twelve-month period ended december 31 , 2013. general and administrative expenses . our general and administrative expense was approximately $ 1.63 million for the twelve-month period ended december 31 , 2013 , an increase
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approximately 75 % of aam 's new and incremental business backlog launching from 2015 to 2017 , which is an estimated $ 825 million , relates to aam 's newest awd systems for passenger cars and crossover vehicles . these systems are designed to improve fuel efficiency by up to 30 % , reduce co 2 emissions and provide awd capability with the additional benefit of improved vehicle stability when compared to traditional mechanical awd systems . we have also developed and commercialized a disconnecting awd system , which strengthens aam 's position as a leader in global driveline systems technology . aam ' s ecotrac ยฎ disconnecting awd system is an industry-first technology that seamlessly engages awd functionality while improving fuel efficiency and reducing co 2 emissions . the system is featured on the award-winning jeep cherokee and chrysler 200. aam has established a high-efficiency product portfolio that is designed to improve axle efficiency and fuel economy through innovative product design technology . our lineup of high efficiency axles for rear-wheel drive and awd applications is featured on multiple new vehicles , including gm 's cadillac ats , which was named the 2013 north american car of the year . our high efficiency rear-drive module is also featured on the cadillac cts , motor trend 's 2014 car of the year . through the development of our ecotrac ยฎ disconnecting awd system , our high efficiency axles , powerlite ยฎ axles , powerdense ยฎ gears and our e-aam hybrid and electric driveline systems , we have significantly advanced our efforts to improve fuel efficiency and ride and handling performance while reducing emissions and mass . increase in demand for electronic integration the electronic content of vehicles continues to expand , largely driven by consumer demand for greater vehicle performance , functionality , and affordable convenience options . this demand is a result of increased communication abilities in vehicles as well as increasingly stringent regulatory standards for energy efficiency , emissions reduction and increased safety . as these electronics continue to become more reliable and affordable , we expect this trend to continue . the increased use of electronics provides greater flexibility in vehicles and enables the oems to better control vehicle stability , fuel efficiency and safety while improving the overall driving experience . suppliers with enhanced capability in electronic integration have greater sourcing opportunities with oems and may be able to obtain more favorable pricing for these products . global automotive production the trend toward the globalization of automotive production continues to intensify in regions such as asia ( particularly china , india , south korea and thailand ) , eastern europe and south america . automotive production in these regions is expected to continue to grow while production in the traditional automotive centers such as north america and western europe have improved from recent declines . as our customers continue to design their products for global markets , they will continue to require global support from their suppliers . for this reason , it is critical that we maintain a global presence in these markets in order to remain competitive for new contracts . we have significantly increased our global installed capacity to support current programs and future opportunities . we have expanded our capacity in brazil , china , mexico , poland , thailand and the u.s. and constructed new facilities in mexico and the u.s. we also have offices in china , india and south korea to support these developing markets . we expect our business activity in these markets to increase significantly over the next several years . approximately 60 % of our new and incremental business backlog is for end use markets outside the u.s. and approximately 85 % has been sourced to our manufacturing facilities outside the u.s. 22 story_separator_special_tag style= '' line-height:120 % ; text-align : left ; text-indent:24px ; font-size:10pt ; '' > the weighted-average interest rate of our total debt outstanding was 6.3 % , 7.3 % and 7.8 % during 2014 , 2013 and 2012 , respectively . investment income investment income was $ 2.1 million in 2014 and $ 0.6 million in both 2013 and 2012 . investment income includes interest and dividends earned on cash and cash equivalents during the period . other income ( expense ) following are the components of other income ( expense ) for 2014 , 2013 and 2012 : debt refinancing and redemption costs in 2013 , we expensed $ 36.8 million of unamortized debt issuance costs , discount and prepayment premiums related to the termination of our class c loan facility , the purchase and voluntary redemption of $ 300.0 million of our 7.875 % senior unsecured notes ( 7.875 % notes ) and the voluntary redemption of the remaining $ 340.0 million of our 9.25 % senior secured notes ( 9.25 % notes ) . in 2012 , we expensed $ 19.8 million of unamortized debt issuance costs , discount and prepayment premiums related to our amended and restated revolving credit agreement , the purchase and redemption of $ 250.0 million of our 5.25 % senior unsecured notes and the voluntary redemption of $ 42.5 million of our 9.25 % notes . other , net other , net , which includes the net effect of foreign exchange gains and losses and our proportionate share of earnings from equity in unconsolidated subsidiaries , was income of $ 6.9 million in 2014 , and expense of $ 1.9 million and $ 4.1 million in 2013 and 2012 , respectively . income tax expense ( benefit ) income tax expense ( benefit ) was expense of $ 33.7 million in 2014 as compared to a benefit of $ 8.2 million and $ 335.2 million in 2013 and 2012 , respectively . our effective income tax rate was 19.1 % in 2014 as compared to negative 9.5 % in 2013 and negative 1,064.2 % in 2012 . story_separator_special_tag the following is a reconciliation of our provision for income taxes to the expected amounts using statutory rates : replace_table_token_5_th our income tax expense and effective tax rate for 2014 and 2013 primarily reflect favorable foreign tax rates , along with our inability to realize a tax benefit for current foreign losses . in 2014 , we recorded tax expense of $ 23.1 million for changes to prior year uncertain tax positions related to transfer pricing and expense of $ 3.4 million for a change in estimate for u.s. tax on unremitted foreign earnings . we also recorded a net tax benefit of $ 20.1 million in 2014 related to our ability to utilize tax credits in future periods resulting in the recognition of a deferred tax asset . 24 in 2013 , new mexican tax reform was enacted that , among other things , increased the tax rate related to maquiladora companies from 17.5 % to 30 % . we recorded a tax benefit of $ 8.5 million as a result of revaluing our deferred tax assets at the newly enacted rate . in 2013 , we recorded tax expense of $ 4.8 million relating to changes in estimates in the u.s. and certain foreign jurisdictions . our income tax benefit and effective tax rate for 2013 also reflects the impact of recording a tax benefit of $ 1.5 million relating to the release of a prior year unrecognized tax benefit due to the expiration of the applicable statute of limitations and a tax benefit of $ 3.3 million relating to an election we made in 2013 regarding the treatment of foreign exchange gains and losses in a foreign jurisdiction . during 2013 , we also settled various income tax audits resulting in a reduction of our liability for unrecognized income tax benefits of $ 8.4 million and a cash payment of $ 4.7 million . in 2012 , our business returned to a position of cumulative profitability on a pre-tax basis , considering our operating results for the three years ended december 31 , 2012. we concluded that this record of cumulative profitability in recent years , in addition to the restructuring of our u.s. operations and our long range forecast showing continued profitability , provided sufficient positive evidence that our net u.s. federal tax benefits more likely than not would be realized . accordingly , in 2012 , we released the valuation allowance against our net federal deferred tax assets for entities in the u.s. , resulting in a $ 337.5 million benefit in our 2012 provision for income taxes . our income tax benefit and effective tax rate in 2012 reflected the impact of this valuation allowance reversal . our income tax expense and effective tax rate for 2012 also reflect a net tax expense of $ 1.3 million related to the amendment of state income tax returns as a result of the settlement of federal income tax audits for the tax years 2004 through 2007. as of december 31 , 2014 and december 31 , 2013 , we have a valuation allowance of $ 156.9 million and $ 163.7 million , respectively , related to net deferred tax assets in several foreign jurisdictions and u.s. state and local jurisdictions . see `` critical accounting estimates โ valuation of deferred tax assets and other tax liabilities '' below for more detail on the impact of this reversal . net income attributable to aam and earnings per share ( eps ) net income attributable to aam was $ 143.0 million in 2014 as compared to $ 94.5 million in 2013 and $ 367.7 million in 2012 . diluted earnings per share was $ 1.85 in 2014 as compared to $ 1.23 per share in 2013 and $ 4.87 per share in 2012 . net income and eps were primarily impacted by the factors discussed in gross profit , sg & a , interest expense , debt refinancing and redemption costs and income tax expense ( benefit ) . liquidity and capital resources our primary liquidity needs are to fund capital expenditures , debt service obligations and our working capital requirements . we believe that operating cash flow , available cash and cash equivalent balances and available committed borrowing capacity under our revolving credit facility will be sufficient to meet these needs . operating activities net cash provided by operating activities was $ 318.4 million in 2014 as compared to net cash provided by operating activities of $ 223.0 million in 2013 and net cash used in operating activities of $ 175.5 million in 2012 . sales and production volumes cash provided by operating activities was favorably impacted by higher profits related to an increase in sales and production activity in 2014 , 2013 and 2012. deferred revenue in the first quarter of 2014 , we reached an agreement with gm to increase installed capacity and adjust product mix for our largest vehicle program . as a result of this agreement , we received $ 32.8 million in 2014 and recorded the payments as deferred revenue , of which we recognized $ 5.4 million of revenue related to this agreement in 2014. as of december 31 , 2014 , we have $ 6.9 million of deferred revenue that is classified as a current liability and $ 20.5 million of deferred revenue that is recorded as a noncurrent liability on our consolidated balance sheet . also in the first quarter of 2014 , we reached an agreement with gm to recover certain costs related to the delay of another major product program . we initially recorded deferred revenue of $ 9.3 million related to this agreement . we began recognizing this deferred revenue as revenue in the third quarter of 2014 when this program launched in certain markets . in 2014 , we recognized revenue of $ 0.5 million related to this agreement .
| the increase in gross profit in 2014 as compared to 2013 is primarily due to the profit contribution from higher sales , including our largest north american light truck programs and other global launches . gross profit in 2014 also included the adverse impact of a $ 31.2 million settlement charge related to a voluntary lump-sum pension payout which was offered to eligible terminated vested participants in our u.s. hourly pension plans . the increase in gross profit in 2013 as compared to 2012 is primarily due to the profit contribution from higher sales , including our largest north american light truck programs and other global launches . the increase in gross profit in 2013 also reflected lower warranty accruals and the impact of stabilized levels of global launch activity , which includes lower material and freight costs , as compared to 2012. in addition , our gross profit in 2013 also included the impact of receiving $ 11.4 million related to settling a capacity increase cancellation claim with one of our largest customers , which is partially offset by other costs associated with this capacity increase . gross profit in 2012 included special charges of $ 28.7 million of expense related to contractual termination benefits provided to certain eligible uaw associates as a result of the dmc and ckmf plant closures and $ 32.5 million of expense primarily related to asset impairments , asset redeployment and other restructuring costs associated with the closure of dmc and ckmf . the impact on gross profit as a result of these special charges was partially offset by a $ 21.8 million other postretirement benefits ( opeb ) curtailment gain recorded as a result of the dmc and ckmf hourly associates who have terminated employment from aam as a result of our plant closures and a $ 5.2 million settlement gain related to the termination of the uaw legal services plan . also included in gross profit
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on an on-going basis , we evaluate estimates and judgments , including those related to revenue recognition , realization of accounts receivable , inventories , goodwill , other intangible assets , property and equipment and deferred tax assets and liabilities . we base our estimates on historical experience , third party data and assumptions that we believe to be reasonable under the circumstances . the results of these considerations form the basis for making judgments about the amount and timing of revenues and expenses , the carrying value of assets and the recorded amounts of liabilities . actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change . historical performance should not be viewed as indicative of future performance because there can be no assurance the margins , operating income and net earnings , as a percentage of revenues , will be consistent from year to year . โ management 's discussion and analysis of financial condition and results of operations โ ( โ md & a โ ) is based upon our consolidated financial statements presented herewith , which have been prepared in accordance with united states generally accepted accounting principles ( โ gaap โ ) . our critical accounting policies are more fully described in part ii , item 8 , financial statements and supplementary data , note 1. we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenues from funeral and cemetery operations we record the revenue from sales of funeral and cemetery merchandise and services when the merchandise is delivered or the service is performed . cemetery interment rights are recorded as revenue in accordance with the accounting provisions for real estate sales . this method provides for the recognition of revenue in the period in which the customer 's cumulative payments exceed 10 % of the interment right contract price . interment right costs , which include real property and other costs related to cemetery development , are expensed using the specific identification method in the period in which the sale of the interment right is recognized as revenue . sales taxes collected are recognized on a net basis in our consolidated financial statements . allowances for bad debts and customer cancellations are provided at the date that the sale is recognized as revenue and are based on our historical experience . we also monitor changes in delinquency rates and provide additional bad debt and cancellation reserves when warranted . when preneed sales of funeral services and merchandise are funded through third-party insurance policies , we earn a commission on the sale of the policies . insurance commissions are recognized as revenues at the point at which the commission is no longer subject to refund , which is typically one year after the policy is issued . preneed selling costs consist of sales commissions that we pay our sales counselors and other direct related costs of originating preneed sales contracts . these costs are expensed when incurred preneed contracts we sell interment rights , merchandise and services prior to the time of need , which is referred to as preneed . in many instances the customer pays for the preneed contract over a period of time . cash proceeds from preneed sales less amounts that we may retain under state regulations are deposited to a trust or used to purchase a third-party insurance policy . the principal and accumulated earnings of the trusts are generally withdrawn at maturity ( death ) or cancellation . the cumulative trust income earned and the increases in insurance benefits on the insurance products are deferred until the service is performed . the customer receivables and amounts deposited in trusts that we control are primarily included in the non-current asset section of our consolidated balance sheets . the preneed funeral contracts to be funded at maturity by third party insurance policies are not recorded as assets or liabilities of the company . in the opinion of management , the proceeds from the trust funds and the insurance policies at the time the preneed contracts mature will exceed the estimated future costs to perform services and provide products under such arrangements . the types of securities in which the trusts may invest are regulated by state agencies . preneed funeral and cemetery trust funds our preneed and perpetual care trust funds are reported in accordance with the principles of consolidating variable interest entities ( โ vie 's โ ) . in the case of preneed trusts , the customers are the legal beneficiaries . in the case of perpetual care trusts , we do not have a right to access the corpus in the perpetual care trusts . we have recognized financial interests of third parties in the trust funds in our financial statements as deferred preneed funeral and cemetery receipts held in trust and care trusts ' corpus . the investments of such trust funds are classified as available-for-sale and are reported at fair market value ; therefore , the unrealized gains and losses , as well as accumulated and undistributed income and realized gains and losses are recorded to deferred preneed funeral and cemetery receipts held in trust and care trusts ' corpus on our consolidated balance sheets . our future obligations to deliver merchandise and services are reported at estimated settlement amounts . preneed funeral and cemetery trust investments 24 are reduced by the trust investment earnings that we have been allowed to withdraw in certain states prior to maturity . these earnings , along with preneed contract collections not required to be placed in trust , are recorded in deferred preneed funeral revenue and deferred preneed cemetery revenue until the service is performed or the merchandise is delivered . in accordance with respective state laws , we are required to deposit a specified amount into perpetual and memorial care trust funds for each interment right and certain memorials sold . story_separator_special_tag income from the trust funds is distributed to us and used to provide for the care and maintenance of the cemeteries and mausoleums . such trust fund income is recognized as revenue when realized by the trust and distributable to us . we are restricted from withdrawing any of the principal balances of these funds . an enterprise is required to perform an analysis to determine whether the enterprise 's variable interest ( s ) give it a controlling financial interest in a vie . this analysis identifies the primary beneficiary of a vie as the enterprise that has both the power to direct the activities of the vie that most significantly impact the entity 's economic performance and the obligation to absorb losses of the entity that could potentially be significant to the vie or the right to receive benefits from the entity that could potentially be significant to the vie . our analysis continues to support our position as the primary beneficiary in the majority of our funeral and cemetery trust funds . trust management fees are earned by us for investment management and advisory services that are provided by our wholly-owned registered investment advisor ( โ csv ria โ ) . as of december 31 , 2017 , csv ria provided these services to one institution , which has custody of approximately 80 % of our trust assets , for a fee based on the market value of trust assets . under state trust laws , we are allowed to charge the trust a fee for advising on the investment of the trust assets and these fees are recognized as income in the period in which services are provided . we determine whether or not the assets in the preneed trusts have an other-than-temporary impairment on a security-by-security basis . this assessment is made based upon a number of criteria including the length of time a security has been in a loss position , changes in market conditions and concerns related to the specific issuer . if a loss is considered to be other-than-temporary , the cost basis of the security is adjusted downward to its fair market value . any reduction in the cost basis of the investment due to an other-than-temporary impairment is likewise recorded as a reduction to deferred preneed funeral and cemetery receipts held in trust and care trusts ' corpus on our consolidated balance sheets . there will be no impact on earnings unless and until such time that the investment is withdrawn from the trust in accordance with state regulations at an amount that is less than its original basis . see part ii , item 8 , financial statements and supplementary data , notes 6 and 10 for additional related disclosures . long-lived assets long-lived assets , such as property , plant and equipment subject to depreciation and amortization , are reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with the property , plant and equipment topic of the accounting standards codification ( โ asc โ ) 360. this guidance requires that long-lived assets to be held and used are reported at the lower of their carrying amount or fair value . we assess long-lived assets for impairment whenever events or circumstances indicate that the carrying value may be greater than the fair value . we evaluate our long-lived assets for impairment when a funeral home or cemetery business has negative earnings before interest , taxes , depreciation and amortization ( โ ebitda โ ) for four consecutive years and if there has been a decline in ebitda in that same period . we review our long-lived assets deemed held-for-sale to the point of recoverability . assets to be disposed of and assets not expected to provide any future service potential are recorded at the lower of their carrying amount or fair value less estimated cost to sell . if we determine that the carrying value is not recoverable from the proceeds of the sale , we record an impairment at that time . for the years ended december 31 , 2015 , 2016 and 2017 , no impairments were identified on our long-lived assets . see part ii , item 8 , financial statements and supplementary data , note 1 for additional information . business combinations tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any difference between the price of the acquisition and fair value . we recognize the assets acquired , the liabilities assumed and any non-controlling interest in the acquiree at the acquisition date , measured at the fair value as of that date . acquisition related costs are recognized separately from the acquisition and are expensed as incurred . we customarily estimate related transaction costs known at closing . to the extent that information not available to us at the closing date subsequently becomes available during the allocation period , we may adjust goodwill , intangible assets , assets or liabilities associated with the acquisition . 25 during 2017 , we acquired seven funeral home businesses . we acquired one funeral home business in longmont , colorado and one funeral home business in loveland , colorado in november 2017 and five funeral home businesses on long island , new york in december 2017. the pro forma impact of the acquisitions on prior periods is not presented as the impact is not material to our reported results . the results of the acquired businesses are included in our results of operations from the date of acquisition . see part ii , item 8 , financial statements and supplementary data , note 3 for additional information . goodwill the excess of the purchase price over the fair value of identifiable net assets of funeral home businesses acquired is recorded as goodwill . goodwill has primarily been recorded in connection with the acquisition of funeral home businesses .
| decrease in operating revenues . this is primarily the result of better management of expenses , which decreased $ 1.5 million or 2.1 % when compared to the same period in 2015. those expenses with significant decreases include facilities and grounds expenses , which decreased by $ 0.9 million , general liability and other insurance expenses , which decreased by $ 0.4 million , and salaries and benefits expense , which decreased by $ 0.2 million . funeral home acquired revenues for the year ended december 31 , 2016 increased $ 6.5 million , or 19.3 % , when compared to the year ended december 31 , 2015 , as we experienced a 19.1 % increase in the acquired contract volume to 6,524 , while the average revenue per contract increased 0.2 % to $ 6,157. the average revenue per contract excludes the impact of preneed funeral trust earnings ( separately reflected in revenue above ) recognized at the time that we provide the services pursuant to the preneed contract . including funeral trust earnings , the average revenue per contract remained flat at $ 6,342 for the year ended december 31 , 2016. the average revenue per burial contract increased 3.4 % to $ 9,258 , and the number of traditional burial contracts increased 10.5 % to $ 3,012. the number of cremation contracts increased 28.3 % to 3,003 , and the average revenue per cremation contract increased 4.0 % to $ 4,110. the 2016 funeral home acquired portfolio includes six businesses acquired during 2016 not present in 39 2015. these businesses increased revenue by $ 3.0 million and contract volume by 500 contracts in the year ended december 31 , 2016. acquired operating profit for the year ended december 31 , 2016 increased $ 2.8 million , or 20.8 % , from the year ended december 31 , 2015. this increase is a result of an increase in revenues , offset by a $ 2.9 million or 18.4 % increase in expenses . the operating profit
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this , in turn , allows our customers to accomplish two key objectives : ( 1 ) limit their initial network startup costs and investments ; and ( 2 ) instantly activate new bandwidth as their customers ' and their own network needs evolve . we believe our portfolio of solutions benefits our customers by providing a unique combination of highly scalable capacity and features that address various applications and ultimately simplify and automate packet-optical network operations . financial and business highlights total revenue was $ 943.4 million in 2018 as compared to $ 740.7 million in 2017. the key driver of this increase was the addition of coriant , whose results were included in the fourth quarter of 2018 following the close of the acquisition . prior to the fourth quarter of 2018 , our revenue through the first three quarters of 2018 was $ 611.3 million , up by 12.2 % compared to $ 544.9 million in the same period of 2017. this increase was primarily due to the strength of our next-generation ice4 products and strong first half spending from our largest cable customer . in 2019 , we see a number of prospective opportunities to grow revenue driven by continued adoption of our new products , traditional coriant customers returning to more normal spend patterns , and opportunities with new and existing customers enabled by our end-to-end capabilities . our results will depend on overall market conditions and , as is typical , quarter-over-quarter revenue could be volatile , affected by customer buying patterns and the timing of customer network deployments . gross margin improved to 34.0 % in 2018 from 32.9 % in 2017. this improvement was primarily attributable to benefits of our vertically-integrated operating model , driven by higher revenue spread across our largely fixed cost structure and improved cost structure of our ice4 technology due to the increased levels of integration . additionally , in 2018 , compared to 2017 , we incurred substantially less costs related to bridging customers to our new ice4 technology and from initially higher costs of early production units from our new ice4 products . the increased gross margin in 2018 was offset by lower margins from the coriant business and increased amortization of intangible assets . in 2019 , we expect to further benefit from the plans we began to implement at the end of 2018 to reduce our fixed cost structure including headcount reductions and out-sourcing of certain service and manufacturing capabilities . in addition , we are undergoing cost renegotiations with many of our global suppliers in order to align our costs to the opportunity of the new infinera moving forward . 42 operating expenses in 2018 grew by 19 % to $ 506.8 million from $ 427.1 million in 2017 primarily due to the inclusion of coriant 's operating expenses subsequent to the closing of the acquisition , along with significant costs related to integration , restructuring , and other acquisition-related costs incurred in the fourth quarter of 2018 to begin to transform the business . these costs were partially offset by the impacts of our restructuring efforts over the course of the first nine months of 2018. our on-going operating expense levels should continue to improve as we execute on our synergy targets over the course of 2019. over a longer period of time , particularly with the larger scale that coriant provides , we believe that we can further leverage our vertically-integrated manufacturing model to significantly improve gross margins from where they are today . this , combined with the ability to continue to sell incremental bandwidth capacity into deployed networks and expense management , can result in returning to consistently delivering profitability and positive cash flow . one customer accounted for approximately 13 % and 18 % of our revenue in 2018 and 2017 , respectively . this customer completed a merger with another customer in 2017 and these two historically larger customers each individually accounted for approximately 16 % and 8 % of our revenue in 2016 , respectively . one other customer accounted for approximately 15 % of our revenue in 2018. no other customers accounted for over 10 % of our revenue for 2017 or 2016. we primarily sell our products through our direct sales force , with a small portion sold indirectly through channel partners . we derived 89 % , 94 % and 93 % of our revenue from direct sales to customers for 2018 , 2017 and 2016 , respectively . we expect to continue generating the substantial majority of our revenue from direct sales in the future . we are headquartered in sunnyvale , california , with employees located throughout the americas , europe , middle east and africa ( โ emea โ ) , and the asia pacific regions . story_separator_special_tag style= '' font-family : arial ; font-size:9pt ; font-style : italic ; '' > 2017 compared to 2016. research and development expenses decreased by $ 7.8 million , or 3 % , in 2017 from 2016 , with the biggest driver being an $ 11.3 million impairment charge recorded in 2016 , resulting from our decision to stop development on certain technologies that were in-process at the time of the transmode acquisition . we also incurred lower spending in development and manufacturing expenses of $ 8.6 million , as we drove efficiencies in our development and manufacturing business over the course of the year . these decreases were offset by an increase of $ 10.9 million in personnel expenses . during the year , we balanced investments around bringing our next-generation solutions to market and enacting a faster technology development cadence , with prudent expense management , particularly given our overall revenue decrease . sales and marketing expenses 2018 compared to 2017. sales and marketing expenses increased by $ 14.7 million , or 13 % , in 2018 from 2017 primarily due to the inclusion of the coriant business and an increase in recruiting and relocation expenses . story_separator_special_tag excluding the additional expenses from the coriant business , sales expenses would have been slightly higher due to increased commissions expenses relative to revenue growth in 2018. marketing expenses would have been a slight decrease as a result of a reduction in personnel-related costs due to reduced headcount and lower program spend in conjunction with company-wide cost reduction efforts . 47 2017 compared to 2016. sales and marketing expenses decreased by $ 2.2 million , or 2 % , in 2017 from 2016 as we tightly managed expenses , such as outside professional services and travel during the year . in 2017 , outside professional services declined by $ 1.6 million , and travel and entertainment declined by $ 1.1 million . overall personnel costs were effectively flat in 2017. general and administrative expenses 2018 compared to 2017 . general and administrative expenses increased by $ 10.3 million , or 15 % , in 2018 from 2017 primarily due to the inclusion of the coriant business offset by a decrease in personnel-related costs due to lower headcount attributable to company-wide cost reduction efforts . 2017 compared to 2016 . general and administrative expenses increased by $ 3.0 million , or 4 % , in 2017 from 2016 primarily due to increased depreciation expenses of $ 1.6 million and personnel costs of $ 1.5 million . these expenses were offset by a $ 1.6 million decrease in travel , equipment and facilities , and lower consulting services of $ 0.5 million . amortization of intangible assets 2018 compared to 2017. amortization of intangible assets increased by $ 23.1 million in 2018 from 2017 as a result of the acquisition . 2017 compared to 2016 . amortization of intangible assets were flat in 2017 compared to 2016 due to normal amortization of intangible assets for acquired intangible assets related to our acquisition of transmode . acquisition and integration costs 2018 compared to 2017. acquisition and integration costs increased by $ 15.2 million in 2018 from 2017 as a result of the acquisition . acquisition and integration costs consist of legal , financial , employee-related costs and other professional fees . see note 6 , โ business combination โ to the notes to consolidated financial statements for more information on the acquisition . 2017 compared to 2016 . acquisition and integration costs decreased by $ 1.5 million in 2017 from 2016 reflecting reduced costs associated with our acquisition of transmode . restructuring and related 2018 compared to 2017 . in 2018 , within operating expenses , we incurred $ 12.5 million in restructuring and other related costs , including $ 10.4 million of severance and related costs and $ 2.6 million of an impairment for a software license , offset by a credit of $ 0.5 million to adjust the sublease of impaired facilities . we expect to complete the majority of the actions related to the 2018 restructuring plan by the end of 2019 . 2017 compared to 2016 . in 2017 , within operating expenses , we incurred $ 16.1 million in restructuring and other related costs , including $ 7.9 million of severance related costs , $ 7.3 million of facilities impairment costs and test equipment impairments of $ 0.9 million . we implemented the majority of these actions related to a restructuring plan in late 2017 , with some remaining payments in the first half of 2018. see note 9 , โ restructuring and other related costs โ to the notes to consolidated financial statements for more information on our restructuring plans . other income ( expense ) , net replace_table_token_9_th 48 2018 compared to 2017 . interest income decreased $ 0.9 million in 2018 from 2017 primarily due to a lower average investment balance , partially offset by a higher return on investments . interest expense for 2018 increased $ 8.0 million due to $ 6.6 million related to financing lease obligations , which we assumed in connection with the acquisition , $ 0.5 million of interest accrual on cash collateral from a third-party institution and $ 0.9 million of higher amortization related to the 2024 notes . other gain ( loss ) , net , primarily consisted of a $ 5.1 million impairment charge related to our non-marketable equity investment , $ 3.0 million loss primarily related to foreign exchange related transactions and a $ 2.5 million acquisition funding commitment fee related to the acquisition . this was offset by a $ 1.1 million gain on the sale of non-marketable equity investments . 2017 compared to 2016 . interest income increased $ 0.8 million primarily due to a higher return on investments . interest expense for 2017 increased $ 1.1 million due to an increase in amortization of discount and issuance costs related to the $ 150.0 million in aggregate principal amount of its 1.75 % convertible senior notes due june 1 , 2018 ( the โ 2018 notes โ ) . the change in other gain ( loss ) , net , was primarily due to a $ 1.9 million impairment charge on our non-marketable equity investment in 2017 compared to a $ 9.0 million gain on the sale of a cost-method investment in 2016. benefit from income taxes on december 22 , 2017 , the tax act was signed into law and significantly revised the u.s. corporate income tax regime by , among other things , lowering corporate income tax rate from 35 % to 21 % effective january 1 , 2018 , while also imposing a repatriation tax on deemed repatriated earnings of our foreign subsidiaries in 2017 , and implementing a quasi-territorial tax system on future foreign earnings . on december 22 , 2017 , the sec issued staff accounting bulletin no .
| services revenue increased by $ 11.2 million , or 9 % , in 2017 from 2016 , pri marily attributable to continued growth in on-going maintenance services as a result of our growing installed base of customer networks . we currently expect that revenue in the first quarter of 2019 will decline relative to the fourth quarter of 2018. the first quarter in our industry tends to be negatively impacted by seasonality as it takes time for customers to finalize their capital expenditure plans . in addition , the fact that one of our largest customers plans to change their buying patterns from predominantly early in the year to more evenly spread throughout the year will negatively impact our revenue in the first quarter of 2019 . 44 revenue by geographic region is based on the shipping address of the customer . the following table summarizes our revenue by geography and sales channel for the periods presented ( in thousands , except percentages ) : replace_table_token_4_th replace_table_token_5_th 2018 compared to 2017. domestic revenue increased by $ 48.2 million , or 11 % , in 2018 compared to 2017 , primarily due to a significant increase in spending from cable operators for the first half of 2018 , success with our ice4 platform and the inclusion of coriant 's revenue since the acquisition . international revenue increased by $ 154.4 million , or 49 % , in 2018 compared to 2017. the inclusion of coriant 's revenue was a key driver of this growth . additionally , we also benefited from increased ice4 sales and u.s.-based icps network deployments in both emea and asia pacific and japan regions . 2017 compared to 2016. domestic revenue decreased by $ 113.3 million , or 21 % , in 2017 compared to 2016 , primarily attributable to the effects of customer consolidation , and changes in certain large customers ' buying patterns as we transition to our next-generation of products . the majority of the decrease in 2017 occurred in the first half of the year , as the revenue during the second half of the year was up
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all intercompany transactions and balances are eliminated in consolidation . revenue to date , we have not generated any revenues from therapeutic product sales . our revenues have been derived from collaboration activities and grant revenues . collaboration revenues have been generated exclusively from our collaboration arrangement with becton , dickinson and company , or bd . in september 2010 , we entered into a worldwide exclusive license and collaboration agreement with bd for the joint development and worldwide commercialization of certain induced pluripotent stem cell , or ipsc , tools and technologies for use in drug discovery and development . the license and collaboration agreement was assigned by bd to corning incorporated in october 2012. in connection with the agreement , we received an upfront , non-refundable license payment , and received research funding for the conduct of joint development activities during the three-year period ending september 2013. we are eligible to receive certain commercialization milestones and royalties on the sale of any jointly-developed ipsc reagent products that are commercially launched . in connection with the arrangement with bd , we recognized $ 0.6 million , $ 1.3 million , and $ 0.8 million for the years ended december 31 , 2013 , 2012 , and 2011 , respectively , as collaboration revenue in our consolidated statements of operations . we do not currently anticipate generating any significant revenues under the arrangement with bd in the future . grant revenue is primarily generated through research and development grant programs offered by the u.s. government and its agencies . in april 2011 , we were awarded a $ 2.1 million grant from the u.s. army telemedicine & advanced technology research center , or tatrc , to identify and develop regenerative medicines for acute sound-inducing hearing loss . all funding under the tatrc grant was expended in full as of may 2013. no future revenues associated with the tatrc grant will be generated . 83 research and development expenses research and development expenses consist of development costs associated with our platforms and programs . these costs are expensed as incurred and include : compensation and employee-related costs , including share-based compensation expense ; costs associated with conducting our preclinical , clinical and regulatory activities , including fees paid to third-party professional consultants and service providers , clinical investigative sites and manufacturers of our preclinical study and clinical trial materials ; costs for laboratory supplies ; charges associated with the achievement of certain preclinical and financial milestones pursuant to our asset acquisition of verio therapeutics inc. , or verio , that was completed in april 2010 ; and facilities , depreciation and other expenses including allocated expenses for rent and maintenance of facilities . from inception through december 31 , 2013 , we have incurred $ 57.0 million in research and development expenses . we plan to increase our current level of research and development expenses for the foreseeable future as we continue the development of our stem cell modulation platforms and our initial therapeutic product candidates . our current planned research and development activities include the following : advancing prohema in a phase 2 clinical trial in the setting of adult patients with orphan hematologic malignancies in 2014 to examine its safety and its curative potential in allogeneic hsct ; initiating in 2014 a clinical trial of a pharmacologically-modulated hsc product candidate in pediatric patients with lsds to evaluate its safety and its curative potential in allogeneic hsct ; and conducting in 2014 ind-enabling studies of a wnt7a protein analog product candidate to evaluate its safety and its potential to promote muscle regeneration . we can not determine with certainty the timing of initiation , the duration and the completion costs of current or future preclinical studies and clinical trials of our therapeutic product candidates . at this time , due to the inherently unpredictable nature of preclinical and clinical development and given the early stage of our programs , we are unable to estimate with any certainty the costs we will incur and the timelines we will require in the continued development of our product candidates , including prohema . clinical and preclinical development timelines , the probability of success and development costs can differ materially from expectations . in addition , we can not forecast which product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . the following table summarizes our research and development expenses by major programs for the years ended december 31 : replace_table_token_5_th 84 we do not allocate general equipment and supply costs , or facilities , depreciation and other miscellaneous expenses to specific programs as these expenses are deployed across all of our programs . general and administrative expenses general and administrative expenses consist primarily of salaries and employee-related costs , including stock-based compensation and travel expenses for our employees in executive , operational , finance and human resource functions . other general and administrative expenses include facility-related costs and professional fees for directors , accounting and legal services and expenses associated with obtaining and maintaining patents . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates . we also anticipate increased expenses related to audit , legal , regulatory , and tax-related services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance premiums , and investor relations costs associated with being a public company . story_separator_special_tag other income ( expense ) , net other income ( expense ) , net , consists primarily of interest income earned on cash and cash equivalents ; interest expense on convertible notes and on amounts outstanding under our credit facility ; change in fair value of the exchangeable share liability relating to the total exchangeable shares held by the prior stockholders of verio ; and change in fair value of the warrant liability relating to our preferred stock warrants , which were converted into common stock warrants in connection with our ipo . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our 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 , and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses and stock-based compensation . we base our estimates on historical experience , known trends and events , and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this annual report , we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements . revenue recognition our revenues have principally consisted of license fees , periodic research and development funding and milestone payments under our september 2010 license and collaboration agreement with bd , as well as funding received under government grants . our license and collaboration agreement contains multiple elements , all of which are accounted for as collaboration revenue . we recognize revenues when all four of the following criteria are met : ( i ) persuasive evidence that an agreement exists ; ( ii ) delivery of the products and or services has occurred ; ( iii ) the selling price is fixed or determinable ; and ( iv ) collectibility is reasonably assured . 85 collaboration revenues agreements entered into prior to 2011. for multiple-element agreements entered into prior to january 1 , 2011 and not materially modified thereafter , such as our agreement with bd , we analyzed the agreement to determine whether the elements within the agreement could be separated or whether they must be accounted for as a single unit of accounting . if the delivered element , which for us is commonly a license , has stand-alone value and the fair value of the undelivered elements , which for us are generally collaboration research activities , can be determined , we recognized revenue separately under the residual method as the elements under the agreement are delivered . if the delivered element does not have stand-alone value or if the fair value of the undelivered element can not be determined , the agreement is then accounted for as a single unit of accounting , with consideration received under the agreement recognized as revenue on the straight-line basis over the estimated period of performance , which for us is generally the expected term of the research and development plan . agreements entered into or materially modified after december 31 , 2010. in october 2009 , the financial accounting standards board , or fasb , issued a new accounting standard which amended the guidance on accounting for arrangements involving the delivery of more than one element . this standard addresses the determination of the unit ( s ) of accounting for multiple-element arrangements and how the arrangement 's consideration should be allocated to each unit of accounting . in january 2011 , we adopted new authoritative guidance on revenue recognition for milestone payments related to agreements under which we have continuing performance obligations . as required under the new literature , we evaluate all milestones at the beginning of the agreement to determine if they meet the definition of a substantive milestone . we recognize revenue from milestone payments when earned , provided that ( i ) the milestone event is substantive in that it can only be achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance and its achievability was not reasonably assured at the inception of the agreement ; ( ii ) we do not have ongoing performance obligations related to the achievement of the milestone and ( iii ) it would result in the receipt of additional payments . a milestone payment is considered substantive if all of the following conditions are met : ( i ) the milestone payment is non-refundable ; ( ii ) achievement of the milestone was not reasonably assured at the inception of the arrangement ; ( iii ) substantive effort is involved to achieve the milestone and ( iv ) the amount of the milestone payment appears reasonable in relation to the effort expended , the other milestones in the arrangement and the related risk associated with the achievement of the milestone . collaboration arrangements providing for payments to us upon the achievement of research and development milestones generally involve substantial uncertainty as to whether any such milestone would be achieved . in the event a milestone is considered to be substantive , we expect to recognize future payments as revenue in connection with the milestone as it is achieved .
| general and administrative expenses were $ 6.6 million for the year ended december 31 , 2013 , compared to $ 4.2 million for the year ended december 31 , 2012. the increase of $ 2.4 million in general and administrative expenses primarily reflects the following : $ 0.8 million increase in employee compensation and benefits expense associated with the expansion of our executive management team ; $ 0.8 million increase in third-party professional consultant and service provider expenses to support our financial and legal preparedness as a public company ; $ 0.4 million increase in non-employee stock-based compensation expense ; and $ 0.2 million increase in intellectual property related expenses . other income ( expense ) , net . other income ( expense ) , net , was $ ( 3.2 ) million for the year ended december 31 , 2013 , compared to $ ( 0.7 ) million for the year ended december 31 , 2012. the increase was primarily due to a $ 2.4 million increase in the fair value of the exchangeable share liability relating to the total exchangeable shares held by the former stockholders of verio . 93 comparison of years ended december 31 , 2012 and 2011 the following table summarizes the results of our operations for the years ended december 31 , 2012 and 2011 : replace_table_token_7_th revenue . total revenue was $ 2.7 million for the year ended december 31 , 2012 , compared to $ 1.2 million for the year ended december 31 , 2011. the increase of $ 1.5 million was due to an increase in reimbursable expenses related to our tatrc grant and the achievement of a commercial milestone under our ipsc technology collaboration with bd . research and development expenses . research and development expenses were $ 12.0 million for the year ended december 31 , 2012 , compared to $ 9.9 million for the year ended december 31 , 2011. the increase of $ 2.1 million was primarily due to : $ 0.6 million increase in employee compensation-related expense in connection with an increase in headcount ; $ 2.4 million increase in external costs
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on january 28 , 2014 , the synergy board of directors approved the distribution of the 9,000,000 issued and outstanding shares of our common stock currently held by synergy on the basis of 0.0986 shares of our common stock for each share of synergy common stock held on the record date . on january 28 , 2014 , synergy declared a dividend of our common stock . on the distribution date of february 18 , 2014 , synergy stockholders of record as of the close of business on february 6 , 2014 received .0986 shares of our common stock for every 1 share of synergy common stock they held . none of our fractional shares were issued . synergy stockholders received cash in lieu of fractional shares . we are no longer a wholly-owned subsidiary of synergy and synergy retains no ownership interest in us . financial operations overview from inception through june 30 , 2015 , we have sustained cumulative net losses of approximately $ 19.8 million . from inception through june 30 , 2015 , we have not generated any revenue from operations and expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products . we do not expect to have such for several years , if at all . on february 4 , 2014 , we entered into a securities purchase agreement with accredited investors to sell securities and raise gross proceeds of $ 3,225,000 in a private placement and incurred expenses of approximately $ 15,000 related to this placement . we sold 9,485,294 units to the investors with each unit consisting of one share of our common stock and one warrant to purchase an additional one half share of our common stock . the purchase price paid by the investor was $ 0.34 for each unit . the warrants expire after six years and are exercisable at $ 0.37 per share . on august 20 , 2014 , the warrants were exchanged for common stock . on october 14 , 2014 , we closed a private offering of series a convertible preferred stock ( the ยseries aย ) and issued 900,000 shares of series a preferred at $ 10.00 per share , generating gross proceeds of approximately $ 9,000,000. we also granted the purchaser the option to purchase up to an additional 350,000 shares of series a prior to february 28 , 2015. the series a are classified as permanent equity in accordance with asc topic 480 , distinguishing liabilities from equity . we issued an additional 50,000 shares of series a preferred at $ 10.00 per share on december 23 , 2014 , an additional 30,000 shares of series a preferred at $ 10.00 per share on february 10 , 2015 and an additional 270,000 shares on february 26 , 2015 , generating aggregate gross proceeds of $ 3,500,000. on december 17 , 2014 , we issued 120,000 of series b convertible preferred stock ( the ยseries bย ) in exchange for an exclusive license for further clinical development and commercialization of cmx157 from chimerix , inc. our product development efforts are thus in their early stages and we can not make estimates of the costs or the time they will take to complete . the risk of completion of any program is high because of the many uncertainties involved in bringing new drugs to market including the long duration of clinical testing , the specific performance of proposed products under stringent clinical trial protocols , the extended regulatory approval and review cycles , our ability to raise additional capital , the nature and timing of research and development expenses and competing technologies being developed by organizations with significantly greater resources . critical accounting policies this discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states of america , or gaap . the preparation of these financial statements requires us 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 the 48 reported amounts of revenue and expenses during the reported period . in accordance with gaap , we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 3 to our audited financial statements appearing elsewhere in this annual report , we believe the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements . going concern as of june 30 , 2015 we had $ 4.6 million in cash . net cash used in operating activities was $ 9.7 million for the year ended june 30 , 2015. as of june 30 , 2015 we had an accumulated deficit of $ 27 . 6 million . we expect to incur losses for the next several years as we expand our research , development and clinical trials of fv-100 and cmx157 . we are unable to predict the extent of any future losses or when we will become profitable , if at all . these financial statements have been prepared under the assumption that we will continue as a going concern . due to our recurring and expected continuing losses from operations , we concluded there is substantial doubt in our ability to continue as a going concern within one year after the financial statements are issued without additional capital becoming available to attain further operating efficiencies and , ultimately , to generate revenue . our financial statements do not include any adjustments that might result from the outcome of this uncertainty . story_separator_special_tag we will be required to raise additional capital within the next year to continue the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels . we can not be certain that additional funding will be available on acceptable terms , or at all . to the extent that we raise additional funds by issuing equity securities , our stockholders may experience significant dilution . any debt financing , if available , may involve restrictive covenants that impact our ability to conduct business . if we are unable to raise additional capital when required or on acceptable terms , we may have to ( i ) significantly delay , scale back or discontinue the development and or commercialization of its product candidate ; ( ii ) seek collaborators for product its candidate at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available ; or ( iii ) relinquish or otherwise dispose of rights to technologies , product candidate or products that we would otherwise seek to develop or commercialize ourselves on unfavorable terms . fair value of financial instruments financial instruments consist of cash , accounts payable and derivative instruments . these financial instruments are stated at their respective historical carrying amounts , which approximate fair value due to their short term nature , except for derivative instruments , which are marked to market at the end of each reporting period . warrants we have issued common stock warrants in connection with the execution of certain equity financings . the fair value of certain warrants , deemed to be derivative instruments , was recorded as a derivative liability under the provisions of fasb asc topic 815 derivatives and hedging ( ยasc 815ย ) upon issuance . subsequently the liability was adjusted to fair value as of each reporting period and the changes in fair value of derivative liabilities were recorded in the statements of operations under the caption ยchange in fair value of derivative liabilities.ย the fair value of warrants deemed to be derivative instruments was determined using binomial option-pricing model using varying assumptions regarding volatility of our common share price , remaining life of the warrant , and risk-free interest rates at each period end . we thus used model-derived valuations where significant value drivers were unobservable to third parties to determine the fair value and accordingly classified such warrants in level 3 per asc 820. as of june 30 , 2015 , these were exchanged for shares of common stock of the company . at june 30 , 2014 , the fair value of such warrants was $ 4,475,345 which we classified as a long term derivative liability on our balance sheets . income taxes we account for income taxes under the asset and liability method . we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases , as well as for operating loss and tax credit carry-forwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which we expect to 49 recover or settle those temporary differences . the effect of a change in tax rates on deferred tax assets and liabilities is recorded in the results of operations in the period that includes the enactment date . we reduce the measurement of a deferred tax asset , if necessary , by a valuation allowance if it is more likely than not that we will not realize some or all of the deferred tax asset . we account for uncertain tax positions by recognizing the financial statement effects of a tax position only when , based upon technical merits , it is ยmore-likely-than-notย that the position will be sustained upon examination . potential interest and penalties associated with unrecognized tax positions are recognized in income tax expense . contingencies in the normal course of business , we are subject to loss contingencies , such as legal proceedings and claims arising out of its business , that cover a wide range of matters , including , among others , government investigations , shareholder lawsuits , product and environmental liability , and tax matters . in accordance with fasb asc topic 450 , accounting for contingencies , ( ยasc 450ย ) , we record accruals for such loss contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated . we , in accordance with this guidance , do not recognize gain contingencies until realized . research and development research and development costs , which include expenditures in connection with an in-house research and development laboratory , salaries and staff costs , application and filing for regulatory approval of proposed products , purchased in-process research and development , license costs , regulatory and scientific consulting fees , as well as contract research , insurance and fda consultants , are accounted for in accordance with asc topic 730 , research and development ( ยasc 730ย ) . also , as prescribed by this guidance , patent filing and maintenance expenses are considered legal in nature and therefore classified as general and administrative expense , if any . we do not currently have any commercial biopharmaceutical products , and do not expect to have such for several years if at all . accordingly our research and development costs are expensed as incurred . while certain of our research and development costs may have future benefits , our policy of expensing all research and development expenditures is predicated on the fact that we have no history of successful commercialization of product candidates to base any estimate of the number of future periods that would be benefited . also as prescribed by asc 730 , non-refundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized .
| net loss for the years ended june 30 , 2015 and 2014 was $ 14.3 million and $ 5.3 million , respectively , which was a result of the operating expenses and change in fair value of our warrant liability discussed above . 53 liquidity and capital resources the following table summarizes our cash flows for the years ended june 30 , 2015 and 2014 : replace_table_token_5_th as of june 30 , 2015 , we had $ 4.6 million in cash , as compared to $ 1.8 million as of june 30 , 2014. net cash used in operating activities was approximately $ 9.7 million for the year ended june 30 , 2015 , as compared to $ 1.4 million for the year ended june 30 , 2014. this cash was primarily used to continue development of fv-100 and for employee related costs as we continued to increase our headcount . as of june 30 , 2015 , we had working capital of $ 3.3 million , as compared to $ 1.5 million as of june 30 , 2014. we issued 1,250,000 shares of convertible a preferred stock during the year ended june 30 , 2015 at $ 10.00 per share , aggregating gross proceeds of $ 12,500,000. on march 9 , 2015 , we entered into a controlled equity offering sales agreement ( the ยagreementย ) , with cantor fitzgerald & co. , as sales agent ( ยcantorย ) , pursuant to which we may offer and sell , from time to time , through cantor shares of our common stock , par value $ 0.0001 per share ( the ยsharesย ) , up to an aggregate offering price of $ 50.0 million . we intend to use the net proceeds from these sales to fund our research and development activities , including our phase 3 clinical trial of fv-100 , and for working capital and other general corporate purposes , and possible acquisitions of other companies , products or technologies , though no such acquisitions are currently contemplated . under the agreement , cantor may sell the shares by methods deemed to be an ยat-the-marketย offering as
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conditions in our existing markets our portfolio spans numerous farmland markets and crop types , which provides us broad diversification across conditions in these markets . across all regions , farmland acquisitions continue to be dominated by buyers who are existing farm owners and operators ; institutional and investor acquirors remain a small fraction of the industry . we generally see firm demand for high quality properties across all regions and crop types . with regard to leasing dynamics , we believe quality farmland in the united states has a near-zero vacancy rate as a result of the supply and demand fundamentals discussed above . our view is that rental rates for farmland are a function of farmland operators ' view of the long-term profitability of farmland , and that many farm operators will compete for farmland even during periods of decreased profitability due to the scarcity of farmland available to rent . in particular , we believe that due to the relatively high fixed costs associated with farming operations ( including equipment , labor and knowledge ) , many farm operators in some circumstances will rent additional acres of farmland when it becomes available in order to allocate their fixed costs over additional acres . furthermore , because it is generally customary in the industry to provide the existing tenant with the opportunity to re-lease the land at the end of each lease term , we believe that many farm operators will rent additional land that becomes available in order to control the ability to farm that land in future periods . as a result , in our experience , many farm operators will aggressively pursue rental opportunities in their operable geographic area , even when the farmer anticipates lower current returns or short-term losses . in our primary row crop farmland , we see flat to modestly higher rent rates in connection with 2018 lease renewals . this is consistent with , on the one hand , headwinds in primary crop markets and , on the other , tenant demand for leasing high quality farmland . due to the short term nature of most of our primary crop leases , we believe that a recovery of crop prices and farm profitability will be reflected relatively rapidly in our revenues via increases in rent rates . across specialty crops , operator profitability generally remains healthy . participating lease structures are common in many specialty crops and base lease rates are consistent with or slightly higher than 2017. lease expirations farm leases are often short-term in nature . as of december 31 , 2017 our portfolio had the following lease expirations as a percentage of approximate acres leased and annualized minimum cash rents : 45 replace_table_token_6_th we have or are currently negotiating leases on 8,552 total acres . we expect that rents for primary crop farmland will experience a modest increase in 2018. we expect that rents for specialty crop farmland will be flat to modestly increasing . rental revenues our revenues are primarily generated from renting farmland to operators of farming businesses . our leases have terms ranging from one to ten years . although the majority of our leases do not provide the tenant with a contractual right to renew the lease upon its expiration , we believe it is customary to provide the existing tenant with the opportunity to renew the lease , subject to any increase in the rental rate that we may establish . if the tenant elects not to renew the lease at the end of the lease term , the land will be offered to a new tenant . the leases for the majority of the properties in our portfolio provide that tenants must pay us at least 50 % of the annual rent in advance of each spring planting season . as a result , we collect a significant portion of total annual rents in the first calendar quarter of each year . we believe our use of leases pursuant to which at least 50 % of the annual rent is payable in advance of each spring planting season mitigates the tenant credit risk associated with the variability of farming operations that could be adversely impacted by poor crop yields , weather conditions , mismanagement , undercapitalization or other factors affecting our tenants . tenant credit risk is further mitigated by requiring that our tenants maintain crop insurance and by our claim on a portion of the related proceeds , if any , as well as by our security interest in the growing crop . prior to acquiring farmland property , we take into consideration the competitiveness of the local farm-operator tenant environment in order to enhance our ability to quickly replace a tenant that is unwilling to renew a lease or is unable to pay a rent payment when it is due . some of our leases provide for a reimbursement of the property taxes we pay . expenses substantially all of our farm leases are structured in such a way that we are responsible for major maintenance , certain insurance and taxes ( which are sometimes reimbursed to us by our tenants ) , while our tenant is responsible for minor maintenance , water usage and all of the additional input costs related to farming operations on the property , such as seed , fertilizer , labor and fuel . we expect that substantially all of the leases for farmland we acquire in the future will continue to be structured in a manner consistent with substantially all of our existing leases . as the owner of the land , we generally only bear costs related to major capital improvements permanently attached to the property , such as irrigation systems , drainage tile , grain storage facilities , permanent plantings or other physical structures customary for farms . in cases where capital expenditures are necessary , we typically seek to offset , over a period of multiple years , the costs of such capital expenditures by increasing rental rates . story_separator_special_tag we also incur the costs associated with maintaining liability and casualty insurance . we incur costs associated with running a public company , including , among others , costs associated with employing our personnel and compliance costs . we incur costs associated with due diligence and acquisitions , including , among others , travel expenses , consulting fees , and legal and accounting fees . we also incur costs associated with managing our farmland . the management of our farmland , generally , is not labor or capital intensive because farmland generally has minimal physical structures that require routine inspection and maintenance , and our leases , generally , are structured to require the tenant to pay many of the costs associated with the property . furthermore , we believe that our platform is scalable , and we do not expect the expenses associated with managing our portfolio of farmland to increase significantly as the number of farm properties we own increases over time . 46 crop prices we believe short-term crop price changes have had little effect historically on farmland values . they also have a limited impact on our rental revenue , as most of our leases provide for a fixed cash rental rate , a common approach in agricultural markets , especially with respect to row crops , for several reasons . this approach recognizes that the value of leased land to a tenant is more closely linked to the total revenue produced on the property which is driven by crop yield and crop price . this approach simplifies the administrative requirements for the landlord and the tenant significantly . this approach supports the tenants ' desire to maintain access to their leased farms which are in short supply , a concept expanded upon below , by providing the landlord consistent rents . crop price exposure is also limited because tenants also benefit from the fundamental revenue hedging that occurs when large crop yields mitigate the effect of lower crop prices . similarly , lower crop yields have a tendency to trigger higher crop prices and help increase revenue even when confronted by a lower crop yields . such hedging effect also limits the impact of short-term crop price changes on revenues generated by leases with a bonus component based on farm revenues . further risk mitigation is available to tenants , and indirectly to us , via crop insurance and hedging programs implemented by tenants . our trs takes advantage of these risk mitigation programs and strategies also . we believe quality farmland in the united states has a near-zero vacancy rate as a result of the supply and demand fundamentals . our view is that rental rates for farmland are a function of farmland operators ' view of the long-term profitability of farmland , and that many farm operators will compete for farmland even during periods of decreased profitability due to the scarcity of farmland available to rent . in particular , we believe that due to the relatively high fixed costs associated with farming operations ( including equipment , labor and knowledge ) , many farm operators in some circumstances will rent additional acres of farmland when it becomes available in order to allocate their fixed costs over additional acres . furthermore , because it is generally customary in the industry to provide the existing tenant with the opportunity to re-lease the land at the end of each lease term , we believe that many farm operators will rent additional land that becomes available in order to control the ability to farm that land in future periods . as a result , in our experience , many farm operators will aggressively pursue rental opportunities in their operable geography , even when the farmer anticipates lower current returns or short-term losses . the value of a crop is affected by many factors that can differ on a yearly basis . weather conditions and crop disease in major crop production regions worldwide creates a significant risk of price volatility , which may either increase or decrease the value of the crops that our tenants produce each year . other material factors adding to the volatility of crop prices are changes in government regulations and policy , fluctuations in global prosperity , fluctuations in foreign trade and export markets , and eruptions of military conflicts or civil unrest . prices for many primary crops , particularly corn , experienced meaningful declines in 2014 and 2015 , and have still not recovered to their pre-2014 prices . we do not believe such declines represent a trend over the long term . rather , we believe those declines represented a combination of correction to historical norms ( adjusted for inflation ) and high yields due to favorable weather patterns . we expect that continued long-term growth trends in global population and gdp per capita will result in increased revenue per acre for primary crops over time . we expect pricing across specialty crops to generally remain firm relative to 2017 as u.s. and global consumer demand remains strong and supply is broadly balanced to demand . although annual rental payments under the majority of our leases are not based expressly on the quality or profitability of our tenants ' harvests , any of these factors could adversely affect our tenants ' ability to meet their obligations to us and our ability to lease or re-lease properties on favorable terms . 47 interest rates we expect that future changes in interest rates will impact our overall operating performance by , among other things , increasing our borrowing costs . while we may seek to manage our exposure to future changes in rates through interest rate swap agreements or interest rate caps , portions of our overall outstanding debt will likely remain at floating rates .
| under the fpi loan program , we make loans to third-party farmers ( both tenant and non-tenant ) to provide partial financing for working capital requirements and operational farming activities , farming infrastructure projects , and for other farming and agricultural real estate related purposes . we were incorporated in maryland on september 27 , 2013 , and we are the sole member of the sole general partner of the operating partnership , which is a delaware limited partnership that was formed on september 27 , 2013. all of our assets are held by , and our operations are primarily conducted through , the operating partnership and its wholly owned subsidiaries . as of the date of this annual report on form 10-k we own 87.6 % of the common units and none of the series a preferred units nor the series b participating preferred stock . see note 9 to our consolidated financial statements for additional information regarding the series a preferred units . as of december 31 , 2017 , we owned 87.6 % of the common units in the operating partnership . we elected and qualified to be taxed as a reit for u.s. federal income tax purposes commencing with our short taxable year ended december 31 , 2014 . 42 recent developments 2017 completed acquisitions during 2017 , we completed 18 asset acquisitions . consideration totaled $ 225.9 million and was comprised of cash , shares of common stock and common units . no intangible assets were acquired through these acquisitions . during 2017 , we completed one acquisition ( the afco mergers ) that was accounted for as a business combination . gross consideration totaled $ 246.1 million and was comprised of shares of common stock and common units after including assumed debt of $ 75.0 million , the afco mergers consideration totaled $ 171.1 million . these 2017 acquisitions expanded our presence to three additional states , bringing our total presence to seventeen states as of december 31 , 2017. acquisitions completed to date in 2018 as of the date of this annual report on form 10-k , we have completed four acquisitions for a total consideration of $ 27.4 million . series b participating preferred stock offering on august 17 , 2017 , we
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the weighted-average interest rate on performing loans was 17.42 % and 16.33 % for the years ended december 31 , 2019 and 2018 , respectively . for the years ended december 31 , 2019 and 2018 , the weighted-average interest rate on all loans was 17.37 % and 16.33 % , respectively . interest is calculated using the effective interest method , and rates earned by the fund will fluctuate based on many factors including early payoffs , volatility of values ascribed to warrants , and new loans funded during the year . expenses for the years ended december 31 , 2019 and 2018 were $ 11.9 million and $ 5.4 million , respectively . management fees for the years ended december 31 , 2019 and 2018 were $ 7.3 million and $ 4.8 million , respectively . for the period from may 2 , 2018 through december 31 , 2018 , management fees were calculated at 1.575 % of committed capital . management fees were calculated at the aforementioned rate from january 1 , 2019 through june 30 , 2019. for the period from july 1 , 2019 through december 31 , 2019 , management fees were calculated at 1.600 % off committed capital . interest expense for the years ended december 31 , 2019 and 2018 was $ 4.0 million and less than $ 0.1 million , respectively . interest expense was comprised of amounts related to interest on debt amounts drawn down , unused credit line fees and amounts amortized from deferred fees incurred in conjunction with the debt facility . the increase in interest expense is primarily due to higher interest expense related to debt amounts drawn down . the average debt outstanding for the years ended december 31 , 2019 is $ 61.2 million . the average debt outstanding for the period from december 20 , 2018 through december 31 , 2018 is $ 6.0 million . the fund borrowed from the debt facility to fund growth in investment operations . banking and professional fees for the years ended december 31 , 2019 and 2018 were $ 0.5 million and $ 0.4 million , respectively . banking and professional fees were comprised of legal , audit , banking and other professional fees . other operating expenses for the years ended december 31 , 2019 and 2018 were $ 0.2 million and 0.1 million , respectively . other operating expense increased in 2019 compared to 2018 primarily due to timing as the fund started investment operations in may 2018. these expenses included director fees , custody fees , tax fees and other expenses related to the operations of the fund . net investment income ( loss ) for the years ended december 31 , 2019 and 2018 was $ 11.9 million and $ ( 1.0 ) million , respectively . net realized loss from loans for the years ended december 31 , 2019 and 2018 was $ 2.4 million and zero , respectively . this is primarily due losses incurred on written-off loans , which is slightly offset by partial recovery receivable . net realized loss from derivative instruments for the year ended december 31 , 2019 and 2018 was $ 0.1 million and zero , respectively . the reason for the loss was due to interest paid by the fund on the interest rate swap and floor agreements when the fixed rate interest of the swap and floor was higher than the floating rate . there was no realized gain or loss from derivative instruments for the year ended december 31 , 2018 as the interest rate swap and floor agreements were established in february 2019. net change in unrealized loss from loans for the year ended december 31 , 2019 and 2018 was $ 0.9 million and zero , respectively . the net change in unrealized loss from loans consisted of fair value adjustments to loans and the reversal of fair value adjustments previously taken against loans written off . there was no net change in unrealized gain or loss from loans for the year ended december 31 , 2018 as the fund had just started investment operations in may 2018. net change in unrealized loss from derivative instruments for the year ended december 31 , 2019 and 2018 was $ 0.8 million and zero , respectively . the net change in unrealized gain or loss from derivative instruments consisted of fair market value adjustments to the derivative swap and is a reflection of the market 's outlook on the economy and the future of interest rate changes . there was no net change in unrealized gain or loss from derivative instruments for the year ended december 31 , 2018 as the fund did not establish the interest rate swap and floor agreement until february 2019 . 21 net increase ( decrease ) in net assets resulting from operations for the years ended december 31 , 2019 and 2018 was $ 7.7 million and $ ( 1.0 ) million , respectively . on a per share basis , the net increase ( decrease ) in net assets resulting from operations for the same periods was $ 76.75 and $ ( 9.64 ) , respectively . liquidity and capital resources -- december 31 , 2019 and 2018 for the most recent discussion on the liquidity and capital resources for the period ending december 31 , 2017 , refer to the management discussion and analysis on the annual report , form 10-k , filed on march 14 , 2019. the fund is owned entirely by the company . story_separator_special_tag the company is expected , but not required , to make further contributions to the capital of the fund to the extent of the company 's members ' capital commitment to the company and excess cash balances of the company . total capital contributed to the fund was $ 148.1 million and $ 82.5 million as of december 31 , 2019 and 2018 , respectively . as of both december 31 , 2019 and 2018 , the company had subscriptions for capital in the amount of $ 460.0 million , of which $ 174.8 million and $ 96.6 million had been called and received , as of december 31 , 2019 and 2018 , respectively . as of december 31 , 2019 , $ 285.2 million of capital remains uncalled and the uncalled capital expires on the fund 's fifth anniversary of its first investment unless extended . management is permitted to extend the fund 's investment period by up to two ( 2 ) additional calendar quarters in its sole and absolute discretion . the company has made $ 20.9 million in recallable distributions to its investors , as permitted under its operating agreement between the company 's managing member and members of the company . the change in cash held by the fund for the years ended december 31 , 2019 and 2018 was as follows : replace_table_token_2_th as of december 31 , 2019 and 2018 , 9.4 % and 1.0 % , respectively , of the fund 's net assets consisted of cash and cash equivalents . on december 20 , 2018 , the fund entered into a syndicated loan agreement led by mufg union bank , n.a. , wells fargo securities , llc and ing capital llc , with participation from zions bancorporation , n.a. , doing business as california bank & trust , bank leumi usa , umpqua bank , hsbc bank usa , n.a. , and first bank , that established a secured revolving loan facility in an initial amount of up to $ 200.0 million with the option to request that borrowing availability be increased up to $ 400.0 million , subject to further negotiation and credit approval . borrowings by the fund are collateralized by all the assets of the fund . loans under the facility may be , at the option of the fund , a reference rate loan , a libor loan , or a libor market index rate loan . the fund pays interest on its borrowings and a fee on the unused portion of the facility . the facility terminates on december 20 , 2021 , but can be accelerated in the event of default , such as failure by the fund to make timely interest or principal payments . as of december 31 , 2019 , $ 100.0 million was outstanding under the facility . for the year ended december 31 , 2019 and since the start of its investment operations in may 2018 , the fund invested its assets in venture loans . amounts disbursed under the fund 's loan commitments were $ 160.7 million and $ 87.1 million for the years ended december 31 , 2019 and 2018 , respectively . net loan amounts outstanding after amortization and valuation adjustments increased by $ 124.3 million and $ 79.0 million for the years ended december 31 , 2019 and 2018 , respectively . unexpired unfunded commitments totaled $ 78.0 million and $ 31.0 million as of december 31 , 2019 and 2018 , respectively . replace_table_token_3_th the following tables show the unexpired unfunded commitments by portfolio company as of december 31 , 2019 and 2018 . replace_table_token_4_th 22 replace_table_token_5_th replace_table_token_6_th 23 replace_table_token_7_th because venture loans are privately negotiated transactions , investments in these assets are relatively illiquid . it is the management 's experience that not all unexpired unfunded commitments will be used by borrowers . many credit agreements contain provisions that are milestone dependent and not all borrowers will achieve these milestones . additionally , the fund 's credit agreements contain provisions that give relief from funding obligations in the event the borrower has a materially adverse change in its financial condition . therefore , the unexpired unfunded commitments do not necessarily reflect future cash requirements or future investments for the fund . the fund seeks to maintain the requirements to qualify for the special pass-through status available to rics under the code , and thus to be relieved of federal income tax on that part of its net investment income and realized capital gains that it distributes to its shareholder . to qualify as a ric , the fund must distribute to its shareholder for each taxable year at least 90 % of its investment company taxable income ( consisting generally of net investment income and net short-term capital gain ) ( the โ distribution requirement โ ) . to the extent that the terms of the fund 's venture loans provide for the receipt by the fund of additional interest at the end of the loan term or provide for the receipt by the fund of a purchase price for the asset at the end of the loan term ( โ residual income โ ) , the fund would be required to accrue such residual income over the life of the loan , and to include such accrued undistributed income in its gross income for each taxable year even if it receives no portion of such residual income in that year . thus , in order to meet the distribution requirement and avoid payment of income taxes or an excise tax on undistributed income , the fund may be required in a particular year to distribute as a dividend an amount in excess of the total amount of income it actually receives . those distributions will be made from the fund 's cash assets , from amounts received through amortization of loans or from borrowed funds . as of december 31 , 2019
| if the fund fails to meet these requirements , it will be taxed as an ordinary corporation on its taxable income for that year ( even if that income is distributed to the members of the company ) and all distributions out of its earnings and profits will be taxable to the members of the company as ordinary income ; thus , such income will be subject to a double layer of tax . there is no assurance that the fund will meet the ongoing requirements to qualify as a ric for tax purposes . the fund 's investment objective is to achieve superior risk-adjusted investment returns and it seeks to achieve that objective by providing debt financing to portfolio companies , most of which are private . the fund generally receives warrants to acquire equity securities in connection with its portfolio investments and generally distributes these warrants to its shareholder upon receipt , or soon thereafter . the fund also has guidelines for the percentages of total assets that are invested in different types of assets . the portfolio investments of the fund primarily consist of debt financing to venture-backed companies in the technology sector . the borrower 's ability to repay its loans may be adversely impacted by several factors , and as a result , the loan may not be fully repaid . furthermore , the fund 's security interest in any collateral over the borrower 's assets may be insufficient to make up any shortfall in payments . critical accounting policies , practices and estimates critical accounting policies and practices are those accounting policies and practices that are both the most important to the portrayal of the fund 's net assets and results of operations and require the 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 . critical accounting estimates are accounting estimates where the nature of the estimates is material due to the levels of subjectivity and judgment necessary to account for
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gre 's results in 2017 benefited from lower maintenance expense , primarily due to lower wheelset costs , which were higher in 2016 due to a refurbishment program to address anti-corrosion paint issues on certain wheelsets . in addition , rail india and rail russia benefited from more cars on lease as they continue to expand their fleets . in 2018 , gre recorded $ 9.5 million of expenses attributable to the closure of a railcar maintenance facility in germany . rail india continued to focus on investment opportunities and diversification of its fleet , as well as developing relationships with customers , suppliers and the indian railways . in 2018 , rail india added 1,001 railcars , compared to 275 in 2017 and zero in 2016. rail india expects continued fleet growth and diversification in 2019. rail russia focused on managing its fleet and developing relationships with new customers . in 2018 , rail russia added 184 railcars , compared to zero in 2017 and 20 railcars in 2016. rail russia plans to evaluate the economic environment for potential expansion of both its fleet and customer base in 2019 . 33 the following table shows rail international 's segment results for the years ended december 31 ( in millions ) : replace_table_token_12_th the following table shows fleet activity for gre railcars for the years ended december 31 : replace_table_token_13_th 34 \ foreign currency rail international 's reported results of operations are impacted by fluctuations in the exchange rates of the foreign currencies in which it conducts business , primarily the euro . in 2018 , a stronger euro positively impacted lease revenue by approximately $ 8.4 million and segment profit , excluding other income ( expense ) , by approximately $ 4.3 million compared to 2017. in 2017 , fluctuations in the value of the euro positively impacted lease revenue by approximately $ 4.5 million and segment profit , excluding other income ( expense ) , by approximately $ 2.5 million compared to 2016. segment profit in 2018 , segment profit of $ 68.6 million decreased 0.3 % compared to $ 68.8 million in 2017 . segment profit included expenses of approximately $ 9.5 million attributable to the closure of a railcar maintenance facility in germany . excluding these costs , results for rail international were $ 9.3 million higher than 2017 , primarily due to more railcars on lease and the positive impact of foreign exchange rates . in 2017 , segment profit of $ 68.8 million increased 9.2 % compared to $ 63.0 million in 2016. the increase was largely due to higher lease revenue and lower maintenance expense , as well as the positive impact of foreign exchange rates . revenues in 2018 , lease revenue increased $ 19.0 million , or 10.0 % , due to more railcars on lease and the impact of foreign exchange rates . other revenue increased $ 1.4 million , driven by higher repair revenue . in 2017 , lease revenue increased $ 8.3 million , or 4.6 % , due to more cars on lease , as well as the impact of foreign exchange rates . other revenue was comparable to the prior year . 35 expenses in 2018 , maintenance expense increased $ 3.4 million , primarily due to higher wheelset costs and the impact of foreign exchange rates , partially offset by lower regulatory compliance costs . depreciation expense increased $ 6.6 million , driven by the impact of new railcars added to the fleet , as well as the impact of foreign exchange rates . in 2017 , maintenance expense decreased $ 6.1 million , primarily due to lower wheelset costs and reimbursements received in 2017 from manufacturers , partially offset by the impact of foreign exchange rates . wheelset costs at gre were were higher in 2016 due to a refurbishment program to address anti-corrosion paint issues on certain wheelsets . in 2017 , gre received reimbursements from manufacturers for a portion of the previously incurred refurbishment costs . other operating expense was comparable to prior year . other income ( expense ) in 2018 , net gain on asset dispositions decreased $ 3.3 million , attributable to the impairment recorded for the maintenance facility in germany . net interest expense increased $ 2.5 million , due to a higher average debt balance and a higher average interest rate . other expense increased $ 3.8 million , driven by the railcar maintenance facility closure costs and higher legal expenses , partially offset by the favorable impact of changes in foreign exchange rates on non-functional currency items and derivatives . in 2017 , net gain on asset dispositions increased $ 2.0 million , primarily due to higher scrapping gains resulting from more railcars scrapped . net interest expense increased $ 3.7 million , due to a higher average interest rate and a higher average debt balance . other expense increased $ 4.0 million , driven by the unfavorable impact of changes in foreign exchange rates on non-functional currency items and derivatives . investment volume investment volume was $ 152.7 million in 2018 , $ 90.9 million in 2017 , and $ 87.1 million in 2016 . during 2018 , we acquired approximately 847 railcars at gre ( including 316 assembled at the ostroda , poland facility ) , 1,001 rail cars at rail india , and 184 railcars at rail russia , compared to 871 railcars at gre ( including 272 assembled at the ostroda , poland facility ) and 275 railcars at rail india in 2017 , and 879 railcars at gre ( including 357 assembled at the ostroda , poland facility ) and 20 in rail russia 2016 . our investment volume is predominantly composed of acquired railcars , but may also include certain capitalized repairs and improvements to owned railcars . as a result , the dollar value of investment volume does not necessarily correspond to the number of railcars acquired in any story_separator_special_tag gre 's results in 2017 benefited from lower maintenance expense , primarily due to lower wheelset costs , which were higher in 2016 due to a refurbishment program to address anti-corrosion paint issues on certain wheelsets . in addition , rail india and rail russia benefited from more cars on lease as they continue to expand their fleets . in 2018 , gre recorded $ 9.5 million of expenses attributable to the closure of a railcar maintenance facility in germany . rail india continued to focus on investment opportunities and diversification of its fleet , as well as developing relationships with customers , suppliers and the indian railways . in 2018 , rail india added 1,001 railcars , compared to 275 in 2017 and zero in 2016. rail india expects continued fleet growth and diversification in 2019. rail russia focused on managing its fleet and developing relationships with new customers . in 2018 , rail russia added 184 railcars , compared to zero in 2017 and 20 railcars in 2016. rail russia plans to evaluate the economic environment for potential expansion of both its fleet and customer base in 2019 . 33 the following table shows rail international 's segment results for the years ended december 31 ( in millions ) : replace_table_token_12_th the following table shows fleet activity for gre railcars for the years ended december 31 : replace_table_token_13_th 34 \ foreign currency rail international 's reported results of operations are impacted by fluctuations in the exchange rates of the foreign currencies in which it conducts business , primarily the euro . in 2018 , a stronger euro positively impacted lease revenue by approximately $ 8.4 million and segment profit , excluding other income ( expense ) , by approximately $ 4.3 million compared to 2017. in 2017 , fluctuations in the value of the euro positively impacted lease revenue by approximately $ 4.5 million and segment profit , excluding other income ( expense ) , by approximately $ 2.5 million compared to 2016. segment profit in 2018 , segment profit of $ 68.6 million decreased 0.3 % compared to $ 68.8 million in 2017 . segment profit included expenses of approximately $ 9.5 million attributable to the closure of a railcar maintenance facility in germany . excluding these costs , results for rail international were $ 9.3 million higher than 2017 , primarily due to more railcars on lease and the positive impact of foreign exchange rates . in 2017 , segment profit of $ 68.8 million increased 9.2 % compared to $ 63.0 million in 2016. the increase was largely due to higher lease revenue and lower maintenance expense , as well as the positive impact of foreign exchange rates . revenues in 2018 , lease revenue increased $ 19.0 million , or 10.0 % , due to more railcars on lease and the impact of foreign exchange rates . other revenue increased $ 1.4 million , driven by higher repair revenue . in 2017 , lease revenue increased $ 8.3 million , or 4.6 % , due to more cars on lease , as well as the impact of foreign exchange rates . other revenue was comparable to the prior year . 35 expenses in 2018 , maintenance expense increased $ 3.4 million , primarily due to higher wheelset costs and the impact of foreign exchange rates , partially offset by lower regulatory compliance costs . depreciation expense increased $ 6.6 million , driven by the impact of new railcars added to the fleet , as well as the impact of foreign exchange rates . in 2017 , maintenance expense decreased $ 6.1 million , primarily due to lower wheelset costs and reimbursements received in 2017 from manufacturers , partially offset by the impact of foreign exchange rates . wheelset costs at gre were were higher in 2016 due to a refurbishment program to address anti-corrosion paint issues on certain wheelsets . in 2017 , gre received reimbursements from manufacturers for a portion of the previously incurred refurbishment costs . other operating expense was comparable to prior year . other income ( expense ) in 2018 , net gain on asset dispositions decreased $ 3.3 million , attributable to the impairment recorded for the maintenance facility in germany . net interest expense increased $ 2.5 million , due to a higher average debt balance and a higher average interest rate . other expense increased $ 3.8 million , driven by the railcar maintenance facility closure costs and higher legal expenses , partially offset by the favorable impact of changes in foreign exchange rates on non-functional currency items and derivatives . in 2017 , net gain on asset dispositions increased $ 2.0 million , primarily due to higher scrapping gains resulting from more railcars scrapped . net interest expense increased $ 3.7 million , due to a higher average interest rate and a higher average debt balance . other expense increased $ 4.0 million , driven by the unfavorable impact of changes in foreign exchange rates on non-functional currency items and derivatives . investment volume investment volume was $ 152.7 million in 2018 , $ 90.9 million in 2017 , and $ 87.1 million in 2016 . during 2018 , we acquired approximately 847 railcars at gre ( including 316 assembled at the ostroda , poland facility ) , 1,001 rail cars at rail india , and 184 railcars at rail russia , compared to 871 railcars at gre ( including 272 assembled at the ostroda , poland facility ) and 275 railcars at rail india in 2017 , and 879 railcars at gre ( including 357 assembled at the ostroda , poland facility ) and 20 in rail russia 2016 . our investment volume is predominantly composed of acquired railcars , but may also include certain capitalized repairs and improvements to owned railcars . as a result , the dollar value of investment volume does not necessarily correspond to the number of railcars acquired in any
| 36 portfolio management continues to own other marine assets , consisting primarily of five liquefied gas-carrying vessels ( the `` norgas vessels '' ) . the norgas vessels specialize in the transport of pressurized gases and chemicals , such as liquefied petroleum gas , liquefied natural gas , and ethylene , primarily on shorter-term spot contracts for major oil and chemical customers worldwide . in 2016 , we also realized residual sharing income of $ 82.8 million . income of $ 49.1 million was recorded as a result of the settlement of a prior year residual sharing dispute . this transaction originated in 2001 and was related to a residual value guarantee we provided on certain rail assets in the u.k. receipt of the settlement fee concludes our participation in this transaction . additionally , a customer sold its interest in two leased power plant facilities and , as manager of the leases , we received residual sharing fees of $ 30.1 million . portfolio management 's total asset base was $ 606.8 million at december 31 , 2018 , compared to $ 582.8 million at december 31 , 2017 , and $ 593.5 million at december 31 , 2016 . the following table shows portfolio management 's segment results for the years ended december 31 ( in millions ) : replace_table_token_14_th 37 the following table sets forth the approximate net book value of portfolio management 's assets as of december 31 ( in millions ) : replace_table_token_15_th _ ( 1 ) amounts shown represent the estimated net book value of assets managed for third parties and are not included in our consolidated balance sheets . rrpf affiliates engine portfolio data the following table shows portfolio activity for the rrpf affiliates ' aircraft spare engines for the years ended december 31 : replace_table_token_16_th 38 comparison of reported results comparisons of reported results for each year are impacted by the sale of marine investments . segment profit in 2018 , segment profit was $ 38.7 million compared to
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today , over 10,000 organizations in more than 180 countries , including over 85 percent of the fortune 100 , use verint 's actionable intelligence solutions , deployed in the cloud and on premises , to make more informed , timely , and effective decisions . our actionable intelligence leadership is powered by innovative , enterprise-class software built with artificial intelligence , analytics , automation , and deep domain expertise established by working closely with some of the most sophisticated and forward-thinking organizations in the world . we believe we have one of the industry 's strongest r & d teams focused on actionable intelligence consisting of approximately one-third of our approximately 6,500 professionals . our innovative solutions are backed-up by a strong ip portfolio with over 1,000 patents and patent applications worldwide across areas including data capture , artificial intelligence , machine learning , unstructured data analytics , predictive analytics , and automation . verint 's actionable intelligence strategy is focused on two use cases and the company has two operating segments : customer engagement and cyber intelligence . for each of the years ended january 31 , 2020 , 2019 , and 2018 , our customer engagement segment represented approximately 65 % of our total revenue , while for each of those same years , our cyber intelligence segment represented approximately 35 % of our total revenue . generally , we make business decisions by evaluating the risks and rewards of the opportunities available to us in the markets served by each of our segments . we view each operating segment differently and allocate capital , personnel , resources , and management attention accordingly . in reviewing each operating segment , we also review the performance of that segment by geography . our marketing and sales strategies , expansion opportunities , and product offerings may differ materially within a particular segment geographically , as may our allocation of resources between segments . when making decisions regarding investments in our business , capital expenditures , or other decisions that may affect our profitability , we also consider the leverage ratio in our revolving credit facility . see โ -liquidity and capital resources โ for more information . key trends and factors that may impact our performance 34 we see the following business trends and factors which may impact our performance : customer engagement digital transformation . many organizations are going through digital transformations by expanding their customer service interactions to include digital channels , such as chat , virtual assistants , mobile apps and social media . while these new channels make it easier for consumers to connect , they caused organizations increased system complexity and new challenges . in many cases these new customer touch points reside in different functional groups and are not connected , resulting in siloed information , a decentralized customer service workforce and difficulty gaining insight into customer experiences . to facilitate effective digital transformations , organizations are looking for vendors that help them to connect silos across the enterprise , take proactive action to improve customer experience and facilitate open and modular design to simplify integration across systems . cloud migration . many organizations are looking to modernize their legacy customer engagement operations by transitioning to the cloud , adopting modern architectures that facilitate the orchestration of disparate systems and the sharing of data across enterprise functions . organizations which are at different stages of migrating to the cloud and other modernization initiatives are also looking for vendors that can help them evolve customer engagement at their own pace while protecting their legacy investments with minimal disruption to their operations . automation adoption . many organizations are seeking solutions that incorporate artificial intelligence and analytics to reduce manual work and increase workforce efficiency through automation . they also seek to empower their customers with self-service backed by ai-powered bots and human/bot collaboration , to elevate the customer experience in a fast , personalized way . cyber intelligence security threats becoming increasingly pervasive and complex . governments , critical infrastructure providers , and enterprises face many types of security threats from criminal and terrorist organizations and foreign governments . some of these security threats come from well-organized and well-funded organizations that utilize new and increasingly sophisticated methods . as a result , security and intelligence organizations find it more difficult and complicated to detect , investigate and neutralize threats . many of these organizations are seeking to deploy more advanced data mining solutions that generate predictive intelligence and accelerate investigations by correlating massive amounts of data from a wide range of disparate sources to uncover previously unknown connections to identify suspicious behaviors and current and future threats . shortage of security analysts increasing the need for automation . security organizations are using data mining solutions to help conduct investigations and generate actionable insights . typically , data mining solutions require security organizations to employ analysts and data scientists to operate them . however , there is a shortage of such qualified personnel globally leading to elongated investigations and increased risk that security threats go undetected or are not addressed . to overcome this challenge , many security organizations are seeking advanced data mining solutions that automate functions historically performed manually to improve the quality and speed of investigations . these organizations are also increasingly seeking artificial intelligence and other advanced data analysis tools to gain actionable intelligence faster with fewer analysts and data scientists . security organizations seeking faster innovation through open software solutions . as security threats have become more pervasive and complex , security organizations have been seeking faster innovation from security vendors . historically , security organizations purchased customized solutions incorporating software , hardware and integration services . this project-based approach resulted in closed systems , limiting the pace of innovation as upgrades were complex , costly and time consuming . story_separator_special_tag today , we see a growing preference to purchase software solutions that are open and can run on standard hardware , that are faster and easier to deploy , and that can be refreshed more quickly to keep up with the accelerating pace of evolving threats . see item 1 , โ business โ , of this report for more information on key trends that we believe are driving demand for our solutions and โ risk factors โ under item 1a of this report for a more complete description of risks that may impact future revenue and profitability . as discussed above , the current covid-19 pandemic is also a material factor that may negatively impact us and demand for our solutions . critical accounting policies and estimates 35 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 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 , initial and renewal support , project management , hosting services , bundled saas , optional managed services , product warranties , business advisory consulting and training services . we recognize revenue when control of the promised goods or services is transferred to our customers , in an amount that reflects the consideration that we expect to receive in exchange for those goods or services . we generate all of our revenue from contracts with customers . we account for revenue in accordance with accounting standards update ( โ asu โ ) no . 2014-09 , revenue from contracts with customers ( topic 606 ) . our revenue recognition policies require us to make significant judgments and estimates . in applying our revenue recognition policy , we must determine which portions of our revenue are recognized at a point in time ( generally product revenue ) and which portions must be deferred and recognized over time ( generally services and support revenue ) . we analyze various factors including , but not limited to , the selling price of undelivered services when sold on a stand-alone basis , our pricing policies , the creditworthiness of our customers , and contractual terms and conditions in helping us to make such judgments about revenue recognition . changes in judgment on any of these factors could materially impact the timing and amount of revenue recognized in a given period . our contracts with customers often include promises to transfer multiple products and services to a customer . in contracts with multiple performance obligations , we identify each performance obligation and evaluate whether the performance obligations are distinct within the context of the contract at contract inception . performance obligations that are not distinct at contract inception are combined . contracts that include software customization may result in the combination of the customization services with the software license as one distinct performance obligation . the transaction price is generally in the form of a fixed fee at contract inception , and excludes taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction , that are collected by us from a customer . we allocate the transaction price to each distinct performance obligation based on the estimated standalone selling price ( โ ssp โ ) for each performance obligation . judgment is required to determine the ssp for each distinct performance obligation . in instances where ssp is not directly observable , such as when we do not sell the product or service separately , we estimate the ssp of each performance obligation based on either a cost-plus-margin approach or an adjusted market assessment approach . we may have more than one ssp for individual products and services due to the stratification of those products and services by customers and circumstances . in these instances , we may use information such as the size of the customer and geographic region in determining the ssp . we then look to how control transfers to the customer in order to determine the timing of revenue recognition . software license revenue is typically recognized when the software is delivered and or made available for download as this is the point the user of the software can direct the use of , and obtain substantially all of the remaining benefits from the functional intellectual property . we do not recognize software revenue related to the renewal of software licenses earlier than the beginning of the renewal period . in contracts that include customer acceptance , we recognize revenue when we have delivered the software and received customer acceptance . we recognize support revenue , which includes software updates on a when-and-if-available basis , telephone support , and bug fixes or patches , over the term of the customer support agreement , which is typically one year . revenue related to professional services and customer education services is typically recognized as the services are performed . some of our customer contracts require significant customization of the software to meet the particular requirements specified by each customer . the contract pricing is stated as a fixed amount and generally results in the transfer of control of the applicable performance obligation over time . we recognize revenue based on the proportion of labor hours expended to the total hours expected to complete the performance obligation .
| further details of changes in revenue are provided below . operating income was $ 87.9 million in the year ended january 31 , 2020 compared to $ 114.2 million in the year ended january 31 , 2019 . this decrease in operating income was primarily due to an $ 85.7 million increase in operating expenses , which primarily consisted of a $ 62.7 million increase in selling , general and administrative expenses , a $ 22.6 million increase in net research and development expenses , and a $ 0.4 million increase in amortization of other acquired intangible assets , partially offset by a $ 59.4 million increase in gross profit , reflecting increased gross profit in both of our segments and a decrease in amortization of acquired technology intangible assets . further details of changes in operating income are provided below . net income attributable to verint systems inc. was $ 28.7 million , and diluted net income per common share was $ 0.43 , in the year ended january 31 , 2020 , compared to net income attributable to verint systems inc. of $ 66.0 million , and diluted net income per common share of $ 1.00 , in the year ended january 31 , 2019 . the decrease in net income attributable to verint systems inc. and diluted net income per common share in the year ended january 31 , 2020 was primarily due to a $ 26.3 million decrease in operating income , as described above , a $ 10.1 million increase in our provision for income taxes , and a $ 2.8 million increase in net income attributable to our noncontrolling interests , partially offset by a $ 1.9 million decrease in total other expense , net . further details of these changes are provided below . a portion of our business is conducted in currencies other than the u.s. dollar , and therefore our revenue and operating expenses are affected by fluctuations in applicable foreign currency exchange rates . when comparing average exchange
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in addition , other written or oral statements , which constitute forward-looking statements , may be made by or on behalf of the company . words such as ยexpects , ย ยanticipates , ย ยintends , ย ยplans , ย ยbelieves , ย ยseeks , ย ยestimates , ย variations of such words and similar expressions are intended to identify such forward-looking statements . these statements are not guarantees of future performance , and involve certain risks , uncertainties and assumptions , which are difficult to predict . ( see ยitem 1a : risk factorsย above . ) therefore , actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements . the company undertakes no obligation to update publicly any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law company overview strategic overview igi laboratories is a developer , manufacturer , and marketer of topical formulations . our goal is to become a leader in the generic topical pharmaceutical market . under our igi label , we sell generic topical pharmaceutical products that are bioequivalent to their brand name counterparts . we also provide development , formulation , and manufacturing services to the pharmaceutical , over-the-counter ( otc ) , and cosmetic markets . our strategy is based on two initiatives : manufacturing , developing , and marketing a portfolio of generic pharmaceutical products in our own label in topical dosage forms ; and , increasing our current contract manufacturing and development business . in addition , we will look to create unique opportunities through the acquisition of additional intellectual property , and the expansion of the use of our existing intellectual property , including our licensed novasomeยฎ technology . in december , 2012 , we completed the implementation of our commercial infrastructure and launched our first generic topical pharmaceutical products under the igi label . we have filed fourteen abbreviated new drug applications , or andas , with the united states food and drug administration , or fda for additional pharmaceutical products . we filed one application in september 2010 , january 2011 and december 2011 , we filed two applications in november 2011 , two applications in june 2012 , one in november 2012 , one in january 2013 , april 2013 , september 2013 , november 2013 and one in march 2014. all of the submissions are for generic topical prescription drugs . on march 12 , 2014 , the company received its first approval from the fda for an anda . the fda has approved igi 's application for lidocaine hydrochloride usp 4 % topical solution . we will continue to expand our presence in the generic topical pharmaceutical market through the filing of additional andas with the fda and the subsequent launch of products as these applications are approved . our target is to file ten andas in 2014 through our internal research and development program . we will also seek to license or acquire further products , intellectual property , or andas to expand our portfolio . on february 1 , 2013 , we acquired assets and intellectual property , including an anda , for econazole nitrate cream 1 % . igi also develops , manufactures , fills , and packages topical semi-solid and liquid products for branded and generic pharmaceutical customers as well as the otc and cosmetic markets . these products are used in a wide range of applications from cosmetics and cosmeceuticals to the prescription treatment of conditions like dermatitis , psoriasis , and eczema . igi has structured a new management team to implement this plan , including a recent president and ceo , director of business development , director of operations and development and a manager of national accounts to head up the sales efforts for the newly launched igi label products . the team brings a wealth of experience in the generic pharmaceutical industry to igi . igi 's facilities and manufacturing equipment have been designed to produce topical and liquid products and support the company 's target prescription dosage forms . 23 contract manufacturing services will continue to be crucial to igi 's success . the customer base for these services is pharmaceutical companies as well as cosmetic , cosmeceutical , and otc product marketers who require product development/manufacturing support . this is a highly-competitive market with a number of larger , greater-resourced companies offering similar services . igi looks to create niche opportunities for itself by providing high quality , customer-oriented service . igi has exclusive rights for the use of novasomeยฎ technology in topical formulations and intends to pursue collaboration opportunities with established pharmaceutical companies seeking to develop topical products with unique properties . in addition , the company will explore line extension opportunities through innovative packaging or alternate dosage forms of existing pharmaceutical molecules . story_separator_special_tag cash used in investing activities in the comparable period of 2012. in 2013 , we used $ 1.8 million to acquire econazole nitrate cream 1 % , which we launched in september 2013. the remaining funds used in both years were for additional equipment and related services for the analytical and compounding area , packaging and filling lines . our financing activities generated $ 2.3 million of cash in the years ended december 31 , 2013 and 2012. the cash provided for the year ended december 31 , 2013 was primarily related to the $ 2.0 million we drew down on our existing credit line in 2013. the cash provided for the year ended december 31 , 2012 was primarily the proceeds of the sale of our treasury stock as more fully described story_separator_special_tag in note 17 to our consolidated financial statements , in addition to the $ 1.0 million of proceeds from the drawdown of our credit facility , which was offset by the repayment of the note payable ย related party of $ 0.5 million as a result of the termination of the existing credit facility . our principal sources of liquidity are cash and cash equivalents of approximately $ 2.1 million at december 31 , 2013 , the $ 2.0 million available on the $ 5.0 million credit facility and future cash from operations . we had working capital of $ 5.3 million at december 31 , 2013. recent pronouncements in july 2013 , the fasb issued asu no . 2013-11 , presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit carryforward exists ( ยasu 2013-11ย ) , which provides guidance on the presentation of unrecognized tax benefits when net operating loss carryforwards , similar tax losses , or tax credit carryforwards exist . the amendments in this update are effective for fiscal years ( and interim periods within those years ) beginning after december 15 , 2013. the amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date . retrospective application is permitted . the company does not expect asu 2013-11 to have a material effect on its financial condition , results of operation or cash flows . this update will be effective for the company for the year beginning january 1 , 2014. critical accounting policies and estimates the sec defines ยcritical accounting policiesย 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 . our significant accounting policies are described in note 1 to our consolidated financial statements . not all of these significant 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 recognition the company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement , delivery has occurred or contractual services rendered , the sales price is fixed or determinable , and collection is reasonably assured in conformity with asc 605 , revenue recognition . 26 the company derives its revenues from three basic types of transactions : sales of manufactured product , licensing of technology , and research and product development services performed for third parties . due to differences in the substance of these transaction types , the transactions require , and the company utilizes , different revenue recognition policies for each . product sales : product sales includes igi product sales and contract manufacturing sales . igi product sales : the company records revenue from igi product sales when title and risk of ownership have been transferred to the customer , which is typically upon delivery of products to the customer . revenue and provision for sales returns and allowances as customary in the pharmaceutical industry , the company 's gross product sales from igi label products are subject to a variety of deductions in arriving at reported net product sales . when the company recognizes revenue from the sale of products , an estimate of sales returns and allowances ( ยsraย ) is recorded , which reduces product sales . accounts receivable and or accrued expenses are also reduced and or increased by the sra amount . these adjustments include estimates for chargebacks , rebates , cash discounts and returns and other allowances . currently these provisions are based on industry standards and current contract sales terms with direct and indirect customers . over time , these provisions will be adjusted as estimates will be based on historical payment experience , historical relationship to revenues , estimated customer inventory levels and current contract sales terms with direct and indirect customers . the estimation process used to determine our sra provision has been applied on a consistent basis and no material adjustments have been necessary to increase or decrease our reserves for sra as a result of a significant change in underlying estimates . the company will use a variety of methods to assess the adequacy of our sra reserves to ensure that our financial statements are fairly stated . these will include periodic reviews of customer inventory data , customer contract programs and product pricing trends to analyze and validate the sra reserves . the provision for chargebacks is our most significant sales allowance . a chargeback represents an amount payable in the future to a wholesaler for the difference between the invoice price paid to the company by our wholesale customer for a particular product and the negotiated contract price that the wholesaler 's customer pays for that product . the company 's chargeback provision and related reserve varies with changes in product mix , changes in customer pricing and changes to estimated wholesaler inventories . the provision for chargebacks also takes into account an estimate of the expected wholesaler sell-through levels to indirect customers at contract prices . the company will validate the chargeback accrual quarterly through a review of the inventory reports obtained from our largest wholesale customers . this customer inventory information is used to verify the estimated liability for future chargeback claims based on historical chargeback and contract rates . these large wholesalers represent 90 % - 95 % of the company 's chargeback payments .
| cost of sales as a percentage of total revenue was 66 % for the year ended december 31 , 2013 as compared to 68 % for 2012. the decrease in cost of sales as a percentage of product sales for 2013 was attributable to increased revenue from the launch of our first four igi label products , which have higher margins , and a shift in the mix of our product sales to include greater higher margin pharmaceutical products . during 2013 , approximately 61 % of our revenue from contract and formulation services came from pharmaceutical customers as compared to 48 % in 2012. our research and development income results primarily from services rendered under contractual agreements , and therefore cost of sales as a percentage of our research and development income is relatively low . consistent with our strategy , we expect cost of sales as a percentage of total revenue to decline over time . 24 selling , general and administrative expenses for the year ended december 31 , 2013 increased by $ 406,000 as compared to the same period in 2012 as a result of increases in salaries , bonuses and employee related costs of $ 444,000 , an increase of $ 30,000 in professional fees , an increase of $ 156,000 in the expense from the issuance of stock based compensation related to options and restricted stock , amortization of product acquisition costs of $ 60,000. these increases were only partially offset by a decrease as a result of the severance agreement with our former president and ceo of $ 150,000 in 2012 , a decrease of $ 214,000 in recruiting fees and a decrease of $ 35,000 in commissions . product development and research expenses for the year ended december 31 , 2013 decreased by $ 91,000 as compared to the same period in 2012. consistent with our strategy to expand our portfolio of generic prescription topical pharmaceutical products , we increased headcount ,
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investment income not allocated to product lines includes investment income on investments in excess of average insurance liabilities , investments held by our holding companies , the spread we earn from the fhlb investment borrowing program and variable components of investment income ( including call and prepayment income , adjustments to returns on structured securities due to cash flow changes , income ( loss ) from company-owned life insurance ( `` coli '' ) and alternative investment income not allocated to product lines ) , net of interest expense on corporate debt . our fee and other revenue segment includes the earnings generated from sales of third-party insurance products , services provided by wbd ( our wholly owned on-line benefit administration firm ) and the operations of our broker-dealer and registered investment advisor . expenses not allocated to product lines include the expenses of our corporate operations , excluding interest expense on debt . 45 the following summarizes our earnings for the three years ending december 31 , 2020 ( dollars in millions , except per share data ) : replace_table_token_4_th 46 ( 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 ) loss related to reinsurance transaction , including impact of taxes ; ( ii ) net realized investment gains or losses from sales , impairments and change in allowance for credit losses , net of related amortization and taxes ; ( iii ) net change in market value of investments recognized in earnings , net of 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 of debt ; ( vii ) changes in the valuation allowance for deferred tax assets and other tax items ; and ( viii ) other non-operating items consisting primarily of earnings attributable to vies ( `` net operating income '' ) . 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 apparent . however , net operating income is not a measurement of financial performance under gaap and should not be considered as an alternative to cash flow from operating activities , as measures of liquidity , or as an alternative to net income as measures of our operating performance or any other measures of performance derived in accordance with gaap . in addition , net operating income should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items . net operating income has limitations as an analytical tool , and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under gaap . our definition and calculation of net operating income are not necessarily comparable to other similarly titled measures used by other companies due to different methods of calculation . 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 various assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and 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 '' . investment valuation fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and , therefore , represents an exit price , not an entry price . we carry certain assets and liabilities at fair value on a recurring basis , including fixed maturities , equity securities , trading securities , investments held by vies , derivatives , separate account assets and embedded derivatives related to fixed index annuity products . we carry our coli , which is invested in a series of mutual funds , at its cash surrender value which approximates fair value . in addition , we disclose fair value for certain financial instruments , including mortgage loans , policy loans , cash and cash equivalents , insurance liabilities for interest-sensitive products , investment borrowings , notes payable and borrowings related to vies . the degree of judgment utilized in measuring the fair value of financial instruments is largely dependent on the level to which pricing is based on observable inputs . observable inputs reflect market data obtained from independent sources , while unobservable inputs reflect our view of market assumptions in the absence of observable market information . story_separator_special_tag financial instruments with readily available active quoted prices would be considered to have fair values based on the highest level of observable inputs , and little judgment would be utilized in measuring fair value . financial instruments that rarely trade would often have fair value based on a lower level of observable inputs , and more judgment would be utilized in measuring fair value . we categorize our financial instruments carried at fair value into a three-level hierarchy based on the observability of inputs . 47 the three-level hierarchy for fair value measurements is described in the note to the consolidated financial statements entitled `` fair value measurements . '' the following summarizes our investments on our consolidated balance sheet carried at fair value by pricing source and fair value hierarchy level as of december 31 , 2020 ( dollars in millions ) : replace_table_token_5_th _ ( a ) represents primarily securities benchmarked to comparable securities to compute fair value . effective january 1 , 2020 , when an available for sale fixed maturity security 's fair value is below the amortized cost , the security is considered impaired . if a portion of the decline is due to credit-related factors , we separate the credit loss component of the impairment from the amount related to all other factors . the credit loss component is recorded as an allowance and reported in net realized investment gains ( losses ) ( limited to the difference between estimated fair value and amortized cost ) . the impairment related to all other factors ( non-credit factors ) is reported in accumulated other comprehensive income along with unrealized gains related to fixed maturity investments , available for sale , net of tax and related adjustments . the allowance is adjusted for any additional credit losses and subsequent recoveries . when recognizing an allowance associated with a credit loss , the cost basis is not adjusted . when we determine a security is uncollectable , the remaining amortized cost will be written off . in determining the credit loss component , we discount the estimated cash flows on a security by security basis . we consider the impact of macroeconomic conditions on inputs used to measure the amount of credit loss . for most structured securities , cash flow estimates are based on bond-specific facts and circumstances that may include collateral characteristics , expectations of delinquency and default rates , loss severity , prepayment speeds and structural support , including overcollateralization , excess spread , subordination and guarantees . for corporate bonds , cash flow estimates are derived by considering asset type , rating , time to maturity , and applying an expected loss rate . if we intend to sell an impaired fixed maturity security , available for sale , or identify an impaired fixed maturity security , available for sale , for which is it more likely than not we will be required to sell before anticipated recovery , the difference between the fair value and the amortized cost is included in net realized investment gains ( losses ) and the fair value becomes the new amortized cost . the new cost basis is not adjusted for any subsequent recoveries in fair value . prior to january 1 , 2020 , we regularly evaluated all of our investments with unrealized losses for possible impairment . our assessment of whether unrealized losses were `` other than temporary '' required significant judgment . factors considered included : ( i ) the extent to which fair value was less than the cost basis ; ( ii ) the length of time that the fair value had been less than cost ; ( iii ) whether the unrealized loss was event driven , credit-driven or a result of changes in market interest rates or risk premium ; ( iv ) the near-term prospects for specific events , developments or circumstances likely to affect the value of the investment ; ( v ) the investment 's rating and whether the investment was investment-grade and or had been downgraded since its purchase ; ( vi ) whether the issuer was current on all payments in accordance with the contractual terms of the investment and was expected to meet all of its obligations under the terms of the investment ; ( vii ) whether we intend to sell the investment or it was more likely than not that circumstances would require us to sell the investment before recovery occurs ; ( viii ) the underlying current and prospective asset and enterprise values of the issuer and the extent to which the recoverability of the carrying value of our investment would be affected by changes in such values ; ( ix ) projections of , and unfavorable changes in , cash flows on structured securities including mortgage-backed and asset-backed securities ; ( x ) our best estimate of the value of any collateral ; and ( xi ) other objective and subjective factors . 48 the manner in which impairment losses on fixed maturity securities , available for sale , were recognized in the financial statements was dependent on the facts and circumstances related to the specific security . if we intended to sell a security or it was more likely than not that we would be required to sell a security before the recovery of its amortized cost , the security was other-than-temporarily impaired and the full amount of the impairment was recognized as a loss through earnings . if we did not expect to recover the amortized cost basis , we did not plan to sell the security , and if it was not more likely than not that we would be required to sell a security before the recovery of its amortized cost , less any current period credit loss , the recognition of the other-than-temporary impairment was bifurcated . we recognized the credit loss portion in net income and the noncredit loss portion in accumulated other comprehensive income .
| million charge related to asset impairments . expenses not allocated to product lines in 2019 included a $ 20 million expense reduction related to the net favorable impact from legal and regulatory matters . the following summarizes total allocated and unallocated expenses adjusted for the significant items summarized above ( dollars in millions ) : replace_table_token_13_th 58 margin from annuity products ( dollars in millions ) : replace_table_token_14_th margin from fixed index annuities was $ 250.8 million in 2020 , compared to $ 179.4 million in 2019 , and $ 145.3 million in 2018. the increase in margin in 2020 is primarily due to : ( i ) the favorable impact of actuarial assumption changes previously discussed ; and ( ii ) growth in the block , net of ( iii ) decreases in margin due to lower yields on investments . average net insurance liabilities ( total insurance liabilities less : ( i ) amounts related to reinsured business ; ( ii ) deferred acquisition costs ; ( iii ) present value of future profits ; and ( iv ) the value of unexpired options credited to insurance liabilities ) were $ 7,123.4 million , $ 6,480.3 million and $ 5,731.2 million in 2020 , 2019 and 2018 , respectively , driven by deposits and reinvested returns in excess of withdrawals . the increase in net insurance liabilities results in higher net investment income allocated , however , the earned yield was 4.66 percent in 2020 , down from 4.79 percent in 2019 , and 4.96 percent 2018 , reflecting lower market yields and resulting in spread compression . in 2020 , we experienced higher persistency in the fixed index annuity block . we believe such higher persistency was indirectly related to covid-19 as policyholders continue to hold on to their current products due to lower yields on competing products and avoiding meeting with agents to discuss alternative products . net investment income and interest credited exclude the change in market values of the underlying options supporting the fixed index annuity products
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the pleadings in the state court action and the bankruptcy action state that sea turtle has been in default on its payments to bokf since september , 2018. the pleadings further state that the project is $ 8.00 million over budget as of august 8 , 2018. sea turtle has retained a broker to try and sell the property . there is a possibility that a judicially approved sale of the property will not bring a price that exceeds what is owed to bokf on its construction loans . if a sale is not approved through the bankruptcy court in 2020 , it is expected that the bankruptcy petition will be dismissed and bokf will resume its suit in south carolina state court , possibly leading to a foreclosure on the property . the pending legal proceedings have provided additional uncertainty with regards to the estimated fair market value of the development . as such , the company recognized $ 5.00 million in impairment charges on the notes receivable for the year ended december 31 , 2019 as the estimated fair value of sea turtle is not expected to provide for the cash required to repay the notes receivable in the event of a judicially approved sale . the total impairment charge on notes receivable is $ 12.00 million and the carrying value is zero as of december 31 , 2019. the fair market value of sea turtle is based on the three-level valuation hierarchy for fair value measurement and represents level 3 inputs . level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . subsequent to december 31 , 2019 , the bankruptcy court approved bokf 's credit bid purchase of sea turtle in february , 2020 , for $ 18.75 million . preferred dividends at december 31 , 2019 , the company had accumulated undeclared dividends of $ 16.99 million to holders of shares of our series a preferred stock , series b preferred stock , and series d preferred stock of which $ 13.95 million is attributable to the year ended december 31 , 2019 . 12 new leases , leasing renewals and expirations the following table presents selected lease activity statistics for our properties . replace_table_token_5_th ( 1 ) lease data presented for the years ended december 31 , 2019 and 2018 is based on average rate per square foot over the renewed or new lease term . ( 2 ) 2018 lease data adjusted to reflect average rate per square foot over the renewed or new lease term for consistency with 2019 presentations . ( 3 ) the company does not include ground leases entered into for the purposes of new lease sq feet and weighted average rate ( per sq foot ) on new leases . critical accounting policies the following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in this form 10-k , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an on-going basis , we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the critical accounting policies summarized in this section are discussed in further detail in the notes to the consolidated financial statements appearing elsewhere in this form 10-k. we believe that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition . 13 revenue recognition principal components of our total revenues include base and percentage rents and tenant reimbursements . the company combines lease and nonlease components in lease contracts , which includes combining base rent and tenant reimbursement revenue . we accrue minimum ( base ) rent on a straight-line basis over the terms of the respective leases which results in an unbilled rent asset or deferred rent liability being recorded on the balance sheet . certain lease agreements contain provisions that grant additional rents based on tenants ' sales volumes ( contingent or percentage rent ) which we recognize when the tenants achieve the specified targets as defined in their lease agreements . we periodically review the valuation of the asset/liability resulting from the straight-line accounting treatment of our leases in light of any changes in lease terms , financial condition or other factors concerning our tenants . rents and other tenant receivables we record a tenant receivable for amounts due from tenants such as base rents , tenant reimbursements and other charges allowed under the lease terms . we periodically review tenant receivables for collectability and determine the need for an allowance for the uncollectible portion of accrued rents and other accounts receivable based upon customer creditworthiness ( including expected recovery of a claim with respect to any tenants in bankruptcy ) , historical bad debt levels and current economic trends . we consider a receivable past due once it becomes delinquent per the terms of the lease ; our standard lease form considers a rent charge past due after five days . a past due receivable triggers certain events such as notices , fees and other allowable and required actions per the lease . upon adoption of asc topic 842 `` leases , '' reserves for uncollectible accounts were recorded and reclassified to `` rental revenues '' . story_separator_special_tag prior to adoption , reserves for uncollectible accounts were recorded as an operating expense , provision for credit losses . the standard also provides guidance on calculating reserves ; however , those did not impact the company . impairment of long-lived assets we periodically review investment properties for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable , with an evaluation performed at least annually . these circumstances include , but are not limited to , declines in the property 's cash flows , occupancy and fair market value . we measure any impairment of investment property when the estimated undiscounted future operating income before depreciation and amortization , plus its residual value , is less than the carrying value of the property . to the extent impairment has occurred , we charge to income the excess of carrying value of the property over its estimated fair value . we estimate fair value using unobservable data such as operating income , estimated capitalization rates or multiples , leasing prospects and local market information . these valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and represent level 3 inputs . level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . the company did not recognize any impairment charges to its investment properties for the year ended december 31 , 2019 and $ 3.94 million for the year ended december 31 , 2018. the company may decide to sell properties . properties classified as held for sale are reported at the lower of their carrying value or their fair value , less estimated costs to sell . when the carrying value exceeds the fair value , less estimated costs to sell an impairment charge is recognized . the company estimates fair value , less estimated closing costs based on similar real estate sales transactions . these valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and represent level 2 and 3 inputs . level 2 inputs are quoted prices for similar assets or liabilities in active markets ; quoted prices for identical or similar assets in markets that are not active ; and inputs other than quoted prices . level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . the company recognized $ 1.60 million of impairment charges to its assets held for sale for the years ended december 31 , 2019 and none for the year ended december 31 , 2018. notes receivable notes receivable represent financing to sea turtle development as discussed in note 4 of the audited consolidated financial statements for development of the project . the notes are secured by a second deed of trust on the underlying real estate known as sea turtle development . the company evaluates the collectability of both the interest on and principal of the notes receivable based primarily upon the projected fair market value of the project at stabilization and lease up . the notes receivable are determined to be impaired when , based upon current information , it is no longer probable that the company will 14 be able to collect all contractual amounts due from the borrower . the amount of impairment loss recognized is measured as the difference between the carrying amount of the loan and its estimated realizable value , as of december 31 , 2019 the carrying value of the sea turtle development notes were zero . the impairment charges to the sea turtle development notes for the years ended december 31 , 2019 and 2018 were $ 5.00 million and $ 1.74 million , respectively . adoption of asc topic 842 , โ leases โ in february 2016 , the financial accounting standards board ( โ fasb โ ) issued asu 2016-02 , โ leases ( topic 842 ) โ , to increase transparency and comparability among organizations by requiring the recognition of rou assets and lease liabilities on the balance sheet . the company adopted asu 2016-02 as of january 1 , 2019 using the modified retrospective approach within asu 2018-11 , which allows for the application date to be the beginning of the reporting period in which the entity first applies the new standard . the company did not have a cumulative-effect adjustment as of the adoption date . the company elected the package of transition practical expedients where the company is either the lessee or lessor , which among other things , allowed the company to carry forward the historical lease classifications and use hindsight in determining the lease terms . the standard had a material impact on the company 's consolidated balance sheets , but did not have a material impact on the consolidated statements of operations . the most significant impact was the recognition of rou assets and lease liabilities of approximately $ 11.90 million and $ 11.99 million , respectively , for operating leases as of january 1 , 2019 , calculated based on an incremental borrowing rate of 4.84 % . the difference between the rou assets and lease liabilities at adoption represents the accrued straight-line rent liability previously recognized under asc 840. the standard had no impact on the company 's cash flows . liquidity and capital resources at december 31 , 2019 , our consolidated cash , cash equivalents and restricted cash totaled $ 21.59 million compared to consolidated cash , cash equivalents and restricted cash of $ 18.00 million at december 31 , 2018 .
| the decrease of $ 5.78 million noted in depreciation and amortization is a result of the write-off of lease intangibles from early terminations of leases in 2018 and properties either sold or classified as held for sale . corporate general and administrative expenses for the year ended december 31 , 2019 decreased $ 1.60 million , as a result of the following : $ 682 thousand decrease in compensation and benefits primarily driven by the decrease in employee share based compensation and severance ; $ 432 thousand decrease in capital and debt financing costs as a result of costs incurred on refinancing of properties which the company opted to stop pursuing in 2018. these costs did not reoccur in 2019 ; $ 310 thousand decrease in professional fees associated with hiring of keybanc advisors in 2018 and sox internal audit compliance ; and $ 274 thousand decrease in acquisition and development costs as a result of costs associated with the development of an outparcel at folly road which the company chose to no longer pursue in 2018. other operating expenses decreased $ 250 thousand for the year ended december 31 , 2019 as a result of the 2018 lease termination expense to allow the space to be available for a high credit grocery store tenant . gain on disposal of properties the gain on disposal of properties decrease of $ 1.07 million for the year ended december , 2019 is a result of the demolition of an approximate 10,000 square foot building at the janaf property in 2019 to make space available for a new approximate 20,000 square foot building constructed by a new grocer tenant and the 2019 sales of jenks plaza , graystone crossing and perimeter square , net of the 2018 sales of the chipotle ground lease at conyers crossing , shoppes at eagle harbor and monarch bank building . interest expense interest expense decreased $ 1.24 million or 6.14 % for the year ended december 31 , 2019 , compared to $ 20.23 million for the year ended december 31 , 2018. the decrease is primarily attributable to lower
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determining the amount of the alll is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans , estimated losses on pools of homogeneous loans based on historical loss experience , qualitative factors , and consideration of current economic trends and conditions , all of which may be susceptible to significant change . various banking regulators , as an integral part of their examination of the company , also review the alll . 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 alll . additionally , the alll is determined , in part , by the composition and size of the loan portfolio . the alll consists of two components , a specific component and a general component . the specific component relates to loans that are classified as impaired . for such loans , an allowance is established when the discounted cash flows , collateral value or observable market price of the impaired loan is lower than the carrying value of that loan . the general component covers all other loans and is based on historical loss experience adjusted by qualitative factors . the general reserve component of the alll is based on pools of unimpaired loans segregated by loan segment and risk rating categories of โ pass โ , โ special mention โ or โ substandard and accruing. โ historical loss factors and various qualitative factors are applied based on the risk profile in each risk rating category to determine the appropriate reserve related to those loans . substandard loans on nonaccrual status above the $ 100 thousand loan relationship threshold and all loans considered troubled debt restructurings ( โ tdrs โ ) are classified as impaired . see note 2- โ summary of significant accounting policies โ and note 5- โ loans โ of the notes to consolidated financial statements included in item 8- โ financial statements and supplementary data โ to this annual report on form 10-k for additional information about the alll . securities valuation 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 for similar assets or models using inputs that are observable , either directly or indirectly ( level 2 ) are utilized to determine the fair value of each investment in the portfolio . in the absence of observable inputs or if markets are illiquid , valuation techniques are used to determine fair value of any investments that require inputs that are both unobservable and significant to the fair value measurement ( level 3 ) . for level 3 inputs , valuation techniques are based on various assumptions , including , but not limited to , cash flows , discount rates , 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 the consolidated statements of financial condition or results of operations . see note 6- โ securities โ and note 7- โ fair value measurements โ of the notes to consolidated financial statements included in item 8 โ โ financial statements and supplementary data โ to this annual report on form 10-k for additional information about the company 's securities valuation techniques . on a quarterly basis , management evaluates individual investment securities classified as held-to-maturity and available-for-sale having unrealized losses to determine whether or not the security is other-than-temporarily-impaired ( โ otti โ ) . the analysis of otti requires the use of various assumptions , including but not limited to , the length of time an investment 's fair value is less than book value , the severity of the investment 's decline , any credit deterioration of the issuer , whether management intends to sell the security , and whether it is more-likely-than-not that the company will be required to sell the security prior to recovery of its amortized cost basis . debt investment securities deemed to be otti are written down by the impairment related to the estimated credit loss , and the non-credit related impairment loss is recognized in other comprehensive income . the company did not recognize otti charges on investment securities for years ended december 31 , 2014 and 2013 within the consolidated statements of operations . the company recognized $ 96 thousand of otti for the year ended december 31 , 2012. see note 2- โ summary of significant accounting policies โ and note 4- โ securities โ of the notes to consolidated financial statements included in item 8- โ financial statements and supplementary data โ to this annual report on form 10-k for additional information about valuation of securities . 35 other real estate owned oreo consists of property acquired by foreclosure , abandonment or conveyance of deed in-lieu of foreclosure of a loan , and bank premises that is no longer used for operation or for future expansion . oreo is held for sale and is initially recorded at fair value less costs to sell at the date of acquisition or transfer , which establishes a new cost basis . upon acquisition of the property through foreclosure or deed-in-lieu of foreclosure , any write-down to fair value less estimated selling costs is charged to the alll . the determination is made on an individual asset basis . bank premises no longer used for operations or future expansion are transferred to oreo at fair value less estimated selling costs with any related write-down included in non-interest expense unless conditions warrant an adjustment to value , as determined by management . subsequent to acquisition , valuations are periodically performed by management and the assets are carried at the lower of cost or fair value less cost to sell . story_separator_special_tag fair value is determined through external appraisals , current letters of intent , broker price opinions or executed agreements of sale . costs relating to the development and improvement of the oreo properties may be capitalized ; holding period costs and any subsequent changes to the valuation allowance are charged to expense as incurred . income taxes the objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity 's financial statements or tax returns . judgment is required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . fluctuations in the actual outcome of these future tax consequences could impact our consolidated financial condition or results of operations . the company records an income tax provision or benefit based on the amount of tax , including alternative minimum tax , currently payable or receivable and the change in deferred tax assets and liabilities . deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes . management conducts quarterly assessments of all available positive and negative evidence to determine the amount of deferred tax assets that will more likely than not be realized . the company establishes a valuation allowance for deferred tax assets and records a charge to income if management determines , based on available evidence at the time the determination is made , that it is more likely than not that some portion or all of the deferred tax assets will not be realized . in evaluating the need for a valuation allowance , management considers past operating results , estimates of future taxable income based on approved business plans , future capital requirements and ongoing tax planning strategies . this evaluation process involves significant management judgment about assumptions that are subject to change from period to period depending on the related circumstances . the recognition of deferred tax assets requires management to make significant assumptions and judgments about future earnings , the periods in which items will impact taxable income , future corporate tax rates , and the application of inherently complex tax laws . the use of different estimates can result in changes in the amounts of deferred tax items recognized , which can result in equity and earnings volatility because such changes are reported in current period earnings . on december 31 , 2010 , the company established a valuation allowance equal to 100 percent of its net deferred tax asset , excluding deferred tax assets and liabilities related to unrealized holding gains and losses on available-for-sale securities , and has maintained such an allowance through december 31 , 2014. in connection with determining the income tax provision or benefit , the company considers maintaining liabilities for uncertain tax positions and tax strategies that management believes contain an element of uncertainty . periodically , the company evaluates each of its tax positions and strategies to determine whether a liability for uncertain tax benefits is required . as of december 31 , 2014 and 2013 , the company determined that it did not have any uncertain tax positions or tax strategies and that no liability was required to be recorded . see note 2- โ summary of significant accounting policies โ and note 13- โ income taxes โ of the notes to consolidated financial statements included in item 8- โ financial statements and supplementary data โ to this annual report on form 10-k for additional information about the accounting for income taxes . new authoritative accounting guidance asu 2013-11 , income taxes ( topic 740 ) : โ presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit carryforward exists , โ requires an unrecognized tax benefit , or a portion of an unrecognized tax benefit , be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward , a similar tax loss , or a tax credit carryforward . if a net operating loss carryforward , a similar tax loss , or a tax credit carryforward is not available at the reporting date , the unrecognized tax benefit should be presented in the financial statements as a liability and not combined with deferred tax assets . the company adopted asu 2013-11 on january 1 , 2014. the adoption of this new guidance did not have an effect on the operating results or financial position of the company . 36 accounting guidance to be adopted in future periods asu 2014-04 , receivables-troubled debt restructurings by creditors ( subtopic 310-40 ) : โ reclassification of residential real estate collateralized consumer mortgage loans upon foreclosure , โ clarifies that an in substance repossession or foreclosure occurs , and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan , upon either ( a ) the creditor obtaining legal title to residential real estate property upon completion of a foreclosure or ( b ) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement . additionally , the amendments require interim and annual disclosure of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction . this guidance is effective for annual periods , and interim periods within those annual periods , beginning after december 15 , 2014 , with early adoption permitted . the adoption of this guidance on january 1 , 2015 will not have a material effect on the operating results or financial position of the company .
| in addition , the company has established a full valuation allowance for its deferred tax assets . because of this tax position , the company does not benefit from holding tax-exempt obligations of state and political subdivisions . in addition , management also sought to reduce the amount of potential credit and concentration risk within the portfolio , as well as manage interest rate risk by shortening the duration of the portfolio . accordingly , management continued repositioning the investment portfolio in 2014 by selling the majority of the company 's tax-exempt obligations of state and political subdivisions and replacing them with taxable obligations of u.s. government and government-sponsored agencies including collateralized mortgage obligations ( โ cmos โ ) , residential mortgage-backed securities and single-maturity bonds . the effect of this repositioning was the primary factor leading to a $ 534 thousand , or 7.1 % , decrease in tax-equivalent interest income genereated from the investment portfolio . despite increased demand for the company 's loan products , competition within its market area for loans escalated , which along with the already challenging rate environment , forced loan yields down . in addition , one of the company 's niche markets is indirect auto lending . demand for these loans increased in 2014 due to several promotions directed at the company 's automobile dealer customers . however , rates offered on consumer automobile loans are generally lower than those offered on other types of loan products offered to commercial customers . tax-equivalent interest income decreased $ 1.1 million , or 3.0 % , to $ 34.3 million in 2014 from $ 35.4 million in 2013. the repositioning of the investment portfolio accounted for $ 534 thousand , or 50.6 % , of the overall decrease in tax-equivalent interest income . in addition , the tax-equivalent yield on the loan portfolio decreased 27 basis points from 4.37 % in 2013 to 4.10 % in 2014 , which resulted in a corresponding decrease in tax-equivalent interest income of $ 1.8 million . specifically , the yield
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our products are provided through user-friendly online and mobile interfaces and are supported by educational content and customer support . our consumer interactive segment serves consumers through both direct and indirect channels . in addition , corporate provides support services for each of the segments , holds investments , and conducts enterprise functions . certain costs incurred in corporate that are not directly attributable to one or more of the segments remain in corporate . these costs are typically enterprise-level costs and are primarily administrative in nature . story_separator_special_tag customers ( asc topic 606 ) , using the modified retrospective approach . under the modified retrospective approach , we recognized the cumulative effect of adopting asc topic 606 in the opening balance of retained earnings . there was no material impact on our consolidated financial statements or on how we recognize revenue upon adoption . see part ii , item 8 - financial statements and supplementary data , notes to consolidated financial statements , note 1 , โ significant accounting policies , โ and note 14 , โ revenue , โ for additional information about the adoption of topic 606. recent acquisitions and partnerships we selectively evaluate acquisitions and partnerships as a means to expand our business and to enter new markets . since january 1 , 2018 , we have completed the following acquisitions , including those that impact the comparability of our results between periods : on may 22 , 2019 , we acquired 100 % of the equity of trusignal , inc. ( โ trusignal โ ) . trusignal is an innovative leader in people-based marketing technology for fortune 500 brands , agencies , platforms , publishers and data owners . trusignal uses predictive scoring , powered by artificial intelligence , to make data actionable for one-to-one addressable marketing . the results of operations of trusignal , which are not material to our consolidated financial statements , have been included as part of our u.s. markets segment in our consolidated statements of income since the date of the acquisition . on april 16 , 2019 , we acquired a noncontrolling interest in the outstanding equity of payfone , inc. ( โ payfone โ ) . payfone leverages mobile network data from a comprehensive set of providers and applies proprietary technology and solutions to determine if the device is being used by its rightful owner . we will record any future dividends in other income and expense when received . we measure our investment in payfone at our initial cost , minus any impairments , plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investments in payfone , with any adjustments recorded in other income and expense . on april 15 , 2019 , we increased our noncontrolling interest investment in savvymoney , inc. ( โ savvymoney โ ) . we had previously increased our noncontrolling interest investment in savvymoney on june 22 , 2018. our initial investment in savvymoney was made on august 30 , 2016. savvymoney is a provider of credit information services for bank and credit union users . we will record any future dividends in other income and expense when received . we measure our investment in savvymoney at our initial cost , minus any impairments , plus or minus changes resulting from observable price changes 42 in orderly transactions for the identical or similar investments in savvymoney , with any adjustments recorded in other income and expense . on october 15 , 2018 , we acquired 100 % of the equity of rubixis , inc. ( โ rubixis โ ) . rubixis is an innovative healthcare revenue cycle solutions company that helps providers maximize reimbursement from insurance payers . rubixis brings specialized expertise in the management of denials and underpayments , two significant pain points for healthcare providers . the results of operations of rubixis , which are not material to our consolidated financial statements , have been included as part of our u.s. markets segment in our consolidated statements of income since the date of the acquisition . on june 29 , 2018 , we acquired 100 % of the equity of iovation , inc. ( โ iovation โ ) . iovation is a provider of advanced device identity and consumer authentication services that helps businesses and consumers safely transact in a digital world . the results of operations of iovation , which are not material to our consolidated financial statements , have been included as part of our u.s. markets segment in our consolidated statements of income since the date of the acquisition . on june 19 , 2018 , we acquired 100 % of the equity of callcredit information group , ltd. ( โ callcredit โ ) . callcredit is an information solutions company based in the united kingdom , founded in 2000 that provides data , analytics and technology solutions to help businesses and consumers make informed decisions . the results of operations of callcredit have been included as part of our international segment in our consolidated statements of income since the date of the acquisition . see part ii , item 8 , โ notes to consolidated financial statements , โ note 2 , โ business acquisitions , โ for further information about this acquisition . on june 1 , 2018 , we acquired 100 % of the equity of healthcare payment specialists , llc ( โ hps โ ) . hps provides expertise and technology solutions to help medical care providers maximize medicare reimbursements . the results of operations of hps , which are not material to our consolidated financial statements , have been included as part of our u.s. markets segment in our consolidated statements of income since the date of the acquisition . key components of our results of operations revenue the following is a more detailed description of how we derive and report revenue for our three reportable segments : u.s. markets u.s. markets provides consumer reports , actionable insights and analytics such as credit and other scores , and decisioning capabilities to businesses . story_separator_special_tag these businesses use our services to acquire new customers , assess consumers ' ability to pay for services , identify cross-selling opportunities , measure and manage debt portfolio risk , collect debt , verify consumer identities and investigate potential fraud . the core capabilities and delivery methods in our u.s. markets segment allow us to serve a broad set of customers across industries . we report disaggregated revenue of our u.s. markets segment for the following verticals : financial services : the financial services vertical , which accounts for approximately 52.7 % of our 2019 u.s. markets revenue , consists of our consumer lending , mortgage , auto and cards and payments lines of business . our financial services clients consist of most banks , credit unions , finance companies , auto lenders , mortgage lenders , online-only lenders ( fintech ) , and other consumer lenders in the united states . we also distribute our solutions through most major resellers , secondary market players and sales agents . beyond traditional lenders , we work with a variety of credit arrangers , such as auto dealers and peer-to-peer lenders . we provide solutions across every aspect of the lending lifecycle ; customer acquisition and engagement , fraud and id management , retention and recovery . our products are focused on mitigating risk and include credit reporting , credit marketing , analytics and consulting , identity verification and authentication and debt recovery solutions . emerging verticals : emerging verticals include healthcare , insurance , tenant and employment , collections , public sector , media , diversified markets and other verticals . our solutions in these verticals are also data-driven and address the entire customer lifecycle . we offer onboarding and transaction processing products , scoring and analytic products , marketing solutions , fraud and identity management solutions and customer retention solutions . international the international segment provides services similar to our u.s. markets segment to businesses in select regions outside the united states . depending on the maturity of the credit economy in each country , services may include credit reports , analytics and decisioning services , and other value-added risk management services . in addition , we have insurance , business and automotive databases in select geographies . these services are offered to customers in a number of industries including financial services , insurance , automotive , collections , and communications , and are delivered through both direct and indirect channels . the international segment also provides consumer services similar to those offered by our consumer interactive segment that help consumers proactively manage their personal finances . 43 we report disaggregated revenue of our international segment for the following regions : canada , latin america , the united kingdom , africa , india , and asia pacific . consumer interactive the consumer interactive segment offers solutions that help consumers manage their personal finances and take precautions against identity theft . services in this segment include credit reports and scores , credit monitoring , fraud protection and resolution , and financial management for consumers . the segment also provides solutions that help businesses respond to data breach events . our products are provided through user-friendly online and mobile interfaces and are supported by educational content and customer support . our consumer interactive segment serves consumers through both direct and indirect channels . cost of services costs of services include data acquisition and royalty fees , personnel costs related to our databases and software applications , consumer and call center support costs , hardware and software maintenance costs , telecommunication expenses and occupancy costs associated with the facilities where these functions are performed . selling , general and administrative selling , general and administrative expenses include personnel-related costs for sales , administrative and management employees , costs for professional and consulting services , advertising and occupancy and facilities expense of these functions . non-operating income and expense non-operating income and expense includes interest expense , interest income , earnings from equity-method investments , dividends from cost-method investments , impairments of equity-method and cost-method investments , if any , expenses related to successful and unsuccessful business acquisitions , loan fees , debt refinancing expenses , certain acquisition-related gains and losses and other non-operating income and expenses . results of operationsโ twelve months ended december 31 , 2019 , 2018 and 2017 key performance measures management , including our chief operating decision maker ( โ codm โ ) , evaluates the financial performance of our businesses based on a variety of key indicators . these indicators include the gaap measures of revenue , segment adjusted ebitda , cash provided by operating activities and cash paid for capital expenditures and the non-gaap measures adjusted revenue and consolidated adjusted ebitda . for the twelve months ended december 31 , 2019 , 2018 and 2017 , these key indicators were as follows : replace_table_token_3_th nm : not meaningful as a result of displaying amounts in millions , rounding differences may exist in the table above . 44 replace_table_token_4_th nm : not meaningful as a result of displaying amounts in millions , rounding differences may exist in the table above . 1. we define adjusted revenue as gaap revenue adjusted for certain acquisition-related deferred revenue and non-core contract-related revenue . we define adjusted ebitda as net income ( loss ) attributable to the company before net interest expense , income tax provision ( benefit ) , depreciation and amortization and other adjustments noted in the table above . we present adjusted revenue as a supplemental measure of revenue because we believe it provides a basis to compare revenue between periods . we present adjusted ebitda as a supplemental measure of our operating performance because it eliminates the impact of certain items that we do not consider indicative of our cash operations and ongoing operating performance . also , adjusted ebitda is a measure frequently used by securities analysts , investors and other interested parties in their evaluation of the operating performance of companies similar to ours .
| weakening foreign currencies in most regions , primarily in the first three quarters of the year , lowered our reported results for 2019 compared with 2018. our revenues are also significantly influenced by industry trends , including the demand for information services in financial services , healthcare , insurance and other industries we serve . companies are increasingly relying on business analytics and data technologies to help process data in a cost-efficient manner . as customers have gained the ability to rapidly aggregate and analyze data generated by their own activities , they are increasingly expecting access to real-time data and analytics from their information providers as well as solutions that fully integrate into their workflows . as economies in emerging markets continue to develop and mature , we believe there will continue to be favorable socio-economic trends , such as an increase in the size of the middle class and a significant increase in the use of financial services by currently under-served and under-banked customers . demand for consumer solutions is rising , with higher consumer awareness of the importance and usage of their credit information , increased risk of identity theft due to data breaches , and more readily available free credit information . the complexity of existing regulations and the emergence of new regulations across both emerging and developed economies globally continues to make operations for businesses more challenging . effects of inflation we do not believe that inflation has had a material effect on our business , results of operations or financial condition . recent developments the following development impact the comparability of our balance sheets , results of operations and cash flows between years : on november 15 , 2019 , we refinanced our b-3 and b-4 loans with a new tranche of senior secured term loan b ( โ senior secured term loan b-5 โ ) which , along with cash of $ 9.0 million , was used to pay-off the senior secured term loan b-3 and senior secured term loan b-4 loans . on december 10 , 2019 , we refinanced our a-2 loan with a new tranche of senior secured term 41 loan a ( โ senior secured term loan a-3 โ ) , which was used to pay-off our existing senior secured term loan a-2
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to distribute cytosorb in italy , alphamedix ltd. to distribute cytosorb in israel , tekmed pty ltd. to distribute cytosorb in australia and new zealand , and hoang long pharma to distribute cytosorb in vietnam . in june 2016 , we announced an exclusive distribution agreement with palex medical sa to distribute cytosorb in spain and portugal . in september 2016 , we announced an exclusive agreement with armaghan salamat kish group ( arsak ) to distribute cytosorb in iran . in april 2017 , we entered into a distribution agreement with kra technical services to distribute cytosorb in qatar . in july 2017 , we announced an exclusive agreement with droguerรญa , ramรณn , gonzรกlez , revilla ( drgr ) s.a. to distribute cytosorb in panama . in april 2018 , we entered into exclusive agreements with pharmaworld and chong lap ( h.k . ) co. ltd. to distribute cytosorb in lebanon and hong kong , respectively . as of the third quarter of 2018 , we had expanded distribution to include bosnia , herzegovina , and croatia with medis , d.o.o . ; estonia , latvia , and lithuania with sia scanmed ; and montenegro and serbia with mar medica , d.o.o . and cardiotec vascular ltda. , in chile . in march 2019 , we announced the registration of cytosorb in israel and the change to gad medical as the distributor in israel . as of july 2019 , we expanded distribution to include a new distributor in saudi arabia with al mofadaly trading est . in august 2019 , we announced expanded distribution in latin america with the addition of conatti medical in brazil , service & medical columbia in columbia and nutricare costa rica in costa rica . we have been working to expand the number and scope of our strategic partnerships . in september 2013 , we entered into a strategic partnership with biocon ltd. , india 's largest biopharmaceuticals company , with an initial distribution agreement for india and select emerging markets , under which biocon has the exclusive commercialization rights for cytosorb initially focused on sepsis . in october 2014 , the biocon partnership was expanded to include all critical care applications and cardiac surgery . in addition , biocon committed to higher annual minimum purchases of cytosorb to maintain distribution exclusivity and committed to conduct and publish results from multiple investigator-initiated studies and patient case studies . in december 2017 , the biocon partnership was further expanded to include exclusive distribution of cytosorb in malaysia . under the terms of the agreement , biocon has committed to minimum annual purchases in malaysia to maintain exclusivity this territory . in addition , the term of the original agreement was extended to december 2022 . 65 in december 2014 , we entered into a multi-country strategic partnership with fresenius medical care ag & co kgaa ( โ fresenius โ ) to commercialize the cytosorb therapy . under the agreement reflecting the terms of the partnership , fresenius was granted exclusive rights to distribute cytosorb for critical care applications in france , poland , sweden , denmark , norway , and finland . the partnership allows fresenius to offer an innovative and easy way to use blood purification therapy for removing cytokines in patients that are treated in the icu . to promote the success of cytosorb , fresenius agreed to also engage in the ongoing clinical development of the product . this includes the support and publication of a number of small case series and patient case reports as well as the potential for future larger , clinical collaborations . in may 2016 , fresenius launched the product in the six countries for which it was granted exclusive distribution rights . in january 2017 , the fresenius partnership was expanded pursuant to a revised three year agreement . the terms of the revised three-year agreement extended fresenius ' exclusive distributorship of cytosorb for all critical care applications in their existing territories through 2019 and include guaranteed minimum quarterly orders and payments , evaluable every one and a half years . at the same time , we entered into a new comprehensive co-marketing agreement with fresenius . under the terms of the co-marketing agreement , cytosorbents and fresenius agreed to jointly market cytosorb to fresenius ' critical care customer base in all countries where cytosorb is being actively commercialized . cytosorb will continue to be sold by our direct sales force or through our international network of distributors and partners , while fresenius sells all ancillary products to their customers . fresenius further agreed to provide written endorsements of cytosorb for use with their multifiltrate and multifiltratepro acute care dialysis machines that can be used by us and our distribution partners to promote cytosorb worldwide . training and preparation for this co-marketing program began in five initial countries in 2017 and is continuing , with implementation of the co-marketing program in additional countries planned for the future . in december 2018 , the fresenius agreement originally signed in 2014 was amended , thereby modifying the territory to include exclusive distribution rights for czech republic and finland and all critical care medicine and intensive care unit ( icu ) applications on dialysis or ecmo machines for france . in addition , starting in 2019 , poland , sweden , denmark , and norway were transitioned into the co-marketing program . finally , the guaranteed minimum quarterly purchases and payments requirements were removed for 2019. in addition , in this december 2018 reconfiguration of territories , the fresenius partnership was expanded to include south korea and mexico . under the terms of these agreements , fresenius medical care has the exclusive rights to distribute cytosorb for acute care and other hospital applications in korea and mexico . commercial sales of cytosorb are expected to commence after securing market registration clearance from korean and mexican health authorities . these multi-year agreements include an initial stocking order and are subject to annual minimum purchases of cytosorb to maintain exclusivity . story_separator_special_tag in september 2016 , we entered into a multi-country strategic partnership with terumo cardiovascular group to commercialize cytosorb for cardiac surgery applications . under the terms of the agreement , terumo has exclusive rights to distribute the cytosorb cardiopulmonary bypass ( โ cpb โ ) procedure pack for intra-operative use during cardiac surgery in france , sweden , denmark , norway , finland and iceland . terumo launched the product in these six countries in december 2016. in march 2017 , we announced a partnership with dr. reddy 's laboratories to exclusively distribute cytosorb in south africa for multiple applications . in december 2019 , we discontinued this partnership . we continuously evaluate other potential distributor and strategic partner networks in other countries where we are approved to market the device . concurrent with our commercialization plans , we intend to conduct or support additional clinical studies in sepsis , cardiac surgery , and other critical care diseases to generate additional clinical data to expend the scope of clinical experience for marketing purposes , to increase the number of treated patients , and to support potential future publications . we have completed a single arm , dose ranging trial in germany amongst several clinical trial sites supporting the safety and efficacy of cytosorb when used 24 hours per day for seven days , each day with a new device . 66 in addition , we now have more than 50 investigator-initiated studies planned , enrolling or completed in germany , austria , switzerland , the netherlands , hungary , the united kingdom , india , and the u.s. approximately 20 of these studies are currently enrolling patients . others have been completed . these trials , which are funded and supported by well-known university hospitals and kols , are post-market clinical studies . they have provided and will continue to provide invaluable information regarding the success of the device in the treatment of sepsis , cardiac surgery , trauma , and many other indications , and if successful , will be integral in helping to drive additional usage and adoption of cytosorb . in february 2015 , the u.s. food and drug administration ( the โ fda โ ) approved our investigational device exemption ( โ ide โ ) application to commence a planned u.s. cardiac surgery feasibility study called refresh i ( reduction of free hemoglobin ) amongst 20 patients and three u.s. clinical sites . the fda subsequently approved an amendment to the protocol , expanding the study to a 40-patient randomized controlled study ( 20 treatment , 20 control ) in eight clinical centers . refresh i represented the first part of a larger clinical trial strategy intended to support the approval of cytosorb in the u.s. for intra-operative use during cardiac surgery . the refresh i study was designed to evaluate the safety and feasibility of cytosorb when used intra-operatively with a heart-lung machine to reduce plasma free hemoglobin ( pfhb ) and cytokines in patients undergoing complex cardiac surgery . the study was not powered to measure effect on clinical outcomes . the length , complexity and invasiveness of these procedures cause hemolysis and inflammation , leading to high levels of plasma free hemoglobin , cytokines , activated complement , and other substances . these inflammatory mediators are correlated with the incidence of serious post-operative complications such as kidney injury , renal failure and other organ dysfunction . the goal of cytosorb is to actively remove these inflammatory and toxic substances as they are being generated during the surgery and reduce complications . enrollment was completed with 46 patients . a total of 38 patients were evaluable for pfhb and completed all aspects of the study . the primary safety and efficacy endpoints of the study were the assessment of serious device related adverse events and the change in plasma free hemoglobin levels , respectively . on october 5 , 2016 , we announced positive top-line safety data . in addition , following a detailed review of all reported adverse events in a total of 46 enrolled patients , the independent data safety monitoring board ( โ dsmb โ ) found no serious device related adverse events with the cytosorb device , achieving the primary safety endpoint of the study . in addition , the therapy was well-tolerated and technically feasible , implementing easily into the cardiopulmonary bypass circuit without the need for an additional external blood pump . the refresh i study represented the first randomized controlled study demonstrating the safety of intra-operative cytosorb use in patients undergoing high risk cardiac operations . investigators of the refresh i study submitted an abstract with data , including free hemoglobin data , from the refresh i study which was selected for a podium presentation at the american association of thoracic surgery conference on may 1 , 2017. on may 5 , 2017 , we announced additional refresh i data , including data from the study on the reduction of pfhb and activated complement , and in may 2019 , the manuscript of the refresh i study was electronically published in the journal , seminars in thoracic and cardiovascular surgery . 67 in december 2017 , the fda approved our ide application for our refresh 2-aki study , permitting us to conduct this pivotal study designed to provide the key safety and efficacy data needed to support united states regulatory approval for cytosorb in cardiac surgery , which we plan to pursue via the premarket approval ( pma ) pathway . the refresh 2-aki study is a randomized , controlled , multi-center , clinical study designed to evaluate intraoperative cytosorb use as a therapy to reduce the incidence and severity of aki , as measured by kidney disease improving global outcomes ( kdigo ) criteria , following complex cardiac surgery . postoperative aki following cardiac surgery is common and is associated with 1-5 year mortality , and is a risk factor for developing chronic kidney disease requiring hemodialysis in the future .
| 70 cost of revenue : for the years ended december 31 , 2019 and 2018 , cost of revenue was approximately $ 7,364,000 and $ 7,489,000 , respectively , a decrease of approximately $ 125,000. product cost of revenues decreased approximately $ 63,000 during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 as a result of achieved production efficiencies . product gross margins were approximately 77 % for the year ended december 31 , 2019 and approximately 74 % for the year ended december 31 , 2018. gross profit : gross profit was approximately $ 17,586,000 for the year ended december 31 , 2019 , an increase of approximately $ 2,571,000 or 17 % , over gross profit of $ 15,015,000 in 2018. this increase is attributed to an increase in cytosorb product sales during 2019 as well as achieved production efficiencies . research and development expenses : our research and development costs were approximately $ 12,092,000 and $ 7,723,000 for the years ended december 31 , 2019 and 2018 , respectively , an increase of approximately $ 4,369,000 , or 57 % . this increase was due to an increase in clinical trial and related costs of approximately $ 3,890,000 , which include expenditures related to our refresh 2-aki study and our tisorb study , an increase in non-clinical research and development salary related costs of approximately $ 223,000 , decreases in direct labor and other costs being deployed toward grant-funded activities of approximately $ 62,000 , which had the effect of increasing the amount of our non-reimbursable research and development costs and an increase in our non-grant related research and development costs of approximately $ 194,000. legal , financial and other consulting expenses : our legal , financial and other consulting costs were approximately $ 2,462,000 and $ 2,002,000 for the years ended december 31 , 2019 and 2018 , respectively , an increase of approximately $ 460,000 , or 23 % . this increase was due to an increase in legal fees of approximately $ 334,000 related to patent matters and certain corporate initiatives , an increase in employment agency fees of approximately $ 88,000 related to the hiring of senior level personnel , an increase in accounting and auditing fees of approximately $
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in light of the impact of the covid-19 pandemic on the operating results of our hotels , we have taken various actions to preserve our liquidity , including , but not limited to , those described below : โ we implemented cost reduction strategies for all of our hotels , leading to reductions in certain operating expenses and capital expenditures . โ amendments to revolving credit facility โ on june 2 , 2020 , our revolving credit facility ( the โ revolving credit facility โ ) was amended to provide for ( i ) the deferral of the six monthly debt service payments aggregating $ 0.8 million for the period from april 1 , 2020 through september 30 , 2020 until july 13 , 2022 ; ( ii ) a 100 bps reduction in the interest rate spread to libor + 2.15 % , subject to a 3.00 % floor , for the six-month period from september 1 , 2020 through february 28 , 2021 ; ( iii ) our pre-funding $ 0.8 million into a cash collateral reserve account to cover the six monthly debt service payments due from october 1 , 2020 through march 1 , 2021 ; and ( iv ) a waiver of all financial covenants for quarter-end periods before june 30 , 2021. additionally , a principal paydown of $ 0.6 million , which was previously due on april 1 , 2020 was bifurcated into two separate principal paydowns , each one $ 0.3 million , which were made in june 2020 and september 2020. we and the lender have agreed in principle to certain amendments to the terms of the revolving credit facility , that we expect will be finalized shortly , that provide for ( i ) us to make another principal paydown of $ 3.8 million , ( ii ) us to fund an additional $ 0.9 million into the cash collateral reserve account ; ( iii ) a waiver of all financial covenants for quarter-end periods through september 30 , 2021 with a phased-in gradual return to the full financial covenant requirements over the quarter-end periods beginning december 31 , 2021 through march 31 , 2023 ; ( iv ) two one-year extension options at the lender 's sole discretion ; and ( v ) certain limitations and restrictions on asset sales and additional borrowings related to the pledged collateral . see note 6 of the notes to consolidated financial statements for additional information . โ paycheck protection program loans - in april 2020 , our hotels received $ 1.5 million from loans provided under the federal paycheck protection program ( โ ppp loans โ ) . subsequently , during the first quarter of 2021 , our hotels received an additional $ 1.9 million from ppp loans . see note 7 of the notes to consolidated financial statements for additional information . โ on june 19 , 2019 , the board of directors had previously determined to suspend regular monthly distributions and , as a result , did not declare any distributions on our common shares during 2020. additionally , on march 19 , 2020 , the board of directors approved the suspension of all redemptions under our shareholder redemption program . see note 8 of the notes to consolidated financial statements for additional information . 16 โ in may 2020 , we had approximately $ 5.2 million of funds released to it from an escrow account . see note 3 of the notes to consolidated financial statements for additional information . โ the hilton garden inn joint venture and the lender have agreed in principle to various amendments to its non-recourse mortgage loan secured by the hilton garden inn โ long island city , which they expect will be finalized shortly . see note 4 of the notes to consolidated financial statements for additional information . based on these actions , along with our cash and cash equivalents on hand , we believe that we will have sufficient liquidity to meet our obligations for at least 12 months from the date of issuance of these financial statements . critical accounting estimates and policies general . our consolidated financial statements included in this annual report include our accounts and the operating partnership ( over which we exercise financial and operating control ) . all inter-company balances and transactions have been eliminated in consolidation . the discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( โ gaap โ ) . the preparation of our financial statements requires us to make estimates and judgments about the effects of matters or future events that are inherently uncertain . these estimates and judgments may affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including contingencies and litigation . we base these estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances . these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . to assist in understanding our results of operations and financial position , we have identified our critical accounting policies and discussed them below . these accounting policies are most important to the portrayal of our results and financial position , either because of the significance of the financial statement items to which they relate or because they require management 's most difficult , subjective or complex judgments . story_separator_special_tag investments in real estate carrying value of assets the amounts to be capitalized as a result of periodic improvements and additions to real estate property , when applicable , and the periods over which the assets will be depreciated or amortized , are determined based on the application of accounting standards that may require estimates as to fair value and the allocation of various costs to the individual assets . differences in the amount attributed to the assets may be significant based upon the assumptions made in calculating these estimates . impairment evaluation we evaluate our investments in real estate assets for potential impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable for a particular property . we evaluate the recoverability of our investments in real estate assets at the lowest identifiable level , the individual property level . no single indicator would necessarily result in us preparing an estimate to determine if an individual property 's future undiscounted cash flows are less than its carrying value . we use judgment to determine if the severity of any single indicator , or the fact there are a number of indicators of less severity that when combined , would result in an indication that a property requires an estimate of the undiscounted cash flows to determine if an impairment has occurred . relevant facts and circumstances include , among others , significant underperformance relative to historical or projected future operating results and significant negative industry or economic trends . the estimated cash flows used for the impairment analysis are subjective and require us to use our judgment and the determination of estimated fair value are based on our plans for the respective assets and our views of market and economic conditions . the estimates consider matters such as future operating income , market and other applicable trends and residual value , as well as the effects of demand , competition , and recent sales data for comparable properties . an impairment loss is recognized only if the carrying amount of a property is not recoverable and exceeds its estimated fair value . the results of our 2020 impairment analysis did not identify any properties where the undiscounted cash flows were less than the carrying value . however , any changes in assumptions used in our impairment analysis could result in future impairment losses , which could be material . 17 depreciation and amortization depreciation expense is computed based on the straight-line method over the estimated useful life of the applicable real estate asset . we generally use estimated useful lives of up to thirty-nine years for buildings and improvements and five to ten years for furniture and fixtures . maintenance and repairs will be charged to expense as incurred . investments in unconsolidated entities . we evaluate all investments in other entities for consolidation . we consider our percentage interest in the joint venture , evaluation of control and whether a variable interest entity exists when determining whether or not the investment qualifies for consolidation or if it should be accounted for as an unconsolidated investment under the equity method of accounting . if an investment qualifies for the equity method of accounting , our investment is recorded initially at cost , and subsequently adjusted for equity in net income or loss and cash contributions and distributions . the net income or loss of an unconsolidated investment is allocated to its investors in accordance with the provisions of the operating agreement of the entity . the allocation provisions in these agreements may differ from the ownership interest held by each investor . differences , if any , between the carrying amount of our investment in the respective joint venture and our share of the underlying equity of such unconsolidated entity are amortized over the respective lives of the underlying assets as applicable . these items are reported as a single line item in the statements of operations as income or loss from investments in unconsolidated affiliated entities . we review investments for impairment in value whenever events or changes in circumstances indicate that the carrying amount of such investment may not be recoverable . an investment 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 decline in value is deemed to be other than temporary . the ultimate realization of our investment in partially owned entities is dependent on a number of factors including the performance of that entity and market conditions . if we determine that a decline in the value of a partially owned entity is other than temporary , we will record an impairment charge . revenue recognition our revenues are comprised primarily of revenues from the operations of hotels . room revenue is generated through contracts with customers whereby the customers agree to pay a daily rate for right to use a hotel room . our contractual performance obligations are fulfilled at the end of the day that the customer is provided the room and revenue is recognized daily at the contract rate . payment from the customer is secured at the end of the contract upon check-out by the customer from our hotel . we participate in frequent guest programs sponsored by the brand owners of our hotels whereby the brand owner allows guests to earn loyalty points during their hotel stay . we recognize revenue at the amount earned that it will receive from the brand owner when a guest redeems their loyalty points by staying at one of our hotels . revenue from food , beverage and other ancillary services is generated when a customer chooses to purchase goods or services separately from a hotel room and revenue is recognized when these goods or services are provided to the customer and our contractual performance obligations have been fulfilled .
| as of december 31 , 2020 , we majority owned and consolidated the operating results and financial condition of eight limited service hotels containing a total of 872 rooms and an unconsolidated 50.0 % membership interest in the hilton garden inn joint venture , which we account for under the equity method of accounting . see notes 3 and 4 of the notes to consolidated financial statements for additional information on our dispositions . 19 comparison of the year ended december 31 , 2020 vs. december 31 , 2019 consolidated our consolidated revenues , property operating expenses , real estate taxes , general and administrative expense and depreciation and amortization for the years ended december 31 , 2020 and 2019 are attributable to our consolidated hospitality properties , including the springhill suites โ green bay through its date of disposition . overall , our hospitality portfolio experienced decreases in the percentage of rooms occupied from 74.7 % to 49.0 % for 2019 and 2020 , respectively , revenue per available room ( โ revpar โ ) from $ 87.87 to $ 42.75 for 2019 and 2020 , respectively , and the average daily rate per room ( โ adr โ ) from $ 117.65 to $ 87.30 for 2019 and 2020 , respectively . revenues revenues decreased by $ 18.3 million to $ 14.2 million during the year ended december 31 , 2020 compared to $ 32.5 million for the same period in 2019. excluding the effect of the disposition of the springhill suites โ green bay , revenues for our same store hotels decreased by $ 15.1 million . this decrease reflects lower occupancy , revpar and adr during 2020 compared to 2019 , all of which were primarily attributable to reduced room demand during the 2020 period resulting from the covid-19 pandemic . property operating expenses property operating expenses decreased by $ 9.5 million to $ 11.2 million during the year ended december 31 , 2020 compared to $ 20.7 million for the same period in 2019. excluding the effect of the disposition of the springhill suites โ
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the net effect of this change was an increase to net income of $ 1.2 million or $ 0.01 per basic and diluted net income ( loss ) per share . 37 inventory costing and recoverability โ inventories are stated at the lower of cost or net realizable value . we analyzed our inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value . we performed an assessment of projected sales to evaluate the lower of cost or net realizable value and the potential excess inventory on hand at december 31 , 2017 , 2016 and 2015. as a result of these assessments , we recorded charges of $ 3.0 million and $ 36.1 million in the years ended december 31 , 2017 and 2015 , respectively . there were no write-offs for the year ended december 31 , 2016. in the year ended december 31 , 2015 we also recorded a charge of $ 3.2 million related to the write-off of prepaid deposits related to the purchase of inventory . recognized loss on purchase commitments โ we assess whether losses on long term purchase commitments should be accrued . losses that are expected to arise from firm , non-cancellable , commitments for future purchases of inventory items are recognized unless recoverable . impairment of long-lived assets โ we evaluate long lived assets for impairment at least on a quarterly basis and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . an impairment loss would be indicated when estimated undiscounted future cash flows from the use and eventual disposition of an asset group , which are identifiable and largely independent of the cash flows of other asset groups , are less than the carrying amount of the asset group . in connection with our quarterly assessment of impairment indicators , we recorded impairments of $ 0.2 million , $ 1.2 million , and $ 140.4 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . for further information see note 4 โ property and equipment of the notes to consolidated financial statements included in โ part ii , item 8 โ financial statements and supplementary data โ . milestone rights liability โ in connection with the execution of the facility agreement , we also issued milestone rights to the milestone purchasers . we evaluated the milestone rights and determined that such rights do not meet the definition of a freestanding derivative . since we have elected not to apply the fair value option , we recorded the rights at the initial fair value . upon the achievement of a milestone event , the milestone payment will be allocated between ( i ) a reduction of the initial liability and ( ii ) a return on investment and the gain or loss is recognized at the time the milestone event is achieved . the estimated fair value of the milestone rights was calculated using the income approach in which the cash flows associated with the specified contractual payments were adjusted for both the expected timing and the probability of achieving the milestones discounted to present value using a selected market discount rate ( level 3 in the fair value hierarchy ) . clinical trial expenses โ our clinical trial accrual process seeks to account for expenses resulting from our obligations under contract with vendors , consultants , and clinical site agreements in connection with conducting clinical trials . the financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts . our objective is to reflect the appropriate trial expenses in our financial statements by matching period expenses with period services and efforts expended . in the event that we do not identify certain costs that have begun to be incurred or we underestimate or overestimate the level of services performed or the costs of such services , our reported expenses for a period would be too low or too high . the date on which certain services commence , the level of services performed on or before a given date and the cost of the services are often judgmental . we make these judgments based upon the facts and circumstances known to us in accordance with generally accepted accounting principles . 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 our reporting amounts that are too high or too low for any particular period . stock-based compensation โall share-based payments to employees , including grants of stock options , restricted stock units , performance-based awards and the compensatory elements of employee stock purchase plans , are recognized based upon the fair value of the awards at the grant date subject to an estimated forfeiture rate . we use the black-scholes option valuation model to estimate the grant date fair value of employee stock options and the compensatory elements of employee stock purchase plans . accounting for income taxes โ our management must make judgments when determining our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . at december 31 , 2017 and december 31 , 2016 , respectively , we had established a valuation allowance of $ 654.3 million and $ 914.5 million against all of our net deferred tax asset balances , due to uncertainties related to the realizability of our deferred tax assets as a result of our history of operating losses . the valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable . story_separator_special_tag in the event that actual results differ from these estimates or we adjust these estimates in future periods , we may need to change the valuation allowance , which could materially impact our financial position and results of operations . on december 22 , 2017 , the tax cuts and jobs act of 2017 ( the โ act โ ) was signed into law making significant changes to the internal revenue code of 1986 , as amended . the changes include , but are not limited to , a corporate tax rate decrease from 35 % to 21 % effective for tax years beginning after december 31 , 2017 , a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of december 31 , 2017 , and expanded limits on employee remuneration . we have calculated our best estimate of the impact of the act in our year end income tax provision in accordance with our understanding of the act and guidance available as of the date of this filing , and as a result , we did not record additional income tax expense in the fourth quarter of 2017 , the period in which the legislation was enacted . the provisional amount related to the remeasurement of certain deferred tax assets and liabilities is based on the rates at which they are expected to reverse in the future . 38 the impact o f this act was a decrease of deferred tax assets approximately $ 301 million , offset by a decrease in valuation allowance $ 301 million , resulting in no additional income tax expense or benefit . no provisional amount was recorded related to the one-time tran sition tax on the mandatory deemed repatriation of foreign earnings . staff accounting bulletin no . 118 ( `` sab 118 '' ) was issued to address the application of accounting principles generally accepted in the united states in situations when a company does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the act . in accordance with sab 118 , we have determined that the provisional amounts recorded are a reasonable estimate at december 31 , 2017. any subsequent adjustment to these amounts will be recorded when the analysis is complete in 2018. story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:0pt ; text-indent:0 % ; font-family : times new roman ; font-size:10pt ; '' > general and administrative expenses include payroll , employee benefits , stock-based compensation expense , severance expense , and other headcount-related expenses associated with finance , legal , facilities , human resources and other administrative personnel , certain taxes , professional services , and legal and other administrative fees . general and administrative expense increased for the year ended december 31 , 2017 by $ 5.3 million , or 20 % , compared to the prior year , primarily due to increases in salaries of $ 2.6 million related to new executives hired in late 2016 and 2017 , a $ 1.5 million increase in professional fees , primarily related to debt recapitalization , a $ 1.4 million increase in expense for consulting services related to accounting , human resources , and business development , a $ 0.7 million increase in expenses for performance bonuses , a $ 0.5 million increase in expenses associated with executive recruitment and relocation , and a $ 0.2 million increase in expenses for software infrastructure . these increases were partially offset by a $ 2.1 million decrease in legal expenses . under the insulin supply agreement with amphastar , payment obligations are denominated in euros . we are required to record the foreign currency translation impact of the u.s. dollar to euro exchange rate associated with the recognized loss on purchase commitments . the loss on 40 foreign currency translation for the year ended december 31 , 2017 was $ 13.6 million as compared to a gain in 2016 of $ 3.4 million , res ulting in a $ 17.1 million net change due to unfavorable u.s. dollar to euro exchange rates . ( gain ) loss on purchase commitments changed by $ 2.1 million as a result of a gain recorded in 2016 of $ 2.3 million versus $ 0.2 million in 2017. the $ 2.3 million gain on purchase commitments in 2016 related to a renegotiation of certain of our purchase commitments ( primarily the reduction in cancellation fees under the insulin supply agreement ) . other income ( expense ) the following table provides a comparison of the other income ( expense ) categories for the years ended december 31 , 2017 and 2016 ( dollars in thousands ) : replace_table_token_6_th during the year ended december 31 , 2017 we recorded a $ 5.5 million change in the fair value of the warrant liability from the beginning of the year through the date the series a common stock purchase warrants ( โ a warrants โ ) and series b common stock purchase warrants ( โ b warrants โ ) were exchanged , compared to $ 5.4 million for the prior year due to the volatility in our stock price . on september 29 , 2017 , we entered into exchange agreements with the four holders of all outstanding a and b warrants , pursuant to which we agreed to issue to such holders an aggregate of 1,292,510 shares of our common stock in exchange for such warrants . the decrease of $ 6.1 million in the interest expense on notes for the year ended december 31 , 2017 compared to the same period in the prior year was primarily due to the extinguishment of debt under the sanofi loan facility in the fourth quarter of 2016 as a result of the settlement agreement with sanofi entered into in november 2016 ( the โ settlement agreement โ ) .
| revenue โ other for the year ended december 31 , 2017 represents $ 1.7 million from sales of bulk insulin to a third party and $ 0.6 million from a sale of intellectual property . revenue โ other for the year ended december 31 , 2016 represents $ 0.9 million from sales of bulk insulin to a third party . 39 expenses the following table provides a comparison of the expense categories for the years ended december 31 , 2017 and 2016 ( dollars in thousands ) : replace_table_token_5_th cost of goods sold includes the costs related to afrezza product dispensed by pharmacies to patients as well as the following costs , which are recorded as expenses in the period in which they are incurred , rather than as a portion of the inventory cost : current year manufacturing costs in excess of costs capitalized into inventory , the impact of an annual revaluation of inventory and deferred costs of commercial sales to standard cost , write-offs of inventory and deferred costs of commercial sales . the increase in cost of goods sold of $ 0.1 million for the year ended december 31 , 2017 compared to the prior year is primarily due to increases of $ 2.8 million in inventory write offs related to obsolescence and $ 1.6 million in cost of goods attributable to commercial product sales . these increases were offset by a decrease of $ 4.5 million related to a reduction in current year manufacturing costs in excess of costs capitalized into inventory ( resulting from the reduction in work force in the fourth quarter of 2016 ) and a $ 0.3 million gain related to the january 2017 revaluation of inventory to standard costs . costs of revenue from collaboration represents the costs of product manufactured and sold to sanofi , as well as certain direct costs associated with a firm purchase commitment entered into in connection with the collaboration with sanofi for the year ended december 31 , 2016. during the year ended december 31 , 2017 , we did not recognize any collaboration product costs . during the year ended december 31 ,
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soda ash demand in international markets has increased steadily over the last several years , primarily due to economic growth in emerging markets , especially those in asia and south america . we expect that continued economic growth in these markets will 53 fuel further increases in demand , which will likely result in increased exports primarily from the united states and to a limited extent , from china , the first and second largest suppliers of soda ash to international markets , respectively . sales mix because demand for soda ash in the united states has remained relatively stable in recent years , we have focused on international markets to expand our business , and we expect to continue to do so in the near future . as a result , our operations have been and continue to be sensitive to fluctuations in freight and shipping costs and changes in international prices , which have historically been more volatile than domestic prices . our gross profit will be impacted by the mix of domestic and international sales as a result of changes in input costs and our average selling prices . energy costs one of the primary drivers of our profitability is our energy costs . because we depend upon natural gas and electricity to power our trona ore mining and soda ash processing operations , our net sales , earnings and cash flow from operations are sensitive to changes in the prices we pay for these energy sources . our cost of energy , particularly natural gas , has been relatively low in recent years , however , if the increases experienced in early 2014 persist , natural gas prices may be a headwind in 2014. how we evaluate our business productivity of operations our soda ash production volume is primarily dependent on the following three factors : ( 1 ) operating rate , ( 2 ) quality of our mined trona ore and ( 3 ) recovery rates . operating rate is a measure of utilization of the effective production capacity of our facilities and is determined in large part by productivity rates and mechanical on-stream times , which is the percentage of actual run times over the total time scheduled . we implement two planned outages of our mining and surface operations each year , typically in the second and third quarters . during these outages , which last approximately one week , we repair and replace equipment and parts . the quality of our mine ore is determined by measuring the trona ore recovered as a percentage of the deposit , which includes both trona ore and insolubles . plant recovery rates are generally determined by calculating the soda ash produced divided by the sum of the soda ash produced plus soda ash that is not recovered from the process . all of these factors determine the amount of trona ore we require to produce one short ton of soda ash , which we refer to as our `` ore to ash ratio . '' for the year ended december 31 , 2013 , our ore to ash ratio was 1.62 : 1.0 ( year ended december 31 , 2012 : 1.59 : 1.0 ) , which means we required approximately 1.62 million short tons of trona ore to produce approximately 1.0 million short tons of soda ash . we enhanced our ore to ash ratio in recent years primarily by capturing the soda ash contained in a precipitate and natural by-product called `` deca '' , and we estimate that the deca rehydration process has offset our trona ore requirements by approximately 9 % since 2009. freight and logistics the soda ash industry is logistics intensive and involves careful management of freight and logistics costs . these freight costs make up a large portion of the total delivered cost to the customer . union pacific is our largest provider of domestic rail freight services and accounted for 80.6 % of our total rail freight costs in the united states for the year ended december 31 , 2013 ( year ended december 31 , 2012 : 81.9 % ) . our agreement with union pacific and generally requires that the freight rate we are charged be increased annually based on a published index tied to certain rail industry metrics . we generally pass on to our customers increases in our freight costs but we may be unsuccessful in doing so . our contract with union pacific expires december 31 , 2014 and have begun negotiations to renew the contact for another five year term . sales net sales include the amounts we earn on sales of soda ash . we recognize revenue from our sales when there is persuasive evidence of an arrangement between us and the customer , products have been delivered to the customer , selling price is fixed , determinable or reasonably estimated and collection is reasonably assured . substantially all of our sales are derived from sales of soda ash , which we sell through our exclusive sales agent , oci chemical . a small amount of our sales is derived from sales of production purge , which is a by-product liquor solution containing soda ash that is produced during the processing of trona ore. for the purposes of our discussion below , we include these transactions in domestic sales of soda ash and in the volume of domestic soda ash sold . sales prices for sales through ansac include the cost of freight to the ports of embarkation for overseas export or to laredo , texas for sales to mexico . sales prices for other international sales may include the cost of rail freight to the port of embarkation , the cost of ocean freight to the port of disembarkation for import by the customer and the cost of inland freight required for delivery to the customer . story_separator_special_tag 54 cost of products sold expenses relating to employee compensation , energy , including natural gas and electricity , royalties and maintenance materials constitute the greatest components of cost of products sold . these costs generally increase in line with increases in sales volume . energy . a major item in our cost of products sold is energy , comprised primarily of natural gas and electricity . we primarily use natural gas to fuel our above-ground processing operations , including the heating calciners , and use electricity to power our underground mining operations , including our continuous mining machines , or continuous miners , and shuttle cars . natural gas prices have historically been volatile , ranging between $ 1.63 and $ 18.48 per mmbtu at the henry hub natural gas spot price during the period from 1999 to 2013. for the year ended december 31 , 2013 , the nymex natural gas futures closing price was $ 4.23 per mmbtu ( year ended december 31 , 2012 : $ 3.35 per mmbtu ) . employee compensation . our employee compensation expenses are affected by headcount and salary levels , as well as incentive compensation paid . retirement benefits for certain individuals that provide services to us are provided by oci enterprises under the oci pension plan for salaried employees and oci pension plan for hourly employees . oci enterprises has the right to modify or terminate the benefits at will . we also reimburse oci enterprises for contributions it makes on our behalf to the oci 401 ( k ) retirement plan based upon specified percentages of employee contributions . see item 8 , `` financial statements and supplementary dataโnote 11 , `` employee compensation , '' for more information on the various plans . royalties . we pay royalties to the state of wyoming , the u.s. bureau of land management and anadarko petroleum or its affiliates , which are calculated based upon a percentage of the value of soda ash sold , or a certain sum per each ton of such products . we also pay a production tax to sweetwater county , and trona severance tax to the state of wyoming that is calculated based on a formula that utilizes the volume of trona ore mined and the value of the soda ash produced . selling , general and administrative expenses selling , general and administrative expenses incurred by oci enterprises and its affiliates on our behalf are allocated to us based on the time the employees of those companies spend on our business and the actual direct costs they incur on our behalf . selling , general and administrative expenses incurred by ansac on our behalf are allocated to us based on the proportion of ansac 's total volumes sold for a given period attributable to the soda ash sold by us to ansac . results of operations a discussion and analysis of the factors contributing to our results of operations is presented below . the accompanying consolidated financial statements for the years ended december 31 , 2012 and 2011 , represent the predecessor 's results of operations , reflecting the ownership in oci wyoming previously held by the predecessor and wyoming co. on a combined basis , adjusted for the effects of the restructuring and certain push-down accounting effects . the consolidated financial statements for the year ended december 31 , 2013 , presents the results of operations for the partnership , reflecting the combined ownership interests previously held by predecessor and wyoming co. on a combined basis , adjusted for certain push-down accounting effects . see the `` explanatory note '' , for more information on the restructuring transactions . the financial statements , together with the following information , are intended to provide investors with a reasonable basis for assessing our historical operations , but should not serve as the only criteria for predicting our future performance . see item 8 , `` financial statements and supplementary data โ note 4 , `` net income per unit and cash distribution , '' for a summary of net income for the year ended december 31 , 2013 , disaggregated between the predecessor and the partnership . 55 the following tables set forth our results of operations for the years ended december 31 , 2013 , 2012 and 2011 . replace_table_token_7_th * * information is not applicable for the pre-ipo periods . ( 1 ) ore to ash ratio expresses the number of short tons of trona ore needed to produce one short ton of soda ash and includes our deca rehydration recovery process . ( 2 ) for a discussion of the non-gaap financial measure ebitda , please read `` non-gaap financial measures '' of this management 's discussion and analysis . ( 3 ) reflects ebitda divided by sales volumes . 56 non-gaap financial measures we report our financial results in accordance with generally accepted accounting principles in the united states or gaap . we also present the non-gaap financial measures of ebitda , distributable cash flow and distribution coverage ratio . we define ebitda as net income ( loss ) plus net interest expense , income tax , depreciation , depletion and amortization , unrealized derivative gains and losses and certain other expenses that are non-cash charges or that we consider not to be indicative of ongoing operations . distributable cash flow is defined as ebitda less net cash paid for interest , maintenance capital expenditures and income taxes . distributable cash flow will not reflect changes in working capital balances . we define distribution coverage ratio as the ratio of distributable cash flow per outstanding unit ( as of the end of the period ) to cash distributions per outstanding unit with respect to such period .
| such decrease in sales was offset in part by an increase of 3.1 % in average sales prices over the period . domestic sales accounted for approximately 43.1 % of our sales for the year ended december 31 , 2012 , compared to 48.2 % for the year ended december 31 , 2011. cost of products sold and operating expenses our cost of products sold , excluding freight costs , increased by 9.2 % to $ 221.4 million for the year ended december 31 , 2012 from $ 202.7 million for the year ended december 31 , 2011 , due primarily to : an increase of 104 % in royalties paid to $ 20.4 million for the year ended december 31 , 2012 , as compared to $ 10.0 million for the year ended december 31 , 2011 , due to a 7.6 % increase in volume of soda ash produced and a 9.7 % increase in sales and an increase in royalty rates payable to the federal government from 2.0 % to 6.0 % due to the expiration in october of 2011 of the soda ash royalty reduction act of 2006 ; an increase of 13.4 % in employee compensation costs to $ 60.9 million for the year ended december 31 , 2012 , as compared to $ 53.7 million for the year ended december 31 , 2011 , due to a 4.7 % increase in salaries and wages as a result of an increase in pay and a 29.7 % increase in fringe benefit expense , due mostly to a decrease in actuarial discount rates relating to the oci pension plan for salaried employees and oci pension plan for hourly employees to reflect a general decrease in market interest rates ; an increase of 9.7 % in maintenance costs to $ 14.7 million for the year ended december 31 , 2012 , compared to $ 13.4 million for the year ended december 31 , 2011 , due to increased maintenance required for our mining assets ; an increase of 15.8 % in
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costs directly related to the development or redevelopment of properties are capitalized . ordinary repairs and maintenance are expensed as incurred ; major replacements and betterments , which improve or extend the life of the asset , are capitalized and depreciated over their estimated useful lives . we recognize the assets acquired , liabilities assumed ( including contingencies ) and any noncontrolling interests in an acquired entity at their respective fair values on the acquisition date . we incur a variety of costs in the development and leasing of our properties . after the determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . the costs of land and building under development include specifically identifiable costs . the capitalized costs include , but are not limited to , pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs and other costs incurred during the period of development . we consider a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements , but no later than one year after major construction activity ceases . we cease capitalization on the portions substantially completed and occupied or held available for occupancy , and capitalize only those costs associated with the portions under construction . on a periodic basis , we assess whether there are any indications that the value of our real estate properties may be other than temporarily impaired or that their carrying value may not be recoverable . a property 's value is considered impaired if management 's estimate of the aggregate future cash flows ( undiscounted ) to be generated by the property is less than the carrying value of the property . to the extent impairment has occurred , the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property . we also evaluate our real estate properties for impairment when a property has been classified as held for sale . real estate assets held for sale are valued at the lower of their carrying value or fair value less costs to sell and depreciation expense is no longer recorded . see note 4 , `` properties held for sale and dispositions . '' investments in unconsolidated joint ventures we account for our investments in unconsolidated joint ventures under the equity method of accounting in cases where we exercise significant influence over , but do not control , these entities and are not considered to be the primary beneficiary . we consolidate those joint ventures that we control or which are variable interest entities ( each , a `` vie '' ) and where we are considered to be the primary beneficiary . in all these joint ventures , the rights of the joint venture partner are both protective as well as participating . unless we are determined to be the primary beneficiary in a vie , these participating rights preclude us from consolidating these vie entities . these investments are recorded initially at cost , as investments in unconsolidated joint ventures , and subsequently adjusted for equity in net income ( loss ) and cash contributions and distributions . equity in net income ( loss ) from unconsolidated joint ventures is allocated based on our ownership or economic interest in each joint venture and includes adjustments related to basis differences that were identified as part of the initial accounting for the investment . when a capital event ( as defined in each joint venture agreement ) such as a refinancing occurs , if return thresholds are met , future equity income will be allocated at our increased economic interest . we recognize incentive income from unconsolidated real estate joint ventures as income to the extent it is earned and not subject to a clawback feature . distributions we receive from unconsolidated real estate joint ventures in excess of our basis in the investment are recorded as offsets to our investment balance if we remain liable for future obligations of the joint venture or may otherwise be committed to provide future additional financial support . none of the joint venture debt is recourse to us . the company has performance guarantees under a master lease at one joint venture . see note 6 , `` investments in unconsolidated joint ventures . '' we assess our investments in unconsolidated joint ventures for recoverability , and if it is determined that a loss in value of the investment is other than temporary , we write down the investment to its fair value . we evaluate our equity investments for 40 impairment based on the joint ventures ' projected discounted cash flows . we do not believe that the values of any of our equity investments were impaired at december 31 , 2018 . we may originate loans for real estate acquisition , development and construction , where we expect to receive some of the residual profit from such projects . when the risk and rewards of these arrangements are essentially the same as an investor or joint venture partner , we account for these arrangements as real estate investments under the equity method of accounting for investments . otherwise , we account for these arrangements consistent with the accounting for our debt and preferred equity investments . revenue recognition rental revenue is recognized on a straight-line basis over the term of the lease . the excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in deferred rents receivable on the consolidated balance sheets . we establish , on a current basis , an allowance for future potential tenant credit losses , which may occur against this account . the balance reflected on the consolidated balance sheets is net of such allowance . story_separator_special_tag we record a gain on sale of real estate when title is conveyed to the buyer , subject to the buyer 's financial commitment being sufficient to provide economic substance to the sale and provided that we have no substantial economic involvement with the buyer . interest income on debt and preferred equity investments is accrued based on the contractual terms of the instruments and when , in the opinion of management , it is deemed collectible . some debt and preferred equity investments provide for accrual of interest at specified rates , which differ from current payment terms . interest is recognized on such loans at the accrual rate subject to management 's determination that accrued interest is ultimately collectible , based on the underlying collateral and operations of the borrower . if management can not make this determination , interest income above the current pay rate is recognized only upon actual receipt . deferred origination fees , original issue discounts and loan origination costs , if any , are recognized as an adjustment to the interest income over the terms of the related investments using the effective interest method . fees received in connection with loan commitments are also deferred until the loan is funded and are then recognized over the term of the loan as an adjustment to yield . debt and preferred equity investments are placed on a non-accrual status at the earlier of the date at which payments become 90 days past due or when , in the opinion of management , a full recovery of interest income becomes doubtful . interest income recognition on any non-accrual debt or preferred equity investment is resumed when such non-accrual debt or preferred equity investment becomes contractually current and performance is demonstrated to be resumed . interest is recorded as income on impaired loans only to the extent cash is received . we may syndicate a portion of the loans that we originate or sell the loans individually . when a transaction meets the criteria for sale accounting , we derecognize the loan sold and recognize gain or loss based on the difference between the sales price and the carrying value of the loan sold . any related unamortized deferred origination fees , original issue discounts , loan origination costs , discounts or premiums at the time of sale are recognized as an adjustment to the gain or loss on sale , which is included in investment income on the consolidated statement of operations . any fees received at the time of sale or syndication are recognized as part of investment income . asset management fees are recognized on a straight-line basis over the term of the asset management agreement . allowance for doubtful accounts we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our tenants to make required payments . if the financial condition of a specific tenant were to deteriorate , resulting in an impairment of its ability to make payments , additional allowances may be required . allowance for loan loss and other investment reserves the expense for loan loss and other investment reserves in connection with debt and preferred equity investments is the charge to earnings to adjust the allowance for possible losses to the level that we estimate to be adequate , based on level 3 data , considering delinquencies , loss experience and collateral quality . the company evaluates debt and preferred equity investments that are held to maturity for possible impairment or credit deterioration associated with the performance and or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor . quarterly , the company assigns each loan a risk rating . based on a 3-point scale , loans are rated โ 1 โ through โ 3 , โ from less risk to greater risk , which ratings are defined as follows : 1 - low risk assets - low probability of loss , 2 - watch list assets - higher potential for loss , 3 - high risk assets - loss more likely than not . when it is probable that we will be unable to collect all amounts contractually due , the investment is considered impaired . a valuation allowance is measured based upon the excess of the recorded investment amount over the fair value of the collateral . 41 any deficiency between the carrying amount of an asset and the calculated value of the collateral is charged to expense . we continue to assess or adjust our estimates based on circumstances of a loan and the underlying collateral . if additional information reflects increased recovery of our investment , we will adjust our reserves accordingly . debt and preferred equity investments that are classified as held for sale are carried at the lower of cost or fair market value using available market information obtained through consultation with dealers or other originators of such investments as well as discounted cash flow models based on level 3 data pursuant to asc 820-10. as circumstances change , management may conclude not to sell an investment designated as held for sale . in such situations , the investment will be reclassified at its net carrying value to debt and preferred equity investments held to maturity . for these reclassified investments , the difference between the current carrying value and the expected cash to be collected at maturity will be accreted into income over the remaining term of the investment . derivative instruments in the normal course of business , we use a variety of commonly used derivative instruments , such as interest rate swaps , caps , collars and floors , to manage , or hedge , interest rate risk . effectiveness is essential for those derivatives that we intend to qualify for hedge accounting . some derivative instruments are associated with an anticipated transaction . in those cases , hedge effectiveness criteria also require that it be probable that the underlying transaction occurs .
| ( 2 ) escalated rent is calculated as total annual income less electric charges . ( 3 ) includes expiring space , relocating tenants and move-outs where tenants vacated . excludes lease expirations where tenants held over . ( 4 ) average starting office rent excluding new tenants replacing vacancies was $ 72.42 per rentable square feet for 1,127,841 rentable square feet . average starting office rent for office space ( leased and early renewals , excluding new tenants replacing vacancies ) was $ 66.29 per rentable square feet for 629,518 rentable square feet . ( 5 ) average starting office rent excluding new tenants replacing vacancies was $ 30.05 per rentable square feet for 217,842 rentable square feet . average starting office rent for office space ( leased and early renewals , excluding new tenants replacing vacancies ) was $ 32.17 per rentable square feet for 104,571 rentable square feet . investment income investment income increased primarily as a result of new originations , a larger weighted average book balance , and higher acceleration of previously unrecognized fees as a result of sales , redemptions , modifications or syndications ( $ 1.3 million ) . for the year ended december 31 , 2018 , the weighted average debt and preferred equity investment balance outstanding and weighted average yield were $ 2.1 billion and 9.0 % , respectively . excluding our investment in two herald square which was put on non-accrual in august 2017 , the weighted average debt and preferred equity investment balance outstanding and weighted average yield for the year ended december 31 , 2017 were to $ 1.9 billion and 9.3 % , respectively . as of december 31 , 2018 , the debt and preferred equity investments had a weighted average term to maturity of 1.8 years excluding extension options . other income other income increased primarily as a result of fees recognized in connection with the recapitalization of a joint venture property ( $ 5.8 million ) , real estate tax refunds at our same-store properties ( $ 3.2 million ) , lease termination
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during the fourth quarter of fiscal 2019 , under new leadership , the company focused on six near-term operating priorities , which include : effective cash management , customer retention , efficiently managing coffee brewing equipment , enhancing processes and systems , rationalizing sku counts , and optimizing our in-stock fill rate . these actions have enabled the company to refocus on the fundamentals while addressing many of the challenges the business experienced in fiscal 2019 . 25 certain prior period amounts in the table below have been reclassified to conform to the current year presentation due to the adoption of new accounting standards . financial data highlights ( in thousands , except per share data and percentages ) replace_table_token_2_th nm - not meaningful ( 1 ) ebitda , ebitda margin , adjusted ebitda and adjusted ebitda margin are non-gaap financial measures . see โ non-gaap financial measures โ below for a reconciliation of these non-gaap measures to their corresponding gaap measures . ( 2 ) includes all beverages other than roasted coffee , frozen liquid coffee , and iced and hot tea , including cappuccino , cocoa , granitas , and concentrated and ready-to-drink cold brew and iced coffee . 26 recent developments sale of office coffee assets in order to focus on our core product offerings , in july 2019 , we completed the sale of certain assets associated with our office coffee customers for $ 9.3 million in cash paid at the time of closing plus an earnout of up to an additional $ 2.3 million if revenue expectations are achieved during test periods scheduled to occur at various branches at various times and concluding by early third quarter of fiscal 2020. sale of seattle branch property on august 28 , 2019 , we completed the sale of our branch property in seattle , washington state for a gross sale price of $ 7.9 million . sale leaseback of houston facility on september 6 , 2019 , we signed a purchase and sale agreement ( the โ psa โ ) for the sale of our houston , texas manufacturing facility and warehouse ( the โ property โ ) for an aggregate purchase price , exclusive of closing costs , of $ 10.0 million . pursuant to the psa and upon the closing of the sale of the property , we and the purchaser have agreed to enter into a three year leaseback agreement with respect to the property . we may terminate the leaseback no earlier than the first day of the eighteenth full calendar month of the term providing at least nine months ' notice . there is no assurance at this time that the purchaser will in fact purchase any or all of the property . the closing of the sale of the property , which is subject to customary diligence and closing conditions , is expected to occur on or around november 20 , 2019. the purchaser does not have any material relationship with us or our subsidiaries , other than through the psa and leaseback . in connection with the sale leaseback contemplated by the psa , on september 6 , 2019 , we made a clarifying amendment to our amended and restated credit agreement originally dated as of november 6 , 2018 , to make clear that any sale and leaseback already permitted under the asset sale covenant would not be inadvertently prohibited under the sale and leaseback covenant . factors affecting our business we have identified factors that affect our industry and business which we expect will play an important role in our future growth and profitability . some of these factors include : investment in state-of-the-art facility and capacity expansion . we are focused on leveraging our investment in the northlake , texas , facility to produce the highest quality coffee in response to the market shift to premium and specialty coffee , support the transition of acquired product volumes , and create opportunities for customer acquisition and sustainable long-term growth . however , until we complete the transition of most manufacturing to our northlake facility , we will continue to experience higher manufacturing costs driven by downtime associated with certain aging production infrastructure . supply chain efficiencies and competition . in order to compete effectively and capitalize on growth opportunities , we must retain and continue to grow our customer base , evaluate and undertake initiatives to reduce costs and streamline our supply chain . we continue to look for ways to deploy our personnel , systems , assets and infrastructure to create or enhance stockholder value . areas of focus have included corporate staffing and structure , methods of procurement , logistics , inventory management , supporting technology , and real estate assets . demographic and channel trends . our success is dependent upon our ability to develop new products in response to demographic and other trends to better compete in areas such as premium coffee and tea , including expansion of our product portfolio by investing resources in what we believe to be key growth categories and different formats . fluctuations in green coffee prices . our primary raw material is green coffee , an exchange-traded agricultural commodity that is subject to price fluctuations . over the past five years , coffee โ c โ market near month price per pound ranged from approximately $ 0.96 to $ 1.90 . the coffee โ c โ market near month price as of june 30 , 2019 and 27 2018 was $ 1.10 and $ 1.15 per pound , respectively . the price and availability of green coffee directly impacts our results of operations . for additional details , see risk factors in part i , item 1a of this report . coffee brewing equipment and service . we offer our customers a comprehensive equipment program and 24/7 nationwide equipment service which we believe differentiates us in the marketplace . story_separator_special_tag we offer a full spectrum of equipment needs , which includes brewing equipment installation , water filtration systems , equipment training , and maintenance services to ensure we are able to meet our customer 's demands . hedging strategy . we are exposed to market risk of losses due to changes in coffee commodity prices . our business model strives to reduce the impact of green coffee price fluctuations on our financial results and to protect and stabilize our margins , principally through customer arrangements and derivative instruments , as further explained in note 6 , derivative instruments , of the notes to consolidated financial statements included in this annual report on form 10โk . sustainability . with an increasing focus on sustainability across the coffee and foodservice industry , and particularly from the customers we serve , it is important for us to embrace sustainability across our operations , in the quality of our products , as well as , how we treat our coffee growers . we believe that our collective efforts in measuring our social and environmental impact , creating programs for waste , water and energy reduction , promoting partnerships in our supply chain that aim at supply chain stability and food security , and focusing on employee engagement place us in a unique position to help retailers and foodservice operators create differentiated coffee and tea programs that can include sustainable supply chains , direct trade purchasing , training and technical assistance , recycling and composting networks , and packaging material reductions . 28 story_separator_special_tag compared to $ 1.0 million in restructuring and other transition expenses associated with the dsd restructuring plan in the fiscal year ended june 30 , 2018 . total other ( expense ) income total other expense in the fiscal year ended june 30 , 2019 was $ 18.8 million compared to $ 2.0 million fiscal year ended june 30 , 2018 . the change in total other expense in the fiscal year ended june 30 , 2019 was primarily a result of a pension settlement charge in the amount of $ 10.9 million , higher interest expense and higher net losses on coffee-related derivative instruments . the non-cash pension settlement charge incurred in the fiscal year ended june 30 , 2019 was due to the termination of the farmer bros. co. pension plan for salaried employees effective december 1 , 2018. as a result of the pension plan termination , we expect to realize lower pension benefit guaranty corporation expenses in the future of approximately $ 0.3 million to $ 0.4 million per year . interest expense in the fiscal year ended june 30 , 2019 increased $ 2.2 million to $ 12.0 million from $ 9.8 million in the prior year period . the increase in interest expense in the fiscal year ended june 30 , 2019 was principally due to higher outstanding borrowings on our revolving credit facility , including borrowings for operations and borrowings related to the boyd business acquisition . other , net in the fiscal year ended june 30 , 2019 decreased by $ 3.6 million to $ 4.2 million compared to in $ 7.7 million in the prior year period . the decrease in other , net in the fiscal year ended june 30 , 2019 was primarily due to increased mark-to-market losses on coffee-related derivative instruments not designated as accounting hedges . income taxes in the fiscal years ended june 30 , 2019 and 2018 , we recorded income tax expense of $ 40.1 million and $ 17.3 million , respectively . the $ 22.8 million increase in tax expense in the fiscal years ended june 30 , 2019 is primarily due to a valuation allowance of $ 52.0 million recorded to reduce our deferred tax assets . see note 19 , income taxes , of the notes to consolidated financial statements included in this annual report on form 10โk . 32 fiscal years ended june 30 , 2018 and 2017 net sales net sales in fiscal 2018 increased $ 65.0 million , or 12.0 % , to $ 606.5 million from $ 541.5 million in fiscal 2017 primarily due to the addition of the boyd business , which added $ 67.4 million of incremental sales to the current period and the addition of a full year of net sales from the china mist and west coast coffee acquisitions , offset by a $ 2.5 million decline in our base business primarily due to a shortfall in dsd sales , the impact of pricing to our cost plus customers , and softness in a few large direct ship accounts . net sales in fiscal 2018 included $ 3.0 million in price decreases to customers utilizing commodity-based pricing arrangements , where the changes in the green coffee commodity costs are passed on to the customer , as compared to $ 3.2 million in price decreases to customers utilizing such arrangements in fiscal 2017 . the following table presents the effect of changes in unit sales , unit pricing and product mix for the year ended june 30 , 2018 compared to the same period in the prior fiscal year ( in millions ) : replace_table_token_6_th unit sales increased 12.5 % in fiscal 2018 as compared to fiscal 2017 , but average unit price decreased by 0.5 % resulting in an increase in net sales of 12.0 % . these increases were primarily due to the addition of the boyd business which increased net sales by $ 67.4 million . average unit price decreased primarily due to the lower average unit price of roast and ground coffee products primarily driven by the pass-through of lower green coffee commodity hedged costs to our customers . in fiscal 2018 , we processed and sold approximately 107.4 million pounds of green coffee as compared to approximately 95.5 million pounds of green coffee processed and sold in fiscal 2017 . there were no new product category introductions in fiscal 2018 or 2017 which had a material impact on our net sales . gross profit gross profit in fiscal 2018 increased $ 20.5
| the impact of price decreases to customers utilizing commodity-based pricing arrangements was $ 6.9 million during the year ended june 30 , 2019 as compared to $ 3.0 million in price decreases to customers utilizing such arrangements in the year ended june 30 , 2018 . the following table presents the effect of changes in unit sales , unit pricing and product mix for the year ended june 30 , 2019 compared to the same period in the prior fiscal year ( in millions ) : replace_table_token_5_th unit sales decreased 2.0 % and average unit price was essentially flat in the year ended june 30 , 2019 as compared to the same prior year period , resulting in a decrease in net sales of 1.7 % . in the latter part of the fiscal year ended june 30 , 2019 , we experienced higher mix of product being sold via direct ship versus dsd which will negatively impact future overall average unit price as direct ship has a lower average unit price . there were no new product category introductions in the year ended june 30 , 2019 or 2018 which had a material impact on our net sales . gross profit gross profit in fiscal 2019 decreased $ 28.3 million , or 13.6 % , to $ 179.1 million from $ 207.4 million in fiscal 2018 . gross margin decreased to 30.1 % in fiscal 2019 from 34.2 % in fiscal 2018 . the decrease in gross profit was primarily driven by lower net sales of $ 10.6 million and higher cost of goods sold . cost of goods sold in the year ended june 30 , 2019 increased $ 17.7 million , or 4.4 % , to $ 416.8 million , or 69.9 % of net sales , from $ 399.2 million , or 65.8 % of net sales , in fiscal 2018 . margin was negatively impacted by higher coffee brewing equipment and labor costs associated with increased installation activity during the period , higher production costs associated with the production operations in the northlake facility , including higher depreciation expense for the northlake , texas facility , higher manufacturing costs driven by downtime associated
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the one-time transition tax impact has been reduced by approximately $ 10 million of income tax credit carryfowards , resulting in an estimated cash tax liability of $ 26 million , of which $ 2 million has been classified as a short term liability and $ 24 million as a long term liability , both to be remitted over the next eight years as follows ( in millions ) : replace_table_token_4_th the company expects that the greatest factor impacting its future effective tax rate is the federal reduction in the tax rate from 35 % to 21 % . primarily due to uncertainties in the interpretation of the one-time transition tax rules and the determination of cash or other specified assets , the december 31 , 2017 effective tax rate could differ materially from the amount disclosed in the financial statements . as permitted , the company will update the estimates disclosed herein on a quarterly basis throughout 2018. see note 12 , income taxes in the notes to consolidated financial statements included in this form 10-k for further information . the company has reviewed the impact of other provisions of the act which took effect on january 1 , 2018 and after . based on current operations , we estimate that the company will be subject to the global intangible low-taxed income and the deduction for foreign-derived intangible income provisions of the act . we estimate that the new limitations which defer u.s. interest deductions in excess of 30 % of adjusted taxable income will not be applicable . additionally , the company will no longer be able to deduct compensation for its covered employees which exceeds the limitation under internal revenue code section 162 ( m ) . 25 results of operations : year ended 2017 versus 2016 and year ended 2016 versus 2015 consolidated results of operations ( amounts in millions , except percentages ) replace_table_token_5_th net sales to customers by geographic region were as follows ( amounts in millions , except percentages ) : replace_table_token_6_th operating expenses are summarized below ( amounts in millions , except percentages ) : replace_table_token_7_th consolidated organic net sales growth : replace_table_token_8_th 26 ( 1 ) the company sold the wireless lan business in october 2016. the company excludes the impact of the net sales of this business in the prior year period when computing organic net sales growth . ( 2 ) operating results reported in u.s. dollars are affected by foreign currency exchange rate fluctuations . foreign currency translation impact represents the difference in results that are attributable to fluctuations in the currency exchange rates used to convert the results for businesses where the functional currency is not the u.s. dollar . this impact is calculated by translating , for certain currencies , the current period results at the currency exchange rates used in the comparable prior year period , rather than the exchange rates in effect during the current period . in addition , we exclude the impact of the company 's foreign currency hedging program in both the current and prior year periods . ( 3 ) amounts included in corporate , eliminations consist of purchase accounting adjustments not reported in segments related to the acquisition . 2017 compared to 2016 net sales increased by $ 148 million or 4.1 % compared with the prior year period . the increase in net sales was due to higher hardware sales in north america , emea , and latin america , offset by lower hardware sales in asia-pacific . the increase in hardware sales was largely attributable to increased sales of mobile computing , data capture , and barcode printing products , partially offset by the impact of the divestiture of the wireless lan business in october 2016. services sales were lower primarily due to the impact of the wireless lan divestiture . consolidated organic net sales growth was 6.5 % , reflecting growth in all four geographic regions , most notably in emea and north america , and latin america . gross margin as a percent of sales was 45.9 % , or flat compared to the prior year . this reflects an increase in gross margin in the evm segment primarily due to changes in business mix and improved product costs , offset by lower ait segment gross margin driven primarily by higher overhead and services costs , and increased customer sales incentives . operating expenses for the year ended december 31 , 2017 and 2016 , were $ 1.4 billion , or 37.3 % of net sales and $ 1.6 billion or 43.7 % of net sales , respectively . the reduction in operating expenses was primarily due to impairment charges related to the disposal of the company 's wireless lan business in the prior year period , lower acquisition and integration costs , and lower amortization of intangible assets . during 2017 , the company substantially completed its integration activities , including the implementation of a common enterprise resource planning system , associated with the acquisition . the company also exited the transition services agreements with motorola solutions . the decrease in amortization of intangible assets was due to certain assets reaching full amortization in 2017. exit and restructuring costs were also lower than the year-ago period due to the prior year charges that included costs associated with the divestiture of the wireless lan business . research and development costs were higher primarily due to increased incentive compensation expense associated with improved financial performance partially offset by the impact of the divestiture of the wireless lan business . general and administrative expenses were lower compared to the prior year period due primarily to reduced facility and it expenses , professional fees , and employee benefits costs , as well as the impact of the divestiture of the wireless lan business being offset partially by increased incentive compensation expense associated with improved financial performance . operating income increased $ 242 million compared to the prior year . the increase was due to the decline in operating expenses as well as the increase in sales and gross profit . story_separator_special_tag interest expense was $ 227 million for the year ended december 31 , 2017 compared to $ 193 million in the prior year . the increase over the prior year was driven by the payments for early debt extinguishment of $ 65 million and accelerated amortization of debt issuance costs related to the redemption of senior notes of $ 16 million offset , in part , by the impact of early repayments of debt and lower interest rates . other non-operating expenses decreased $ 5 million to $ 6 million for the year ended december 31 , 2017. this decrease is driven by long-term investment impairments of $ 1 million in the current year compared to $ 7 million in the prior year . the company recognized tax expense of $ 71 million and $ 8 million for the period ending december 31 , 2017 and 2016 , respectively . the company 's effective tax rates were 80.7 % and ( 6.2 ) % as of december 31 , 2017 and 2016 , respectively . the company 's effective tax rate was higher than the federal statutory rate of 35 % primarily due to deferred income taxed on the outbound transfer of u.s. assets , an increase in uncertain tax benefits , increased valuation allowance for its foreign deferred tax assets , foreign non-deductible expenses , the one-time transition tax and remeasurement of its net u.s. deferred tax assets under u.s. tax reform . these increases were partially offset by the benefit of lower tax rates in foreign jurisdictions , recognition of deferred tax assets on intercompany asset transfers , the generation of tax credits in the current year , and deductions from vesting of equity compensation . 2016 compared to 2015 27 net sales decreased by $ 76 million or 2.1 % compared with the prior year period . the decline in net sales is due to lower hardware sales in north america , emea , and latin america , including the unfavorable impact of foreign currency changes , partially offset by higher hardware sales in asia-pacific . the decline in hardware sales is largely attributable to lower sales of barcode printer , data capture , wireless lan products , and location solutions . organic net sales increased 0.4 % compared to the prior year period , reflecting growth in asia-pacific and north america , offset by declines in emea , and latin america . gross margin as a percent of sales was 45.9 % compared to the prior year period of 45.0 % . this improvement in gross margin reflects an increase in the evm segment gross margin primarily due to lower services and hardware product costs . ait segment gross margin decreased primarily due to lower sales demand and the impact of incentive programs , including the concessions to distributors of printer products imported into china , partially offset by product cost improvements . operating expenses for the year ended december 31 , 2016 and 2015 , were $ 1.6 billion , or 43.7 % and 44.0 % of net sales , respectively . the reduction in operating expenses as a percentage of net sales reflects the company 's continued focus on improving operating efficiency and controlling expenses . selling and marketing expenses were lower compared to the prior year due to the full-year impact of staff reductions implemented in 2015 and lower discretionary expenses and promotional spending . the decrease in research and development costs was primarily due to a reduction in headcount and other third-party resources , the impact from the divestiture of the wireless lan business , and shifting of headcount to lower cost engineering locations . the increase in general and administrative costs was primarily due to higher it related expenses , including increased support and maintenance costs for it infrastructure and business systems as we exit transition services agreements with motorola solutions , and increased legal fees and litigation related expenses . the decrease in amortization of intangibles was due to impairment charges taken in the current year along with other intangible assets becoming fully amortized . impairment of goodwill and other intangibles of $ 62 million was recorded during the third quarter related to the wireless lan business divestiture . the company has made significant progress on its integration activities associated with the acquisition , including exiting many transition services agreements with motorola solutions . this has resulted in a decline in acquisition and integration costs compared to the prior year period . exit and restructuring costs were lower due to a reduced level of restructuring activity as the company progresses with its restructuring plan related to the acquisition , partially offset by expenses associated with the company 's divestiture of its wireless lan business . operating income increased $ 43 million or 116.2 % compared to the prior year . the increase was primarily due to the decline in operating expenses . the company conducts business in multiple currencies throughout the world , thus has exposure to movements in foreign exchange rates with regard to non-functional denominated revenue , cash assets , and cash liabilities . as a result of these exposures , the company recognized a foreign exchange loss of $ 5 million for 2016. interest expense was $ 193 million for the year ended december 31 , 2016 , flat compared to the prior year . early repayments of debt resulted in accelerated amortization costs while debt refinancing savings were offset by closing costs of the refinancing . other non-operating expenses increased $ 10 million to $ 11 million for the year ended december 31 , 2016. this increase is driven by long-term investment impairments of $ 7 million and an increase in accelerated loan discount amortization of $ 3 million due to the debt refinancing . see note 8 , long-term debt for further information on the debt refinancing amendments . in the period ending december 31 , 2016 , the company recognized tax expense of $ 8 million compared to a tax benefit of $ 22 million for 2015. the company 's effective tax rates were ( 6.2 ) % and 12.2
| net cash used in financing activities during 2017 consisted of proceeds related to the a & r credit agreement for term loan a of $ 688 million , a draw on the revolving credit facility of $ 275 million , and proceeds related to the receivables financing facility of $ 145 million . these proceeds were primarily used to redeem $ 1.1 billion in principal of the 7.25 % senior notes , maturing october 2022. the company also had debt principal prepayments on term loan a and term loan b of $ 502 million and on the receivables financing facility of $ 10 million . as part of the repricing of term loan b , a portion of the debt was deemed to be modified and therefore , the company included $ 263 million in proceeds from the issuance of long-term debt , offset by $ 263 million in payments of long-term debt within the consolidated statements of cash flows . 2016 vs. 2015 cash flows from operations increased $ 258 million during 2016 to $ 380 million . this improvement was driven by lower net losses of $ 21 million , which included significant non-cash drivers of a lower deferred income tax benefit of $ 98 million and asset impairment for goodwill , intangibles and other assets of $ 69 million , primarily related to the wireless lan business divestiture . additionally , the company had improved working capital related items of $ 90 million during 2016. working capital 31 related improvements consisted primarily of accounts payable increases due to the company successfully renegotiating longer payment terms with vendors being partially offset by an increase in income tax cash outflows . net cash used in investing activities during 2016 included capital expenditures of $ 77 million compared to $ 122 million in 2015. the decrease consisted primarily of a reduction in integration and real estate related capital expenditures . this was offset somewhat by the sale of the wireless lan business resulting in net cash received of $ 39 million .
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volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger non-homogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogenous groups of loans are also factors . the company estimates a range of inherent losses related to the existence of these exposures . the estimates are based upon the company 's evaluation of imprecise risk associated with the commercial and consumer allowance levels and the estimated impact of the current economic environment . 34 goodwill and other intangibles - the company records all assets and liabilities acquired in purchase acquisitions , including goodwill and other intangibles , at fair value as required . goodwill is subject , at a minimum , to annual tests for impairment . other intangible assets are amortized over their estimated useful lives using straight-line and accelerated methods , and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount . the initial goodwill and other intangibles recorded and subsequent impairment analysis requires management to make subjective judgments concerning estimates of how the acquired asset will perform in the future . events and factors that may significantly affect the estimates include , among others , customer attrition , changes in revenue growth trends , specific industry conditions and changes in competition . story_separator_special_tag 10pt times new roman , times , serif ; text-align : left '' > $ 20,928 $ 20,813 0.6 % net interest income was $ 20.9 million for 2014 compared to $ 20.8 million for 2013 , an increase of 0.06 percent . average earning assets increased to $ 589.3 million in 2014 , compared to $ 565.4 million in 2013 , due to loan volume . the consolidated 2014 full-year net interest margin decreased 13 basis points to 3.62 percent compared to 3.75 percent for the full year 2013. in the third quarter , the company redeemed its fixed rate trust preferred securities prior to maturity and incurred a prepayment penalty of $ 0.10 million . 36 loan loss provision provision for loan losses of $ 0.45 million was taken in 2014 compared to $ 0.9 million taken for 2013. the $ 0.45 million decrease was due to the lower level of charge-offs and the improvement in the company 's non-performing asset levels . for 2014 , net charge-offs totaled $ 0.64 million , or 0.13 percent of average loans . non-interest income replace_table_token_20_th total non-interest income was $ 12.8 million for 2014 compared to $ 14.0 million for 2013 , representing a $ 1.2 million , or 8.7 percent decrease year-over-year . this decrease was driven by a 19 percent decline in gains on sale of loans . the company sold $ 182 million of originated mortgages into the secondary market , which allowed for the sold and serviced loan portfolio to grow from $ 606 million in 2013 to $ 666 million at december 31 , 2014. this portfolio provides a servicing fee annuity , which is expected to provide servicing revenue for the foreseeable future . data servicing fees from rdsi continued to decline , down 14 percent due to lower check processing volume and client losses . customer service fees increased during 2014 due to changes in the company 's deposit products . other income increased due to one time insurance portolio earnings . non-interest expense replace_table_token_21_th 37 non-interest expense for 2014 decreased $ 0.55 million , or 2.1 percent , compared to 2013. included in the 2014 expense totals was $ 0.33 million related to the trust preferred prepayment penalty . the company made further declines in staffing levels for efficiency purposes and to reflect the commensurate declines in rdsi revenues . total full-time equivalent headcount ( fte ) ended 2014 at 190 , which was down ten from year end 2013. financial condition total assets at december 31 , 2014 , were $ 684.2 million , an increase of $ 52.5 million from december 31 , 2013. the increase in total assets was related to loan growth of $ 39.0 million and an increase in cash of $ 15.1 million from the company 's preferred capital raise completed in december of 2014. the company 's available for sale securities were $ 85.2 million , a $ 4.6 million decrease from the prior year . loans/deposits replace_table_token_22_th replace_table_token_23_th loans increased $ 39.0 million , or 8.2 percent , to $ 516.3 million at december 31 , 2014. the largest component of this increase was in residential real estate loans which rose $ 18.8 million followed by commercial real estate and agricultural which rose $ 11.7 million and $ 7.0 million , respectively . deposits increased $ 32.7 million , or 6.3 percent , to $ 550.9 million at december 31 , 2014. deposit growth for the year included $ 17.8 million in demand deposits and $ 14.9 million in savings and time deposits . 38 asset quality replace_table_token_24_th non-performing assets ( loans + oreo ( other real estate owned ) + oao ( other assets owned ) + accruing tdrs ) were $ 6.3 million , or 0.92 percent of total assets at december 31 , 2014 , a decrease of $ 1.0 million from 2013. net charge-offs were also down during 2014 at $ 0.64 million , which was a $ 0.1 million improvement over 2013. the company 's loan loss allowance at december 31 , 2014 , now covers non-performing loans at 113 percent , up from 106 percent at december 31 , 2013. capital resources stockholders ' equity at december 31 , 2014 , was $ 75.7 million , equivalent to 11.1 percent of total assets . story_separator_special_tag the total consolidated risk-based capital ratio was 14.0 percent at december 31 , 2014. total consolidated regulatory ( risk-based ) capital was $ 74.2 million at december 31 , 2014 , and $ 64.9 million at december 31 , 2013. capital ratios for the company 's banking subsidiary , state bank , were 8.6 percent for the tier 1 leverage ratio and 12.0 percent for the risk-based capital ratio at december 31 , 2014. the equity balances for 2014 included the net impact of the company 's capital raise , which closed in december 2014 and added $ 14.0 million to total equity through the public offering of depository shares representing 1/100 th interest in our 6.50 percent noncumulative convertible preferred shares , series a. goodwill and intangibles the company completed the most recent annual goodwill impairment test as of december 31 , 2014. the first step impairment test compares the fair value of the reporting unit with the carrying value , including goodwill . the reporting unit is state bank . rdsi has no remaining goodwill . at december 31 , 2014 , state bank passed step one , which indicated no impairment . the fair value testing of goodwill and intangibles was conducted pursuant to asc topic 350 and utilized company prepared projections of cash flows , historical financial results and market based comparisons . these inputs were used to evaluate the expected future cash flows of the business and those results determined the fair value of the goodwill and intangibles . planned purchases of premises and equipment management plans to purchase additional premises and equipment to meet the current and future needs of the company 's customers . these purchases , including buildings and improvements and furniture and equipment ( which includes computer hardware , software , office furniture and license agreements ) , are currently expected to total approximately $ 5.7 million for the company during 2015. included in the 2015 capital expenditures will be the completion of our new columbus , ohio regional facility and the purchase of a full service retail location in findlay , ohio . these capital expenditures and purchases are expected to be funded by cash on hand and from cash generated from current operations . the company is under contract to purchase the findlay location and has spent approximately 40 % of the construction costs for the dublin location . 39 liquidity liquidity relates primarily to the company 's ability to fund loan demand , meet deposit customers ' withdrawal requirements and provide for operating expenses . sources used to satisfy these needs consist of cash and due from banks , interest bearing deposits in other financial institutions , securities available for sale , loans held for sale , and borrowings from various sources . the assets , excluding the borrowings , are commonly referred to as liquid assets . liquid assets were $ 118.6 million at december 31 , 2014 , compared to $ 106.3 million at december 31 , 2013. the company 's commercial real estate , first mortgage residential , agricultural and multi-family mortgage portfolio of $ 376.5 million at december 31 , 2014 , can and has been readily used to collateralize borrowings , which is an additional source of liquidity . management believes the company 's current liquidity level , without these borrowings , is sufficient to meet its current and anticipated liquidity needs . at december 31 , 2014 , all eligible commercial real estate , residential first , multi-family mortgage and agricultural loans were pledged under an fhlb blanket lien . analysis of cash flow activities the cash flow statements for the periods presented provide an indication of the company 's sources and uses of cash as well as an indication of the ability of the company to maintain an adequate level of liquidity . a discussion of the cash flow statements for 2014 and 2013 follows : the company experienced positive cash flows from operating activities in 2014 and 2013. net cash from operating activities was $ 5.0 million and $ 13.9 million for the years ended december 31 , 2014 and 2013 , respectively . significant operating items for 2014 included gain on sale of loans ( $ 4.5 million ) and gain on sale of securities ( $ 0.16 million ) . net proceeds from sales of loans held for sale and loans originated and held for sale were a positive $ 6.3 million . the company experienced negative cash flows from investing activities in 2014 and 2013. net cash used in investing activities was ( $ 36.6 ) million and ( $ 8.9 ) million for the years ended december 31 , 2014 and 2013 , respectively . the changes for 2014 include the purchase of available-for-sale securities of $ 26.1 million , and net increase in loans of $ 40.0 million . the changes for 2013 include the purchase of available-for-sale securities of $ 32.1 million and net increase in loans of $ 15.6 million . the company had proceeds from repayments , maturities , sales and calls of securities of $ 31.0 million and $ 37.4 million in 2014 and 2013 , respectively . the company experienced positive cash flows from financing activities in 2014 and negative cash flows from financing activities in 2013. net cash in financing activities was a source of cash of $ 46.7 million in 2014 and a use of cash of $ 11.0 million in 2013. positive $ 32.7 million and negative $ 8.8 million of the change is attributable to the change in deposits for 2014 and 2013 , respectively . in 2014 , the company provided cash of $ 14.0 million from a preferred capital raise , and repaid trust preferred securities in the amount of $ 10.6 million . the company uses an economic value of equity ( โ eve โ ) analysis to measure risk in the balance sheet incorporating all cash flows over the estimated remaining life
| net charge-offs for 2014 of $ 0.64 million resulted in a loan loss provision of $ 0.45 million , which was down from the $ 0.9 million in 2013. changes in financial condition total assets at december 31 , 2014 , were $ 684.2 million , compared to $ 631.8 million at december 31 , 2013. loans ( excluding loans held for sale ) were $ 516.3 million at december 31 , 2014 , compared to $ 477.3 million at december 31 , 2013. total deposits were $ 550.9 million at year-end 2014 , compared to $ 518.2 million at december 31 , 2013. non-interest bearing deposits at december 31 , 2014 , were $ 97.9 million , compared to $ 81.6 million at december 31 , 2013. total shareholders ' equity was $ 75.7 million at year-end 2014 , up from $ 56.3 million at the prior year-end . the $ 19.4 million increase in shareholdes equity , which is a 34.4 percent increase over the prior year was due to net income less shareholder dividends of $ 4.5 million and the net proceeds from the preferred capital rasie completed in december 2014. the preferred capital raise after expenses increase total capital for the company by $ 14.0 million . significant events of 2014 the company reported net income for 2014 of $ 5.26 million , or $ 1.07 per share . this was an improvement from the net income of $ 5.21 million for 2013. included in the 2014 results was a one time prepayment penalty on the company 's fixed rate trust preferred securities , which reduced 2014 net income by $ 0.28 million . our banking subsidiary , state bank , had net income of $ 6.95 million , while our technology subsidiary , rdsi , had a net loss of $ 0.18 million during 2014. improvements in problem assets were a factor in the company 's increase in profitability during 2014. at december 31 , 2014 , non-performing assets had declined $ 1.0 million from the prior year to $ 6.3 million . the level of non-performing assets to total assets fell to 0.92 percent from 1.14 percent for the prior year . loan delinquency ( defined as loans past due 30 days or greater ) ended the year at 1.36
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we continue to strengthen our strategic partnerships with unified communications platform suppliers to maintain compatibility of our products with all major platforms as uc usage becomes an essential part of a the enterprise communications landscape . looking forward to fiscal year 2015 , we continue to believe that uc is a key long-term driver of revenue and profit growth . we remain cautious about the macroeconomic environment but note the general improvement in the worldwide economy . we will continue to invest prudently in our long-term growth opportunities . we will continue focusing on innovative product development through our core research and development efforts . we will also continue to grow our sales force and increase marketing and other customer service and support as we expand key strategic partnerships to market our uc products . we believe we have an excellent position in the market and a well-deserved reputation for quality and service that we will continually strive to earn through ongoing investment and strong execution . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; padding-left:48px ; font-size:10pt ; '' > the increase in gross profit in fiscal year 2013 compared to fiscal year 2012 was due primarily to the increase in net revenues . as a percentage of net revenues , gross profit decreased primarily from the effect of product mix being weighted more heavily to mobile products , resulting from demand attributable to hands-free laws enacted in the prc during the fiscal year and to a lesser extent , from the effect of a stronger u.s. dollar . there are significant variances in gross profit percentages between our higher and lower margin products ; therefore , small variations in product mix , which can be difficult to predict , can have a significant impact on gross profit . in addition , if we do not accurately anticipate changes in demand , we have in the past , and may in the future , incur significant costs associated with writing off excess and obsolete inventory or incur charges for adverse purchase commitments . gross profit may also vary based on distribution channel , return rates , and other factors . research , development , and engineering research , development , and engineering costs are expensed as incurred and consist primarily of compensation costs , outside services , including legal fees associated with protecting our intellectual property , expensed materials , depreciation , and an allocation of overhead expenses , including facilities , it , and human resources costs . replace_table_token_7_th 30 the increase in research , development and engineering expenses in fiscal year 2014 compared to fiscal year 2013 was due primarily to $ 4.0 million in headcount-related costs , including increased salary expense , and performance-based compensation , including an increase to equity-based compensation resulting from restricted stock grants made after may 2013 which vest over three years , compared to restricted stock granted prior to may 2013 which vests over four years . the increase in research , development and engineering expenses in fiscal year 2013 compared to fiscal year 2012 was due primarily to $ 9.1 million in headcount-related costs , including increased salary expense , higher levels of performance-based compensation related to stronger achievement against targets and , to a lesser extent , various other support costs related to higher headcount . selling , general , and administrative selling , general , and administrative expense consists primarily of compensation costs , marketing costs , travel expenses , professional service fees , and allocations of overhead expenses , including it , facilities , and human resources costs . replace_table_token_8_th the increase in selling , general and administrative expenses in fiscal year 2014 compared to fiscal year 2013 was due primarily to $ 12.7 million in higher costs resulting from increased headcount , mainly resulting from our investment in plantronics ' global sales presence , and from higher performance-based compensation , including sales commissions , reflecting higher net revenues and higher overall achievement against targets . we also made investments in marketing programs of $ 4.6 million , including product launch activities and brand awareness campaigns . the increase in selling , general and administrative expenses in fiscal year 2013 compared to fiscal year 2012 was due primarily to $ 9.3 million in higher compensation costs resulting from increased headcount , mainly resulting from our investment in plantronics ' global sales presence , and from higher performance-based compensation , including sales commissions , reflecting higher net revenues and higher overall achievement against targets . we also made investments in marketing programs of $ 3.7 million , including product launch activities and brand awareness campaigns . restructuring and other related charges replace_table_token_9_th we initiated a restructuring plan during the third quarter of fiscal year 2013. under the plan , we eliminated certain positions in the u.s. , mexico , china , and europe , and transitioned some of these positions to lower cost locations . we also vacated a portion of a leased facility at our corporate headquarters in the first quarter of fiscal year 2014. we incurred total pre-tax charges of approximately $ 2.8 million in connection with this plan . going forward , savings from this plan will allow us to increase investments in areas that we believe will improve our business growth , particularly sales and marketing , by $ 4.0 million annually . the pre-tax charges incurred during fiscal year 2013 included $ 1.9 million for severance and related benefits and an immaterial amount of accelerated amortization expense on leasehold improvement assets with no alternative future use . we recorded an immaterial amount for lease termination costs and the remaining accelerated depreciation on leasehold improvements when we exited the facility in the first quarter of fiscal year 2014. the plan was substantially complete by the end of the first quarter of fiscal year 2014 . story_separator_special_tag 31 income tax expense replace_table_token_10_th in comparison to fiscal year 2013 , the decrease in the effective tax rate for fiscal year 2014 was due primarily to changes in mexican tax law that resulted in the reversal of a valuation allowance , a deduction for qualifying domestic production activities , and the generation of a foreign tax credit carryover , offset by a decrease in the benefit from the u.s. federal research tax credit . the u.s. federal research tax credit expired december 31 , 2013 and was therefore only available for three quarters in our fiscal year 2014 , compared to fiscal year 2013 , which included a full five quarters of benefit . five quarters of benefit was recorded in fiscal year 2013 due to the timing of the retroactive reinstatement of the u.s. federal research tax credit . on january 2 , 2013 , the american taxpayer relief act of 2012 , which included a provision that retroactively extended the federal tax research credit to january 1 , 2012 for two years , was signed into law . we recognized an approximate $ 1.8 million discrete tax benefit in the fourth quarter of fiscal year 2013 for the previously expired period from january 1 , 2012 to december 31 , 2012. in comparison to fiscal year 2012 , the decrease in the effective tax rate for fiscal year 2013 , as described above , was due primarily to the increased benefit from the u.s. federal research tax credit in fiscal 2013 offset by a smaller proportion of income earned in foreign jurisdictions that is taxed at lower rates . our effective tax rate for fiscal years 2014 , 2013 , and 2012 differs from the statutory rate due to the impact of foreign operations taxed at different statutory rates , income tax credits , state taxes , and other factors . our future tax rate could be impacted by a shift in the mix of domestic and foreign income , tax treaties with foreign jurisdictions , changes in tax laws in the u.s. or internationally , or a change in estimate of future taxable income , which could result in a valuation allowance being required . we had $ 12.6 million of unrecognized tax benefits as of march 31 , 2014 compared to $ 11.1 million and $ 11.1 million as of march 31 , 2013 and 2012 , respectively . the unrecognized tax benefits as of the end of fiscal year 2014 would favorably impact the effective tax rate in future periods , if recognized . it is our continuing practice to recognize interest and or penalties related to income tax matters in income tax expense . as of march 31 , 2014 , we had approximately $ 1.7 million of accrued interest related to uncertain tax positions , compared to $ 2.0 million and $ 1.7 million as of march 31 , 2013 and 2012 , respectively . no penalties have been accrued . the liability for uncertain tax positions may be reduced for liabilities that are settled with taxing authorities or on which the statute of limitations could expire without assessment from tax authorities . currently , we can not reasonably estimate the amount of reductions , if any , during the next twelve months . we and our subsidiaries are subject to taxation in various foreign and state jurisdictions , including the u.s. we are currently under examination by the internal revenue service for our 2010 tax year . the california franchise tax board completed its examination of our 2007 and 2008 tax years . we received a notice of proposed assessment and responded by filing a protest letter . the amount of the proposed assessment is not material . foreign income tax matters for material tax jurisdictions have been concluded for tax years prior to fiscal year 2007 , except the united kingdom for which tax matters have been concluded for tax years prior to fiscal year 2013 . 32 financial condition the following table summarizes our cash flows from operating , investing , and financing activities for each of the past three fiscal years : replace_table_token_11_th we use cash provided by operating activities as our primary source of liquidity . we expect that cash provided by operating activities will fluctuate in future periods as a result of a number of factors , including fluctuations in our revenues , the timing of product shipments during the quarter , accounts receivable collections , inventory and supply chain management , and the timing and amount of tax and other payments . operating activities net cash provided by operating activities during the year ended march 31 , 2014 increased from the prior year due to the following : an increase in net income an increase in non-cash adjustments to net income , primarily stock-based compensation and reserve requirements for excess and obsolete inventories a decrease in inventories resulting from higher shipments during the period as compared to the same period in the prior year , which was driven by increased sales , coupled with the depletion of last time buy inventories . these increases were partially offset by a decrease in accounts payable resulting primarily from the timing of payments in fiscal year 2014 compared to fiscal year 2013. net cash provided by operating activities during the year ended march 31 , 2013 decreased from the prior year due to the following : a decrease in net income an increase in current accounts receivable related to higher net revenues in the fourth quarter of fiscal year 2013 compared with the same prior year quarter an increase in inventories related primarily to last-time buys from one of our primary chip suppliers these decreases were partially offset by an increase in accrued liabilities resulting primarily from higher accruals for performance-based compensation in fiscal year 2013 due to higher achievement against targets than in fiscal year 2012. investing activities net cash used for investing activities during the year ended march 31 , 2014 decreased from the year ended march 31 , 2013 due to a decrease in net
| unfavorable foreign exchange fluctuations in the eur and gbp reduced net revenues by approximately $ 6.1 million in fiscal year 2013 compared to fiscal year 2012 , net of the effects of hedging . geographic information replace_table_token_5_th as a percentage of total net revenues , u.s. net revenues increased slightly in fiscal year 2014 compared to fiscal year 2013 , with international revenues , as a percentage of total net revenues , correspondingly decreasing . the increase in absolute dollars in u.s. net revenues resulted in roughly equal measure from increased occ net revenues due to continued growth in demand for uc and increased mobile revenues as a result of an improved product portfolio . the increase in absolute dollars in international revenues was also due almost entirely to increased occ net revenues due to continued growth in demand for uc . a weaker us dollar compared to the eur and gbp resulted in increased international net revenues of approximately $ 2.3 million in fiscal year 2014 compared to fiscal year 2013 , net of the effects of hedging . 29 as a percentage of total net revenues , u.s. net revenues remained flat in fiscal year 2013 compared to fiscal year 2012. as a percentage of total net revenues , international net revenues also remained flat in fiscal year 2013 compared to fiscal year 2012. the increase in absolute dollars in u.s. net revenues resulted from increased occ net revenues due to continued growth in demand for uc . the increase in absolute dollars in international revenues was due primarily to increased mobile net revenues , driven mainly by increased demand attributable to hands-free laws enacted in the prc during the fiscal year and to a lesser extent , the benefit of a stronger portfolio , especially in europe and africa . international revenues were reduced by approximately $ 6.1 million in fiscal year 2013 compared to fiscal year 2012 , due to unfavorable foreign exchange fluctuations in the eur and gbp , net of the effects of
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operating earnings and margin in the defense segments are driven by changes in volume , performance or contract mix . performance refers to changes in profitability based on adjustments to estimates at completion on individual contracts . these adjustments result from increases or decreases to the estimated value of the contract , the estimated costs to complete the contract or both . therefore , changes in costs incurred in the period compared with prior periods do not necessarily impact profitability . it is only when total estimated costs at completion on a given contract change without a corresponding change in the contract value ( or vice versa ) that the profitability of that contract may be impacted . contract mix refers to changes in the volume of higher- versus lower-margin work . higher or lower margins can result from a 29 number of factors , including contract type ( e.g. , fixed-price/cost-reimbursable ) and type of work ( e.g. , development/production ) . contract mix can also refer to the stage of program maturity for our long-term production contracts . new long-term production contracts typically have lower margins initially , and then margins generally increase as we achieve learning curve improvements or realize other cost reductions . consolidated overview 2019 in review record-high operating performance : โฆ revenue of $ 39.4 billion with growth in all of our segments . โฆ operating earnings of $ 4.6 billion , an increase of 4.3 % from 2018 . โฆ earnings from continuing operations per diluted share of $ 11.98 , an increase of 6.8 % from 2018 . record-high backlog of $ 86.9 billion increased $ 19.1 billion , or 28.1 % , from 2018 , supporting our long-term growth expectations : โฆ net orders for gulfstream aircraft increased over 57 % from 2018 and reflected significant demand for the new g700 aircraft . โฆ several significant contract awards received in 2019 in our defense segments , including $ 22.2 billion for block v of the virginia-class submarine program in our marine systems segment , the largest shipbuilding contract in the u.s. navy 's history . replace_table_token_9_th our consolidated revenue increased 8.7 % in 2019 driven by deliveries of the new g500 and g600 aircraft in our aerospace segment and new contracts from the u.s. government for military vehicles in our combat systems segment and submarines in our marine systems segment . operating margin decreased in 2019 due primarily to the transition from mature products and contracts to newer ones , which typically have lower initial margins . review of operating segments following is a discussion of operating results and outlook for each of our operating segments . for the aerospace segment , results are analyzed by specific types of products and services , consistent with how the segment is managed . for the defense segments , the discussion is based on markets and the lines of products and services offered with a supplemental discussion of specific contracts and programs when significant to the results . additional information regarding our segments can be found in note s to the consolidated financial statements in item 8 . 30 aerospace replace_table_token_10_th story_separator_special_tag decreased slightly in 2019 due primarily to mix . 2020 outlook we expect the mission systems segment 's 2020 revenue to be between $ 5 and $ 5.1 billion with operating margin of approximately 14.1 % . 33 marine systems replace_table_token_14_th operating results the increase in the marine systems segment 's revenue in 2019 consisted of the following : u.s. navy ship construction $ 717 u.s. navy ship engineering , repair and other services 68 commercial ship construction ( 104 ) total increase $ 681 revenue from u.s. navy ship construction was up due to higher volume on block v of the virginia-class submarine program , the columbia-class submarine program and the arleigh burke-class ( ddg-51 ) destroyer program , offset somewhat by lower virginia-class block iii volume . revenue from u.s. navy ship engineering , repair and other services increased driven by a higher volume of surface ship repair work . these increases were offset partially by lower commercial ship construction volume at our nassco shipyard . the marine systems segment 's operating margin decreased 50 basis points in 2019 due primarily to mix shift in our submarine and auxiliary ship workloads to newer contracts with lower initial margins . 2020 outlook we expect the marine systems segment 's 2020 revenue to be approximately $ 9.8 billion with operating margin of around 8.6 % . corporate corporate operating results consisted of the following : replace_table_token_15_th corporate operating results in 2018 included one-time transaction-related charges of approximately $ 45 associated with the costs to complete the csra acquisition . excluding these charges , corporate operating results have two primary components : pension and other post-retirement benefit income , and stock option expense . we are required to report the non-service cost components of pension and other post-retirement benefit cost ( e.g. , interest cost ) in other income ( expense ) in the consolidated statement of earnings . in our defense segments , pension and other post-retirement benefit costs are recoverable contract costs . therefore , the non-service cost components are included in the operating results of these segments , but an offset is reported in corporate . this amount exceeded our stock option expense in 2019 and 2018 . 34 other information product and service revenue and operating costs replace_table_token_16_th the increase in product revenue in 2019 consisted of the following : replace_table_token_17_th * c4isr ( command , control , communications , computers , intelligence , surveillance and reconnaissance ) solutions in our mission systems segment aircraft manufacturing revenue increased due primarily to the initial deliveries of the new large-cabin g600 aircraft and additional deliveries of the large-cabin g500 aircraft . ship construction revenue increased due to higher volume on block v of the virginia-class submarine program , the columbia-class submarine program and the ddg-51 destroyer program , offset a bit by lower commercial ship construction volume . story_separator_special_tag military vehicle production revenue increased due primarily to higher volume on the u.s. army 's abrams sepv3 tank and new mpf vehicle programs . c4isr products revenue was up due primarily to increased volume on combat and seaframe control systems for u.s. navy surface ships and computing and communications equipment . product operating costs increased at a higher rate than revenue due primarily to mix changes from mature programs to new production programs . the increase in service revenue in 2019 consisted of the following : it services $ 153 other , net 23 total increase $ 176 it services revenue increased due to the csra acquisition in the second quarter of 2018 , offset partially by the sale of a public-facing contact-center business in our information technology segment in the fourth quarter of 2018. service operating costs increased consistent with the change in volume described above . g & a expenses as a percentage of revenue , g & a expenses were 6.1 % in 2019 and 6.2 % in 2018 . we expect g & a expenses as a percentage of revenue in 2020 to be generally consistent with 2019 . 35 interest , net net interest expense was $ 460 in 2019 and $ 356 in 2018 . the increase was due primarily to the impact of financing the csra acquisition , including the issuance of $ 7.5 billion of fixed- and floating-rate notes in the second quarter of 2018. see note k to the consolidated financial statements in item 8 for additional information regarding our debt obligations , including interest rates . we expect 2020 net interest expense to be approximately $ 410 , reflecting our next scheduled debt maturity of $ 2.5 billion in the second quarter of 2020. other , net net other income was $ 14 in 2019 compared with expense of $ 16 in 2018 . the 2018 expense included approximately $ 30 of transaction costs associated with the csra acquisition . excluding these transaction costs , other represents primarily the non-service cost components of pension and other post-retirement benefits , which were net income items in both periods . provision for income tax , net our effective tax rate was 17.1 % in 2019 and 17.8 % in 2018 . the decrease in our effective tax rate in 2019 is due primarily to increased r & d tax credits and favorable 2019 regulatory developments associated with implementing the tax cuts and jobs act ( tax reform ) , which was enacted on december 22 , 2017 , and was generally effective in 2018. for further discussion , including a reconciliation of our effective tax rate from the statutory federal rate , see note f to the consolidated financial statements in item 8. for 2020 , we anticipate a full-year effective tax rate of approximately 17.5 % . backlog and estimated potential contract value our total backlog , including funded and unfunded portions , was $ 86.9 billion on december 31 , 2019 , up 28.1 % from $ 67.9 billion at the end of 2018 . our total backlog is equal to our remaining performance obligations under contracts with customers as discussed in note c to the consolidated financial statements in item 8. our total estimated contract value , which combines total backlog with estimated potential contract value , was $ 126.2 billion on december 31 , 2019 , up 22.1 % from $ 103.4 billion at the end of 2018 . 36 aerospace aerospace funded backlog represents new aircraft and custom completion orders for which we have definitive purchase contracts and deposits from customers . unfunded backlog consists of agreements to provide future aircraft maintenance and support services . the aerospace segment ended 2019 with backlog of $ 13.3 billion compared with $ 11.4 billion at year-end 2018 . orders in 2019 reflected strong demand across our product and services portfolio . we received orders for all models of gulfstream aircraft , including additional orders for the g500 , g600 and g650 aircraft and strong order activity for the new g700 aircraft , which is scheduled to enter service in 2022. the segment 's book-to-bill ratio ( orders divided by revenue ) was 1.23-to-1 in 2019. beyond total backlog , estimated potential contract value represents primarily options and other agreements with existing customers to purchase new aircraft and long-term aircraft services agreements . on december 31 , 2019 , estimated potential contract value in the aerospace segment was $ 3 billion compared with $ 3.1 billion at year-end 2018. demand for gulfstream aircraft remains strong across customer types and geographic regions , generating orders from public and privately held companies , individuals , and governments around the world . geographically , u.s. customers represented more than 50 % of the segment 's orders in 2019 and approximately 45 % of the segment 's backlog on december 31 , 2019 , demonstrating continued strong domestic demand . defense segments our total estimated contract value in our defense segments is comprised of the following components : total backlog represents the estimated remaining sales value of work to be performed under firm contracts . โฆ the funded portion of total backlog includes items that have been authorized and appropriated by the u.s. congress and funded by customers , as well as commitments by international customers that are approved and funded similarly by their governments . 37 โฆ the unfunded portion of total backlog includes the amounts that we believe are likely to be funded , but there is no guarantee that future budgets and appropriations will provide the same funding level currently anticipated for a given program . estimated potential contract value includes unexercised options associated with existing firm contracts and unfunded work on indefinite delivery , indefinite quantity ( idiq ) contracts . contract options represent agreements to perform additional work under existing contracts at the election of the customer . we recognize options in backlog when the customer exercises the option and establishes a firm order .
| this increase was offset partially by lower r & d expense in 2019 , which has been trending downward with the completion of the g500 and g600 aircraft test programs , offset partially by increased activities associated with the development of the new g700 aircraft model . in total , the aerospace segment 's operating margin decreased 200 basis points to 15.6 % . 31 2020 outlook we expect the aerospace segment 's 2020 revenue to be around $ 10 billion with operating margin in the 15.7 % to 15.8 % range . combat systems replace_table_token_11_th operating results the increase in the combat systems segment 's revenue in 2019 consisted of the following : u.s. military vehicles $ 480 weapons systems and munitions 228 international military vehicles 58 total increase $ 766 revenue was up across the combat systems segment in 2019 . revenue from u.s. military vehicles increased due primarily to higher volume on the army 's abrams m1a2 system enhancement package version 3 ( sepv3 ) tank and new mobile protected firepower ( mpf ) vehicle programs . weapons systems and munitions revenue was up from increased volume on several products , including hydra-70 rockets and other artillery for the army and missile subcomponents . revenue from international military vehicles increased on higher tank program volume . the combat systems segment 's operating margin decreased 120 basis points compared with 2018 driven by new contracts with initially lower margins in our u.s. military vehicles business and an unfavorable settlement in the first quarter of 2019 relating to a lease at a former operating site outside the united states . 2020 outlook we expect the combat systems segment 's 2020 revenue to be about $ 7.3 billion with operating margin of approximately 14.3 % . information technology replace_table_token_12_th 32 operating results the increase in the information technology segment 's revenue in 2019 consisted of the following : defense $ 311 federal civilian ( 97 ) intelligence and homeland security ( 61 ) total increase $ 153 revenue increased due to an additional quarter of csra volume as the business was acquired in the second quarter of 2018. this increase was
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the company believes that the proper execution of its business practices is the single most important determinant of credit loss experience and that improvements in oversight and accountability provided by the company 's investments in our corporate infrastructure within the collections area and the somewhat improved macro-economic environment have begun to mitigate the competitive pressures and positively impacted credit loss results for fiscal 2019. interest expense for fiscal 2019 as a percentage of sales increased slightly to 1.3 % compared to 1.0 % for fiscal 2018 , due to higher average borrowings during the fiscal year 2019 ( $ 161.0 million compared to $ 136.7 million in the prior year ) and increased interest rates . 2018 compared to 2017 total revenues increased $ 24.5 million , or 4.2 % , in fiscal 2018 , as compared to revenue growth of 3.5 % in fiscal 2017 , principally as a result of ( i ) revenue growth from dealerships that operated a full twelve months in both fiscal years ( $ 30.1 million ) and ( ii ) revenue from stores opened in fiscal 2018 ( $ 4.5 million ) , partially offset by ( iii ) revenue decrease from dealerships closed after the year ended april 30 , 2017 ( $ 10.1 million ) . the increase in revenue for fiscal 2018 is attributable to ( i ) a 0.6 % increase in average retail sales price , ( ii ) a 2.5 % increase in retail units sold and ( iii ) a 10.5 % increase in interest and other income . cost of sales , as a percentage of sales , remained relatively consistent at 58.7 % in fiscal 2018 compared to 58.6 % in fiscal 2017. the average retail sales price for fiscal 2018 was $ 10,604 , a $ 64 increase over the prior fiscal year , reflecting relatively stable average purchase costs year-over-year . selling , general and administrative expenses , as a percentage of sales , increased 0.7 % to 18.4 % in fiscal 2018 , from 17.7 % in fiscal 2017. in dollar terms , overall selling , general and administrative expenses increased $ 7.1 million from fiscal 2017. the increase is primarily focused on general manager recruitment , training and collections support along with improvements in sales and marketing , especially digital marketing . provision for credit losses as a percentage of sales decreased to 27.7 % for fiscal 2018 compared to 28.7 % for fiscal 2017. net charge-offs as a percentage of average finance receivables decreased to 28.8 % for fiscal 2018 compared to 30.5 % for the prior year . the decrease in net charge-offs for fiscal 2018 primarily resulted from a lower frequency of losses primarily due to improvements in collections processes . interest expense for fiscal 2018 as a percentage of sales increased slightly to 1 % compared to 0.8 % for fiscal 2017 , due to higher average borrowings during the fiscal year 2018 ( $ 136.7 million compared to $ 118.2 million in the prior year ) and increased interest rates . 24 financial condition the following table sets forth the major balance sheet accounts of the company at april 30 , 2019 , 2018 and 2017 ( in thousands ) : replace_table_token_6_th the following table shows receivables growth compared to revenue growth during each of the past three fiscal years . for fiscal year 2019 , growth in finance receivables of 8.5 % was exceeded by revenue growth of 9.3 % , as the company was able to maintain consistent term lengths and improved collections . the company currently anticipates going forward that the growth in finance receivables will generally be slightly higher than overall revenue growth on an annual basis due to overall term length increases in our installment sales contracts in recent prior years , partially offset by improvements in underwriting and collection procedures in an effort to reduce credit losses . the average term for installment sales contracts at april 30 , 2019 was 32.1 months , compared to 32.5 months for april 30 , 2018. replace_table_token_7_th at fiscal year-end 2019 , inventory increased 11.5 % ( $ 3.9 million ) , compared to fiscal year-end 2018. this increase resulted from a $ 1.0 million increase due to new dealership openings , as well as increased purchase costs . the company strives to improve the quality of the inventory and improve turns while maintaining inventory levels to ensure adequate supply of vehicles , in volume and mix , and to meet sales demand . property and equipment , net , decreased by approximately $ 57,000 as of april 30 , 2019 as compared to fiscal 2018. the decrease is attributable to approximately $ 4.0 million in depreciation expense , substantially offset by property and equipment additions of approximately $ 4.0 million . accounts payable and accrued liabilities increased approximately $ 2.9 million at april 30 , 2019 as compared to april 30 , 2018 due primarily to increased payables related to increased inventory levels and a change in the cash overdraft . income taxes receivable , net , increased approximately $ 497,000 at april 30 , 2019 compared to april 30 , 2018 primarily due to the timing of income tax payments and refunds . 25 deferred revenue increased $ 1.8 million at april 30 , 2019 over april 30 , 2018 , primarily resulting from the increase in sales of the payment protection plan and service contract products . deferred income tax liabilities , net , increased approximately $ 1.7 million at april 30 , 2019 as compared to april 30 , 2018 due primarily to the increase in accounts receivable . borrowings on the company 's revolving credit facilities fluctuate primarily based upon a number of factors including ( i ) net income , ( ii ) finance receivables changes , ( iii ) income taxes , ( iv ) capital expenditures and ( v ) common stock repurchases . story_separator_special_tag historically , income from continuing operations , as well as borrowings on the revolving credit facilities , have funded the company 's finance receivables growth , capital asset purchases and common stock repurchases . in fiscal 2019 , the company had a $ 551,000 net increase in total debt used to contribute to the funding of finance receivables growth of $ 31.9 million , $ 3.9 million increase in inventory , net capital expenditures of $ 4.0 million and common stock repurchases of $ 26.6 million . 26 liquidity and capital resources the following table sets forth certain historical information with respect to the company 's statements of cash flows ( in thousands ) : replace_table_token_8_th the primary drivers of operating profits and cash flows include ( i ) top line sales ( ii ) interest rates on finance receivables , ( iii ) gross margin percentages on vehicle sales , and ( iv ) credit losses , a significant portion of which relates to the collection of principal on finance receivables . the company generates cash flow from income from operations . historically , most or all of this cash is used to fund finance receivables growth , capital expenditures and common stock repurchases . to the extent finance receivables growth , common stock repurchases and capital expenditures exceed income from operations the company generally increases its borrowings under its revolving credit facilities . the majority of the company 's growth has been self-funded . cash flows from operations in fiscal 2019 compared to fiscal 2018 increased primarily as a result of ( i ) net income , ( ii ) an increase in deferred taxes ( iii ) an increase in finance receivable collections and ( iv ) an increase in stock based compensation , offset by ( v ) an increase in finance receivable originations and ( vi ) accounts payable and accrued liabilities increasing at a lower rate than the prior year . finance receivables , net , increased by $ 31.9 million during fiscal 2019 . 27 cash flows from operations in fiscal 2018 compared to fiscal 2017 increased primarily as a result of net income offset by a decrease in deferred income taxes and income taxes payable , net . finance receivables , net , increased by $ 26.5 million during fiscal 2018. the purchase price the company pays for a vehicle has a significant effect on liquidity and capital resources . because the company bases its selling price on the purchase cost for the vehicle , increases in purchase costs result in increased selling prices . as the selling price increases , it generally becomes more difficult to keep the gross margin percentage and contract term in line with historical results because the company 's customers have limited incomes and their car payments must remain affordable within their individual budgets . several external factors can negatively affect the purchase cost of vehicles . decreases in the overall volume of new car sales , particularly domestic brands , lead to decreased supply in the used car market . also , constrictions in consumer credit , as well as general economic conditions , can increase overall demand for the types of vehicles the company purchases for resale as used vehicles become more attractive than new vehicles in times of economic instability . a negative shift in used vehicle supply , combined with strong demand , results in increased used vehicle prices and thus higher purchase costs for the company . new vehicle sales decreased dramatically during the economic recession of 2008 and did not return to pre-recession levels until 2016. in addition , the challenging macro-economic environment , together with the constriction in consumer credit starting in 2008 , contributed to increased demand for the types of vehicles the company purchases and a resulting increase in used car prices . these negative macro-economic conditions have continued to affect our customers in the years since the recession and , in turn , have helped keep demand high for the types of vehicles we purchase . this increased demand , coupled with depressed levels of new vehicle sales in recent years , negatively impacted both the quality and the quantity of the used vehicle supply available to the company . management expects the tight supply of vehicles and resulting increases in vehicle purchase costs to continue , although some relief is expected to continue as a result of increased new car sales levels in recent periods . the company has devoted significant efforts to improving its purchasing processes to ensure adequate supply at appropriate prices , including expanding its purchasing territories to larger cities in close proximity to its dealerships and increasing its efforts to purchase vehicles from individuals at the dealership level as well as via the internet . the company has also increased the level of accountability for its purchasing agents including the establishment of sourcing and pricing guidelines . even with these efforts , the company expects gross margin percentages to remain under pressure over the near term . the company believes that the amount of credit available for the sub-prime auto industry has increased in recent years , and management expects the availability of consumer credit within the automotive industry to be higher over the near term when compared to historical levels . this is expected to contribute to continued strong overall demand for most , if not all , of the vehicles the company purchases for resale . increased competition resulting from availability of funding to the sub-prime auto industry has contributed to lower down payments and longer terms , which have had a negative effect on collection percentages , liquidity and credit losses when compared to historical periods . macro-economic factors can have an effect on credit losses and resulting liquidity . general inflation , particularly within staple items such as groceries , as well as overall unemployment levels can have a significant effect on collection results and ultimately credit losses .
| the company 's cost structure is more fixed in nature and is sensitive to volume changes . revenues can be affected by our level of competition , which is influenced to a large extent by the availability of funding to the sub-prime automobile industry , together with the availability and resulting purchase cost of the types of vehicles the company purchases for resale . revenues can also be affected by the macro-economic environment . down payments , contract term lengths and proprietary credit scoring are critical to helping customers succeed and are monitored closely by corporate management at the point of sale . after the sale , collections , delinquencies and charge-offs are crucial elements of the company 's evaluation of its financial condition and results of operations and are monitored and reviewed on a continuous basis . management believes that developing and maintaining a relationship with its customers and earning their repeat business is critical to the success and growth of the company and can serve to offset the effects of increased competition and negative macro-economic factors . 20 a challenging competitive environment puts pressure on sales volumes especially at older dealerships which tend to have higher overall sales volumes and more repeat customers . additionally , as the company attempts to attract and retain target customers , increased competition can contribute to lower down payments and longer contract terms which can have a negative effect on collection percentages , liquidity and credit losses . management believes that the ultra-low interest rate environment combined with a lack of other investment alternatives has been attracting excess capital into the sub-prime automobile market and increasing competition . in an effort to combat the increased competition the company will continue to focus on the benefits of excellent customer service and its โ local โ face to face offering in an effort to help customers succeed . the company , over recent years , has focused on providing a good mix of vehicles in various price ranges to increase affordability for customers , to address sales volume challenges and to improve credit performance
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park also produces and dispenses certain of our ophthalmology based formulations . surface pharmaceuticals , inc. surface is a biopharmaceutical company focused on development and commercialization of innovative therapeutics for ocular surface diseases and is seeking fda approval for the commercialization of its drug candidates through the section 505 ( b ) ( 2 ) regulatory pathway under the fdca . in the fourth quarter of 2017 , imprimis transferred to surface its current drug pipeline , which consists of three proprietary drug candidates . our patent-pending preservative-free topical eye drop drug candidates , surf-100 and surf-200 , utilize a patented delivery vehicle known as klarity drops tm ( โ klarity โ ) , that was invented by imprimis board member and surface 's chairman of the board and renowned ophthalmologist dr. richard lindstrom . klarity is designed to protect and rehabilitate the ocular surface pathology for patients with ded . our drug candidate surf-300 is a patent-pending oral capsule that will target patients also suffering from ded signs & symptoms . we currently intend to finance surface as a separate entity , and will likely lose our controlling interest . we are currently in discussions with various investment banks and investors , and we hope to close an initial round of financing for surface during 2018. if successful in financing surface , in addition to our equity position , we will maintain a single digit royalty on sales of contributed drug candidates . eton pharmaceuticals , inc. eton is a biopharmaceutical company focused on developing and commercializing innovative products utilizing fda 's 505 ( b ) ( 2 ) regulatory pathway . eton is focused on bringing products to patients through the fda 's 505 ( b ) ( 2 ) regulatory pathway . its pipeline includes nearly a dozen products in various stages of development across a variety of dosage forms . eton 's pipeline is focused on innovative 505 ( b ) ( 2 ) products and marketed unapproved drugs . in may 2017 , we entered into two asset purchase and license agreements ( the โ eton license agreements โ ) with our previously wholly owned subsidiary , eton . pursuant to the terms of the eton license agreements , we assigned and licensed to eton certain intellectual property and related rights to develop , formulate , make , sell , and sub-license our proprietary formulations of synthetic corticotropin ( eton drug candidate ct-100 ) and a patented injectable pentoxifylline ( collectively , the โ imprimis products โ ) . eton intends to seek fda approval for the commercialization of these drug candidates through the section 505 ( b ) ( 2 ) regulatory pathway . if these drug candidates are approved by the fda , eton is required to make royalty payments to us on the imprimis products . in addition to the imprimis products , eton has acquired several additional 505 ( b ) ( 2 ) drug candidates and ones that qualify under the drug efficacy study implementation ( desi ) program which it plans to develop and commercialize through the 505 ( b ) ( 2 ) pathway . imprimis is only eligible to receive royalties on the imprimis products ( corticotropin and pentoxifylline ) , and will not receive royalties on any other drug candidates currently being developed by eton . ` the eton license agreements became effective in june 2017 , when eton closed an offering of its series a preferred stock for gross proceeds of approximately $ 20 million ( the โ series a round โ ) . at the time of closing we lost our controlling interest , and deconsolidated eton from our consolidated financial statements . we are currently the largest shareholder of eton and own 3.5 million shares of eton common stock , which is approximately 27 % of the equity and voting interests issued and outstanding of eton following the close of the series a round . factors affecting our performance we believe the primary factors affecting our performance are our ability to increase revenues of our proprietary compounded formulations and certain non-proprietary products , grow and gain operating efficiencies in our pharmacy operations , optimize pricing and obtain reimbursement options for our proprietary compounded formulations , and continue to pursue development and commercialization opportunities for certain of our ophthalmology and other assets that we have not yet made commercially available as compounded formulations . we believe we have built a tangible and intangible infrastructure that will allow us to scale revenues efficiently in the long-term . all of these activities will require significant costs and other resources , which we may not have or be able to obtain from operations or other sources . see โ โliquidity and capital resources โ below . 33 reimbursement options and pricing optimization our proprietary ophthalmic compounded formulations are currently primarily available on a cash-pay basis . however , we work with third-party insurers , pharmacy benefit managers and buying groups to offer patient-specific customizable compounded formulations at accessible prices . we may devote time and other resources to seek reimbursement and patient pay opportunities for these and other compounded formulations and we have hired pharmacy billers to process certain existing reimbursement opportunities for certain formulations . however , we may be unsuccessful in achieving these goals , as many third-party payors have imposed significant restrictions on reimbursement for compounded formulations in recent years . moreover , third-party payors , including medicare , are increasingly attempting to contain health care costs by limiting coverage and the level of reimbursement for new drugs and by refusing , in some cases , to provide coverage for uses of approved products for disease indications for which the fda has not granted labeling approval . further , the health reform law may have a considerable impact on the existing u.s. system for the delivery and financing of health care and could conceivable have a material effect on our business . story_separator_special_tag as a result , reimbursement from medicare , medicaid and other third-party payors may never be available for any of our products or , if available , may not be sufficient to allow us to sell the products on a competitive basis and at desirable price points . if government and other third-party payors do not provide adequate coverage and reimbursement levels for our formulations , the market acceptance for our formulations may be limited . additionally , we are making efforts to normalize the pricing for our currently available proprietary compounded ophthalmic formulations . an economic study conducted in 2015 by researchers at andrew chang & co , llc and co-sponsored by us demonstrated that , assuming the cost of dropless therapy is $ 100 per dose , our dropless therapy formulations may provide collective savings to medicare , medicaid and patients of up to $ 13 billion , with a most likely savings estimate of $ 8.7 billion , over a 10-year period . based on this research , we believe optimized pricing for our dropless therapy formulations could be nearly $ 100 per dose . any efforts to attain optimized pricing for our dropless therapy or any of our other proprietary formulations could fail , which could make our products less attractive or unavailable to some patients or could reduce our margins . recent developments the following describes certain developments in 2017 to date that are important to understand our financial condition and results of operations . see the notes to our consolidated financial statements included in this report for additional information about each of these developments . dollar amounts are expressed in thousands . texas subsidiary sale on february 13 , 2017 , we entered into a stock purchase agreement ( the โ spa โ ) with livernois & london , llc ( โ livernois โ ) . pursuant to the terms of the spa , we sold to livernois one hundred percent ( 100 % ) of the issued and outstanding shares of common stock of our texas based subsidiary , imprimisrx tx , inc. dba imprimisrx ( โ imprimis tx โ ) . the spa did not transfer to livernois any our rights to intellectual property , products , clients , nor any of our existing business operations . as consideration for the purchase of imprimis tx , livernois paid the us $ 10,000 and we assigned , and livernois assumed , the remaining lease obligation totaling $ 113,000 for our texas based facility . registered direct offering on march 21 , 2017 , we entered into securities purchase agreements ( the โ purchase agreement โ ) with two accredited investors ( the โ investors โ ) , which provided for the sale by the company of 1,312,500 shares of our common stock , at a price of $ 2.40 per share ( the โ offering โ ) . we received net proceeds of $ 2,940,000 after deducting the underwriter discount and other offering expenses . klarity license on april 1 , 2017 , we entered into a license agreement ( the โ klarity license agreement โ ) with richard l. lindstrom , m.d. , a member of our board of directors . pursuant to the terms of the klarity license agreement , we licensed certain intellectual property and related rights from dr. lindstrom to develop , formulate , make , sell , and sub-license the topical ophthalmic solution klarity used to protect and rehabilitate the ocular surface ( the โ klarity product โ ) . under the terms of the klarity license agreement , we are required to make royalty payments to dr. lindstrom ranging from three percent ( 3 % ) to six percent ( 6 % ) of net sales , dependent upon the final formulation of the klarity product sold . in addition , we are required to make certain milestone payments to dr. lindstrom including : ( i ) an initial payment of $ 50,000 upon execution of the klarity license agreement , ( ii ) a second payment of $ 50,000 following the first $ 50,000 in net sales of the klarity product ; and ( iii ) a final payment of $ 50,000 following the first $ 100,000 in net sales of the klarity product . all of the above referenced milestone payments are payable at the company 's election in cash or shares of our restricted common stock . dr. lindstrom is a member of the company 's board of directors , and chairman of its compensation committee and a member of its nomination and corporate governance committee . at this time , the board has determined that entering into the klarity license agreement would not impair dr. lindstrom 's independence nor his ability to provide independent oversight of the company . eton license agreements in may 2017 , we entered the eton license agreements with our previously wholly owned subsidiary , eton . the eton license agreements were made effective in june 2017. pursuant to the terms of the eton license agreements , we assigned and licensed to eton certain intellectual property and related rights to develop , formulate , make , sell , and sub-license the eton products . 34 sinus assets sale in july 2017 , we completed the disposition of s ubstantially all the assets associated with our sinus related business , including but not limited to , certain intellectual property rights , trademarks , copyrights , inventories , equipment , customer lists , databases , permits , licenses , and assignment of our lease obligation for our pennsylvania based pharmacy ( the โ pa assets โ ) pursuant to an asset purchase agreement ( the โ pa purchase agreement ) , dated june 27 , 2017 , by and among us and our wholly owned subsidiaries imprimisrx pa , inc. and imprimisrx ca , inc. ( now known as park compounding , inc. ) ( collectively the โ sellers โ ) and creative pharmacy solutions central , llc ( the โ buyer โ ) , for a total sales price of approximately $ 450,000. in connection with the closing of the pa purchase
| we also incurred some inefficiencies in our overall production processes during the year ended december 31 , 2017 as we shifted certain production efforts and requirements to new processes and systems , including cgmp requirements at njof which effected our overall gross margin percent . our consolidated gross margin percent for the years ended december 31 , 2017 and 2016 were 49.6 % and 50.7 % , respectively . we estimate gross margins at njof were greater than 60 % during the third and fourth quarters of 2017. selling and marketing expenses our selling and marketing expenses consist of costs associated with our marketing activities and sales of our proprietary compounded formulations and other non-proprietary pharmacy products and formulations , which include associated personnel costs , including wages and stock-based compensation . the following presents our selling and marketing expenses for the years ended december 31 , 2017 and 2016 : for the year ended december 31 , $ 2017 2016 variance selling and marketing $ 7,059,000 $ 7,382,000 $ ( 323,000 ) the decrease in selling and marketing expenses during the year ended december 31 , 2017 compared to last year , was primarily attributable to a more concentrated and focused sales effort during 2017. we have decreased our salaried sales force headcount , began utilizing contracted sales forces , and implemented efficiencies with regards to our offerings and presence at trade conferences and other various marketing activities , all related to our commercialization efforts for our proprietary and certain non-proprietary compounded formulations . general and administrative expenses our general and administrative expenses include personnel costs , including wages and stock-based compensation , corporate facility expenses , and investor relations , consulting , insurance , filing , legal and accounting fees and expenses . the following presents our general and administrative expenses for the year ended december 31 , 2017 and 2016 : for the year ended december 31 , $ 2017 2016 variance < font style= '' font-family : times new
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the increase was primarily due to ( i ) a $ 10.9 million increase in personnel expense primarily due to the withdrawal from a multi-employer pension plan in the year ended december 31 , 2018 , ( ii ) a $ 10.3 million increase for the eight months with no comparable expenses related to the aac acquisition on august 31 , 2017 , ( iii ) a $ 6.9 million increase in facilities rent primarily due to r 26 eplacing certain property leases , that were previously treated as financing arrangements ( expenses included in depreciation and amortization and interest expense , net ) with operating leases ( expenses included in distribution expenses ) and ( iv ) a $ 2.6 million increase in freight and logistics expenses driven mostly by increased third-party freight costs and diesel fuel prices . 2017 compared to 2016 : distribution expenses increased by $ 11.8 million or 2.3 % . distribution expenses increased $ 12.2 million from an increase in freight and logistics expenses , primarily due to increased third-party freight costs , transfer expenses and diesel fuel prices and $ 4.9 million related to the aac acquisition . these increases were partially offset by ( i ) a $ 1.7 million decrease in facilities rent and other related expenses , ( ii ) a $ 1.5 million decrease in insurance expense and ( iii ) a $ 1.6 million decrease in personnel expenses as well as maintenance and material expenses . the offsetting decreases were primarily driven by warehouse consolidations . selling and administrative expenses 2018 compared to 2017 : selling and administrative expenses decreased by $ 8.1 million or 0.9 % . the decrease was primarily due to a ( i ) $ 17.8 million decrease in compensation expense mainly driven by a decrease in personnel and commission expenses primarily related to the print segment as well as a decrease in incentive compensation expense , ( ii ) a $ 7.7 million decrease from asset impairments related to goodwill and customer relationships in the veritiv logistics solutions business in the year ended december 31 , 2017 , ( iii ) a $ 3.8 million decrease in legal expense , ( iv ) a $ 2.8 million decrease in travel and entertainment expenses , ( v ) a net gain of $ 2.7 million related to a warehouse sale and ( vi ) a $ 2.1 million decrease in marketing and communications expense . the decrease was partially offset by a $ 17.6 million increase for the eight months with no comparable expenses related to the aac acquisition on august 31 , 2017 and an $ 11.1 million increase in bad debt expense primarily driven by the print segment . the increase in bad debt expense was primarily due to additional reserves related to certain customers with declining financial conditions during 2018. see note 4 of the notes to consolidated financial statements for information related to the print segment restructuring plan . 2017 compared to 2016 : selling and administrative expenses increased by $ 47.8 million or 5.8 % . the increase was primarily attributed to ( i ) an $ 18.8 million increase in personnel expenses , ( ii ) a $ 13.3 million increase in bad debt expense and ( iii ) a $ 9.3 million increase related to the aac acquisition . the increase in personnel expenses was primarily driven by an increase in headcount to support the company 's growth strategy as well as lower commissions in 2016 due to the recovery of commission advances . the increase in bad debt expense was primarily due to additional reserves related to certain customers with declining financial conditions during 2017 combined with favorable collections experience in 2016. selling and administrative expenses also included $ 7.7 million of impairment charges related to the impairment of the logistics solutions business goodwill and customer relationship intangible asset and $ 0.7 million for the impairment of software . depreciation and amortization 2018 compared to 2017 : depreciation and amortization expense decreased $ 0.7 million . 2017 compared to 2016 : depreciation and amortization expense decreased $ 0.5 million . integration and acquisition expenses during the years ended december 31 , 2018 , 2017 and 2016 , veritiv incurred costs and charges to integrate its combined businesses . integration expenses include internally dedicated integration management resources , retention compensation , information technology conversion costs , rebranding , professional services and other costs to integrate its businesses . additionally , veritiv incurred integration and acquisition expenses of $ 2.1 million and $ 8.0 million in 2018 and 2017 , respectively , related to the acquisition of aac . see note 4 of the notes to consolidated financial statements for information related to integration and acquisition expenses . restructuring charges , net restructuring charges , net relates primarily to veritiv 's restructuring of its north american operations intended to integrate the legacy xpedx and unisource operations , generate cost savings and capture synergies across the combined company . restructuring charges , net includes net gains related to the sale or exit of certain facilities totaling $ 15.0 million , $ 24.4 million and $ 2.1 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . see note 4 of the notes to consolidated financial statements for information related to restructuring charges . the company may continue to record restructuring charges in the future as these activities progress , which may include gains or losses from the disposition of assets . 27 interest expense , net interest expense , net in 2018 consisted of ( i ) $ 36.9 million of interest expense on the company 's asset-based lending facility ( the โ abl facility โ ) , ( ii ) $ 2.6 million for amortization of deferred financing costs related to the abl facility and ( iii ) $ 2.8 million in miscellaneous interest expense . story_separator_special_tag interest expense , net in 2018 increased by $ 11.1 million compared to 2017 due to ( i ) increased interest rates due primarily to an increase in libor and ( ii ) an increased average balance on the company 's abl facility . the increased average balance on the abl facility was primarily due to borrowings to fund the acquisition of aac . see note 6 of the notes to consolidated financial statements for information related to the abl facility . see note 3 of the notes to consolidated financial statements for information related to the acquisition of aac . interest expense , net in 2017 consisted of ( i ) $ 25.5 million of interest expense on the company 's abl facility , ( ii ) $ 2.6 million for amortization of deferred financing costs related to the abl facility and ( iii ) $ 3.1 million in miscellaneous interest expense . interest expense , net in 2017 increased by $ 3.7 million compared to 2016 due to ( i ) an increased average balance on the abl facility and ( ii ) increased interest rates due primarily to an increase in libor . the increased average balance and interest rates on the abl facility were primarily due to borrowings to fund the acquisition of aac on august 31 , 2017. see note 6 of the notes to consolidated financial statements for information related to the abl facility . see note 3 of the notes to consolidated financial statements for information related to the acquisition of aac . other ( income ) expense , net 2018 compared to 2017 : other ( income ) expense , net , was income of $ 16.3 million . this was a net other income increase of $ 5.1 million , compared to the same period in 2017. in 2018 there was a $ 12.3 million reduction in the estimated fair value of the aac contingent consideration compared to an increase of $ 2.0 million in 2017. see note 12 of the notes to consolidated financial statements for information related to the aac contingent consideration . the remaining income was primarily driven by changes associated with the tax receivable agreement . see note 10 of the notes to consolidated financial statements for information related to the tax receivable agreement . 2017 compared to 2016 : other ( income ) expense , net was income of $ 11.2 million in 2017 compared to expense of $ 5.9 million in 2016. the $ 17.1 million change is primarily the result of the tax cuts and jobs act ( the `` tax act '' ) which lowered the u.s. corporate federal tax rate , from 35.0 % to 21.0 % . the lower rate reduced the value of the tax receivable agreement liability by $ 13.5 million which was recorded as other income in the fourth quarter of 2017. see note 9 of the notes to consolidated financial statements for information related to the tax act . effective tax rate veritiv 's effective tax rates were ( 53.9 ) % , ( 600.0 ) % and 48.5 % for the years ended december 31 , 2018 , 2017 and 2016 respectively . the difference between the company 's effective tax rates for the years ended december 31 , 2018 , 2017 and 2016 and the u.s. statutory tax rates of 21.0 % for 2018 and 35.0 % for 2017 and 2016 , includes the impact of non-deductible expenses , state income taxes ( net of federal income tax benefit ) , the company 's income ( loss ) by jurisdiction , the tax effect of tax receivable agreement changes , and changes in the valuation allowance against deferred tax assets . additionally , the company 's effective tax rate for the year ended december 31 , 2018 was impacted by the following discrete items : a $ 1.7 million expense for the impact of stock compensation vesting . a $ 1.4 million expense for the impact of global intangible low taxed income . a $ 1.3 million expense recorded in 2018 for the accounting completed under the measurement period related to the tax act under staff accounting bulletin 118 , totaling $ 31.5 million of cumulative effect of which $ 24.0 million is remeasurement of our deferred taxes and $ 7.5 million for the one-time transition tax . see note 9 of the notes to the consolidated financial statements for additional details regarding the tax act . a $ 1.0 million benefit for certain tax credits . further , the company 's effective tax rate for the year ended december 31 , 2017 was impacted by a near break-even pre-tax book loss in combination with the impact of the following discrete items : a $ 30.2 million expense in connection with our provisional estimate of the impact of the tax act , including $ 23.0 million for the remeasurement of our deferred taxes and $ 7.2 million for the one-time transition tax . a $ 13.4 million benefit for the reversal of the valuation allowance on the deferred tax assets of the company 's canadian subsidiary . the reversal reflects the company 's cumulative recent income and improved expectation of future taxable income . 28 a $ 3.8 million tax rate benefit for the reduction in the fair value of the tax receivable agreement , including the federal rate reduction . a $ 3.1 million benefit in conjunction with the third quarter 2017 filing of veritiv 's 2016 u.s. federal tax return and amended 2015 and 2014 u.s. federal tax returns for credits related to foreign taxes and research and experimentation activities . a tax rate effect of $ 2.1 million for the impact of impairing non-deductible goodwill . the volatility of the company 's effective tax rate has been primarily due to both the level of pre-tax income as well as variations in the company 's income ( loss ) by jurisdiction . for the year ended december 31 , 2018 , the company 's provision for income taxes continued to be highly sensitive for these reasons .
| for example , adjusted ebitda : does not reflect the company 's income tax expenses or the cash requirements to pay its taxes ; and although depreciation and amortization charges are non-cash charges , it does not reflect that the assets being depreciated and amortized will often have to be replaced in the future , and the foregoing metrics do not reflect any cash requirements for such replacements . other companies in the industry may calculate adjusted ebitda differently than veritiv does , limiting its usefulness as a comparative measure . because of these limitations , adjusted ebitda should not be considered as a measure of discretionary cash available to veritiv to invest in the growth of its business . veritiv compensates for these limitations by relying both on the company 's u.s. gaap results and by using adjusted ebitda for supplemental purposes . additionally , adjusted ebitda is not an alternative measure of financial performance under u.s. gaap and therefore should be considered in conjunction with net income and other performance measures such as operating income or net cash provided by operating activities and not as an alternative to such u.s. gaap measures . due to the shared nature of the distribution network , distribution expenses are not a specific charge to each segment but are instead allocated to each segment based primarily on operational metrics that correlate with changes in volume . accordingly , distribution expenses allocated to each segment are highly interdependent on the results of other segments . lower volume in any segment that is not offset by a reduction in distribution expenses can result in the other segments absorbing a larger share of distribution expenses . conversely , higher volume in any segment can result in the other segments absorbing a smaller share of distribution expenses . the impact of this at the segment level is that the changes in distribution expenses trends may not correspond with volume trends within a particular segment . the company sells thousands of products . in the packaging and facility solutions segments , veritiv is unable to compute the impact of changes in net sales volume based on changes in net sales of each individual product . rather , the company assumes that the margin stays constant and estimates the volume impact based on changes in cost of products sold as 29 a proxy for
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we evaluate loans acquired in accordance with the provisions of asc topic 310-20 , nonrefundable fees and other costs . the fair value discount on these loans is accreted into interest income over the weighted average life of the loans using a constant yield method . goodwill and intangible assets goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired . other intangible assets represent purchased assets that also lack physical substance but can be separately distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract , asset or liability . we perform an annual goodwill impairment test , and more than annually if circumstances warrant , in accordance with asc topic 350 , intangibles โ goodwill and other , as amended by asu 2011-08 โ t esting goodwill for impairment and asu 2017-04 - intangibles โ goodwill and other . asc topic 350 requires that goodwill and intangible assets that have indefinite lives be reviewed for impairment annually or more frequently if certain conditions occur . impairment losses on recorded goodwill , if any , will be recorded as operating expenses . during the first quarter of 2020 , our share price began to decline as the markets in the united states responded to the global covid-19 pandemic . as a result of that economic decline , the effect on our share price and other factors , we performed an interim goodwill impairment qualitative assessment during the first quarter and concluded no impairment existed . during the second quarter of 2020 , we performed our annual goodwill impairment test and concluded that it is more likely-than-not that the fair value of our goodwill continues to exceed its carrying value and therefore , goodwill is not impaired . furthermore , we performed an interim goodwill impairment assessment during both the third and fourth quarters of 2020 and concluded no impairment existed . while our goodwill impairment analysis indicated no impairment at december 31 , 2020 , our assessment depends on several assumptions which are dependent on market and economic conditions , and future changes in those conditions could impact our assessment in the future . stock-based compensation plans we have adopted various stock-based compensation plans . the plans provide for the grant of incentive stock options , nonqualified stock options , stock appreciation rights , restricted stock awards , restricted stock units , and performance stock units . pursuant to the plans , shares are reserved for future issuance by the company upon exercise of stock options or awarding of performance or bonus shares granted to directors , officers and other key employees . in accordance with asc topic 718 , compensation โ stock compensation , the fair value of each option award is estimated on the date of grant using the black-scholes option-pricing model that uses various assumptions . this model requires the input of highly subjective assumptions , changes to which can materially affect the fair value estimate . for additional information , see note 15 , employee benefit plans , in the accompanying notes to consolidated financial statements included elsewhere in this report . income taxes we are subject to the federal income tax laws of the united states , and the tax laws of the states and other jurisdictions where we conduct business . due to the complexity of these laws , taxpayers and the taxing authorities may subject these laws to different interpretations . management must make conclusions and estimates about the application of these innately intricate laws , related regulations , and case law . when preparing the company 's income tax returns , management attempts to make reasonable interpretations of the tax laws . taxing authorities have the ability to challenge management 's analysis of the tax law or any reinterpretation management makes in its ongoing assessment of facts and the developing case law . management assesses the reasonableness of its effective tax rate quarterly based on its current estimate of net income and the applicable taxes expected for the full year . on a quarterly basis , management also reviews circumstances and developments in tax law affecting the reasonableness of deferred tax assets and liabilities and reserves for contingent tax liabilities . the adoption of asu 2016-09 โ compensation-stock compensation : improvements to employee share-based payment accounting decreased the effective tax rate during 2017 and 2018 as the standard impacted how the income tax effects associated with stock-based compensation are recognized . 36 2020 overview the following discussion and analysis presents the more significant factors that affected our financial condition as of december 31 , 2020 and 2019 and results of operations for each of the years then ended . refer to โ management 's discussion and analysis of financial condition and results of operations โ included in our 2019 form 10-k filed with the sec on february 27 , 2020 for a discussion and analysis of the more significant factors that affected periods prior to 2019. certain reclassifications have been made to make prior periods comparable . this discussion and analysis should be read in conjunction with our financial statements , notes thereto and other financial information appearing elsewhere in this report , as well as the cautionary note regarding forward-looking statements and the risks discussed in item 1a of part i of this form 10-k. our net income available to common shareholders for the year ended december 31 , 2020 was $ 254.9 million , or $ 2.31 diluted earnings per share , compared to $ 237.8 million , or $ 2.41 diluted earnings per share , for the same period in 2019. included in both 2020 and 2019 results were non-core items related to our acquisitions , early retirement program expenses and branch right sizing initiatives , and with respect to our 2020 results only , gains associated with the sale of branches . excluding all non-core items , core earnings for the year ended december 31 , 2020 were $ 264.3 story_separator_special_tag million , or $ 2.40 core diluted earnings per share , compared to $ 269.6 million , or $ 2.73 core diluted earnings per share , in 2019. see gaap reconciliation of non-gaap financial measures for additional discussion and reconciliation of non-gaap measures . we completed the acquisition of the landrum company ( or โ landrum โ ) , including its wholly-owned bank subsidiary , landmark bank , in october 2019. the systems conversion of landmark bank was completed during february 2020. see note 2 , acquisitions , in the accompanying notes to consolidated financial statements for additional information related to this acquisition . on february 28 , 2020 , we completed the sale of certain assets and assumptions of certain liabilities ( โ texas branch sale โ ) associated with five simmons bank locations in austin , san antonio and tilden , texas to spirit of texas bank , ssb , a wholly-owned subsidiary of spirit of texas bancshares , inc .. additionally , on may 18 , 2020 we completed the sale of certain assets and assumptions of certain liabilities ( โ colorado branch sale โ ) associated with four simmons bank locations in denver , englewood , highlands ranch and lone tree , colorado to first western trust bank , a wholly-owned subsidiary of first western financial , inc. we recognized a combined gain on sale of $ 8.1 million on the texas branch sale and colorado branch sale . early in 2020 , we offered qualifying associates an early retirement option resulting in $ 2.9 million of non-core expense during 2020. we expect ongoing net annualized savings of approximately $ 2.9 million from this program . we continuously evaluate our branch network as part of our analysis of the profitability of our operations and the efficiency with which we deliver banking services to our markets , including , among other things , changes in customer traffic and preferences . as a result of this ongoing evaluation , we closed 11 branch locations during june 2020 , with estimated net annual cost savings of approximately $ 2.4 million related to these locations . we closed an additional 23 branch locations on october 9 , 2020 , with an expected net annual cost savings of approximately $ 6.7 million . related to these branch closures , we transferred $ 15.4 million in branch facilities to premises held for sale . during 2020 , our digital banking users grew approximately 30 % while the number of digital transactions increased by 38 % , indicating not only a continued trend of increasing digital customers but also that customers are executing more of their banking transactions through digital channels . in march 2020 , for the first time , we had more weekly transactions using digital channels than at the branches . our mobile deposit usage has seen an increase of 170 % since the end of 2019. additionally , we developed a new mobile deposit process to fully automate user enrollment and mitigate our risk . during the last quarter of 2020 , 84 % of all accounts that had a banking transaction were enrolled in digital banking . during may 2020 , we completed the conversion of all consumer deposit customers to our new online platform . all consumer deposit customers are now on the same online and mobile platforms , including acquired institutions . in september 2020 , we completed the development of new credit card functionality which allows our mobile and online banking platform for consumer deposit customers to also display credit card balances , line of credit utilization , recent credit card transactions and minimum credit card payment details , all with real-time information . on november 30 , 2020 , we entered into a branch purchase and assumption agreement with citizens equity first credit union to sell four simmons bank locations in the metro east area of southern illinois , near st. louis . we expect to close the sale during the first quarter of 2021. see note 4 , other assets and other liabilities held for sale , in the accompanying notes to consolidated financial statements included elsewhere in this report for additional information related to the sale of these locations . 37 also during 2020 , we completed our regulatory exam cycle , including our first cfpb exam , and contributed $ 3.0 million to the simmons first foundation to support environmental conservation projects throughout our service area . during 2019 , we had several notable events that affected our operating results . first , we recorded $ 15 million in provision expense primarily related to the charge-off of a participation interest in a shared national credit to white star petroleum , llc ( โ white star โ ) ( further discussed below in provision for credit losses ) . second , we sold visa inc. class b common stock resulting in a gain of $ 42.9 million , and in connection with that sale , we contributed $ 4 million to the simmons first foundation so it may continue its work to provide community development grants throughout our footprint . third , we sold $ 114 million of primarily commercial real estate ( โ cre โ ) loans resulting in a net loss of $ 5.1 million . in april 2019 , we completed the acquisition of reliance bancshares , inc. ( โ reliance โ ) . contemporaneously with the reliance acquisition , reliance 's subsidiary bank , reliance bank , was merged with and into simmons bank , with simmons bank as the surviving entity . we are excited about the opportunities we continue to have in the st. louis market resulting from our increased presence . see note 2 , acquisitions , in the accompanying notes to consolidated financial statements included elsewhere in this report , for additional information related to the landrum and reliance acquisitions .
| quarterly results selected unaudited quarterly financial information for the last eight quarters is shown in table 32. table 32 : quarterly results replace_table_token_38_th _ ( 1 ) eps are computed independently for each quarter and therefore the sum of each quarterly eps may not equal the year-to-date eps . as a result of the large stock issuances as part of the company 's acquisitions , the computed independent quarterly average common shares outstanding and the computed year-to-date average common shares may differ significantly . the difference is based on the direct result of the varying denominator for each period presented . 72 item
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any forward-looking statement speaks only as of the date on which it is made , and we do not 56 undertake any obligation to update or review any forward-looking statement , whether as a result of new information , future developments or otherwise , except as required by applicable law . company overview fhi is a majorityโowned , indirect subsidiary of bnpp , a financial institution based in france . fhb was founded in 1858 under the name bishop & company and was the first successful banking partnership in the kingdom of hawaii and the second oldest bank formed west of the mississippi river . as of december 31 , 2017 , we were the largest full service bank headquartered in hawaii as measured by assets , loans and leases , deposits and net income . as of december 31 , 2017 , we had $ 20.5 billion of assets , $ 12.3 billion of gross loans and leases and $ 17.6 billion of deposits . we also generated $ 183.7 million of net income or diluted earnings per share of $ 1.32 per share for the year ended december 31 , 2017. we operate our business through three operating segments : retail banking , commercial banking and treasury and other . see โ note 22. reportable operating segments โ in our consolidated financial statements for more information . reorganization transactions on april 1 , 2016 , bnpp effected the reorganization transactions pursuant to which fhi , which was then known as bancwest , contributed bow , its subsidiary at the time , to bwhi , a newly formed bank holding company and a whollyโowned subsidiary of bnpp . upon formation , bwhi was a direct whollyโowned subsidiary of bancwest and , as part of the reorganization transactions , bancwest contributed 100 % of its interest in bow to bwhi . following the contribution of bow to bwhi , bancwest distributed its interest in bwhi to bnpp , and bwhi became a whollyโowned subsidiary of bnpp . as part of these transactions , we amended our certificate of incorporation to change our name to first hawaiian , inc. , with the bank remaining our only direct whollyโowned subsidiary . the reorganization transactions were made in connection with our transition to a standโalone public company and our separation from bnpp . on july 1 , 2016 , in order to comply with the federal reserve 's requirement ( under regulation yy ) applicable to bnpp that a foreign banking organization with $ 50 billion or more in u.s. nonโbranch assets as of june 30 , 2015 establish a u.s. intermediate holding company and hold its interest in the substantial majority of its u.s. subsidiaries through the intermediate holding company by july 1 , 2016 , we became an indirect whollyโowned subsidiary of bnp paribas usa , bnpp 's u.s. intermediate holding company . as part of that reorganization , we became a direct whollyโowned subsidiary of bwc , the bnpp selling stockholder and a direct whollyโowned subsidiary of bnp paribas usa . public offerings and separation from bnpp shares of fhi 's common stock began trading on the nasdaq global select market ( โ nasdaq โ ) under the ticker symbol โ fhb โ on august 4 , 2016. in august 2016 , fhi completed its initial public offering ( โ ipo โ ) of 24,250,000 shares of common stock sold by bwc . in february 2017 , bwc sold an additional 28,750,000 shares of fhi common stock in a secondary offering . fhi did not receive any of the proceeds from the two sales of shares of its common stock by bwc . bnpp is the beneficial owner of approximately 62 % of fhi 's common stock as of december 31 , 2017. we entered into a transitional services agreement pursuant to which bnpp , bwhi and bow continue to provide us with certain services they provided prior to the ipo either directly or on a passโthrough basis , and we have agreed to continue to provide , or arrange to provide , bnpp , bwhi and bow with certain services we provided to them prior to the ipo , either directly or on a passโthrough basis . the transitional services agreement will terminate on december 31 , 2018 , although the provision of certain services will terminate on earlier dates . in connection with our transition to a standโalone public company and our separation from bnpp , we expect to incur incremental ongoing and oneโtime expenses , including those incurred under the transitional services agreement , as well as increases in audit fees , insurance premiums , employee salaries and benefits ( including stockโbased compensation expenses for employees and nonโemployee directors ) and consulting fees . these costs also include increases that we expect to result from the higher pricing of services by thirdโparty vendors whose future contracts with us do not reflect bow volumes or the benefits of bnpp bargaining power . our oneโtime expenses incurred in connection with our ipo included professional fees , consulting fees and certain filing and listing fees . in addition , once we are no longer subject to the ccar process , we expect our stress testingโrelated compliance costs to increase incrementally as we will continue to require certain services for our dfast process and the expenses associated with those services will no longer be reimbursed by bnpp . the actual 57 amount of the incremental expenses we will incur as a standโalone public company and as part of our separation from bnpp may be higher , perhaps significantly , from our current estimates for a number of reasons , including , among others , the final terms we are able to negotiate with service providers prior to the termination of the transitional services agreement , as well as additional costs we may incur that we have not currently anticipated . story_separator_special_tag basis of presentation for periods prior to april 1 , 2016 , the financial operations , assets and liabilities of bancwest ( now known as first hawaiian , inc. ) related to fhb ( and not bow ) have been combined with fhb and are presented on a basis of accounting that reflects a change in reporting entity as if we were a separate standโalone entity for all periods presented . the accompanying consolidated financial statements include allocations of certain assets of bancwest as agreed to by the parties and also certain expenses amounting to approximately $ 5.8 million and $ 18.8 million for the years ended december 31 , 2016 and 2015 , respectively , specifically applicable to the operations of bancwest related to fhb through the date of the reorganization transactions . management believes these allocations are reasonable . prior to april 1 , 2016 , the residual revenues and expenses not included in our consolidated financial statements represent those directly related to bwhi and bow . the allocated expenses included in our consolidated financial statements , residual revenues and expenses are not necessarily indicative of the financial position or results of operations of our company if we had operated as a standโalone public entity during the reporting periods prior to april 1 , 2016 and may not be indicative of our company 's future results of operations and financial condition . upon completion of the reorganization transactions on april 1 , 2016 , the consolidated financial statements of the company reflected the results of operations , financial position and cash flows of fhi and its whollyโowned subsidiary , fhb . all significant intercompany account balances and transactions have been eliminated in consolidation . the consolidated financial statements do not reflect any changes that may occur in our operations and expenses as a result of the reorganization transactions or our ipo . hawaii economy hawaii 's economy continued to perform well during the year ended december 31 , 2017 , led in large part by a strong tourism industry , real estate and labor market conditions and growth in personal income and tax revenues . hawaii 's tourism industry remained robust , achieving new records in 2017 in visitor arrivals and spending . visitor arrivals for the year ended december 31 , 2017 increased by 5.0 % compared to 2016 , and total visitor spending for the year ended december 31 , 2017 increased by 6.2 % compared to 2016 according to the hawaii tourism authority . visitor arrivals and spending increased , in particular , from u.s. mainland , canadian and japanese visitors . the statewide seasonally-adjusted unemployment rate was 2.0 % in december 2017 compared to 2.9 % in december 2016 according to the hawaii state department of labor & industrial relations . the national seasonally-adjusted unemployment rate was 4.1 % in december 2017 compared to 4.7 % in december 2016. with regards to housing , the volume of single-family home sales on oahu increased by 6.3 % for the year ended december 31 , 2017 compared to 2016 , while the volume of condominium sales on oahu increased by 6.9 % for the year ended december 31 , 2017 compared to 2016 according to the honolulu board of realtors . likewise , the median price of single-family home sales and condominium sales on oahu was $ 755,000 and $ 405,000 , respectively , or an increase of 2.7 % and 3.8 % , respectively , for the year ended december 31 , 2017 compared to 2016. as of december 31 , 2017 , months of inventory of single family homes and condominiums on oahu remained low at approximately 2.1 months and 2.3 months , respectively . lastly , state general excise and use tax revenues increased by 4.5 % for the year ended december 31 , 2017 compared to 2016 according to the hawaii department of taxation . hawaii 's economy continued to grow during 2017 , but is significantly dependent on u.s. mainland economic conditions as well as key international economies , particularly japan . we continue to monitor construction activity in hawaii and the local economy 's ability to absorb further planned expansion given deteriorating home affordability , tourism in hawaii , the movement of interest rates in the u.s. , the agenda of the u.s. administration and its impact on existing banking regulations , changes in japan 's economic conditions including the exchange rate of its currency , and the economic and regulatory conditions of the european union , as such factors could impact our profitability in future reporting periods . story_separator_special_tag style= '' line-height:100 % ; text-align : justify ; text-justify : inter-ideograph ; border-top:1pt none # d9d9d9 ; border-bottom:1pt none # d9d9d9 ; font-family : times new roman , times , serif ; font-size : 10pt ; margin:0pt ; '' > ยท the provision was $ 18.5 million for the year ended december 31 , 2017 , an increase of $ 9.9 million as compared to the same period in 2016. the increase in the provision maintained the allowance at levels deemed adequate to cover probable incurred credit losses as of the balance sheet date . 59 ยท noninterest income was $ 205.6 million for the year ended december 31 , 2017 , a decrease of $ 20.4 million or 9 % as compared to the same period in 2016. the decrease was primarily due to a $ 22.7 million net gain on the sale of 274,000 shares of our visa class b restricted shares during the year ended december 31 , 2016 that did not recur in 2017 , partially offset by an $ 11.6 million increase in other noninterest income . ยท noninterest expense was $ 347.6 million for the year ended december 31 , 2017 , an increase of $ 10.3 million or 3 % as compared to the same period in 2016. the increase in noninterest expense was primarily due to a $ 6.1 million increase in salaries and employee benefits , a $ 1.9 million increase in regulatory assessment and fees and a $ 1.9 million increase in occupancy expenses .
| net income was $ 230.2 million for the year ended december 31 , 2016 , an increase of $ 16.4 million or 8 % as compared to the same period in 2015. basic and diluted earnings per share were $ 1.65 for the year ended december 31 , 2016 , an increase of $ 0.12 or 8 % as compared to the same period in 2015. the increase was primarily due to an increase in net interest income , an increase in noninterest income and a decrease in the provision . this was partially offset by an increase in both the provision for income taxes and noninterest expense for the year ended december 31 , 2016 as compared to the same period in 2015. our return on average total assets was 0.92 % for the year ended december 31 , 2017 , a decrease of 27 basis points as compared to the same period in 2016 , and our return on average total stockholders ' equity was 7.24 % for the year ended december 31 , 2017 , a decrease of 172 basis points as compared to the same period in 2016. our return on average tangible assets was 0.97 % for the year ended december 31 , 2017 , a decrease of 29 basis points as compared to the same period in 2016 , and our return on average tangible stockholders ' equity was 11.91 % for the year ended december 31 , 2017 , a decrease of 273 basis points as compared to the same period in 2016. we continued to prudently manage our expenses as our efficiency ratio was 47.32 % for the year ended december 31 , 2017 as compared to 46.99 % for the same period in 2016. the efficiency ratio for the year ended december 31 , 2016 was favorably impacted by net gains on the sale of investment securities of $ 27.3 million . return on average tangible assets and return on average tangible stockholders ' equity are non-gaap financial measures . for a reconciliation to the most directly comparable gaap financial measures for return on average tangible assets and return on average tangible stockholders ' equity , see โ item 6. selected financial data - gaap to non-gaap reconciliation โ . our return on average total assets was 1.19 % for the year ended december 31 ,
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we enrolled the first subject in our phase 3 clinical trial in the third quarter of 2014 and completed enrollment in october 2015. we expect to complete the trial in the fourth quarter of 2016 and file our resubmission to the u.s. food and drug administration , or fda , in the first half of 2017. we have incurred and will continue to incur additional costs associated with operating as a public company . accordingly , we will need additional financing to support our continuing operations and pipeline in addition to twirla . we will seek to fund our operations through public or private equity or debt financings or other sources , which may include collaborations with third parties . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we will need to generate significant revenue to achieve profitability , and we may never do so . financial operations overview revenue to date , we have not generated any revenue . in the future , we may generate revenue from product sales , license fees , milestone payments and royalties from the sale of products developed using our intellectual property . our ability to generate revenue and become profitable depends on our ability to successfully commercialize twirla and any product candidates that we may advance in the future . if we fail to complete the development of twirla or any other product candidates we advance in a timely manner or obtain regulatory approval for them , our ability to generate future revenue , and our results of operations and financial position , will be adversely affected . research and development expenses since our inception , we have focused our resources on our research and development activities . research and development expenses consist primarily of costs incurred for the development of twirla and other current and future product candidates , and include : expenses incurred under agreements with contract research organizations , or cros , and investigative sites that conduct our clinical trials and preclinical studies ; employee-related expenses , including salaries , benefits , travel and stock-based compensation expenses ; the cost of acquiring , developing and manufacturing clinical trial materials for our product candidates ; costs associated with research , development and regulatory activities ; and costs associated with equipment scale-up required for commercial production . 101 research and development costs are expensed as incurred . costs for certain development activities , such as clinical trials , are recognized based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or information provided to us by our third party vendors . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we do not currently utilize a formal time allocation system to capture expenses on a project-by-project basis , as the majority of our past and planned expenses have been and will be in support of twirla . we expect to increase our research and development expenses for the foreseeable future as we initiate further clinical trials and continue equipment qualification and validation of our commercial manufacturing process . to date , our research and development expenses have related primarily to the development of twirla . for the years ended december 31 , 2015 , 2014 and 2013 , our research and development expenses were approximately $ 25.6 million , $ 13.4 million and $ 9.2 million , respectively . the following table summarizes our research and development expenses by functional area . replace_table_token_7_th it is difficult to determine with any certainty the duration and completion costs of our currently ongoing , planned or future clinical trials of twirla and any of our other current and future product candidates we may advance , or if , when or to what extent we will generate revenue from the commercialization and sale 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 preclinical studies , the slower than expected rate of enrollment we experienced for our on-going phase 3 clinical trial for twirla and significant and changing government regulation . in addition , the probability of success for each product candidate will depend on numerous factors , including competition , manufacturing capability and commercial viability . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in enrollment in any of our clinical trials , or experience issues with our manufacturing capabilities we could be required to expend significant additional financial resources and time with respect to the development of that product candidate . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate , as well as an assessment of each product candidate 's commercial potential . 102 general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive , finance and administrative functions including insurance , stock-based compensation and travel expenses . story_separator_special_tag other general and administrative expenses include facility-related costs , insurance and professional fees for legal , patent review , consulting and accounting services . general and administrative expenses are expensed as incurred . for the years ended december 31 , 2015 , 2014 and 2013 , our general and administrative expenses totaled approximately $ 7.5 million , $ 5.2 million and $ 3.6 million , respectively . we anticipate that our general and administrative expenses will increase in the future with the continued research , development and potential commercialization of twirla and any of our other product candidates , and as we operate as a public company . these increases will likely include increased legal and accounting services , stock registration and printing fees , addition of new personnel to support compliance and communication needs , increased insurance premiums , outside consultants and investor relations . additionally , if in the future we believe regulatory approval of twirla or any of our other product candidates appears likely , we anticipate that we would begin preparations for commercial operations , which would result in an increase in payroll and other expenses , particularly with respect to the sales and marketing of our product candidates . critical accounting policies and significant judgments and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or u.s. gaap . the preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets , liabilities and expenses and related disclosures . on an ongoing basis , our actual results may differ significantly from our estimates . our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this annual report on form 10-k. we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements . accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued expenses , particularly for product development costs . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of services performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with service providers and make adjustments as necessary . examples of estimated accrued research and development expenses include : fees paid to cros in connection with clinical studies ; fees paid to investigative sites in connection with clinical studies ; fees paid to vendors in connection with preclinical development activities ; and fees paid to vendors related to product manufacturing , development and distribution of clinical supplies . 103 we base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple cros that conduct and manage clinical studies on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense . payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones . in accruing service fees , we estimate the time period over which services will be performed , enrollment of subjects , number of sites activated and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrued liability or prepaid expense accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting amounts that are too high or too low in any particular period . based on historical experience , actual results have not been materially different from our estimates . warrant liability we account for detachable warrants with non-standard anti-dilution provisions ( referred to as down round protection ) to purchase convertible preferred stock ( prior to our ipo ) and common stock as liabilities , as they are freestanding derivative financial instruments . the warrants are recorded as liabilities at fair value , estimated using a black-scholes option pricing model , and are subject to re-adjustment at each balance sheet date , otherwise known as marked to market , with changes in the fair value of the warrants recorded in our statements of operations . stock-based compensation we account for stock-based compensation under asc , 718 `` accounting for stock based compensation . '' all stock-based awards granted to nonemployees are accounted for at their fair value in accordance with asc 718 , and asc 505 , `` accounting for equity instruments that are issued to other than employees for acquiring , or in conjunction with selling , goods or services , '' under which compensation expense is generally recognized over the vesting period of the award . determining the amount of stock-based compensation to be required requires us to develop estimates of fair values of stock options as of the grant date .
| certain of our warrants to purchase our preferred stock ( prior to the ipo ) and common stock are recorded at fair value and are subject to re-measurement at each balance sheet date . these liabilities are re-measured at each balance sheet date with the corresponding charge or credit to earnings recorded within change in fair value of warrant liability . the fair value of the convertible preferred stock warrants ( prior to the ipo ) and warrants to purchase common stock with non-standard anti-dilution provisions are determined using the black-scholes option pricing model which incorporates a number of assumptions and judgments to estimate the fair value of these warrants including the fair value per share of the underlying stock , the remaining contractual term of the warrants , risk-free interest rate , expected dividend yield , credit spread and expected volatility of the price of the underlying stock . during the year ended december 31 , 2015 , the fair value of our warrant liability changed by $ 0.1 million compared to the year ended december 31 , 2014 , primarily due to the change in the fair value of the underlying common stock . loss on extinguishment of debt . in february 2015 , we entered into a loan and security agreement with hercules for a term loan of up to $ 25.0 million . a first tranche of $ 16.5 million was funded upon execution of the loan and security agreement , approximately $ 15.5 million of which was used to repay our existing loan with oxford . as a result of the repayment of the loan with oxford , we recorded a loss on the extinguishment of debt of approximately $ 1.0 million representing the difference between the amount paid to oxford and the carrying amount of the oxford loan . included in the loss on extinguishment of debt is the prepayment premium , the unamortized discount and the write off of deferred financing costs . benefit from income taxes . benefit
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db credit facility โthe loan financing and servicing agreement ( the `` db credit facility '' ) dated december 14 , 2018 and as amended from time to time , among nmfdb as the borrower , deutsche bank ag , new york branch ( `` deutsche bank '' ) as the facility agent , lender and other agent from time to time party thereto and u.s. bank national association , as collateral agent and collateral custodian , is structured as a secured revolving credit facility and matures on december 14 , 2023. as of december 31 , 2020 , the maximum amount of revolving borrowings available under the db credit facility was $ 280.0 million . we are permitted to borrow at various advance rates depending on the type of portfolio investment , as outlined in the loan financing and servicing agreement . the db credit facility is non-recourse to us and is collateralized by all of the investments of nmfdb on an investment by investment basis . all fees associated with the origination of the db credit facility are capitalized on our consolidated statement of assets and liabilities and charged against income as other financing expenses over the life of the db credit facility . the db credit facility contains certain customary affirmative and negative covenants and events of default . the covenants are generally not tied to mark to market fluctuations in the prices of nmfdb investments , but rather to the performance of the underlying portfolio companies . the advances under the db credit facility accrue interest at a per annum rate equal to the applicable margin plus the lender 's cost of funds rate . prior to june 28 , 2019 , the `` applicable margin '' is equal to 2.85 % during the revolving period and then increases by 0.20 % during an event of default . effective june 28 , 2019 , the applicable margin is equal to 2.60 % during the revolving period and then increases by 0.02 % during an event of default . the `` cost of funds rate '' for a conduit lender is the lower of its commercial paper rate and the base rate plus 0.50 % , and for any other lender is the base rate . the `` base rate '' is the three-months libor rate but may become an alternative base rate based on deutsche bank 's base lending rate if certain libor disruption events occur . we are also charged a non-usage fee , based on the unused facility amount multiplied by the undrawn fee rate ( as defined in the loan financing and servicing agreement ) and a facility agent fee of 0.25 % per annum on the total facility amount . the following table summarizes the interest expense , non-usage fees and amortization of financing costs incurred on the db credit facility for the years ended december 31 , 2020 and december 31 , 2019. replace_table_token_45_th 98 ( 1 ) interest expense includes the portion of the facility agent fee applicable to the drawn portion of the db credit facility and non-usage fee includes the portion of the facility agent fee applicable to the undrawn portion of the db credit facility . as of december 31 , 2020 and december 31 , 2019 , the outstanding balance on the db credit facility was $ 244.0 million and $ 230.0 million , respectively , and nmfdb was in compliance with the applicable covenants in the db credit facility on such date . unsecured management company revolver โthe uncommitted revolving loan agreement , ( the `` unsecured management company revolver '' ) , dated march 30 , 2020 , by and between us , as the borrower , and nmf investments iii , l.l.c. , as lender , an affiliate of the investment adviser , is structured as a discretionary unsecured revolving credit facility . the proceeds from the unsecured management company revolver may be used for general corporate purposes , including the funding of portfolio investments . the maturity date of the unsecured management company revolver is december 31 , 2022. the unsecured management company revolver generally bears interest at a rate of 7.00 % per annum ( as defined in the uncommitted revolving loan agreement ) . on may 4 , 2020 , we entered into an amended and restated uncommitted revolving loan agreement with nmf investments iii , l.l.c. , which increased the maximum amounts of revolving borrowings available thereunder from $ 30.0 million to $ 50.0 million . as of december 31 , 2020 , the maximum amount of revolving borrowings available under the unsecured management company revolver was $ 50.0 million and no borrowings were outstanding . for the year ended december 31 , 2020 , amortization of financing costs were less than $ 50.0 thousand . nmnlc credit facility โthe revolving credit agreement ( together with the related guarantee and security agreement , the โ nmnlc credit facility โ ) , dated september 21 , 2018 , by and between nmnlc , as the borrower , and keybank national association , as the administrative agent and lender , was structured as a senior secured revolving credit facility and matured on september 23 , 2020. the nmnlc credit facility was guaranteed by us and proceeds from the nmnlc credit facility were able to be used for funding of additional acquisition properties . the nmnlc credit facility bore interest at a rate of libor plus 2.50 % per annum or the prime rate plus 1.50 % per annum , and charged a commitment fee , based on the unused facility amount multiplied by 0.15 % per annum ( as defined in the revolving credit agreement ) . for the year ended december 31 , 2020 , interest expense , non-usage fees and amortization of financing costs were each less than $ 50.0 thousand . for the year ended december 31 , 2019 , interest expense and amortization of financing costs were $ 0.1 million and $ 0.1 million , respectively , and non-usage fees were less than $ 50 thousand . story_separator_special_tag the nmnlc credit facility matured on september 23 , 2020. as of december 31 , 2019 , the outstanding balance on the nmnlc credit facility was $ 0 and nmnlc was in compliance with the applicable covenants in the nmnlc credit facility on such date . convertible notes 2014 convertible notes โon june 3 , 2014 , we closed a private offering of $ 115.0 million aggregate principal amount of unsecured convertible notes ( the โ 2014 convertible notes โ ) , pursuant to an indenture , dated june 3 , 2014 ( the โ 2014 indenture โ ) . the 2014 convertible notes were issued in a private placement only to qualified institutional buyers pursuant to rule 144a under the securities act of 1933 , as amended ( the `` securities act '' ) . as of june 3 , 2015 , the restrictions under rule 144a under the securities act were removed , allowing the 2014 convertible notes to be eligible and freely tradable without restrictions for resale pursuant to rule 144 ( b ) ( 1 ) under the securities act . on september 30 , 2016 , we closed a public offering of an additional $ 40.3 million aggregate principal amount of the 2014 convertible notes . these additional 2014 convertible notes constitute a further issuance of , rank equally in right of payment with , and form a single series with the $ 115.0 million aggregate principal amount of 2014 convertible notes that we issued on june 3 , 2014. the 2014 convertible notes bore interest at an annual rate of 5.0 % , payable semi-annually in arrears on june 15 and december 15 of each year , which commenced on december 15 , 2014. on june 15 , 2019 , our $ 155.3 million aggregate principal amount of 2014 convertible notes matured and we repaid the outstanding principal and accrued but unpaid interest in cash . 2018 convertible notes โon august 20 , 2018 , we closed a registered public offering of $ 100.0 million aggregate principal amount of unsecured convertible notes ( the โ 2018 convertible notes โ and together with the 2014 convertible notes , the โ convertible notes โ ) , pursuant to an indenture , dated august 20 , 2018 , as supplemented by a first supplemental indenture thereto , dated august 20 , 2018 ( together the โ 2018a indenture โ ) . on august 30 , 2018 , in connection with the registered public offering , we issued an additional $ 15.0 million aggregate principal amount of the 2018 convertible notes pursuant to the exercise of an overallotment option by the underwriter of the 2018 convertible notes . on june 7 , 2019 , we closed a registered public offering of an additional $ 86.3 million aggregate principal amount of the 2018 convertible notes . these additional 2018 convertible notes constitute a further issuance of , rank equally in right of payment with , and form a single series with the $ 115.0 million aggregate principal amount of 2018 convertible notes that we issued in august 2018 . 99 the 2018 convertible notes bear interest at an annual rate of 5.75 % , payable semi-annually in arrears on february 15 and august 15 of each year . the 2018 convertible notes will mature on august 15 , 2023 unless earlier converted , repurchased or redeemed pursuant to the terms of the 2018a indenture . we may not redeem the 2018 convertible notes prior to may 15 , 2023. on or after may 15 , 2023 , we may redeem the 2018 convertible notes for cash , in whole or from time to time in part , at our option at a redemption price , subject to an exception for redemption dates occurring after a record date but on or prior to the interest payment date , equal to the sum of ( i ) 100 % of the principal amount of the 2018 convertible notes to be redeemed , ( ii ) accrued and unpaid interest thereon to , but excluding , the redemption date and ( iii ) a make-whole premium . no sinking fund is provided for the 2018 convertible notes . holders of 2018 convertible notes may , at their option , convert their 2018 convertible notes into shares of our common stock at any time on or prior to the close of business on the business day immediately preceding the maturity date of the 2018 convertible notes . in addition , if certain corporate events occur , holders of the 2018 convertible notes may require us to repurchase for cash all or part of their 2018 convertible notes at a repurchase price equal to 100.0 % of the principal amount of the 2018 convertible notes to be repurchased , plus accrued and unpaid interest through , but excluding , the repurchase date . the 2018a indenture contains certain covenants , including covenants requiring us to provide certain financial information to the holders of the 2018 convertible notes and the trustee if we cease to be subject to the reporting requirements of the securities exchange act of 1934 , as amended ( the `` exchange act '' ) . the 2018a indenture also includes additional financial covenants related to our asset coverage ratio . these covenants are subject to limitations and exceptions that are described in the 2018a indenture . the following table summarizes certain key terms related to the convertible features of our 2018 convertible notes as of december 31 , 2020 . 2018 convertible notes initial conversion premium 10.0 % initial conversion rate ( 1 ) 65.8762 initial conversion price $ 15.18 conversion premium at december 31 , 2020 10.0 % conversion rate at december 31 , 2020 ( 1 ) ( 2 ) 65.8762 conversion price at december 31 , 2020 ( 2 ) ( 3 ) $ 15.18 last conversion price calculation date august 20 , 2020 ( 1 ) conversion rates denominated in shares of common stock per $ 1.0 thousand principal amount of the 2018 convertible notes converted .
| operating expenses replace_table_token_41_th our total net operating expenses decreased by approximately $ 3.0 million for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. our management fee increased by approximately $ 3.6 million , net of a management fee waiver , and our incentive fee decreased by approximately $ 0.6 million , net of an incentive fee waiver , for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. the increase in management fees was 95 attributable to larger invested balances , driven by our use of leverage from our revolving credit facilities and sba-guaranteed debentures and proceeds from our july 2019 and october 2019 public offerings of our common stock used to originate new investments . the decrease in incentive fees was primarily attributable to an incentive fee waiver by the investment adviser during the year ended december 31 , 2020. interest and other financing expenses decreased by approximately $ 6.3 million during the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 , primarily due to lower libor rates on our floating rate borrowings . our total professional fees , administrative fees , net of expenses waived and reimbursed , and other general and administrative expenses for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 remained relatively flat . net realized gains ( losses ) and net change in unrealized appreciation ( depreciation ) replace_table_token_42_th our net realized and unrealized losses resulted in a net loss of approximately $ 55.5 million for the year ended december 31 , 2020 compared to the net realized gains and unrealized losses resulting in a net loss of approximately $ 4.6 million for the same period in 2019. as movement in unrealized appreciation or depreciation can be the result of realizations , we look at net realized and unrealized gains or losses together . the
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based upon the $ 16.92 per share closing price of its common stock as of december 31 , 2013 , the holding company would utilize $ 19.0 million in order to purchase all of the remaining authorized shares . as of december 31 , 2013 , the holding company possessed adequate cash on hand to complete such repurchases , if desired . during the year ended december 31 , 2013 , the holding company paid $ 19.7 million in cash dividends on its common stock , up from $ 19.2 million during the year ended december 31 , 2012 , reflecting an increase of 998,682 in issued and outstanding shares from december 31 , 2012 to december 31 , 2013. contractual obligations the bank has outstanding at any time , a significant number of borrowings in the form of fhlbny advances or repos , as well as fixed interest obligations on cds . the holding company also has $ 70.7 million of trust preferred borrowings due to mature in april 2034 , which became callable at any time after april 2009. the holding company currently does not intend to call this debt . -56- the bank is obligated under leases for rental payments on certain of its branches and equipment . a summary of cds , borrowings and lease obligations at december 31 , 2013 is as follows : replace_table_token_22_th ( 1 ) the weighted average cost of cds , inclusive of their contractual compounding of interest , was 1.68 % at december 31 , 2013. off-balance sheet arrangements from december 2002 through february 2009 , the bank originated and sold multifamily residential mortgage loans in the secondary market to fnma subject to the first loss position . see `` item i โ part 1. business โ asset quality โ problem loans serviced for fnma subject to the first loss position '' for a discussion of the first loss position obligation associated with these loans . in addition , as part of its loan origination business , the bank generally has outstanding commitments to extend credit to third parties , which are granted pursuant to its regular underwriting standards . since many of these loan commitments expire prior to funding , in whole or in part , the contract amounts are not estimates of future cash flows . the following table presents off-balance sheet arrangements as of december 31 , 2013 : replace_table_token_23_th analysis of net interest income the company 's profitability , like that of most banking institutions , is dependent primarily upon net interest income , which is the difference between interest income on interest-earnings assets , such as loans and securities , and interest expense on interest-bearing liabilities , such as deposits or borrowings . net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities , and the interest rate earned or paid on them . the following tables set forth certain information relating to the company 's consolidated statements of operations for the years ended december 31 , 2013 , 2012 and 2011 , and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated . such yields and costs are derived by dividing interest income or expense by the average balance of interest-earning assets or interest-bearing liabilities , respectively , for the periods indicated . average balances are derived from daily balances . the yields and costs include fees and charges that are considered adjustments to yields and costs . all material changes in average balances and interest income or expense are discussed in the sections entitled `` interest income '' and `` interest expense '' in the comparisons of operating results commencing on page f-61 . -57- replace_table_token_24_th ( 1 ) in computing the average balance of real estate loans , non-performing loans have been included . interest income on real estate loans includes loan fees . interest income on real estate loans also includes applicable prepayment fees and late charges totaling $ 13.7 million , $ 15.1 million and $ 8.1 million during the years ended december 31 , 2013 , 2012 and 2011 , respectively . ( 2 ) interest expense on borrowed funds includes $ 28.8 million of prepayment charge recognized during the year ended december 31 , 2012. there were no such fees during the years ended december 31 , 2013 and 2011. absent the prepayment charge , the average cost of borrowings would have been 3.45 % during the year ended december 31 , 2012 . ( 3 ) net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . ( 4 ) net interest margin represents net interest income as a percentage of average interest-earning assets . -58- rate/volume analysis . the following table represents the extent to which variations in interest rates and the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated . information is provided in each category with respect to : ( i ) variances attributable to fluctuations in volume ( change in volume multiplied by prior rate ) , ( ii ) variances attributable to rate ( changes in rate multiplied by prior volume ) , and ( iii ) the net change . variances 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 . story_separator_special_tag year ended december 31 , 2013 compared to year ended december 31 , 2012 increase/ ( decrease ) due to year ended december 31 , 2012 compared to year ended december 31 , 2011 increase/ ( decrease ) due to year ended december 31 , 2011 compared to year ended december 31 , 2010 increase/ ( decrease ) due to volume rate total volume rate total volume rate total interest-earning assets : ( dollars in thousands ) real estate loans $ 10,471 $ ( 28,026 ) $ ( 17,555 ) $ ( 2,617 ) $ ( 8,268 ) $ ( 10,885 ) $ ( 685 ) $ ( 1,872 ) $ ( 2,557 ) other loans 10 ( 13 ) ( 3 ) 66 ( 59 ) 7 ( 21 ) ( 5 ) ( 26 ) investment securities ( 986 ) 226 ( 760 ) ( 1,226 ) ( 792 ) ( 2,018 ) ( 2,514 ) ( 263 ) ( 2,777 ) mbs ( 1,629 ) 17 ( 1,612 ) ( 523 ) 385 ( 138 ) 995 ( 871 ) 124 federal funds sold and other short-term investments ( 963 ) 395 ( 568 ) 143 ( 371 ) ( 228 ) 273 ( 615 ) ( 342 ) total $ 6,903 $ ( 27,401 ) $ ( 20,498 ) $ ( 4,157 ) $ ( 9,105 ) $ ( 13,262 ) $ ( 1,952 ) $ ( 3,626 ) $ ( 5,578 ) interest-bearing liabilities : interest bearing checking accounts $ ( 9 ) $ 8 $ ( 1 ) $ ( 3 ) $ ( 81 ) $ ( 84 ) $ ( 58 ) $ ( 222 ) $ ( 280 ) money market accounts $ 1,307 $ ( 277 ) $ 1,030 518 ( 944 ) ( 426 ) ( 58 ) ( 673 ) ( 731 ) savings accounts 15 ( 335 ) ( 320 ) 34 ( 185 ) ( 151 ) 48 ( 125 ) ( 77 ) cds ( 1,355 ) ( 1,206 ) ( 2,561 ) ( 1,887 ) ( 1,804 ) ( 3,691 ) ( 694 ) ( 2,078 ) ( 2,772 ) borrowed funds ( 9,428 ) ( 27,863 ) ( 37,291 ) ( 8,880 ) 29,630 20,750 ( 2,468 ) ( 3,371 ) ( 5,839 ) total $ ( 9,470 ) $ ( 29,673 ) $ ( 39,143 ) $ ( 10,218 ) $ 26,616 $ 16,398 $ ( 3,230 ) $ ( 6,469 ) $ ( 9,699 ) net change in net interest income $ 16,373 $ 2,272 $ 18,645 $ 6,061 $ ( 35,721 ) $ ( 29,660 ) $ 1,278 $ 2,843 $ 4,121 comparison of financial condition at december 31 , 2013 and december 31 , 2012 assets . assets totaled $ 4.03 billion at december 31 , 2013 , $ 122.8 million above their level at december 31 , 2012. real estate loans increased $ 194.0 million during the year ended december 31 , 2013. during the year ended december 31 , 2013 , the bank originated $ 1.07 billion of real estate loans ( including refinancing of existing loans ) and purchased $ 52.0 million of real estate loans , which exceeded the $ 923.1 million aggregate amortization on such loans ( also including refinancing of existing loans ) . the company also increased its investment in fhlbny common stock by $ 3.0 million during the year ended december 31 , 2013 as a result of the $ 67.5 million addition to its outstanding fhlbny borrowings during the period . cash and due from banks decreased by $ 33.3 million due to the utilization of cash balances to meet funding obligations . investment securities available-for-sale declined $ 14.3 million during year ended december 31 , 2013 , as $ 14.8 million of agency securities that were called during the period were not replaced . mbs also declined $ 17.5 million during the year ended december 31 , 2013 , primarily due to principal amortization during the period . liabilities . total liabilities increased $ 78.9 million during the year ended december 31 , 2013. retail deposits ( due to depositors ) increased $ 27.7 million during the period . please refer to `` part ii โ item 7. management 's discussion and analysis of financial condition and results of operations - liquidity and capital resources '' for a discussion of the increase in retail deposits during the year ended december 31 , 2013. the company increased fhlbny advances by $ 67.5 million during the year ended december 31 , 2013 in order to fund asset growth during the period . stockholders ' equity . stockholders ' equity increased $ 43.9 million during the year ended december 31 , 2013 , due primarily to net income of $ 43.5 million , $ 11.2 million of common stock issued for the exercise of stock options , a reduction of $ 4.6 million in the accumulated comprehensive loss contra equity balance as a result of an improved actuarial funding status of the company 's defined benefit plans , and a $ 3.7 million aggregate increase to stockholders ' equity related to expense amortization and income tax benefits associated with stock benefit plans that added to the cumulative balance of stockholders ' equity . partially offsetting these items were $ 19.7 million in cash dividends paid during the period . -59- comparison of operating results for the years ended december 31 , 2013 and 2012 general . net income was $ 43.5 million during the year ended december 31 , 2013 , $ 3.2 million above net income of $ 40.3 million during the year ended december 31 , 2012. during the comparative period , net interest income increased $ 18.6 million , the provision for loan losses declined $ 3.6 million , non-interest income decreased $ 16.4 million and non-interest expense increased $ 120,000 , resulting in $ 5.7 million of additional pre-tax income . income tax expense increased $ 2.5 million during the comparative period due to the increase in pre-tax earnings .
| in order to address the credit risk associated with multifamily residential and mixed use lending , the bank has developed underwriting standards that it believes are reliable in order to maintain consistent credit quality for its loans . the bank also strives to provide a stable source of liquidity and earnings through the purchase of investment grade securities , seeks to maintain the asset quality of its loans and other investments , and uses portfolio and asset/liability management techniques in an effort to manage the effects of interest rate volatility on its profitability and capital . critical accounting policies during the year ended december 31 , 2013 , management of the company undertook an analysis of the appropriateness of each of the numerous elements previously identified as `` critical accounting policies , '' and determined that , through the passage of time and materiality relative to the company 's financial statements , it is no longer appropriate to identify several of them as critical to the fair presentation of the financial statements in all material respects . as a result of this analysis , management will continue to focus on two critical accounting policies which are considered to have a notably high subjective element , any misjudgment of which could have a material impact on the financial statements . the company 's policies with respect to ( 1 ) the methodologies it uses to determine the allowance for loan losses ( including reserves for loan commitments ) , and ( 2 ) accounting for defined benefit plans , are its most critical accounting policies because they are important to the presentation of the company 's consolidated financial condition and results of operations , involve a significant degree of complexity and require management to make difficult and subjective judgments which often necessitate assumptions or estimates about highly uncertain matters . the use of different judgments , assumptions or estimates could result in material variations in the company 's consolidated results of operations or financial condition . the following are descriptions of the company 's critical accounting policies and explanations of the methods
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these individuals worked with our product engineers , and product marketing and sales operations teams , in an integrated approach to address our customers ' current and future needs . we also engaged independent commissioned representatives worldwide to extend our global reach . we expect to continue experiencing competition from companies that range from large international companies offering a wide range of products to smaller companies specializing in narrow markets . we anticipate macroeconomic conditions , including the slow recovery in the u.s. , european sovereign debt issues , and concerns relating to inflation in china , could impact our company 's results . on january 22 , 2013 , we signed a definitive agreement to acquire the optical semiconductor business unit of lapis semiconductor co. , ltd. ( ocu ) . ocu is a leading provider of lasers , drivers , and detectors for high speed 100g applications located in japan . when closed , we believe this acquisition will enhance our competitive position in 100g products . we expect this transaction to be completed in the first or second quarter of 2013. critical accounting policies and estimates our 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 u.s. ( ยu.s . gaapย ) . these principles require us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , expenses and cash flow , and related disclosure of contingent assets and liabilities . our estimates include those related to revenue recognition , stock-based compensation expense , impairment analysis of goodwill and long-lived assets , valuation of inventory , warranty liabilities and accounting for income taxes . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from these estimates . to the extent that there are material differences between these estimates and our actual results , our future financial statements will be affected . we believe that of our significant accounting policies , which are described in note 2 of notes to consolidated financial statements , the following accounting policies involve a greater degree of judgment and complexity . accordingly , we believe these are the most critical to fully understand and evaluate our financial condition and results of operations . 49 revenue recognition we recognize revenue from the sale of our products provided that persuasive evidence of an arrangement exists , delivery has occurred , the price is fixed or determinable and collectability is reasonably assured . contracts and or customer purchase orders are used to determine the existence of an arrangement . shipping documents and customer acceptance , when applicable , are used to verify delivery . we assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment . we assess collectability based primarily on the creditworthiness of the customer as determined by credit checks and the customer 's payment history . we recognize revenue when the product is shipped and title has transferred to the buyer . we bear all costs and risks of loss or damage to the goods up to that point . on most orders , our terms of sale provide that title passes to the buyer upon shipment by us . in certain cases , our terms of sale may provide that title passes to the buyer upon delivery of the goods to the buyer . revenue related to the sale of consignment inventory at vendor managed locations is not recognized until the product is pulled from inventory stock by customers . we determine payments made to third-party sales representatives are appropriately recorded to sales and marketing expense and not a reduction of revenue as the sales agent services they provide have an identifiable benefit and are made at similar rates of other sales agent service providers . shipping and handling costs are included in the cost of goods sold . we present revenue net of sales taxes and any similar assessments . stock-based compensation expense we grant stock options , stock purchase rights , stock appreciation units and restricted stock units to employees and directors . the stock-based awards are accounted for at fair value as of the measurement date . for stock options and restricted stock units , the measurement date is the grant date and for stock purchase rights the measurement date is the first day of the offering period . stock appreciation units are subject to re-measurement each reporting period . we recognize the fair value over the period during which an employee is required to provide services in exchange for the award , known as the requisite service period ( usually the vesting period ) on a straight-line basis . stock-based compensation expense includes the impact of estimated forfeitures . we estimate future forfeitures at the date of grant and revise the estimates , if necessary , in subsequent periods if actual forfeitures differ from those estimates . we account for stock-based compensation using the black-scholes-merton option-pricing model . determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment , including estimating stock price volatility , forfeiture rates and expected life . if any of these assumptions used in the option-pricing models change , our stock-based compensation expense could change on our consolidated financial statements . goodwill goodwill is assessed for impairment annually or more frequently when an event occurs or circumstances change between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying value . in fiscal year 2012 , the financial accounting standards board ( ย fasb ย ) amended its guidance to simplify testing goodwill for impairment . the amended guidance allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test . story_separator_special_tag if an entity determines that as a result of the qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying amount , then the quantitative test is required . otherwise , no further testing is required . we performed our annual goodwill impairment tests on december 31 , 2011. we recognized a goodwill impairment charge of $ 13.1 million due to a decline in our market capitalization during the fourth quarter of 2011 , the result of which is that we do not have any goodwill on our consolidated balance sheets as of december 31 , 2011 and 2012 . 50 long-lived assets we assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . an impairment loss would be recognized when the sum of the future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount . the estimated future cash flows are based upon , among other things , assumptions about expected future operating performance and may differ from actual cash flows . if our estimates regarding future cash flows derived from such assets were to change , we may record an impairment to the value of these assets . we did not record any asset impairment charges during the years ended december 31 , 2012 , 2011 or 2010. valuation of inventories we record inventories at the lower of cost ( using the first-in , first-out method ) or market , after we give appropriate consideration to obsolescence and inventories in excess of anticipated future demand . in assessing the ultimate recoverability of inventories , we are required to make estimates regarding future customer demand , the timing of new product introductions , economic trends and market conditions . if the actual product demand is significantly lower than forecasted , we could be required to record additional inventory write-downs which would be charged to cost of goods sold . obsolescence is determined from several factors , including competitiveness of product offerings , market conditions and product life cycles . increases to the provision for excess and obsolete inventory are charged to cost of goods sold . at the point of the loss recognition , a new , lower cost basis for that inventory is established , and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis . if this lower-cost inventory is subsequently sold , it will result in lower costs and higher gross margin for those products . any write-downs would have an adverse impact on our gross margin . during the years ended december 31 , 2012 , 2011 and 2010 , we recorded excess and obsolete inventory charges of $ 3.1 million , $ 0.6 million and $ 1.2 million , respectively . warranty liabilities we provide warranties to cover defects in workmanship , materials and manufacturing of our products for a period of one to two years to meet stated functionality specifications . from time to time , we have agreed , and may agree , to warranty provisions providing for extended terms or with a greater scope . we test products against specified functionality requirements prior to delivery , but we nevertheless from time to time experience claims under our warranty guarantees . we accrue for estimated warranty costs under those guarantees based upon historical experience , and for specific items at the time their existence is known and the amounts are determinable . we charge a provision for estimated future costs related to warranty activities to cost of goods sold based upon historical product failure rates and historical costs incurred in correcting product failures . if we experience an increase in warranty claims compared with our historical experience , or if the cost of servicing warranty claims is greater than expected , our gross margin and profitability would be adversely affected . we recorded warranty expense of $ 0.1 million , $ 0.4 million and $ 0.2 million for each of the years ended december 31 , 2012 , 2011 and 2010 , respectively . accounting for income taxes we record income taxes using the asset and liability method , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . in estimating future tax consequences , generally we consider all expected future events , other than enactments or changes in tax law or rates . we provide valuation allowances when necessary to reduce deferred tax assets to the amount expected to be realized . we operate in various tax jurisdictions and are subject to audit by various tax authorities . we provide for tax contingencies whenever it is deemed probable that a tax asset has been impaired or a tax liability has been incurred for events such as tax claims or changes in tax laws . tax contingencies are based upon their technical merits , relevant tax law and the specific facts and circumstances as of each reporting period . changes in facts and circumstances could result in material changes to the amounts recorded for such tax contingencies . 51 as part of the process of preparing our consolidated financial statements , we are required to estimate our taxes in each of the jurisdictions in which we operate . we estimate actual current tax exposure together with assessing temporary differences resulting from differing treatment of items , such as accruals and allowances not currently deductible for tax purposes . these differences result in deferred tax assets . we make estimates and judgments about our future taxable income that are based on assumptions that are consistent with our plans and estimates . should the actual amounts differ from our estimates , the amount of our valuation allowance could be materially impacted .
| this increase in revenue was primarily attributable to growth in our high speed 100g and 40g products which generally have higher average selling prices as compared to more mature products . our high speed 100g products grew more than 300 % from 2011 to 2012. total revenue increased by $ 23.4 million in 2011 compared to 2010 , representing a 13 % increase . the increase in revenue was primarily attributable to increases in demand for our products as carriers continued to deploy fiber-to-home solutions and deploy 40gbps , 100gbps and other telecom networks . on a global basis , in 2012 we experienced greater revenue growth from western customers compared to customers located in china , while in 2011 the increase in revenue was primarily realized in china and to a lesser extent in the u.s. in 2013 , we expect our revenue to continue to grow . we also expect that a significant portion of our revenue will continue to be derived from a limited number of customers , as a result of growth in purchases by our key china , u.s. and european customers . as a result , the loss of , or a significant reduction in orders from our largest customer , huawei technologies or any of our other key customers would materially and adversely affect our revenue and results of operations . we expect a significant portion of our sales to continue to be denominated in rmb , and therefore may be affected by changes in foreign exchange rates . cost of goods sold and gross profit replace_table_token_7_th gross profit represents net sales less cost of goods sold . our cost of goods sold consists primarily of the cost to produce wafers and to manufacture and test our products . additionally , our cost of goods sold includes stock-based compensation , reserves for excess and obsolete inventory , royalty payments , amortization of certain purchased intangible assets and acquisition-related fair value adjustments , and warranty , shipping and allocated facilities costs . gross profit increased by $ 11.2 million
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merger and other acquisition expenses primarily include incremental costs directly associated with merger and acquisition activities , including professional fees , legal expenses , severance , retention and other employee-related costs , accelerated vesting of certain equity compensation awards , contract breakage costs and costs related to consolidation of technology systems and corporate facilities . stores included in the same-store calculations presented in this report are those stores that were opened or acquired prior to the beginning of the prior-year comparative fiscal period and remained open through the end of the reporting period . also included are stores that were relocated during the applicable period within a specified distance serving the same market where there is not a significant change in store size and where there is not a significant overlap or gap in timing between the opening of the new store and the closing of the existing store . the company 's management reviews and analyzes certain operating results in latin america on a constant currency basis because the company believes this better represents the company 's underlying business trends . constant currency results are non-gaap financial measures , which exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates . the scrap jewelry generated in latin america is sold and settled in u.s. dollars and therefore , wholesale scrap jewelry sales revenue is not affected by foreign currency translation . a small percentage of the operating and administrative expenses in latin america are also billed and paid in u.s. dollars , which are not affected by foreign currency translation . 36 business operations in mexico , guatemala and colombia are transacted in mexican pesos , guatemalan quetzales and colombian pesos , respectively . the company also has operations in el salvador where the reporting and functional currency is the u.s. dollar . the following table provides exchange rates for the mexican peso , guatemalan quetzal and colombian peso for the current and prior-year periods : replace_table_token_9_th amounts presented on a constant currency basis are denoted as such . see โ non-gaap financial information โ for additional discussion of constant currency operating results . 37 the following table details income statement items as a percent of total revenue and other operating metrics : replace_table_token_10_th ( 1 ) prior-year amounts have been reclassified . see note 2 of notes to consolidated financial statements for further information . 38 critical accounting policies the preparation of financial statements in conformity with gaap requires management to make estimates , assumptions and judgments that affect the reported amounts of assets and liabilities , related revenue and expenses , and disclosure of gain and loss contingencies at the date of the financial statements . such estimates , assumptions and judgments are subject to a number of risks and uncertainties , which may cause actual results to differ materially from the company 's estimates . the significant accounting policies that the company believes are the most critical to aid in fully understanding and evaluating its reported financial results include the following : customer loans and revenue recognition - receivables on the balance sheet consist of pawn loans and consumer loans . pawn loans are collateralized by pledged tangible personal property , which the company holds during the term of the loan plus a stated grace period . in certain markets , the company also provides pawn loans collateralized by automobiles , which typically remain in the possession of the customer . the company accrues pawn loan fee revenue on a constant-yield basis over the life of the pawn for all pawns for which the company deems collection to be probable based on historical pawn redemption statistics . the typical pawn loan term is generally 30 days plus an additional grace period of 14 to 90 days , depending on geographical markets and local regulations . pawn loans may be either paid in full with accrued pawn loan fees and service charges or , where permitted by law , may be renewed or extended by the customer 's payment of accrued pawn loan fees and service charges . if the pawn is not repaid upon expiration of the grace period , the principal amount loaned becomes the carrying value of the forfeited collateral , which is typically recovered through sales of the forfeited items at prices well above the carrying value . the company 's pawn merchandise sales are primarily retail sales to the general public in its pawn stores . the company acquires pawn merchandise inventory through forfeited pawn loans and through purchases of used goods directly from the general public . the company also retails limited quantities of new or refurbished merchandise obtained directly from wholesalers and manufacturers . the company records sales revenue at the time of the sale . the company presents merchandise sales net of any sales or value-added taxes collected . the company does not provide direct financing to customers for the purchase of its merchandise , but does permit its customers to purchase merchandise on an interest-free layaway plan . should the customer fail to make a required payment pursuant to a layaway plan , the previous payments are typically forfeited to the company . interim payments from customers on layaway sales are recorded as deferred revenue and subsequently recorded as retail merchandise sales revenue when the merchandise is delivered to the customer upon receipt of final payment or when previous payments are forfeited to the company . some jewelry is processed at third-party facilities and the precious metal and diamond content is sold at either prevailing market commodity prices or a previously agreed upon price with a commodity buyer . the company records revenue from these wholesale scrap jewelry transactions when a price has been agreed upon and the company ships the commodity to the buyer . the company accrues consumer loan service fees on a constant-yield basis over the term of the consumer loan . consumer loans have terms that typically range from 7 to 365 days . story_separator_special_tag the company recognizes credit services fees ratably over the life of the extension of credit made by the independent lenders . the extensions of credit made by the independent lenders to credit services customers typically have terms of 7 to 365 days . credit loss provisions - the company has determined no allowance related to credit losses on pawn loans is required , as the fair value of the pledged collateral is significantly in excess of the pawn loan amount . the company maintains an allowance for credit losses on consumer loans on an aggregate basis at a level it considers sufficient to cover estimated losses in the collection of its consumer loans . the allowance for credit losses is based primarily upon historical credit loss experience , with consideration given to recent credit loss trends and changes in loan characteristics ( e.g. , average amount financed and term ) , delinquency levels , collateral values , economic conditions and underwriting and collection practices . the allowance for credit losses is periodically reviewed by management with any changes reflected in current operations . the company fully reserves or charges off consumer loans once the loan has been classified as delinquent for 60 days . short-term loans are considered delinquent when payment of an amount due is not made as of the due date . installment loans are considered delinquent when a customer misses two payments . if a loan is estimated to be uncollectible before it is fully reserved , it is charged off at that point . recoveries on loans previously charged to the allowance , including the sale of delinquent loans to unaffiliated third parties , are credited to the allowance when collected or when sold to a third party . the company generally does not accrue interest on delinquent consumer loans . in addition , delinquent consumer loans generally may not be renewed , and if , during its attempt to collect on a delinquent consumer loan , the company allows additional time for payment through a payment plan or a promise to pay , it is still considered delinquent . generally , all payments received are first applied against accrued but unpaid interest and fees and then against the principal balance of the loan . 39 under the cso programs , the company assists customers in applying for a short-term extension of credit from independent lenders and issues the independent lenders a guarantee for the repayment of the extension of credit . the company is required to recognize , at the inception of the guarantee , a liability for the fair value of the obligation undertaken by issuing the guarantee . according to the guarantee , if the borrower defaults on the extension of credit , the company will pay the independent lenders the principal , accrued interest , insufficient funds and late fee , if applicable , all of which the company records as a component of its credit loss provision . the company is entitled to seek recovery , directly from its customers , of the amounts it pays the independent lenders in performing under the guarantees . the company records the estimated fair value of the liability in accrued liabilities . the estimated fair value of the liability is periodically reviewed by management with any changes reflected in current operations . inventories - inventories represent merchandise acquired from forfeited pawns and merchandise purchased directly from the general public . the company also retails limited quantities of new or refurbished merchandise obtained directly from wholesalers and manufacturers . inventories from forfeited pawns are recorded at the amount of the pawn principal on the unredeemed goods , exclusive of accrued interest . inventories purchased directly from customers , wholesalers and manufacturers are recorded at cost . the cost of inventories is determined on the specific identification method . inventories are stated at the lower of cost or net realizable value and , accordingly , inventory valuation allowances are established if inventory carrying values are in excess of estimated selling prices , net of direct costs of disposal . management has evaluated inventories and determined that a valuation allowance is not necessary . goodwill and other indefinite-lived intangible assets - goodwill represents the excess of the purchase price over the fair value of the net assets acquired in each business combination . the company performs its goodwill impairment assessment annually as of december 31 , and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . the company 's reporting units , which are tested for impairment , are u.s. operations and latin america operations . the company assesses goodwill for impairment at a reporting unit level by first assessing a range of qualitative factors , including , but not limited to , macroeconomic conditions , industry conditions , the competitive environment , changes in the market for the company 's products and services , regulatory and political developments , entity specific factors such as strategy and changes in key personnel , and overall financial performance . if , after completing this assessment , it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value , the company proceeds to the two-step impairment testing methodology . the company 's material indefinite-lived intangible assets consist of trade names and pawn licenses . the company performs its indefinite-lived intangible asset impairment assessment annually as of december 31 , and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . the company determined there was no impairment as of december 31 , 2018 and 2017 . foreign currency transactions - the company has significant operations in latin america , where in mexico , guatemala and colombia the functional currency is the mexican peso , guatemalan quetzal and colombian peso , respectively .
| corporate depreciation and amortization increased to $ 20.8 million during fiscal 2017 compared to $ 7.8 million during fiscal 2016 , primarily due to the assumption of $ 118.2 million in property and equipment and $ 23.4 million in intangible assets subject to amortization as a result of the merger , which were depreciated and amortized during all of fiscal 2017 as compared to the period september 2 , 2016 to december 31 , 2016 during fiscal 2016. interest expense increased to $ 24.0 million during fiscal 2017 compared to $ 20.3 million for fiscal 2016. see โ liquidity and capital resources. โ 56 merger and other acquisition expenses decreased to $ 9.1 million during fiscal 2017 compared to $ 36.7 million during fiscal 2016 , reflecting the timing of transaction and integration costs related to the merger . see โ non-gaap financial information โ for additional details of merger and other acquisition expenses . during fiscal 2017 , the company repurchased through a tender offer , or otherwise redeemed , its previously outstanding $ 200 million , 6.75 % senior unsecured notes due 2021 , incurring a loss on extinguishment of debt of $ 14.1 million . the company 's effective income tax rate for fiscal 2017 was 16.5 % , primarily a result of the passage of the tax act in fiscal 2017 , as the company recorded a provisional net one-time tax benefit of $ 27.3 million during the fourth quarter of 2017. excluding the tax benefit realized as a result of the tax act , the effective income tax rate for fiscal 2017 was 32.3 % compared to 35.7 % for fiscal 2016. the decrease in the adjusted fiscal 2017 effective tax rate as compared to the 2016 effective tax rate was primarily due to an increase in certain foreign permanent tax benefits and certain significant merger related expenses being non-deductible for income tax purposes during fiscal 2016 , which increased the 2016 effective tax rate . net income , adjusted net income , diluted earnings per share and adjusted diluted earnings per share the following table sets forth revenue , net revenue , net income , diluted earnings per share , adjusted net income and adjusted diluted earnings per share for the fiscal year ended december 31 , 2017 as compared to the fiscal year ended december 31 , 2016 ( in thousands , except per share amounts ) : replace_table_token_22_th adjusted net income removes certain items from gaap net income that the company does not consider to be representative of its actual operating performance , such as the non-recurring
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the following table provides a comparison of total , adversely classified credits ( `` acc '' ) and watch list net par outstanding in the insured portfolio at december 31 , 2018 and 2017 . net par exposures within the u.s. public finance market includes capital appreciation bonds which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bonds . replace_table_token_7_th the overall reduction in total net par outstanding resulted from scheduled maturities , amortizations , commutations , reinsurance , refundings , refinancings and calls , including reductions as a result of the activities of ambac and its subsidiaries as noted above . the decreases in adversely classified credit exposures and watch list credit exposures are primarily due to ( i ) results of active risk reductions ; ( ii ) paydowns or calls by issuers ; and ( iii ) for adversely classified credits , the improved credit profile of certain residential mortgage-backed securities and their upgrade from the adversely classified credit listing . although our insured portfolio generally performed satisfactorily in 2018 , we continue to experience stress in certain insured exposures , particularly within our approximately $ 1.9 billion of exposure to puerto rico , consisting of several different issuing entities ( all below investment grade ) . each issuing entity has its own credit risk profile attributable to . as applicable , discrete revenue sources , direct general obligation pledges and or general obligation guarantees . on february 4 , 2019 , the cofina plan of adjustment ( `` poa '' ) was confirmed by the united states district court for the district of puerto rico and became effective on february 12 , 2019. several parties are presently appealing the confirmation of the poa and no assurances can be given regarding the results of such appeals . the poa and certain related commutation transactions resulted in a reduction of ambac assurance 's insured exposure to cofina by approximately 75 % or $ 603 million to $ 202 million and a reduction in overall puerto rico exposure to $ 1.3 billion from $ 1.9 billion at december 31 , 2018. refer to part ii , item 7. financial guarantees in force in this annual report on form 10-k for additional information regarding the different issuing entities that encompass ambac 's exposures to puerto rico as well as the cofina poa . | ambac financial group , inc. 30 2018 form 10-k | ambac 's rmg had additional successes in the first quarter of 2019 as follows : additional clean-up calls on two rmbs transactions on the watch list with net par outstanding at december 31 , 2018 of $ 48 million ; worked with the issuer of two watch list asset backed securitizations to expedite the refunding of the bonds with net par outstanding of $ 95 million at december 31 , 2018 ; and worked with an issuer to commute , via a first quarter 2019 refunding , an adversely classified public finance transaction with net par outstanding of $ 350 million at december 31 , 2018. during 2018 , ambac repaid the remaining december 31 , 2017 balance of the secured borrowing ( as defined and described in note 3. variable interest entities ) of $ 74 million and made partial paydowns of the ambac note ( as defined in note 1. background and business description ) by $ 214 million . ambac : as of december 31 , 2018 cash , investments and receivables of ambac were $ 455 million . replace_table_token_8_th ( 1 ) includes corporate securities and securities insured or issued by ambac assurance , including surplus notes ( fair value of $ 57 million ) and amps issued by ambac assurance that are eliminated in consolidation . ( 2 ) includes accruals for tolling payments from ambac assurance in accordance with the intercompany tax sharing agreement ( $ 44 million ) , investment income due and accrued and other receivables . tolling payments are subject to review and approval by oci as summarized below . as a result of positive taxable income at ambac assurance in 2017 , ambac accrued approximately $ 30 million in tax tolling payments . in may 2018 , ambac executed a waiver under the intercompany tax sharing agreement pursuant to which ambac assurance was relieved of the requirement to make this payment by june 1 , 2018. ambac also agreed to continue to defer the tolling payment for the use of net operating losses in 2017 by ambac assurance until such time as oci ( as defined in note 1. background and business description ) consents to the payment . for the year ended december 31 , 2018 , ambac assurance recognized taxable income and accordingly ambac has accrued $ 14 million of tolling payments . pursuant to the stipulation and order , ambac 's tax positions are subject to review by the oci , which may lead to the adoption of positions that reduce the amount of tolling payments otherwise available to ambac . financial statement impacts of foreign currency : the impact of foreign currency as reported in ambac 's consolidated statement of total comprehensive income for the year ended december 31 , 2018 included the following : ( $ in millions ) net income ( 1 ) $ ( 7 ) changes in other comprehensive income : gain ( losses ) on foreign currency translation ( 48 ) unrealized gains ( losses ) on non-functional currency available-for-sale securities 12 total changes in other comprehensive income ( 36 ) impact on total comprehensive income ( loss ) $ ( 43 ) ( 1 ) a portion of ambac uk 's , and to a lesser extent ambac assurance 's , assets and liabilities are denominated in currencies other than its functional currency and accordingly , we recognized net foreign currency transaction gains/ ( losses ) as a result of changes to foreign currency rates through our consolidated statement of total comprehensive income ( loss ) . story_separator_special_tag refer to note 2. basis of presentation and significant accounting policies to the consolidated financial statements included in part ii , item 8 in this form 10-k for further details on transaction gains and losses . future changes to currency rates , including as a result of a no deal brexit , may adversely affect our financial results . refer to part ii , item 7a `` quantitative and qualitative disclosures about market risk '' for further information on the impact of future currency rate changes on ambac 's financial instruments . critical accounting policies and estimates ambac 's consolidated financial statements have been prepared in accordance with gaap . this section highlights accounting estimates management views as critical because they are most important to the portrayal of the company 's financial condition ; and require management to make difficult and subjective judgments regarding matters that are inherently uncertain and subject to change . these estimates are evaluated on an on-going basis based on historical developments , market conditions , industry trends and other information that is reasonable under the circumstances . there can be no assurance that actual results will conform to estimates and that reported results of operations will not be materially adversely affected by the need to make future accounting adjustments to reflect changes in these estimates from time to time . management has identified the following critical accounting policies and estimates : ( i ) valuation of loss and loss expense reserves , ( ii ) valuation of certain financial instruments and ( iii ) valuation of deferred tax assets . management has discussed each of these critical accounting policies and estimates with the audit committee , including the reasons why they are considered critical and how current and anticipated future events impact those determinations . additional information about these policies can be found in note 2. basis of presentation and significant accounting policies to the consolidated financial statements included in part ii , item 8 in this form 10-k. valuation of losses and loss expense reserves ( including subrogation recoverables ) : the loss and loss expense reserves , including subrogation recoverables ( `` loss reserves '' ) , discussed in this section relate only to ambac 's non-derivative insurance policies issued to beneficiaries , including unconsolidated vies . ambac 's loss reserves include loss reserve components of an insurance policy , consisting of the present value ( `` pv '' ) of expected net cash flows to be paid ( or received ) under an insurance contract and unpaid | ambac financial group , inc. 31 2018 form 10-k | claims . the pv of expected net cash flows represents the pv of expected cash outflows ( future losses ) less the pv of expected cash inflows ( future recoveries ) discounted at a risk-free discount rate . unpaid claims represents claims that were not paid for policies allocated to the segregated account ( as defined in note 1. background and business description in the notes to consolidated financial statements included in this report on form 10-k ) , including deferred amounts ( as defined in note 1. background and business description in the notes to consolidated financial statements included in this report on form 10-k ) and accrued interest . in 2018 , all deferred amounts were settled via the rehabilitation exit transactions ( as defined in note 1. background and business description in the notes to consolidated financial statements included in this report on form 10-k ) ; therefore , unpaid claims are no longer included as a component of loss reserves . refer to note 1. background and business description in the notes to consolidated financial statements included in this form 10-k for further information on the rehabilitation exit transactions . while unpaid claims were known and therefore not a subjective estimate , expected future losses , net of expected future recoveries , are inherently uncertain . as such , the remaining discussion is limited to addressing expected future losses , net of expected future recoveries . the evaluation process for expected future losses is subject to certain estimates and judgments regarding the probability of default by the issuer of the insured security , probability of remediation and settlement outcomes ( which may include commutation , litigation settlements , refinancings and or other settlement outcomes ) , probability of a restructuring outcome ( which may include payment moratoriums , debt haircuts and or subsequent recoveries ) and the expected loss severity of credits for each insurance contract . as the probability of default for an individual credit increases and or the severity of loss given a default increases , our loss reserve for that insured obligation will also increase . political , economic , credit or other unforeseen events could have an adverse impact on default probabilities and loss severities . the loss reserves for many transactions are derived from the issuer 's creditworthiness . for public finance issuers , loss reserves will consider not only creditworthiness but also political dynamics and economic status and prospects . the loss reserves for transactions which have no direct issuer support , such as most structured finance exposures , including rmbs and student loan exposures , are derived from the default activity and loss given default of underlying collateral supporting the transactions . in addition , many transactions have a combination of issuer/entity and collateral support . loss reserves reflect our assessment of the transaction 's overall structure , support and expected performance . loss reserve volatility will be a direct result of the credit performance of our insured portfolio , including the number , size , bond types and quality of credits included in our loss reserves as well as our ability to execute workout strategies and commutations . the number and severity of credits included in our loss reserves depend to a large extent on transaction specific attributes , but will generally increase during periods of economic stress and decline during periods of economic prosperity .
| this transaction was accounted for as an extinguishment of deferred amounts and the discount of approximately $ 288 million from the settlement was reflected as a benefit to loss and loss expenses in the consolidated statements of comprehensive income ( loss ) in 2018. in connection with these transactions , ambac assurance received $ 196 million of principal and accrued and unpaid interest on general account surplus notes . ambac assurance recognized a gain on the extinguishment of these surplus notes of $ 3 million . exchanges were consummated pursuant to which holders of surplus notes received the same effective package as holders of beneficial interests in deferred amounts , including a discount of $ 0.065 for each $ 1.00 of principal amount and accrued and unpaid interest on the surplus notes tendered . these exchanges resulted in ambac assurance 's cancellation of $ 809.5 million of principal and accrued and unpaid interest of general account surplus notes . these exchanges were accounted for as a debt modification since the creditors before and after the discount remained the same and the change in the terms were not considered substantial . a substantial change is considered to be a change in cash flows of equal to or greater than 10 % as a result of the modification of terms . as the change in cash flows was less than 10 % , debt modification accounting was appropriate . under debt modification accounting , no gain or loss was recorded , and a new effective interest rate was established based on the cash flows of the ambac note , which secures the secured notes issued . ambac assurance issued $ 240 million of new debt secured by certain of ambac assurance 's rights to rmbs r & w subrogation recoveries above $ 1.6 billion ( `` tier 2 notes '' ) . the proceeds received from this issuance were used to help fund the cash portion of the consideration paid pursuant to the second amended plan of rehabilitation and exchanges noted above . refer to note 13 .
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net sales classifications by product line are as follows : reserve power products are used for backup power for the continuous operation of critical applications in telecommunications systems , ups applications for computer and computer-controlled systems , and other specialty power applications , including security systems , premium starting , lighting and ignition applications , in switchgear , electrical control systems used in electric utilities and energy pipelines , in commercial aircraft , satellites , military aircraft , submarines , ships , tactical vehicles and portable energy packs . motive power products are used to provide power for manufacturing , warehousing and other material handling equipment , primarily electric industrial forklift trucks , mining equipment , diesel locomotive starting and other rail equipment . 22 current market conditions economic climate recent indicators suggest a mixed trend in economic activity among our different geographical regions . the americas region continues its economic recovery which has been in place since fiscal 2010. asia 's economic expansion continues but at a slower rate . the sovereign debt crisis in europe is a factor in slowing overall economic growth in this region and leading to declining economic growth in many of the western european countries . overall , on a consolidated basis , we have experienced positive trends in our quarterly revenue and order rate . we believe we are well positioned to take advantage of future growth in our markets . we have taken numerous steps to restructure our manufacturing base and administrative operations to reduce our costs . we expect the economic climate and our strong capital structure will be conducive to a continuation of acquisitions which will help grow our business faster than the overall market growth . volatility of commodities and foreign currencies our most significant commodity and foreign currency exposures are related to lead and the euro . volatility of commodity costs and foreign currency exchange rates have caused large swings in our production costs . as the global economic climate changes , we anticipate that our commodity costs may continue to fluctuate significantly as they have in the past several years . the increase in our cost of lead due to increases in average lead prices was approximately $ 59 million in fiscal 2012 compared to fiscal 2011. customer pricing our selling prices fluctuated during the last several years to offset the volatile cost of commodities . beginning in the third quarter of fiscal 2009 , as a result of reductions in the cost of lead , our average selling prices began to decline on a sequential quarterly basis . as the cycle of lead costs turned upward in early fiscal 2010 , we began to increase average selling prices to help offset the higher costs . during fiscal 2011 and 2012 , our selling prices increased to reflect the rising commodity prices . selling price increases offset approximately $ 49 million of the increased commodity costs of $ 72 million in fiscal 2012. approximately 35 % to 40 % of our revenue is currently subject to agreements that adjust pricing to a market-based index for lead . liquidity and capital resources current market conditions related to our liquidity and capital resources are favorable . in march 2011 , we refinanced our 2008 senior secured credit facility , comprising a $ 225 million term a loan and a $ 125 million revolving credit line ( collectively the ย2008 credit facilityย ) , gaining additional flexibility in terms and an extended maturity to march 2016. we believe current conditions remain favorable for the company to have continued positive cash flow from operations that , along with available cash and cash equivalents and our undrawn lines of credit , will be sufficient to fund our capital expenditures , acquisitions and other investments for growth . our cash flows from operating activities were $ 204 million and $ 76 million during fiscal 2012 and 2011 , respectively . we invested $ 49 million and $ 60 million in capital expenditures , and $ 25 million and $ 32 million in new business opportunities in fiscal 2012 and 2011 , respectively . as a result of the above actions , at march 31 , 2012 , our financial position is strong and we have substantial liquidity with $ 160 million of available cash and cash equivalents , $ 282 million of undrawn , committed credit lines , and over $ 95 million of uncommitted credit lines . we believe we have the financial resources and the capital available to remain active in pursuing further investment and acquisition opportunities . 23 cost savings initiatives-restructuring cost savings programs remain a continuous element of our business strategy and are directed primarily at further reductions in plant manufacturing ( labor and overhead ) , raw materials costs and our operating expenses ( primarily selling , general and administrative ) . numerous individual cost savings opportunities are identified and evaluated by management with a formal selection and approval process that results in an ongoing list of cost savings projects to be implemented . in order to realize cost savings benefits for a majority of these initiatives , costs are incurred either in the form of capital expenditures , funding the cash obligations of previously recorded restructuring expenses or current period expenses . during fiscal 2009 and fiscal 2010 , we announced a plan to restructure certain of our european and american operations , which resulted in the reduction of approximately 470 employees on completion of the plan . these actions were primarily in europe , the most significant of which was the closure of our leased italian manufacturing facility and the opening of a new italian distribution center to continue to provide responsive service to our customers in that market . total charges for these actions amounted to approximately $ 32 million , which includes cash expenses of approximately $ 23 million , primarily for employee severance-related payments , and a non-cash charge of approximately $ 9 million , primarily for impairment of fixed assets . story_separator_special_tag based on the applicable accounting guidance , we recorded restructuring charges of $ 19.1 million in fiscal 2009 , $ 12.4 million in fiscal 2010 and $ 0.4 million in fiscal 2011. as of march 31 , 2012 this plan has been completed . our fiscal 2012 operating results reflect virtually all of the estimated $ 24 million of favorable annualized pre-tax earnings impact related to those actions . in fiscal 2010 , we began the restructuring programs primarily related to the oerlikon acquisition in europe and completed the restructuring as of march 31 , 2012. during fiscal 2011 , we began further restructuring programs related to our european operations , including distribution , which upon completion is expected to result in the reduction of approximately 60 employees . our fiscal 2012 operating results reflect approximately half of the estimated $ 4 million of favorable annualized pre-tax earnings impact of these programs , with the remainder expected to be experienced in future periods . in addition , during fiscal 2012 the we announced restructuring programs related to our operations in europe , primarily consisting of the transfer of manufacturing of select products between certain of our manufacturing operations and restructuring of our selling , general and administrative operations . these actions are expected to result in the reduction of approximately 80 employees upon completion . our fiscal 2012 operating results reflect approximately $ 1 million of the estimated $ 5 million of favorable annualized pre-tax earnings impact of the fiscal 2012 programs the company expects to be committed to approximately a total of $ 1 million of expenses for the remaining fiscal 2011 and 2012 restructuring programs in fiscal 2013. critical accounting policies and estimates our significant accounting policies are described in notes to consolidated financial statements in item 8. in preparing our financial statements , management is required to make estimates and assumptions that , among other things , affect the reported amounts of assets , liabilities , sales and expense . these estimates and assumptions are most significant where they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change , and where they can have a material impact on our financial condition and operating performance . we discuss below the more significant estimates and related assumptions used in the preparation of our consolidated financial statements . if actual results were to differ materially from the estimates made , the reported results could be materially affected . 24 revenue recognition we recognize revenue when the earnings process is complete . this occurs when risk and title transfers , collectability is reasonably assured and pricing is fixed and determinable . shipment terms to our battery product customers are either shipping point or destination and do not differ significantly between our business segments of the world . accordingly , revenue is recognized when risk and title is transferred to the customer . amounts invoiced to customers for shipping and handling are classified as revenue . taxes on revenue producing transactions are not included in net sales . we recognize revenue from the service of reserve power and motive power products when the respective services are performed . management believes that the accounting estimates related to revenue recognition are critical accounting estimates because they require reasonable assurance of collection of revenue proceeds and completion of all performance obligations . also , revenues are recorded net of provisions for sales discounts and returns , which are established at the time of sale . these estimates are based on our past experience . asset impairment determinations we test for the impairment of our goodwill and indefinite lived trade names at least annually and whenever events or circumstances occur indicating that a possible impairment has been incurred . we utilize financial projections of our business segments , certain cash flow measures , as well as our market capitalization in the determination of the fair value of these assets . with respect to our other long-lived assets other than goodwill and indefinite lived trade names , we test for impairment when indicators of impairment are present . an asset is considered impaired when the undiscounted estimated net cash flows expected to be generated by the asset are less than its carrying amount . the impairment recognized is the amount by which the carrying amount exceeds the fair value of the impaired asset . in making future cash flow analyses of goodwill and other long-lived assets , we make assumptions relating to the following : the intended use of assets and the expected future cash flows resulting directly from such use ; industry specific economic conditions ; competitor activities and regulatory initiatives ; and client and customer preferences and patterns . we believe that an accounting estimate relating to asset impairment is a critical accounting estimate because the assumptions underlying future cash flow estimates are subject to change from time to time and the recognition of an impairment could have a significant impact on our financial statements . litigation and claims from time to time the company has been or may be a party to various legal actions and investigations including , among others , employment matters , compliance with government regulations , federal and state employment laws , including wage and hour laws , contractual disputes and other matters , including matters arising in the ordinary course of business . these claims may be brought by , among others , governments , customers , suppliers and employees . management considers the measurement of litigation reserves as a critical accounting estimate because of the significant uncertainty in some cases relating to the outcome of potential claims or litigation and the difficulty of predicting the likelihood and range of potential liability involved , coupled with the material impact on our results of operations that could result from litigation or other claims .
| change in current and other assets , accrued expenses , and other liabilities contributed a further $ 20.2 million , offset by a $ 24.9 million increase in primary working capital . during fiscal 2011 , cash from operating activities was provided primarily from net earnings of $ 113.4 million , depreciation and amortization of $ 44.4 million and a net source of $ 17.6 million from non-cash interest expense , write-off of deferred finance fees , provision for doubtful accounts , deferred taxes and stock compensation . this cash flow was partially offset by an $ 86.7 million increase in primary working capital and a $ 12.2 million net increase in current and other assets , accrued expenses , and other liabilities . during fiscal 2010 , cash from operating activities was provided primarily from net earnings of $ 62.3 million , depreciation and amortization of $ 44.9 million , a $ 28.4 million decrease in primary working capital and a net source of $ 23.8 million from non-cash interest expense , provision for doubtful accounts , deferred taxes and stock compensation . this cash flow was partially offset by a $ 16.6 million decrease in accrued expenses and other liabilities , $ 2.9 million non-cash bargain purchase gain on the acquisition of oerlikon , and a $ 0.9 million gain on disposal of assets . as explained above in the discussion of our use of ยnon-gaap financial measures , ย we monitor the level and percentage of sales of primary working capital . primary working capital for this purpose is trade accounts receivable , plus inventories , minus trade accounts payable and the resulting net amount is divided by the trailing three month net sales ( annualized ) to derive a primary working capital percentage . primary working capital was $ 578.6 million ( yielding a primary working capital percentage of 24.4 % ) at march 31 , 2012 and $ 547.3 million ( yielding a primary working capital percentage of 25.0 % ) at march 31 , 2011. the 60 basis point decrease at march 31 , 2012 versus march 31 , 2011 was mainly a result of holding accounts receivables steady in spite of higher
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additionally , bank regulators review the acl and could have a differing view from management regarding the acl balance , which could result in an increase in the acl and or the recognition of additional charge-offs . although management believes that the bank has established and maintained the acl at appropriate levels , additions may be necessary if economic and other conditions worsen substantially from the current operating environment , and or if bank regulators have a differing view from management regarding the acl balance . our primary lending emphasis is the origination and purchase of one- to four-family loans and , to a lesser extent , consumer loans secured by one- to four-family residential properties , resulting in a loan concentration in residential mortgage loans . we believe the primary risks inherent in our one- to four-family and consumer loan portfolios are a decline in economic conditions , elevated levels of unemployment or underemployment , and declines in residential real estate values . changes in any one or a combination of these events may adversely affect borrowers ' ability to repay their loans , resulting in increased delinquencies , non-performing assets , loan losses , and future loan loss provisions . although the commercial loan portfolio is subject to the same risk of declines in economic conditions , the primary risk characteristics inherent in this portfolio include the ability of the borrower to sustain sufficient cash flows from leases and business operations and to control operational and or business expenses to satisfy their contractual debt payments , and or the ability to utilize personal and or business resources to pay their contractual debt payments if the cash flows are not sufficient . additionally , if the bank were to repossess the secured collateral of a commercial real estate loan , the pool of potential buyers is more limited than that for a residential property . therefore , the bank could hold the property for an extended period of time and or potentially be forced to sell at a discounted price , resulting in additional losses . our commercial and industrial loans are primarily secured by accounts receivable , inventory and equipment , which may be difficult to appraise , may be illiquid and may fluctuate in value based on the success of the business . each quarter , we prepare a formula analysis model which segregates our loan portfolio into categories based on certain risk characteristics such as loan type ( one- to four-family , commercial , etc . ) , interest payments ( fixed-rate and adjustable-rate ) , loan source ( originated , correspondent purchased , bulk purchased , or participation ) , ltv ratios , borrower 's credit score and payment status ( i.e . current or number of days delinquent ) . consumer loans , such as second mortgages and home equity lines of credit , with the same underlying collateral as a one- to four-family loan are combined with the one- to four-family loan in the formula analysis model to calculate a combined ltv ratio . 44 historical loss factors are applied to each loan category in the formula analysis model . additionally , qualitative loss factors that management believes impact the collectability of the loan portfolio as of the evaluation date are applied to each loan category . qualitative loss factors increase as loans are classified or become delinquent . see `` part ii , item 8. financial statements and supplementary data โ notes to consolidated financial statements โ note 1. summary of significant accounting policies '' for additional information related to the loss factors utilized in the formula analysis model . the loss factors applied in the formula analysis model are reviewed quarterly by management to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio . our acl methodology permits modifications to the formula analysis model in the event that , in management 's judgment , significant factors which affect the collectability of the portfolio or any category of the loan portfolio , as of the evaluation date , have changed from the current formula analysis model . management 's evaluation of the qualitative factors with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with a specific problem loan or portfolio segment . non-pci loans that have not become impaired subsequent to the acquisition date are included in the formula analysis model . for these loans , the company estimates a hypothetical amount of acl . the company uses the acquired bank 's past loss history adjusted for qualitative factors to establish the hypothetical amount of acl . this amount is compared with the remaining net purchase discount for the non-pci loans to test for credit quality deterioration and the possible need for an additional loan loss provision . to the extent the remaining net purchase discount of the pool is greater than the hypothetical acl , no additional acl is necessary . if the remaining net purchase discount of the pool is less than the hypothetical acl , the difference results in an increase to the acl recorded through a provision for credit losses . management utilizes the formula analysis model , along with analyzing and considering several other relevant internal and external data elements , when evaluating the adequacy of the acl . such data elements include the trend and composition of delinquent and non-performing loans , trends in foreclosed property and short sale transactions and charge-off activity , the current status and trends of local and national employment levels , trends and current conditions in the housing markets , loan growth and concentrations , industry and peer charge-off and acl information , and certain acl ratios such as acl to loans receivable , net and annualized historical losses . story_separator_special_tag since our loan portfolio is primarily concentrated in one- to four-family real estate , management monitors residential real estate market value trends in the bank 's local market areas and geographic sections of the u.s. by reference to various industry and market reports , economic releases and surveys , and management 's general and specific knowledge of the real estate markets in which we lend , in order to determine what impact , if any , such trends may have on the level of acl . reviewing these data elements assists management in evaluating the overall credit quality of the loan portfolio and the reasonableness of the acl on an ongoing basis , and whether changes need to be made to our acl methodology . in addition , the adequacy of the company 's acl is reviewed during bank regulatory examinations . we consider any comments from our regulators when assessing the appropriateness of our acl . we seek to apply acl methodology in a consistent manner ; however , the methodology can be modified in response to changing conditions . fair value measurements . the company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures in accordance with accounting standards codification ( `` asc '' ) 820 and asc 825. the company groups its financial instruments at fair value in three levels based on the markets in which the instruments are traded and the reliability of the assumptions used to determine fair value , with level 1 ( quoted prices for identical assets in an active market ) being considered the most reliable , and level 3 having the most unobservable inputs and therefore being considered the least reliable . the company bases its fair values on the price that would be received from the sale of an asset in an orderly transaction between market participants at the measurement date . the company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value . the company 's afs securities are measured at fair value on a recurring basis . changes in the fair value of afs securities are recorded , net of tax , as aoci in stockholders ' equity . the company primarily uses prices obtained from third party pricing services to determine the fair value of its afs securities . various modeling techniques are used to determine pricing for the company 's securities , including option pricing , discounted cash flow models , and similar techniques . the inputs to these models may include benchmark yields , reported trades , broker/dealer quotes , issuer spreads , benchmark securities , bids , offers and reference data . all afs securities are classified as level 2 . 45 the company 's interest rate swaps are measured at fair value on a recurring basis . the company uses a discounted cash flow analysis using observable market-based inputs to determine the fair value of its interest rate swaps . changes in the fair value of the interest rate swaps are recorded , net of tax , as aoci in stockholders ' equity . the company did not have any other financial instruments that were measured at fair value on a recurring basis at september 30 , 2018 . loans individually evaluated for impairment and oreo are measured at fair value on a non-recurring basis . these non-recurring fair value adjustments involve the application of lower-of-cost-or-fair value accounting or write-downs of individual assets . fair values of loans individually evaluated for impairment are estimated through current appraisals . oreo fair values are estimated using current appraisals or listing prices . fair values may be adjusted by management to reflect current economic and market conditions and , as such , are classified as level 3. recent accounting pronouncements for a discussion of recent accounting pronouncements , see `` part ii , item 8. financial statements and supplementary data โ notes to financial statements โ note 1. summary of significant accounting policies . '' 46 management strategy we are a community-oriented financial institution dedicated to serving the needs of customers in our market areas . our commitment is to provide qualified borrowers the broadest possible access to home ownership through our mortgage lending programs and to offer a complete set of personal and commercial banking products and services to our customers . we strive to enhance stockholder value while maintaining a strong capital position . to achieve these goals , we focus on the following strategies : lending . we are one of the leading originators of one- to four-family loans in the state of kansas . we originate these loans primarily for our own portfolio , and we service the loans we originate . we also purchase one- to four-family loans from correspondent lenders . we offer both fixed- and adjustable-rate products with various terms to maturity and pricing options . we maintain strong relationships with local real estate agents to attract mortgage loan business . with the acquisition of ccb , we can offer more commercial lending options to our customers . we rely on our marketing efforts and customer service reputation to attract mortgage business from walk-in customers , customers that apply online , and existing customers . deposit services . we offer a wide array of deposit products and services . these products include checking , savings , money market , certificates of deposit , and retirement accounts . with the acquisition of ccb , we began offering commercial deposit services . our deposit services are provided through a branch network of 58 locations , including traditional branches and retail in-store locations , our call center which operates on extended hours , mobile banking , telephone banking , and online banking and bill payment services . cost control . we generally are very effective at controlling our costs of operations . by using technology , we are able to centralize our loan servicing and deposit support functions for efficient processing .
| under the terms of the acquisition agreement , the company issued 3.0 million shares of company common stock for all outstanding shares of ccb capital stock , for a total merger consideration of $ 39.1 million , based on the company 's closing stock price of $ 13.21 on august 31 , 2018. as of september 30 , 2018 , the company recognized goodwill of $ 8.0 million , which is calculated as the consideration exchanged in excess of the fair value of assets , net of the liabilities assumed . additionally , the company recognized $ 9.8 million of core deposit and other intangibles . integration of information systems is anticipated to be completed early in the second calendar quarter of 2019. after integration , the company will review its branch network to determine which branches , if any , should be closed in order to maintain or improve its efficiency . the company 's results of operations are primarily dependent on net interest income , which is the difference between the interest earned on loans , securities , and cash , and the interest paid on deposits and borrowings . on a weekly basis , management reviews deposit flows , loan demand , cash levels , and changes in several market rates to assess all pricing strategies . the bank 's pricing strategy for first mortgage loan products includes setting interest rates based on secondary market prices and competitor pricing for our local lending markets , and secondary market prices and competitor pricing for our correspondent lending markets . pricing for commercial loans is generally based on competitor pricing and the credit risk of the borrower with consideration given to the overall relationship of the borrower . generally , deposit pricing is based upon a survey of competitors in the bank 's market areas , and the need to attract funding and retain maturing deposits . the majority of our loans are fixed-rate products with maturities up to 30 years , while the majority of our retail deposits have stated maturities or repricing dates of less than two years . the company is significantly affected by prevailing economic conditions , including federal monetary and fiscal policies and federal regulation of financial institutions . deposit balances are influenced by a number of factors , including interest rates paid on competing investment products , the level of personal income , and the personal rate of savings within our market areas . lending activities are influenced by
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a portion of our cash surrender value of variable life insurance policies have investments , through separate accounts , in equity and fixed income securities and , therefore , are subject to market volatility . life insurance 37 proceeds and changes in the cash surrender value of life insurance policies contributed $ 0.11 to diluted earnings per share in 2016 , compared to $ 0.01 per share in 2015 and $ 0.15 per share in 2014. consolidated adjusted earnings before interest , taxes , depreciation , and amortization ( โ adjusted ebitda โ ) we report our financial results in accordance with generally accepted accounting principles ( โ gaap โ ) . however , management believes that certain non-gaap performance measures and ratios , such as adjusted ebitda , utilized for internal analysis provide analysts , investors , and others the same information that we use internally for purposes of assessing our core operating performance and provides meaningful comparisons between current and prior period results , as well as important information regarding performance trends . accordingly , using these measures improves comparability in analyzing our performance because it removes the impact of items from operating results that , in management 's opinion , do not reflect our core operating performance . management uses adjusted ebitda as a key measure of performance and for business planning . the measure is particularly meaningful for analysis of our operating performance , because it excludes amortization of acquired intangibles and software of the asset-light businesses , which are significant expenses resulting from strategic decisions rather than core daily operations . additionally , adjusted ebitda is a primary component of the financial covenants contained in our amended and restated credit agreement ( see financing arrangements within the liquidity and capital resources section of md & a ) . other companies may calculate adjusted ebitda differently ; therefore , our calculation of adjusted ebitda may not be comparable to similarly titled measures of other companies . non-gaap financial measures should be viewed in addition to , and not as an alternative for , our reported results . adjusted ebitda should not be construed as a better measurement than operating income , operating cash flow , net income , or earnings per share , as determined under gaap . replace_table_token_5_th asset-based operations asset-based segment overview the asset-based segment consists of abf freight system , inc. , a wholly-owned subsidiary of arcbest corporation , and certain other subsidiaries . our asset-based operations are affected by general economic conditions , as well as a number of other factors that are more fully described in โ business โ in item 1 and โ risk factors โ in item 1a of part i of this annual report on form 10-k. the key performance factors and operating results for the asset-based segment are discussed in the following paragraphs . the asset-based segment represented approximately 70 % of our 2016 total revenues before other revenues and intercompany eliminations . as of december 2016 , approximately 77 % of asset-based employees were covered under a collective bargaining agreement , the abf national master freight agreement ( the โ abf nmfa โ ) , with the international brotherhood of teamsters ( the โ ibt โ ) , which extends through march 31 , 2018. the abf nmfa included a 7 % wage rate reduction effective on the november 3 , 2013 implementation date , followed by wage rate increases of 2 % on july 1 in each of the next three years , which began in 2014 , and a 2.5 % increase on july 1 , 2017 ; a one-week reduction in annual compensated vacation effective for employee anniversary dates on or after april 1 , 2013 ; the option to expand the use of purchased transportation ; and increased flexibility in labor work rules . the abf nmfa and the related supplemental agreements provide for continued contributions to various multiemployer health , welfare , and pension plans maintained for the benefit of asset-based employees who are members of the ibt . the estimated net effect of the november 3 , 2013 wage rate reduction and the benefit rate increase which was applied retroactively to august 1 , 2013 was an initial reduction of approximately 4 % to the combined total contractual wage and benefit rate under the abf nmfa . following the initial 38 reduction , the combined contractual wage and benefit contribution rate under the abf nmfa is estimated to increase approximately 2.5 % on a compounded annual basis throughout the contract period which extends through march 31 , 2018. tonnage the level of tonnage managed by the asset-based segment is directly affected by industrial production and manufacturing , distribution , residential and commercial construction , consumer spending , primarily in the north american economy , and capacity in the trucking industry . operating results are affected by economic cycles , customers ' business cycles , and changes in customers ' business practices . the asset-based segment actively competes for freight business based primarily on price , service , and availability of flexible shipping options to customers . the asset-based segment seeks to offer value through identifying specific customer needs , then providing operational flexibility and seamless access to its services and those of our asset-light operations in order to respond with customized solutions . pricing the industry pricing environment , another key factor to our asset-based results , influences the ability to obtain appropriate margins and price increases on customer accounts . externally , pricing is typically measured by billed revenue per hundredweight , which is a reasonable , although approximate , measure of price change . generally , freight is rated by a class system , which is established by the national motor freight traffic association , inc. light , bulky freight typically has a higher class and is priced at a higher revenue per hundredweight than dense , heavy freight . story_separator_special_tag changes in the rated class and packaging of the freight , along with changes in other freight profile factors such as average shipment size , average length of haul , freight density , and customer and geographic mix , can affect the average billed revenue per hundredweight measure . approximately 35 % of asset-based business is subject to base ltl tariffs , which are affected by general rate increases , combined with individually negotiated discounts . rates on the other 65 % of asset-based business , including business priced in the spot market , are subject to individual pricing arrangements that are negotiated at various times throughout the year . the majority of the business that is subject to negotiated pricing arrangements is associated with larger customer accounts with annually negotiated pricing arrangements , and the remaining business is priced on an individual shipment basis considering each shipment 's unique profile , value provided to the customer , and current market conditions . since pricing is established individually by account , the asset-based segment focuses on individual account profitability rather than a single measure of billed revenue per hundredweight when considering customer account or market evaluations . this is due to the difficulty of quantifying , with sufficient accuracy , the impact of changes in freight profile characteristics , which is necessary in estimating true price changes . fuel the transportation industry is dependent upon the availability of adequate fuel supplies . the asset-based segment charges a fuel surcharge which is based on the index of national on-highway average diesel fuel prices published weekly by the u.s. department of energy . although revenues from fuel surcharges generally more than offset increases in direct diesel fuel costs , other operating costs have been , and may continue to be , impacted by fluctuating fuel prices . the total impact of energy prices on other nonfuel-related expenses is difficult to ascertain . management can not predict , with reasonable certainty , future fuel price fluctuations , the impact of energy prices on other cost elements , recoverability of fuel costs through fuel surcharges , and the effect of fuel surcharges on the overall rate structure or the total price that the segment will receive from its customers . while the fuel surcharge is one of several components in the overall rate structure , the actual rate paid by customers is governed by market forces and the overall value of services provided to the customer . during periods of changing diesel fuel prices , the fuel surcharge and associated direct diesel fuel costs also vary by different degrees . depending upon the rates of these changes and the impact on costs in other fuel- and energy-related areas , operating margins could be impacted . fuel prices have fluctuated significantly in recent years . whether fuel prices fluctuate or remain constant , operating results may be adversely affected if competitive pressures limit our ability to recover fuel surcharges . throughout 2016 , the fuel surcharge mechanism generally continued to have market acceptance among customers ; however , certain nonstandard pricing arrangements have limited the amount of fuel surcharge recovered . the negative impact on operating margins of capped fuel surcharge revenue during periods of increasing fuel costs is more evident when fuel prices remain above the maximum levels recovered through the fuel surcharge mechanism on certain accounts . 39 in periods of declining fuel prices , fuel surcharge percentages also decrease , which negatively impacts the total billed revenue per hundredweight measure and , consequently , revenues , and the revenue decline may be disproportionate to our fuel costs . to better align fuel surcharges to fuel- and energy-related expenses and provide more stability to account profitability as fuel prices change , we may , from time to time , revise our standard fuel surcharge program which impacts approximately 40 % of asset-based shipments and primarily affects noncontractual customers . the asset-based segment made revisions to the fuel surcharge scale effective february 4 , 2015 , and again effective february 1 , 2016 , to establish surcharge rates for fuel prices at the lower end of the scale and to better align with expected fuel costs . despite the revisions to the fuel surcharge program and the transition of certain nonstandard pricing arrangements to base ltl freight rates in recent years , 2016 revenue compared to 2015 and 2015 revenue compared to 2014 were negatively impacted by lower fuel surcharge revenue due to a decline in the nominal fuel surcharge rate , while total fuel costs were also lower . the segment 's operating results will continue to be impacted by further changes in fuel prices and the related fuel surcharges . labor costs labor costs , including retirement and healthcare benefits for contractual employees that are provided through a number of multiemployer plans ( see note i to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k ) , are impacted by contractual obligations under the abf nmfa and other related supplemental agreements . total salaries , wages , and benefits , amounted to 63.3 % , 61.2 % , and 58.0 % of revenues for 2016 , 2015 , and 2014 , respectively . changes in salaries , wages , and benefits expense as a percentage of revenues are discussed in the asset-based segment results section that follows . abf freight operates in a highly competitive industry which consists predominantly of nonunion motor carriers . nonunion competitors have a lower fringe benefit cost structure and less stringent labor work rules , and certain carriers also have lower wage rates for their freight-handling and driving personnel . wage and benefit concessions granted to certain union competitors also allow for a lower cost structure . abf freight has continued to address with the ibt the effect of the segment 's wage and benefit cost structure on its operating results .
| the 5.0 % increase in revenues of our asset-light operations , on a combined basis , for 2016 compared to 2015 reflects an 8.5 % increase in revenues of the arcbest segment resulting from the acquisitions of logistics & distribution services , llc ( โ lds โ ) in september 2016 and bear transportation services , l.p. ( โ bear โ ) in december 2015 , offset , in part , by a decline in revenues of the fleetnet segment due to lower service event volume . our asset-light revenues , on a combined basis , increased 10.0 % in 2015 compared to 2014 , reflecting higher business volumes due , in part , to more comprehensive customer services being offered across our consolidated enterprise and from acquisitions in the arcbest segment of smart lines transportation group , llc ( โ smart lines โ ) in january 2015 and bear in december 2015. consolidated operating income decreased $ 46.5 million in 2016 compared to 2015. the operating income decline reflects restructuring costs of $ 10.3 million in 2016 related to the realignment of our corporate structure ( see note o to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further details ) . the soft economic environment combined with a surplus of transportation capacity which impacted available business levels and operating margins also contributed to the decline in our consolidated operating results for 2016 versus 2015. consolidated operating income increased $ 6.3 million in 2015 compared to 2014 , due primarily to operating efficiencies in the asset-based operations . the year-over-year changes in consolidated operating income , net income , and per share amounts for 2016 and 2015 reflect the operating results of our operating segments , which are discussed in further detail within the results of operations , as well as the items described below . consolidated operating results for 2016 and 2015 were negatively impacted by increases in nonunion healthcare costs of $ 9.7 million in 2016 over 2015 and $ 6.1 million in 2015 over 2014 , primarily due to an increase in both the number of health claims filed and in the average cost per claim . unfavorable experience in third-party casualty and workers ' compensation claims of our asset-based segment resulted in costs which were higher by $ 5.4 million , or 13.2 % , in 2016 compared to 2015. the impact of these costs on the year-over-year comparisons was partially offset by decreases
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we offer advanced instrumentation for the da vinci si , da vinci xi , and da vinci x platforms , including the da vinci vessel sealer extend and da vinci stapler products , to provide surgeons with sophisticated , computer-aided tools to precisely and efficiently interact with tissue . da vinci x and da vinci xi surgical systems use instruments that are compatible with both x and xi systems whereas the da vinci si surgical system uses instruments that are not compatible with x or xi systems . initially we are offering nine core instruments on our da vinci sp surgical system . we plan to expand the sp instrument offering over time . we offer single-site instruments for use with the da vinci si , da vinci xi , and da vinci x surgical systems . single-site instruments are most commonly used in cholecystectomy and hysterectomy procedures . single-site instruments are designed to enable surgeons to perform surgery through a single port via the patient 's umbilicus , resulting in the potential for significantly reduced scarring . training technologies include our da vinci skills simulator , da vinci connect remote case observation and mentoring tool , and our dual console for use in surgeon proctoring and collaborative surgery . business model overview we generate revenue from placements of da vinci surgical systems in sale or sales-type lease arrangements where revenue is recognized up-front or in operating lease transactions where revenue is recognized over time . we earn recurring revenue from sales of instruments , accessories , and service , as well as the revenue from operating leases . the da vinci surgical system generally 40 sells for approximately between $ 0.5 million and $ 2.5 million , depending upon the model , configuration and geography , and represents a significant capital equipment investment for our customers when purchased . our instruments and accessories have limited lives and will either expire or wear out as they are used in surgery , at which point they need to be replaced . we earn between approximately $ 700 to $ 3,500 of instrument and accessory revenue per surgical procedure performed , depending on the type and complexity of the specific procedures performed and the number and type of instruments used . we typically enter into service contracts at the time systems are sold at an annual fee of approximately $ 80,000 to $ 190,000 , depending upon the configuration of the underlying system and composition of the services offered under the contract . these service contracts have generally been renewed at the end of the initial contractual service periods . we adopted asc 606 , revenue from contracts with customers , effective january 1 , 2018 , using the full retrospective method . the financial results for 2016 and 2017 have been restated to reflect this adoption . the adoption did not have a material impact on revenue recognized for the periods presented in our financial statements . refer to โ note 2. summary of significant accounting policies โ within part ii , item 8 of this form 10-k for further information on the impact of adopting asc 606. recurring revenue recurring revenue consists of instrument and accessory revenue , service revenue , and operating lease revenue . recurring revenue increased to $ 2.6 billion , or 71 % of total revenue in 2018 , compared with $ 2.2 billion , or 71 % of total revenue in 2017 , and $ 1.9 billion , or 71 % of total revenue in 2016 . instrument and accessory revenue has grown at a faster rate than system revenue over time . instrument and accessory revenue increased to $ 2.0 billion in 2018 , compared with $ 1.6 billion in 2017 and $ 1.4 billion in 2016 . the growth of instrument and accessory revenue largely reflects continued procedure adoption . service revenue growth has been driven by the growth of the base of installed da vinci surgical systems . the installed base of da vinci surgical systems grew 13 % to approximately 4,986 at december 31 , 2018 ; 13 % to approximately 4,409 at december 31 , 2017 ; and 9 % to approximately 3,919 at december 31 , 2016 . service revenue grew 11 % to $ 635.1 million in 2018 ; 12 % to $ 572.9 million in 2017 ; and 10 % to $ 510.7 million in 2016. operating lease revenue has grown as a larger proportion of systems shipped are under operating lease arrangements . in the years ended december 31 , 2018 , 2017 , and 2016 , a total of 229 , 108 , and 62 of system placements were classified as operating leases , respectively . revenue from operating lease arrangements is generally recognized on a straight-line basis over the lease term or based upon system usage . operating lease revenue for the years ended december 31 , 2018 , 2017 , and 2016 , was $ 51.4 million , $ 25.9 million and $ 16.6 million , respectively . as of december 31 , 2018 , a total of 350 da vinci surgical systems were installed at customers under operating lease arrangements . intuitive surgical da vinci system leasing since 2013 , we have entered into sales-type and operating lease arrangements directly with certain qualified customers as a way to offer customers flexibility in how they acquire da vinci surgical systems and expand robotic-assisted surgery availability while leveraging our balance sheet . these leases generally have commercially competitive terms as compared with other third-party entities that offer equipment leasing . we include both operating and sales-type leases in our system shipment and installed base disclosures . we exclude operating leases from our system average selling price ( โ asp โ ) computations . in the years ended december 31 , 2018 , 2017 , and 2016 , we shipped 272 , 139 , and 95 systems under lease arrangements , respectively , of which 229 , 108 , and 62 were classified as operating leases , respectively . story_separator_special_tag generally , the operating lease arrangements provide our customers with the right to purchase the leased system at some point during and or at the end of the lease term . revenue generated from customer purchases of systems under operating lease arrangements ( โ lease buyouts โ ) was $ 48.8 million , $ 39.5 million , and $ 38.2 million for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . we expect that revenue recognized from customer exercises of the buyout options will fluctuate based on the timing of when , and if , customers choose to exercise their buyout options . we believe our leasing program has been effective and well-received , and we are willing to expand it based on customer demand , including alternative structures such as usage-based payment models . our da vinci system leasing provides customers with flexibility regarding how they acquire da vinci surgical systems . generally , lease transactions generate similar gross margins as our sale transactions . our exposure to the credit risks relating to our lease financing arrangements may increase if our customers are adversely affected by changes in healthcare laws , coverage and reimbursement , economic pressures or uncertainty , or other customer-specific factors . also , usage-based leases generally contain no minimum lease payments ; therefore , customers may exit such leases without paying a financial penalty to us . systems revenue system placements are driven by procedure growth in most markets . in geographies where da vinci procedure adoption is in an early stage , system sales will precede procedure growth . system placements also vary due to seasonality largely aligned with hospital budgeting cycles . we typically place a higher proportion of annual system placements in the fourth quarter and a lower proportion in the first quarter as budgets are reset . system revenue grew 21 % to $ 1,127.1 million in 2018 ; 16 % to $ 928.4 million 41 in 2017 ; and 11 % to $ 800.0 million in 2016. system revenue is also affected by the proportion of systems placed that are under operating lease arrangements , recurring operating lease revenue , operating lease buyouts , product mix , asps , and trade-in activities . procedure mix / products our da vinci surgical systems are generally used for soft tissue surgery for areas of the body between the pelvis and the neck , primarily in general surgery , gynecologic surgery , urologic surgery , cardiothoracic surgery , and head and neck surgery . within these categories , procedures range in complexity from cancer and other highly complex procedures to less complex procedures for benign conditions . cancer and other highly complex procedures tend to be reimbursed at higher rates than less complex procedures for benign conditions . thus , hospitals are more sensitive to the costs associated with treating less complex benign conditions . our strategy is to provide hospitals with attractive clinical and economic solutions across the spectrum of procedure complexity . our fully featured da vinci xi surgical system with advanced instruments , including the endowrist vessel sealer , endowrist stapler products , and our integrated table motion product target the more complex procedure segment . our da vinci x surgical system and single-site instruments are targeted towards price sensitive markets and procedures . procedure seasonality more than half of da vinci procedures performed are for benign conditions , most notably benign hysterectomies , hernia repairs , and cholecystectomies . these benign procedures and other short-term elective procedures tend to be more seasonal than cancer operations and surgeries for other life threatening conditions . seasonality in the u.s. for these procedures for benign conditions typically results in higher fourth quarter procedure volume when more patients have met annual deductibles and lower first quarter procedure volume when deductibles are reset . seasonality outside the u.s. varies and is more pronounced around local holidays and vacation periods . distribution channels we provide our products through direct sales organizations in the u.s. , europe ( excluding spain , portugal , italy , greece , most eastern european countries ) , japan , south korea , india , and taiwan . in may and december 2018 , we began direct operations in india and taiwan , respectively . in the remainder of our ous markets , we provide our products through distributors . chindex , a subsidiary of fosun pharma , has been our distribution partner for da vinci surgical systems in china . in january 2019 , the joint venture acquired certain assets related to the distribution business of chindex and began direct operations for da vinci products and services in china . regulatory activities clearances and approvals we have obtained the clearances required to market our multi-port products associated with all of our da vinci surgical systems ( standard , s , si , xi , and x systems ) for our targeted surgical specialties within the u.s. , south korea , and the european markets in which we operate . in december 2018 , we received clearance for our da vinci xi surgical system in china . the xi clearance does not include advanced energy , stapling , or wireless table motion products which attach to the xi system . separate clearances are required for each of these products by china national medical products administration ( โ nmpa โ ) . in may 2018 , we obtained u.s. fda clearance for the da vinci sp surgical system for urologic surgical procedures that are appropriate for a single port approach .
| foreign currency rate fluctuations did not have a material impact on total revenue for the year ended december 31 , 2018 , as compared with 2017 , or for the year ended december 31 , 2017 , as compared with 2016. revenue generated in the u.s. accounted for 71 % , 73 % , and 72 % of total revenue during the years ended december 31 , 2018 , 2017 , and 2016 , respectively . we believe that u.s. revenue has accounted for the large majority of total revenue due to patients ' ability to choose their provider and method of treatment in the u.s. , reimbursement structures supportive of innovation and minimally invasive surgery , and initial investments focused on our u.s. infrastructure . we have been investing in our business in the ous market and our ous procedures have grown faster in proportion to u.s. procedures . we expect that our ous procedures and revenue will make up a greater portion of our business in the long term . the following table summarizes our revenue and da vinci surgical system unit shipments for the years ended december 31 , 2018 , 2017 , and 2016 , respectively ( in millions , except percentages and unit shipments ) : replace_table_token_3_th product revenue 2017-2018 product revenue increased by 20 % to $ 3.1 billion for the year ended december 31 , 2018 , compared with $ 2.6 billion for the year ended december 31 , 2017 . instrument and accessory revenue increased by 20 % to $ 2.0 billion for the year ended december 31 , 2018 , compared with $ 1.6 billion for the year ended december 31 , 2017 . the increase in instrument and accessory revenue was driven by procedure growth of approximately 18 % and higher sales of our advanced instruments , partially offset by procedure mix . u.s. procedure growth in 2018 was approximately 17 % compared with 14 % in 2017 and was driven by growth in general surgery procedures , most notably hernia repair and colorectal procedures ; thoracic procedures ; and a moderate growth in the more mature gynecologic 49 and urologic procedure categories . ous procedure growth in 2018 was approximately 22 % compared with
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we do not have effective means and do not currently hedge against changes in our raw material prices . consequently , if the costs of our raw materials increase further and we are unable to offset these increases by raising the prices of our products , our profit margins and financial condition could be adversely affected . uncertainties that affect our financial condition we spend a significant amount of cash on our operations , principally to procure raw materials for our products . many of our suppliers , including chestnut , vegetable and fruit farmers , and suppliers of packaging materials , require us to pay for their supplies in cash on the same day that such supplies are delivered to us . however , some of the suppliers with whom we have a long-standing business relationship allow us to pay on credit . we fund the majority of our working capital requirements out of cash flow generated from operations . if we fail to generate sufficient sales , or if our suppliers stop offering us credit terms , we may not have sufficient liquidity to fund our operating costs and our business could be adversely affected . we also funded approximately 24.4 % and 43.8 % of our working capital requirements in 2012 and 2011 , respectively , from the proceeds of short-term loans from chinese banks . we expect to continue to do so in the future . such loans are generally secured by our fixed assets , receivables and or guarantees by third parties . our average loan balance from short-term bank loans in 2012 and 2011 were approximately $ 34.4 million and $ 20.9 million , respectively . the term of almost all such loans is one year or less . historically , we have rolled over such loans on an annual basis . however , commencing 2010 , the chinese government has implemented more stringent credit policies to curb inflation and soaring property prices , which could negatively impact our ability to obtain or roll over these short term loans , and hence not having sufficient funds available to pay all of our borrowings upon maturity . failure to roll over our short-term borrowings at maturity or to service our debt could result in the imposition of penalties , including increases in rates of interest , legal actions against us by our creditors , or even insolvency . in addition , we completed two private placement financings in september 2010 and october 2009 with net proceeds of $ 9.0 million and $ 10.9 million , respectively , the proceeds of which were primarily used as working capital . we also secured a $ 15 million loan from deutsche investitions- und entwicklungsgesellshaft ( ยdegย ) in may 2010 , which we have fully drawn down in 2011. we can provide no assurances that we will be able to enter into any future financing or refinancing agreements on terms favorable to us , especially considering the current instability of the capital markets . we anticipate that our existing capital resources , cash flows from operations , current and expected short-term bank loans , as well as remaining proceeds from the september 2010 private placement and the loan from deg will be adequate to satisfy our liquidity requirements through 2013. however , if available liquidity is not sufficient to meet our operating and loan obligations as they come due , our plans include considering pursuing alternative financing arrangements or further reducing expenditures as necessary to meet our cash requirements . however , there is no assurance that , if required , we will be able to raise additional capital or reduce discretionary spending to provide the required liquidity . currently , the capital markets for small capitalization companies are difficult and banking institutions have become stringent in their lending requirements . accordingly , we can not be sure of the availability or terms of any third party financing . the crisis of the financial and credit markets worldwide in the second half of 2008 has led to a severe economic recession worldwide . furthermore , the european countries experienced severe debt crisis during 2011 and 2012 which further weighed on the global economy as well as financial market . the outlook for 2013 is still uncertain , but continuation or worsening of unfavorable economic conditions , including the ongoing global economy and capital markets disruptions , could have an adverse impact on our business , operating results or financial condition in a number of ways . for example , we may experience declines in revenues , profitability and cash flows as a result of reduced orders , delays in receiving orders , delays or defaults in payment or other factors caused by the economic problems of our customers and prospective customers . we may experience supply chain delays , disruptions or other problems associated with financial constraints faced by our suppliers and subcontractors . in addition , changes and volatility in the equity , credit and foreign exchange markets and in the competitive landscape make it increasingly difficult for us to predict our revenues and earnings into the future . in 2008 and 2009 , some of our customers , including some of our large supermarket customers , delayed their payments for up to 60 to 90 days beyond their term . our cash flow suffered while waiting for such payments . consequently , at times we had to delay payments to our suppliers and to postpone business expansion as a result of these delayed payments . starting in 2008 and through 2012 , we gradually shortened credit terms for many of our international and domestic customers from between 30 and 180 days to between 30 and 60 days . our large customers may fail to meet these shortened credit terms , in which case we may not have sufficient cash flow to fund our operating costs and our business could be adversely affected . story_separator_special_tag - 24 - story_separator_special_tag enterprises , without any tax holiday . however , the prc government has established a set of transition rules to allow enterprises that already started tax holidays before january 1 , 2008 to continue utilizing such tax holidays until they are fully utilized . the income tax rates applicable to our chinese operating subsidiaries in 2010 , 2011 , and 2012 are depicted in the following table : replace_table_token_7_th minority interest . shandong economic development investment holds 19.8 % of the equity of our subsidiary shandong lorain , which is reflected in the minority interest of $ 1.3 million in 2012 and $ 1.2 million in 2011. net income . net income increased $ 535,170 , or 2.7 % , to $ 20.4 million in 2012 from $ 19.9 million in fiscal year 2011 , as a result of the factors described above . - 27 - liquidity and capital resources general our primary capital needs have been to fund the working capital requirements necessitated by our sales growth , adding new products and expanding our facilities . in the past , our primary sources of financing have been cash generated from operations and short-term loans from banks in china . in october 2009 and september 2010 , we obtained approximately $ 11 million and 9 million , respectively , from two private placement transactions . we also secured a $ 15 million loan from deutsche investitions- und entwicklungsgesellshaft ( ยdegย ) in may 2010 which we have fully drawn down in 2011. proceeds from the private placement transactions and cash drawn down from the deg loan , together with cash generated from operations and short-term bank loans , have been primarily used to fund our working capital needs , as well as addition to our construction in progress and purchase of fixed assets . at december 31 , 2012 and 2011 , cash and cash equivalents ( including restricted cash ) were $ 36.3 million $ 30.4 million , respectively . we expect to continue to finance our operations and working capital needs in 2013 from cash generated from operations and short-term bank loans . we expect that anticipated cash flows from operations and short-term bank loans will be sufficient to fund our operations through at least the next twelve months . if available liquidity is not sufficient to meet our operating and loan obligations as they come due , our plans include pursuing alternative financing arrangements or reducing expenditures as necessary to meet our cash requirements . however , there is no assurance that we will be able to raise additional capital or reduce discretionary spending to provide liquidity , if needed . currently , the capital markets for small capitalization companies are difficult . accordingly , we can not be sure of the availability or terms of any alternative financing arrangements . the following table provides detailed information about our net cash flow for all financial statements periods presented in this report . replace_table_token_8_th operating activities net cash provided by operating activities for 2012 was $ 9.0 million and net cash used in operating activities for 2011 was $ 2.1 million . the increase of approximately $ 11.1 million in net cash flows provided by operating activities resulted primarily from a higher net income of $ 659,814 , a higher depreciation of 571,459 , and a lower increase in accounts and other receivables of $ 8.5 million . investing activities during 2012 , our uses of cash for investment activities are primarily purchase equipments and security deposits . net cash used in investing activities for 2012 and 2011 were $ 3.3 million and $ 16.2 million , respectively , with the increase of approximately $ 12.9 million resulted primarily from a $ 19.7 million decrease in restricted cash , $ 11.4 million less payment for the purchase of plant and equipment , partially offset by $ 10.0 million higher payment for security deposit . financing activities net cash provided by financing activities for 2012 and 2011 were $ 8.3 million and $ 17.0 million , respectively . the decrease of approximately $ 8.7 million in net cash provided by financing activities resulted primarily from a decrease of $ 13.7 million in net short-term bank borrowings , partially offset by $ 5.0 million increase in long term bank borrowings . loan facilities as of december 31 , 2012 and 2011 , we carried $ 28.7 million and $ 36.0 million short term bank loans from chinese domestic banks . please refer to note 9 of the consolidated financial statements for details . - 28 - critical accounting policies the preparation of financial statements in conformity with united states generally accepted accounting principles requires our management to make assumptions , estimates and judgments that affect the amounts reported in the financial statements , including the notes thereto , and related disclosures of commitments and contingencies , if any . we consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements , including the following : method of accounting -- we maintain our general ledger and journals with the accrual method accounting for financial reporting purposes . the financial statements and notes are representations of management . accounting policies adopted by us conform to generally accepted accounting principles in the united states of america and have been consistently applied in the presentation of financial statements , which are compiled on the accrual basis of accounting . use of estimates -- the preparation of the financial statements in conformity with generally accepted accounting principles in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods .
| our cost of revenues increased $ 20.4 million , or approximately 12.1 % , to $ 188.6 million in 2012 from $ 168.2 million in 2011. this increase was attributable to the following factors , by percentage : category allocation of increase in cost of revenues ( % ) raw materials 103.6 % other allocated overhead ( depreciation , utilities , freight , equipment consumables ) 2.6 % wages -6.2 % raw material costs increased to $ 145,460,250 , or approximately 13.8 % , in 2012 from $ 127,798,200 in 2011 , primarily reflecting our increase operation and sales . overhead expenses increased primarily due to increased depreciation expenses and utility expenses . wage expense decreased slightly as the company controls cost carefully and gradually upgrades its production towards automation . the following table reflects the changes in our cost of revenues in 2012 as compared to 2011 among our different segments : replace_table_token_6_th gross profit . our gross profit increased $ 6.1 million , or 13.5 % , to $ 51.1 million in 2012 from $ 45.0 million in 2011 as a result of higher net revenues , partially offset by higher cost of revenues , for the reasons indicated above . operating expenses selling and marketing expenses . our selling and marketing expenses increased approximately $ 1.2 million , or 11.7 % , to $ 11.7 million in 2012 from $ 10.5 million in fiscal year 2011. the following table reflects the main factors that contributed to this increase as well as the dollar amount that each factor contributed to this increase : - 26 - ( in u.s. dollars ) increase in costs in 2012 over 2011 wages ( sales personnel ) 199,951 transportation 689,235 storage 443,361 port fee 816,556 the increases listed in the table above were partially offset by an aggregate of $ 1.1 million decreases of other factors , including sea transportation , client entertainment , and leasing expenses . general and administrative expenses . our general and administrative expenses increased approximately $ 923,030 , or 14.0 % , to $ 7.5 million in 2012 from $ 6.6 million in 2011. the following table reflects the main factors that contributed to this increase as well as the dollar amount that each factor contributed to this increase : ( in u.s. dollars ) increase in costs in 2012 over 2011 wage and benefit 309,595 depreciation and amortization 298,957 travel expense 99,590 legal fee 77,633 government subsidy income government subsidy income increased from $ 745,708 in 2011 to approximately $ 1.2 million in 2012 , representing grants received mostly from
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liquidity and capital resources ยthis section provides an analysis of the company 's cash flows for the three fiscal years ended june 30 , 2018 , as well as a discussion of the company 's financial arrangements and outstanding commitments , both firm and contingent , that existed as of june 30 , 2018. critical accounting policies ยthis section discusses accounting policies considered important to the company 's financial condition and results of operations , and which require significant judgment and estimates on the part of management in application . in addition , note 2 to the consolidated financial statements summarizes the company 's significant accounting policies , including the critical accounting policies discussed in this section . overview of the company 's businesses the company manages and reports its businesses in the following five segments : news and information services ยthe news and information services segment includes the company 's global print , digital and broadcast radio media platforms . these product offerings include the global print and digital versions of the wall street journal and the dow jones media group , which includes barron 's and marketwatch , the company 's suite of professional information products , including factiva , dow jones risk & compliance , dow jones newswires and djx and its live journalism events . the company also owns , among other publications , the australian , the daily telegraph , herald sun , the courier mail and the advertiser in australia , the times , the sunday times , the sun and the sun on sunday in the u.k. and the new york post in the u.s. this segment also includes news america marketing , a leading provider of home-delivered shopper media , in-store marketing products and services and digital marketing solutions , including checkout 51 's mobile application , as well as unruly , a global video advertising marketplace , wireless group , operator of talksport , the leading sports radio network in the u.k. , and storyful , a social media content agency . book publishing ยthe book publishing segment consists of harpercollins , the second largest consumer book publisher in the world , with operations in 18 countries and particular strengths in general fiction , nonfiction , children 's and religious publishing . harpercollins owns more than 120 branded publishing imprints , including harper , william morrow , harpercollins children 's books , 40 avon , harlequin and christian publishers zondervan and thomas nelson , and publishes works by well-known authors such as harper lee , patricia cornwell , chip and joanna gaines , rick warren , sarah young and agatha christie and popular titles such as the hobbit , goodnight moon , to kill a mockingbird , jesus calling and hillbilly elegy . digital real estate services ยthe digital real estate services segment consists of the company 's 61.6 % interest in rea group and 80 % interest in move . the remaining 20 % interest in move is held by rea group . rea group is a market-leading digital media business specializing in property and is listed on the australian securities exchange ( ยasxย ) ( asx : rea ) . rea group advertises property and property-related services on its websites and mobile applications across australia and asia , including australia 's leading residential and commercial property websites , realestate.com.au and realcommercial.com.au , and property portals in asia . in addition , rea group provides property-related data to the financial sector and financial services through an end-to-end digital property search and financing experience and a mortgage broking offering . move is a leading provider of online real estate services in the u.s. and primarily operates realtor.com ยฎ , a premier real estate information and services marketplace . move offers real estate advertising solutions to agents and brokers , including its connections sm for buyers and advantage sm pro products . move also offers a number of professional software and services products , including top producer ยฎ , fivestreet ยฎ and listhub tm . subscription video services ยthe company 's subscription video services segment provides video sports , entertainment and news services to pay-tv subscribers and other commercial licensees , primarily via cable , satellite and internet protocol , or ip , distribution , and consists of ( i ) its 65 % interest in new foxtel and ( ii ) australian news channel pty ltd ( ยancย ) . the remaining 35 % interest in new foxtel is held by telstra , an asx-listed telecommunications company . new foxtel is the largest pay-tv provider in australia , with over 200 channels covering sports , general entertainment , movies , documentaries , music , children 's programming and news and broadcast rights to live sporting events in australia including : national rugby league , australian football league , cricket australia , the domestic football league , the australian rugby union and various motorsports programming . anc operates the sky news network , australia 's 24-hour multi-channel , multi-platform news service . anc channels are distributed throughout australia and new zealand and available on foxtel and sky network television nz . anc also owns and operates the international australia channel iptv service and offers content across a variety of digital media platforms , including mobile , podcasts and social media websites . other ยthe other segment consists primarily of general corporate overhead expenses , the corporate strategy group and costs related to the u.k. newspaper matters ( as defined in ยitem 3. legal proceedingsย in this annual report ) . the company 's strategy group identifies new products and services across its businesses to increase revenues and profitability and targets and assesses potential acquisitions , investments and dispositions . news and information services revenue at the news and information services segment is derived primarily from the sale of advertising , circulation and subscriptions , as well as licensing . adverse changes in general market conditions for advertising continue to affect revenues . story_separator_special_tag advertising revenues at the news and information services segment are also subject to seasonality , with revenues typically being highest in the company 's second fiscal quarter due to the end-of-year holiday season in its main operating geographies . circulation and subscription revenues can be greatly affected by changes in the prices of the company 's and or competitors ' products , as well as by promotional activities . 41 operating expenses include costs related to paper , production , distribution , third party printing , editorial , commissions and radio sports rights . selling , general and administrative expenses include promotional expenses , salaries , employee benefits , rent and other routine overhead . the news and information services segment 's advertising volume and rates , circulation and the price of paper are the key variables whose fluctuations can have a material effect on the company 's operating results and cash flow . the company has to anticipate the level of advertising volume and rates , circulation and paper prices in managing its businesses to maximize operating profit during expanding and contracting economic cycles . the company continues to be exposed to risks associated with paper used for printing . paper is a basic commodity and its price is sensitive to the balance of supply and demand . the company 's expenses are affected by the cyclical increases and decreases in the price of paper and other factors that may affect paper prices , including tariffs or other restrictions on non-u.s. paper suppliers . the news and information services segment 's products compete for readership , audience and advertising with local and national competitors and also compete with other media alternatives in their respective markets . competition for circulation and subscriptions is based on the content of the products provided , pricing and , from time to time , various promotions . the success of these products also depends upon advertisers ' judgments as to the most effective use of their advertising budgets . competition for advertising is based upon the reach of the products , advertising rates and advertiser results . such judgments are based on factors such as cost , availability of alternative media , distribution and quality of consumer demographics . the company 's traditional print business faces challenges from alternative media formats and shifting consumer preferences . the company is also exposed to the impact of long-term structural movements in advertising spending , in particular , the move in advertising from print to digital . these alternative media formats could impact the company 's overall performance , positively or negatively . in addition , technologies have been and will continue to be developed that allow users to block advertising on websites and mobile devices , which may impact advertising rates or revenues . as a multi-platform news provider , the company recognizes the importance of maximizing revenues from a variety of media formats and platforms , both in terms of paid-for content and in new advertising models , and continues to invest in its digital products . smartphones , tablets and similar devices , their related applications , and other technologies , provide continued opportunities for the company to make its content available to a new audience of readers , introduce new or different pricing schemes , and develop its products to continue to attract advertisers and or affect the relationship between content providers and consumers . the company continues to develop and implement strategies to exploit its content across a variety of media channels and platforms . book publishing the book publishing segment derives revenues from the sale of general fiction , nonfiction , children 's and religious books in the u.s. and internationally . the revenues and operating results of the book publishing segment are significantly affected by the timing of releases and the number of its books in the marketplace . the book publishing marketplace is subject to increased periods of demand during the end-of-year holiday season in its main operating geographies . this marketplace is highly competitive and continues to change due to technological developments , including additional digital platforms and distribution channels , and other factors . each book is a separate and distinct product , and its financial success depends upon many factors , including public acceptance . major new title releases represent a significant portion of the book publishing segment 's sales throughout the fiscal year . print-based consumer books are generally sold on a fully returnable basis , resulting in the return of unsold books . in the domestic and international markets , the book publishing segment is subject to global trends and local economic conditions . operating expenses for the book publishing segment include costs related to paper , printing , authors ' royalties , editorial , promotional , art and design expenses . selling , general and administrative expenses include salaries , employee benefits , rent and other routine overhead . 42 digital real estate services the digital real estate services segment generates revenue through property and property-related advertising and services , including the sale of real estate listing products to agents , brokers and developers , display advertising on its residential real estate and commercial property sites and residential property data services to the financial sector . the digital real estate services segment also generates revenue through licenses of certain professional software products on a subscription basis and fees and commissions from referrals generated through its end-to-end digital property search and financing offering and mortgage broking services . significant expenses associated with these sites , services and software solutions include development costs , advertising and promotional expenses , hosting and support services , salaries , broker commissions , employee benefits and other routine overhead expenses . consumers are increasingly turning to the internet and mobile devices for real estate information and services . the digital real estate services segment 's success depends on its continued innovation to provide products and services that are useful for consumers and real estate , mortgage and financial services professionals and attractive to its advertisers .
| operating expenses ย operating expenses decreased $ 199 million , or 4 % , for the fiscal year ended june 30 , 2017 as compared to fiscal 2016. the decrease in operating expenses for the fiscal year ended june 30 , 2017 was mainly due to a decrease in operating expenses at the news and information services segment of $ 199 million , primarily as a result of the impact of cost savings initiatives and lower newsprint , production , and distribution costs and a $ 74 million positive impact from foreign currency fluctuations , partially offset by higher costs of $ 75 million associated with the acquisitions of arm and wireless group . the impact of foreign currency fluctuations of the u.s. dollar against local currencies resulted in an operating expense decrease of $ 59 million for the fiscal year ended june 30 , 2017 as compared to fiscal 2016. selling , general and administrative expenses ยselling , general and administrative expenses increased $ 3 million for the fiscal year ended june 30 , 2017 as compared to fiscal 2016. the increase in selling , general and administrative expenses was primarily due to higher expenses at the news and information services segment of $ 10 million , mainly due to $ 56 million in higher costs associated with the acquisitions of wireless group and arm , and $ 19 million in higher costs at news america marketing , primarily due to a $ 12 million increase in investment spending at checkout 51 , partially offset by the $ 63 million positive impact of foreign currency fluctuations . the increase was also attributable to a one-time corporate charge of $ 11 million associated with a change in the company 's executive management in february 2017. the impact of foreign currency fluctuations of the u.s. dollar against local currencies resulted in a selling , general and administrative expense decrease of $ 87 million for the fiscal year ended june 30 , 2017
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gross profit as a percentage of revenues for 2011 was impacted by : a higher percentage of lower margin food and beverage systems ' revenue during 2011 within our flow technology reportable segment ; a decline in sales of higher-margin dry cooling products to china during 2011 within our thermal equipment and services reportable segment ; lower pricing on power transformers during 2011 and start-up costs of $ 11.4 incurred during 2011 associated with the expansion of our power transformer facility in waukesha , wi ; net charges of $ 10.3 associated with changes in cost estimates for certain contracts in south africa within our thermal equipment and services reportable segment ; and the insurance recovery of $ 6.3 during 2011 associated with a product liability matter noted above . selling , general and administrative ( `` sg & a '' ) expense ย for 2012 , the increase in sg & a expense , when compared to 2011 , of $ 109.6 was due primarily to the impact of the clyde union acquisition in december of 2011 , which resulted in additional sg & a during 2012 of $ 101.9 , and , to a much lesser extent , additional expenses in support of the organic revenue growth in 2012. these increases were offset partially by a decrease in sg & a of $ 19.7 associated with a stronger u.s. dollar in 2012 , when compared to 2011. for 2011 , the increase in sg & a expense , when compared to 2010 , of $ 53.1 was due primarily to : incremental sg & a of $ 18.8 associated with the clyde union , e & e , murdoch , anhydro , tts and gerstenberg acquisitions ; additional sg & a to support the organic revenue growth during the year ; an increase of $ 9.3 in stock compensation expense , primarily attributable to a higher fair value for the 2011 stock compensation awards resulting from an increase in our share price , compared to 2010 ; higher corporate expense , primarily as a result of costs associated with certain corporate-led initiatives ( e.g. , global expansion and innovation ) ; and a weaker u.s. dollar during 2011 , which resulted in an increase in sg & a of $ 19.5. the above increases in sg & a were offset partially by a decline in incentive compensation during 2011 of $ 12.2. intangible amortization ย for 2012 , the increase in intangible amortization , compared to 2011 , was due primarily to incremental amortization of $ 10.0 associated with intangible assets purchased in the clyde union acquisition . for 2011 , the increase in intangible amortization , when compared to 2010 , was primarily due to incremental amortization associated with intangible assets purchased in the clyde union , e & e , murdoch , anhydro , tts , and gerstenberg acquisitions . impairment of goodwill and other long-term assets ย during 2012 , we recorded impairment charges of $ 281.4 associated with the goodwill ( $ 270.4 ) and other long-term assets ( $ 11.0 ) of our cooling reporting unit . in addition , we recorded impairment charges of $ 4.5 related to trademarks for two other businesses within our thermal equipment and services reportable segment . during 2011 , we recorded impairment charges of $ 28.3 associated with the goodwill and indefinite-lived intangible assets of our spx heat transfer inc. reporting unit , with $ 20.8 of the charge related to goodwill and $ 7.5 to trademarks . during 2010 , we recorded an impairment charge of $ 1.7 related to trademarks of a business within our thermal equipment and services reportable segment . see note 8 to our consolidated financial statements for further discussion of impairment charges . 25 special charges , net ย special charges related primarily to restructuring initiatives to consolidate manufacturing , distribution , sales and administrative facilities , reduce workforce and rationalize certain product lines . see note 6 to our consolidated financial statements for the details of actions taken in 2012 , 2011 and 2010. the components of special charges , net , were as follows : replace_table_token_7_th other income ( expense ) , net ย other income , net for 2012 was composed primarily of a gain of $ 20.5 associated with the deconsolidation of our dry cooling products business in china , investment earnings of $ 9.9 , and gains on fx forward contracts of $ 0.2 , partially offset by foreign currency transaction losses of $ 12.2 and losses on fx embedded derivatives of $ 0.4. for 2011 , other expense , net was composed primarily of charges associated with our fx forward contracts of $ 38.5 and foreign currency transaction losses of $ 4.4 , partially offset by gains on fx embedded derivatives of $ 1.5 and insurance proceeds received of $ 3.2 related to death benefit and property insurance claims . the expense associated with the fx forward contracts included a charge of $ 34.6 related to our hedging a significant portion of the purchase price of the clyde union acquisition . in addition , and as discussed in note 14 to our consolidated financial statements , we maintain insurance for certain risk management matters . during 2011 , we recorded a charge of $ 18.2 to `` other income ( expense ) , net '' associated with amounts that are deemed uncollectible from an insolvent insurer for certain risk management matters . see note 14 to our consolidated financial statements for further details . for 2010 , other expense , net was composed primarily of charges associated with our fx forward contracts and fx embedded derivatives of $ 17.3 and foreign currency transaction losses of $ 10.2 , partially offset by investment income of $ 9.5. interest expense , net ย interest expense , net , includes both interest expense and interest income . story_separator_special_tag the increase in interest expense , net , during 2012 , when compared to 2011 , was primarily the result of interest incurred during 2012 on the $ 800.0 of term loans that were drawn down in december 2011 in order to fund the acquisition of clyde union . as discussed in note 12 to the consolidated financial statements , interest expense associated with the term loans of approximately $ 8.0 was allocated to discontinued operations during 2012. in addition , in connection with the closing of the sale of our service solutions business in december 2012 , we repaid $ 325.0 of the above term loans ( see notes 4 and 12 to our consolidated financial statements for further details ) . for 2011 , the increase in interest expense , net , when compared to 2010 , was the result of replacing the term loan under our then-existing senior credit facilities ( a loan that carried an interest rate , inclusive of the impact of the related interest rate protection agreements ( `` swaps '' ) , of approximately 5.0 % ) with the $ 600.0 of 6.875 % senior notes in august 2010. loss on early extinguishment of interest rate protection agreements and term loan ย during 2010 , we incurred $ 25.6 of charges in connection with the august 2010 repayment of the term loan under our then-existing senior credit facilities ( see note 12 to our consolidated financial statements ) , with $ 24.3 associated with the early termination of the related swaps and the remainder with the write-off of deferred financing costs and early termination fees . equity earnings in joint ventures ย our equity earnings in joint ventures were attributable primarily to our investment in egs , as earnings from this investment totaled $ 39.0 , $ 28.7 and $ 28.8 in 2012 , 2011 and 2010 , respectively . income taxes ย during 2012 , we recorded an income tax provision of $ 31.9 on a pre-tax loss from continuing operations of $ 46.5 , resulting in an effective tax rate of ( 68.6 ) % . the effective tax rate for 2012 was impacted by ( i ) an income tax benefit of $ 26.3 associated with the $ 281.4 impairment charge recorded for cooling reporting unit 's goodwill and other long-term assets , as the majority of the goodwill for the cooling reporting unit has no basis for income tax purposes , ( ii ) taxes provided of $ 15.4 on foreign dividends and undistributed earnings that are no longer considered to be indefinitely reinvested , ( iii ) incremental tax expense of $ 6.1 associated with the deconsolidation of our dry cooling business in china , as the goodwill allocated to the transaction is not deductible for income tax purposes , and ( iv ) valuation allowances that were recorded against deferred tax assets during the year of $ 5.4. these income tax charges were offset partially by income tax benefits of $ 23.7 associated with audit closures , settlements , statute expirations , and other changes in the accrual for uncertain tax positions , with the most notable being the closure of our german tax examination for the years 2005 through 2009 . 26 during 2011 , we recorded an income tax provision of $ 14.3 on $ 169.9 of pre-tax income from continuing operations , resulting in an effective tax rate of 8.4 % . during 2011 , we adopted an alternative method of allocating certain expenses between foreign and domestic sources for federal income tax purposes . as a result of this election , we determined that it is more likely than not that we will be able to utilize our existing foreign tax credits within the remaining carryforward period . accordingly , during 2011 , we released the valuation allowance on our foreign tax credit carryforwards , resulting in an income tax benefit of $ 27.8. in addition , during 2011 we recorded income tax benefits of $ 2.5 associated with the conclusion of a canadian appeals process and $ 7.7 of tax credits related to the expansion of our power transformer facility in waukesha , wi . these benefits were offset partially by $ 6.9 of federal income taxes that were incurred in connection with our plan to repatriate a portion of the earnings of a foreign subsidiary . during 2010 , we recorded an income tax provision of $ 45.6 on $ 223.6 of pre-tax income from continuing operations , resulting in an effective tax rate of 20.4 % . the effective tax rate for 2010 was impacted favorably by a tax benefit of $ 18.2 that was recorded in connection with the completion of the field examinations of our 2006 and 2007 federal income tax returns and tax benefits of $ 16.0 related to the reduction in liabilities for uncertain tax positions associated with various foreign and domestic statute expirations and the settlement of state examinations . these benefits were offset partially by domestic charges of $ 6.2 associated with the taxation of prescription drug costs for retirees under medicare part d as a result of enactment of the ppac act during the year and $ 3.6 associated with the repatriation of foreign earnings . results of discontinued operations for 2012 , 2011 and 2010 , income from discontinued operations and the related income taxes are shown below : replace_table_token_8_th for 2012 , 2011 and 2010 , results of operations from our businesses reported as discontinued operations were as follows : replace_table_token_9_th discontinued operations we report businesses or asset groups as discontinued operations when , among other things , we commit to a plan to divest the business or asset group , actively begin marketing the business or asset group , and when the sale of the business or asset group is deemed probable within the next 12 months . the following businesses , which have been sold , met these requirements and therefore have been reported as discontinued operations for the periods presented .
| we entered into an agreement to sell our service solutions business to robert bosch gmbh . we completed the sale in december 2012 for cash proceeds of $ 1,134.9 and recorded a gain , net of taxes , of $ 313.4 to `` gain on disposition of discontinued operations , net of tax '' within our consolidated statement of operations for 2012. on december 30 , 2011 , we and shanghai electric established the shanghai electric jv , a joint venture to supply dry cooling and moisture separator reheater products and services to the power sector in china and other selected regions of the world . we contributed and sold certain assets of our dry cooling products business in china to the shanghai electric joint venture in consideration for a 45 % ownership interest in the joint venture and cash payments of rmb 96.7 , with rmb 51.5 received january 2012 , rmb 25.8 received in december 2012 , and the remaining rmb payment contingent upon the joint venture achieving defined sales order volumes . final approval for the transaction was received on january 13 , 2012. in connection with the transaction , we recorded a pre-tax gain during the first quarter of 2012 of $ 20.5 , with such gain included in `` other income ( expense ) , net '' in our consolidated statement of operations for 2012. see note 4 to our consolidated financial statements for additional details on the transaction . on february 16 , 2012 , we entered into a written trading plan under rule 10b5-1 of the securities and exchange act of 1934 , as amended , to facilitate the repurchase of up to $ 350.0 of shares of our common stock on or before february 14 , 2013 , in accordance with a share repurchase program authorized by our board of directors . during the first half of 2012 , 1.0 shares of our common stock were repurchased for $ 75.0 , with the remainder scheduled to be
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we have set our sights on becoming an even more competitive , consultative , and profitable company , and we are reshaping our business to make that vision a reality . with our new operating models in place , we are working to rebalance our resources to align with our goals for growth , intentionally rebalancing our workforce toward roles that drive increased revenue and gp for the company . as we measure our progress against both revenue growth and improved operating leverage , we believe โ conversion rate โ ( earnings from operations as a percentage of gross profit ) is an important metric that will provide useful insight as we execute our plans . the goals we have established are based on the current economic and business environment , and may change as conditions warrant : we expect to grow pt and ocg revenue , creating a more balanced portfolio that yields benefits from an improved mix . we expect commercial to remain a core component of our strategy . we expect to exercise strict control over our cost base , delivering structural improvements that create strong operating leverage . and , as a result , we expect our conversion rate to continue to improve . looking ahead , we anticipate a stable u.s. labor market and an increasing demand for skilled workers . companies are relying more heavily on the use of flexible staffing models ; there is growing acceptance of free agents and contractual employment by companies and talent alike ; and companies are seeking more comprehensive workforce management solutions that lend themselves to kelly 's talent supply chain management approach . this shift in demand for contingent labor and strategic solutions plays to our strengths and experience โ particularly serving large companies whose needs span the globe and cross multiple labor categories . 21 financial measures return on sales ( earnings from operations divided by revenue from services ) and conversion rate in the following tables are ratios used to measure the company 's pricing strategy and operating efficiency . constant currency ( โ cc โ ) change amounts are non-gaap ( generally accepted accounting principles ) measures . the cc change amounts in the following tables refer to the year-over-year percentage changes resulting from translating 2015 financial data into u.s. dollars using the same foreign currency exchange rates used to translate financial data for 2014. these measures may be different from non-gaap financial measures used by other companies , limiting their usefulness for comparison purposes . we believe that cc measurements are an important analytical tool to aid in understanding underlying operating trends without distortion due to currency fluctuations . additionally , substantially all of our foreign subsidiaries derive revenues and incur cost of services and selling , general and administrative expenses ( โ sg & a โ ) within a single country and currency which , as a result , provide a natural hedge against currency risks in connection with their normal business operations . non-gaap measures should not be considered a substitute for , or superior to , measures of financial performance prepared in accordance with gaap . staffing fee-based income staffing fee-based income , which is included in revenue from services in the following tables , has a significant impact on gross profit rates . there are very low direct costs of services associated with staffing fee-based income . therefore , increases or decreases in staffing fee-based income can have a disproportionate impact on gross profit rates . 22 results of operations 2015 versus 2014 total company ( dollars in millions ) replace_table_token_3_th total company revenue from services for 2015 was down 0.8 % in comparison to the prior year , primarily as a result of currency fluctuations . during 2015 , the u.s. dollar strengthened against certain currencies , primarily the euro , russian ruble and the australian dollar , compared to 2014. on a cc basis , total company revenue increased 4.7 % year over year , as more fully described in the following discussions . the 2015 fiscal year included a 53rd week . this fiscal leap year occurs every five or six years and is necessary to align the fiscal and calendar periods . the 53rd week added approximately 1 % to 2015 reported and cc revenue . the gross profit rate increased 40 basis points on a year-over-year basis . as more fully described in the following discussions , an increase in the americas region gross profit rate was partially offset by declines in the gross profit rate in emea , apac and ocg . sg & a expenses excluding restructuring costs decreased 2.4 % year over year , reflecting the impact of changes in foreign currency exchange rates . on a cc basis , sg & a expenses increased 2.2 % due to higher expenses in our u.s. branch-based and ocg businesses and higher corporate litigation-related expenses . these increases were partially offset by the cost savings of our plan , and continued cost management efforts in emea and apac . restructuring charges in 2014 include $ 9.9 million related to the plan , $ 0.8 million of costs incurred for exiting the staffing business in sweden and $ 1.3 million related to closing branches in australia and consolidating back office functions in australia and new zealand . income tax expense for 2015 was $ 8.7 million , compared to a benefit of $ 7.1 million for 2014. our tax expense is affected by recurring items , such as the amount of pretax income and its mix by jurisdiction , u.s. work opportunity credits , and the change in cash surrender value of non-taxable investments in life insurance policies . it is also affected by discrete items that may occur in any given year but are not consistent from year to year , such as tax law changes , or changes in judgment regarding the realizability of deferred tax assets . the 2015 year-over-year increase in income tax expense is primarily due to increased pretax income . story_separator_special_tag the work opportunity credit program was extended through 2019 in the fourth quarter of 2015 and retroactively applied to 2015 , providing stability for this item . diluted earnings per share for 2015 were $ 1.39 , as compared to $ 0.61 for 2014 . 23 total americas ( dollars in millions ) replace_table_token_4_th the increase in reported americas revenue from services was due to a 2 % increase in hours worked , offset by a 2 % decrease in average bill rates . average bill rates were flat on a constant currency basis . the increase in hours worked was due to increases in our local branch network customer activity . americas represented 65 % of total company revenue in 2015 and 64 % in 2014. the 53rd week added approximately 1 % to 2015 reported and cc revenue in americas . revenue in our commercial segment was flat and up 2 % on a cc basis in comparison to the prior year . the increase in cc revenue in commercial was primarily due to increases in our educational staffing business , as a result of new customer wins , and in our light industrial product , due to increased demand at existing customer locations , coupled with additional new customer wins . light industrial business is up primarily in accounts serviced through our branch-based delivery model . volume in our large accounts using our centralized delivery model is down as a result of our exit from certain large accounts due to pricing discipline and the reduced revenue from our natural resources customers related to lower oil prices . in the pt segment , reported and cc revenue was up 2 % in comparison to the prior year . increases in accounts serviced through our branch delivery model more than offset the decreases in accounts for customers services through the centralized delivery model . revenue has increased in our science and finance products , while revenue in our engineering product decreased primarily due to the completion of certain projects . it revenue , specifically in the centralized delivery model , is down mainly due to customers moving from a traditional staffing model to an outsourced model delivered by our ocg business . on an overall basis , we have seen a shift in the buying behavior of our large centrally delivered customers from single-sourced arrangements to a more competitively sourced model , which puts pressure on revenue in accounts serviced in our centralized delivery model . the increase in the gross profit rate was primarily due to improved management of our payroll taxes and employee benefit costs , coupled with improved pricing in our u.s. branch network and overall customer mix . the increase in sg & a expenses is attributable to the increased incentive costs and compensation in our local branch network , partially offset by the impact of the plan we implemented in the fourth quarter of last year . 24 total emea ( dollars in millions ) replace_table_token_5_th the decrease in reported emea revenue from services was primarily due to the impact of changes in foreign currency exchange rates . the increase in cc revenue from services was due to a 7 % increase in hours , partially offset by a 3 % decrease in average bill rates on a cc basis , combined with a decrease in staffing fee-based income . the increase in hours was due primarily to higher hours volume in portugal and france , partially offset by a reduction of hours volume with larger customers in switzerland . the decrease in average bill rates was due primarily to increasing revenue in portugal , a country with lower average bill rates . emea represented 17 % of total company revenue in 2015 and 20 % in 2014. the 53rd week added approximately 1 % to 2015 reported and cc revenue in emea . the emea gross profit rate decreased primarily due to a decline in the temporary gross profit rate and a decline in staffing fee-based income . staffing fee-based income declined in both commercial and pt , primarily in russia , partially offset by increases in staffing fee-based income in some other countries . economic conditions in russia continue to be challenging , resulting in the decline in staffing fee-based income . the decrease in the temporary gross profit rate was primarily driven by unfavorable country mix , as described above . sg & a expenses decreased due to cost saving actions taken in 2015 , primarily in switzerland , norway and the u.k. , and the exit of staffing operations in sweden . restructuring costs recorded in 2014 reflect costs incurred for exiting the staffing business in sweden . 25 total apac ( dollars in millions ) replace_table_token_6_th the reported change in total apac revenue from services was primarily due to the impact of changes in foreign currency exchange rates . the increase in revenue from services on a cc basis was primarily due to a 13 % increase in hours worked , primarily in india . average bill rates declined 11 % on a reported basis and increased 1 % on a cc basis . apac revenue represented 7 % of total company revenue in both 2015 and 2014. the 53rd week in fiscal 2015 did not have a material impact on reported and cc revenue in apac . the gross profit rate declined due to decreases in the staffing fee-based income and the temporary gross profit rate , partially offset by higher-than-expected wage credits in singapore . the reduction in the temporary gross profit rate was due to an increased proportion of large accounts with lower margins . staffing fee-based income decreased due mainly to a weaker hiring climate in australia and singapore . singapore wage credits include additional prior year credits received in the current year , and totaled $ 5.2 million in 2015 and $ 2.2 million in 2014. the decrease in sg & a expenses excluding restructuring charges was due to continuing productivity improvements primarily achieved by consolidating the australia and new zealand operations in the prior year .
| the change from 2013 to 2014 was primarily due to growth in trade accounts receivable , along with the negative impact of $ 20.0 million related to supplier payments received at year-end 2013 which were paid out to suppliers during the first quarter of 2014. included in operating assets and liabilities and net cash from operating activities for 2013 is an increase of $ 4.8 million related to the correction of an error from prior periods . trade accounts receivable totaled $ 1.1 billion at year-end 2015 and 2014 . global days sales outstanding ( โ dso โ ) for the fourth quarter were 54 days for 2015 and 2014 . our working capital position was $ 411.3 million at year-end 2015 , a decrease of $ 16.8 million from year-end 2014 . the reclassification of current deferred taxes to noncurrent deferred taxes as of the 2015 year end in accordance with the early adoption of new accounting guidance contributed to the decrease in working capital from 2014. the current ratio ( total current assets divided by total current liabilities ) was 1.5 at year-end 2015 and 2014 . investing activities in 2015 , we used $ 17.6 million of net cash for investing activities , compared to $ 27.2 million in 2014 and $ 20.8 million in 2013 . capital expenditures , which totaled $ 16.9 million in 2015 , $ 21.7 million in 2014 and $ 20.0 million in 2013 , primarily related to the company 's technology programs . investment in equity affiliate represents cash contributions to ts kelly , our equity affiliate in which we have a 49 % ownership interest . in 2014 , investment in equity affiliate includes $ 4.8 million for the acquisition of a china-based staffing company . in 2013 , a cash payment of $ 1.4 million to ts kelly was improperly classified in operating activities in the consolidated statements of cash flows , resulting in the understatement of operating activities and overstatement of investing activities in the consolidated statements of cash flows for 2013. financing activities in 2015 , we used $ 42.2 million of cash for financing activities , as compared to generating $ 56.6 million in 2014 and using $ 43.7 million in 2013 . changes in net cash from financing activities are primarily related to short-term borrowing activities . debt
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measurement of impairment can be based on present value of expected future cash flows discounted at the loan 's effective interest rate , the loan 's observable market price or the fair value of the collateral , if the loan is collateral dependent . this evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change . the allocation of the allowance is also reviewed by management based upon our evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions , such as new loan products , credit quality trends ( including trends in nonperforming loans expected to result from existing conditions ) , collateral values , loan volumes and concentrations , specific industry conditions within portfolio segments that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectability of the loan portfolio . although management believes it has established and maintained the allowance for loan losses at adequate levels , if management 's assumptions and judgments prove to be incorrect due to continued deterioration in economic , real estate and other conditions , and the allowance for loan losses is not adequate to absorb inherent losses , our earnings and capital could be significantly and adversely affected . our general policy regarding recognition of interest on loans is to discontinue the accrual of interest when principal or interest payments are delinquent 90 days or more , or earlier if the loan is considered impaired . any unpaid amounts previously accrued on these loans are reversed from income . subsequent cash receipts are applied to the outstanding principal balance or to interest income if , in the judgment of management , collection of the principal balance is not in question . loans are returned to accrual status when they become current as to both principal and interest and when subsequent performance reduces the concern as to the collectability of principal and interest . loan fees and certain direct loan origination costs are deferred , and the net fee or cost is recognized as an adjustment to interest income over the estimated average lives of the related loans . we must make certain estimates in determining income tax expense for financial statement purposes . these estimates occur in the calculation of the deferred tax assets and liabilities , which arise from the temporary differences between the tax basis and financial statement basis of our assets and liabilities . the carrying value of our net deferred tax asset is based on our historic taxable income for the two prior years as well as our belief that it is more likely than not that we will generate sufficient future taxable income to realize these deferred tax assets . judgments regarding future taxable income may change due to changes in market conditions , changes in tax laws or other factors which could result in a change in the assessment of the realization of the net deferred tax asset . 37 on a quarterly basis , we review securities with a decline in fair value below the amortized cost of the investment to determine whether the decline in fair value is temporary or other than temporary . declines in the fair value of marketable equity securities below their cost that are deemed to be other than temporary based on the severity and duration of the impairment are reflected in earnings as realized losses . in estimating other than temporary impairment losses for securities , impairment is required to be recognized if ( 1 ) we intend to sell the security ; ( 2 ) it is โ more likely than not โ that we will be required to sell the security before recovery of its amortized cost basis ; or ( 3 ) for debt securities , the present value of expected cash flows is not sufficient to recover the entire amortized cost basis . for all impaired available for sale securities that we intend to sell , or more likely than not will be required to sell , the full amount of the other than temporary impairment is recognized through earnings . for other impaired debt securities , credit-related other than temporary impairment is recognized through earnings , while non-credit related other than temporary impairment is recognized in other comprehensive income , net of applicable taxes . average balance sheet and analysis of net interest and dividend income the following table sets forth information relating to our financial condition and net interest and dividend income for the years ended december 31 , 2014 , 2013 and 2012 and reflects the average yield on assets and average cost of liabilities for the years indicated . the yields and costs were derived by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities , respectively , for the years shown . average balances were derived from actual daily balances over the years indicated . interest income includes fees earned from making changes in loan rates or terms , and fees earned when commercial real estate loans were prepaid or refinanced . the interest earned on tax-exempt assets is adjusted to a tax-equivalent basis to recognize the income tax savings which facilitates comparison between taxable and tax-exempt assets . 38 replace_table_token_23_th ( 1 ) loans , including non-accrual loans , are net of deferred loan origination costs , and unadvanced funds and allowance for loan losses . ( 2 ) securities income , loan income and net interest income are presented on a tax-equivalent basis using a tax rate of 34 % . the tax-equivalent adjustment is deducted from tax-equivalent net interest and dividend income to agree to the amount reported in the statements of income . ( 3 ) short-term investments include federal funds sold . ( 4 ) net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities . story_separator_special_tag ( 5 ) net interest margin represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets . 39 rate/volume analysis . the following table shows how changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest and dividend income and interest expense during the periods indicated . information is provided in each category with respect to : ( 1 ) interest income changes attributable to changes in volume ( changes in volume multiplied by prior rate ) ; ( 2 ) interest income changes attributable to changes in rate ( changes in rate multiplied by prior volume ) ; and ( 3 ) the net change . the 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_24_th ( 1 ) securities and loan income and net interest income are presented on a tax-equivalent basis using a tax rate of 34 % . the tax-equivalent adjustment is deducted from tax-equivalent net interest income to agree to the amount reported in the statements of income . 40 comparison of financial condition at december 31 , 2014 and december 31 , 2013 total assets increased $ 43.3 million to $ 1.3 billion at december 31 , 2014. net loans increased by $ 86.7 million to $ 716.7 million at december 31 , 2014 from $ 630.0 million at december 31 , 2013. the increase in loans was partially offset by a $ 45.0 million decrease in the securities portfolio to $ 508.8 million at december 31 , 2014. net loans increased by $ 86.7 million to $ 716.7 million at december 31 , 2014 from $ 630.0 million at december 31 , 2013. the increase in net loans was primarily the result of increases in residential real estate loans , commercial and industrial loans and commercial real estate loans . residential real estate loans increased $ 43.6 million to $ 277.7 million at december 31 , 2014 from $ 234.1 million at december 31 , 2013. we purchased $ 35.3 million in residential loans from a new england-based bank as a means of supplementing our loan growth . in addition , through our long standing relationship with a third-party mortgage company , we purchased a total of $ 18.0 million in residential loans within and contiguous to our market area . commercial and industrial loans increased $ 30.1 million to $ 165.7 million at december 31 , 2014 from $ 135.6 million at december 31 , 2013. the growth in commercial and industrial loans was the result of new loan originations and customers increasing balances on their lines of credit , which were both partially offset by normal loan payments and payoffs . commercial real estate loans increased $ 14.0 million to $ 278.4 million at december 31 , 2014 from $ 264.4 million at december 31 , 2013. non-owner occupied commercial real estate loans totaled $ 169.1 million at december 31 , 2014 and $ 151.9 million at december 31 , 2013 , while owner occupied commercial real estate loans totaled $ 109.3 million at december 31 , 2014 and $ 112.5 million at december 31 , 2013. the growth in commercial real estate loans was due to executing on our strategy of increasing loan originations . securities decreased $ 45.0 million to $ 508.8 million at december 31 , 2014 from $ 553.8 million at december 31 , 2013. the securities portfolio is primarily comprised of mortgage-backed securities , which totaled $ 343.4 million at december 31 , 2014 and $ 395.4 million at december 31 , 2013 , the majority of which were issued by government-sponsored enterprises such as the federal national mortgage association . there were no privately issued mortgage-backed securities in the portfolio at december 31 , 2014 and 2013. debt securities issued by government-sponsored enterprises were $ 67.5 million at december 31 , 2014 and $ 54.1 million at december 31 , 2013. securities issued by government-sponsored enterprises include bonds issued by the federal national mortgage association and the federal home loan mortgage corporation . corporate bonds totaled $ 51.0 million and $ 55.0 million at december 31 , 2014 and 2013 , respectively . we began investing in investment-grade corporate bonds during the second quarter of 2012 as a means of diversifying our securities portfolio while also increasing the average yield on the portfolio . we also invest in municipal bonds primarily issued by cities and towns in massachusetts that are rated as investment grade by moody 's , standard & poor 's or fitch , and the majority of which are also independently insured . municipal bonds were $ 24.3 million at december 31 , 2014 and $ 26.2 million at december 31 , 2013. in addition , we have investments in fhlbb stock , common stock and mutual funds that invest only in securities allowed by the occ . during the second quarter of 2013 , securities with an amortized cost of $ 172.1 million were reclassified from available-for-sale to held-to-maturity . in addition , during the third quarter of 2013 , securities with an amortized cost of $ 132.8 million were reclassified from available-for-sale to held-to-maturity . the transfers of securities into the held-to-maturity category from the available-for-sale category were made at fair value at the date of transfer . the unrealized holding gain or loss at the date of transfer was retained in accumulated other comprehensive loss and in the carrying value of the held-to-maturity securities . such amounts will be amortized over the remaining life of the securities . management selected the securities because of our positive intent and ability to hold until maturity . considerations were taken into account in the selection of each security , including our overall sources of liquidity , the ability to pledge the security as collateral if needed , and the impact on our interest rate risk ( irr ) positioning .
| interest income on loans increased $ 2.4 million to $ 27.8 million for the year ended december 31 , 2014 from $ 25.4 million for the year ended december 31 , 2013. the tax-equivalent yield on loans decreased 13 basis points from 4.23 % for the year 2013 to 4.10 % for the same period in 2014. the increase in interest income on loans for the year ended december 31 , 2014 was due to the average balance of loans increasing $ 78.4 million in executing our strategy to improve the balance sheet mix by reinvesting cash flows from securities sales and pay downs into loans . interest expense . interest expense for the year ended december 31 , 2014 decreased $ 367,000 to $ 9.9 million from 2013. this was attributable to a 5 basis point decrease in the average cost of interest-bearing liabilities to 0.99 % for the year ended december 31 , 2014 from 1.04 % in 2013. the decrease in the cost of interest-bearing liabilities was due to decreases in rates on time deposits , savings and checking accounts . net interest and dividend income . net interest and dividend income increased $ 327,000 to $ 31.1 million for the year ended december 31 , 2014 as compared to $ 30.7 million for same period in 2013. the net interest margin , on a tax-equivalent basis , was 2.60 % and 2.58 % for the years ended december 31 , 2014 and 2013 , respectively . the increase in the net interest margin was due to the improvement of our balance sheet mix by reducing securities and reinvesting in loans along with the cost of interest-bearing liabilities decreasing 5 basis points , while the yield on average interest-bearing assets decreased 2 basis points . provision ( credit ) for loan losses . the provision ( credit ) for loan losses is reviewed by management based upon our evaluation of then-existing economic and business conditions affecting our key lending
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million related to the impairment of goodwill within our garden segment due to its continuing poor performance . replace_table_token_7_th 32 replace_table_token_8_th replace_table_token_9_th replace_table_token_10_th replace_table_token_11_th ( a ) the garden charges reflect the impact of garden segment charges in fiscal 2014 and 2013 related to the discontinuance of certain products introduced in 2013 . ( b ) in fiscal 2014 , we recognized a gain from the sale of manufacturing plant assets related to a product the garden segment will now purchase rather than produce . ( c ) in fiscal 2013 , we recognized a goodwill impairment charge within our garden segment . 33 results of operations ( gaap ) the following table sets forth , for the periods indicated , the relative percentages that certain income and expense items bear to net sales : replace_table_token_12_th fiscal 2014 compared to fiscal 2013 net sales net sales for fiscal 2014 decreased $ 49.2 million , or 3.0 % , to $ 1,604.4 million from $ 1,653.6 million in fiscal 2013. our branded product sales decreased $ 70.7 million , and sales of other manufacturers ' products increased $ 21.5 million . branded product sales include products we manufacture under central brand names and products we manufacture under third-party brands . sales of our branded products represented 81.3 % of our total sales in fiscal 2014 compared with 83.2 % in fiscal 2013. the following table indicates each class of similar products which represented more than 10 % of our consolidated net sales in the fiscal years presented ( in millions ) : replace_table_token_13_th our pet segment 's net sales for fiscal 2014 decreased $ 42.7 million , or 4.8 % , to $ 845.5 million from $ 888.2 million in fiscal 2013. the decline in pet sales was due principally to industry weakness , lost shelf space and increased competition in the categories in which we participate . pet branded product sales decreased $ 63.4 million from fiscal 2013 due primarily to a $ 20.2 million decrease in our animal health category , an $ 18.0 million decrease in our bird and small animal category and a $ 15.4 million decrease in our aquatics category ; all of these decreases were primarily volume driven . our animal health category was impacted by lower sales in the flea and tick category , which resulted from a weak flea and tick season , lost shelf space , rebranding and repackaging resulting in return of the superceded product and increased competition . sales of other manufacturers ' products increased approximately $ 20.7 million benefitting from expanded distribution . our garden segment 's net sales for fiscal 2014 decreased $ 6.5 million , or 0.9 % , to $ 758.9 million from $ 765.4 million in fiscal 2013. garden branded product sales decreased $ 7.3 million due primarily to a $ 12.4 million decrease in our controls and fertilizer category which was impacted by reduced volumes and increased 34 charges related to returns and promotional allowances for two discontinued garden products introduced in 2013. the decrease in controls and fertilizers was partially offset by an increase in grass seed sales primarily due to increased pricing . sales of other manufacturers ' products increased approximately $ 0.8 million compared to fiscal 2013. gross profit gross profit decreased $ 9.9 million , or 2.1 % , to $ 454.0 million from $ 463.9 million in fiscal 2013. gross profit as a percentage of net sales increased from 28.1 % in fiscal 2013 to 28.3 % for fiscal 2014 , with both the pet segment and the garden segment , including the garden charge , contributing to the small increase . adjusting for the charges and gains reflected in the adjusted results , gross profit for fiscal 2014 decreased $ 4.1 million , or 0.9 % , to $ 470.9 million from fiscal 2013. adjusted gross margin increased from 28.7 % for fiscal 2013 to 29.2 % for fiscal 2014. gross profit decreased in the pet segment in fiscal 2014 due to a $ 42.7 million decrease in sales , partially offset by improved gross margin . most of our pet businesses had increased gross margins . the largest contributor to the margin increase was our bird and small animal business which benefitted from operational improvements in small animal and from lower commodity costs in bird feed . these gross margin increases were partially offset by a lower gross margin in our animal health category which was impacted by a mix shift in professional and a lower gross margin in our flea and tick category due primarily to the rebranding and packaging efforts undertaken in fiscal 2014. in the garden segment , gross profit remained relatively constant as the 0.9 % decrease in net sales was offset by increased gross margin . the garden segment gross profit and gross margin were impacted in both fiscal 2014 and fiscal 2013 by the garden charges . the garden segment gross margin improved slightly due primarily to an improved gross margin in wild bird feed , which benefitted from lower commodity costs and seasonal dรฉcor , due primarily to the elimination of less profitable products . these improvements to gross margin were partially offset by a decreased gross margin in grass seed , due primarily to higher costs , and in controls and fertilizers , impacted by lower sales volumes , and a sales mix shift adversely affected gross profit and gross margin . selling , general and administrative selling , general and administrative expenses decreased $ 18.2 million , or 4.4 % , from $ 416.0 million in fiscal 2013 to $ 397.8 million in fiscal 2014. as a percentage of net sales , selling , general and administrative expenses decreased from 25.2 % in fiscal 2013 to 24.8 % in fiscal 2014. the change in selling , general and administrative expenses , discussed further below , was due primarily to decreased selling and delivery expense . story_separator_special_tag corporate expenses are included within administrative expense and relate to the costs of unallocated executive , administrative , finance , legal , human resource , and information technology functions . selling and delivery expense decreased $ 17.6 million , or 7.5 % , from $ 234.0 million in fiscal 2013 to $ 216.4 million in fiscal 2014. selling and delivery expense as a percentage of net sales decreased from 14.2 % in fiscal 2013 to 13.5 % in fiscal 2014. the decrease was due primarily to decreased marketing expenses , primarily advertising , associated with the controls and fertilizers and grass seed categories in our garden segment . warehouse and administrative expense decreased $ 0.6 million , or 0.3 % , from $ 182.0 million in fiscal 2013 to $ 181.4 million in fiscal 2014. decreased costs in both our operating segments were partially offset by a $ 9.3 million increase in corporate costs . in our pet segment , the prior year warehouse consolidations are now yielding savings , and in our garden segment , we recorded a $ 4.9 million gain from the sale of manufacturing plant assets related to a seasonal product we intend to purchase rather than produce . corporate operating expense increased $ 9.3 million as a result of $ 5.9 million of software costs expensed ( due primarily to changes in our operations and related plans for future sap implementations ) , increased medical insurance program costs and information technology third party provider costs related to our sap implementation . 35 impairment we perform an annual goodwill test for impairment . an impairment loss is recognized for goodwill if its carrying value exceeds its fair value . the goodwill fair values are estimated using the discounted cash flow related to the assets . during the fourth quarter of fiscal 2013 , we recognized a non-cash charge of $ 7.7 million related to the impairment of goodwill within our garden segment due to its continuing poor performance . we did not have an impairment charge in fiscal 2014. operating income operating income increased $ 16.0 million in fiscal 2014 , or 40.0 % , to $ 56.2 million from $ 40.2 million in fiscal 2013. lower selling , general and administrative expenses and increased gross margin were partially offset by lower sales and the $ 16.9 million garden charge . operating margin was 3.5 % for fiscal 2014 and 2.4 % for fiscal 2013. excluding the garden charges , the gain on the sale of manufacturing plant assets and the goodwill impairment in the garden segment , adjusted operating income was $ 68.2 million , as compared to $ 59.0 million in the prior year , and operating margin improved to 4.2 % as compared to 3.6 % in the prior year . pet segment operating income decreased $ 7.3 million , or 7.7 % , to $ 88.1 million for fiscal 2014 from $ 95.4 million for fiscal 2013. the decrease was due primarily to decreased sales , which drove lower gross profit , partially offset by decreased selling , general and administrative expenses . pet operating margin decreased from 10.7 % for fiscal 2013 to 10.4 % for fiscal 2014. garden operating income increased $ 32.7 million , or 395 % , to $ 41.0 million for fiscal 2014 from $ 8.3 million for fiscal 2013. adjusted operating income in garden increased $ 25.9 million to $ 53.1 million for fiscal 2014 from $ 27.2 million in fiscal 2013 , and the adjusted operating margin was 6.9 % as compared to 3.5 % in fiscal 2013. garden adjusted operating income increased due primarily to a $ 20.1 million decrease in selling , general and administrative expenses . corporate operating expenses increased $ 9.3 million due primarily to a $ 5.9 million long-lived software charge , increased medical insurance program costs and information technology third party provider costs . net interest expense net interest expense decreased $ 0.2 million , or 0.5 % , from $ 43.0 million in fiscal 2013 to $ 42.8 million in fiscal 2014. the decrease was due to lower interest expense due primarily to lower average debt outstanding during fiscal 2014 as compared to fiscal 2013 partially offset by the write-off of unamortized deferred financing costs related to our prior revolving credit facility resulting in a non-cash charge of $ 1.7 million in the first quarter of fiscal 2014. debt outstanding on september 27 , 2014 was $ 450.2 million compared to $ 472.6 million as of september 28 , 2013. other income ( expense ) other income ( expense ) is comprised of income from investments accounted for under the equity method of accounting , foreign currency exchange gains and losses , and realized and unrealized gains and losses from derivative contracts used to economically hedge anticipated commodity purchases for use in our products . other income increased $ 1.1 million from $ 0.7 million of expense in fiscal 2013 to $ 0.4 million of income in fiscal 2014. the improvement was due primarily to realized and unrealized losses incurred in fiscal 2013 from derivative contracts used to economically hedge anticipated commodity purchases that did not reoccur in fiscal 2014. income taxes our effective income tax rate was 29.2 % for fiscal 2014 compared to a 74.2 % benefit for fiscal 2013. our 2014 tax rate benefited from the removal of valuation allowances on international deferred tax assets , and our 2013 tax rate benefited primarily from additional tax credits available in 2013 . 36 fiscal 2013 compared to fiscal 2012 net sales net sales for fiscal 2013 decreased $ 46.4 million , or 2.7 % , to $ 1,653.6 million from $ 1,700.0 million in fiscal 2012. fiscal 2013 , which was a 52-week year , included one less week than fiscal 2012. our branded product sales decreased $ 44.6 million , and sales of other manufacturers ' products decreased $ 1.8 million . branded product sales include products we manufacture under central brand names and products we manufacture under third-party brands .
| during fiscal 2013 and fiscal 2014 , we adopted a balanced approach to improving profitability through a focus on increasing sales and improving margins , providing superior customer service and delivering innovative new products . we expect to continue this balanced approach in the future and to continue to focus on eliminating inefficiencies and on increasing consumer take-away of our products . harbinger proposals . in june 2014 , we received an unsolicited letter from harbinger group inc. requesting that we discuss with harbinger a possible acquisition by harbinger of all outstanding shares of central 's common stock at $ 10 per share in cash or , alternatively , the acquisition of our pet segment for $ 750 million in cash , subject to due diligence . our board retained independent financial and legal advisors to assist it in its review of the two proposals . with the assistance of its advisors , the board of directors engaged in a comprehensive review which included consideration of current and expected operations , capital structure , and market opportunities . in addition , the financial advisor and our outside legal counsel met with harbinger representatives to provide an opportunity to supplement or clarify their proposal . after this extensive review , the board of directors unanimously concluded in october that it would not pursue either of the two proposals received from harbinger group inc. we incurred significant legal expenses and advisory fees during fiscal 2014 in connection with the review and expect to incur significant additional fees and expenses in the future . in addition , the uncertainty created by the proposals could cause current and prospective employees to experience uncertainty about their future roles with us , which may materially adversely affect our ability to attract and retain key employees and could continue to have a negative impact on our customer relationships , which could adversely impact our sales and financial results . use of non-gaap financial measures . we report our financial results
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the preparation of these financial statements requires us to make estimates and judgments that affected the reported amounts of assets and liabilities , and related disclosure of contingent assets and liabilities , revenues and expenses at the date of the financial statements . generally , we base our estimates on historical experience and on various other assumptions in accordance with u.s. gaap that we believe to be reasonable under the circumstances . actual results may differ from these estimates and such differences could be material to our financial position and results of operations . while our significant accounting policies are more fully described in note 2 to our consolidated financial statements included elsewhere in this report , we believe the following discussion addresses our most critical accounting policies , which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult , subjective and complex judgments . reporting currency all values are in u.s. dollars ( $ or `` usd '' ) unless specifically indicated otherwise . canadian dollars are indicated as cad $ . functional currency management has exercised judgment in selecting the functional currency of each of the entities that it combines based on the primary economic environment in which the entity operates and in reference to the various indicators including the currency that primarily influences or determines the selling prices of goods and services and the cost of those services , including labor , material and other costs and the currency whose competitive forces and regulations mainly determine selling prices . the company 's functional currency was determined to be the u.s. dollar , which was determined using management 's assumption that the primary economic environment which it will derive its revenue and expenses incurred to generate those revenues is the united states . page 31 viemed healthcare , inc. ( tabular amounts expressed in thousands of us dollars , except per share amounts ) december 31 , 2019 and 2018 revenue recognition revenue from a customer consists of any combination of the sale and rental of dme and or patient medical services . revenues are billed to and collections received from medicare , medicaid , third-party insurers , co-insurance and patient-pay . revenue is recognized net of contractual adjustments and bad debt based on contractual arrangements with third-party payors , an evaluation of expected collections resulting from the analysis of current and past due accounts , past collection experience in relation to amounts billed and other relevant information . contractual adjustments result from the differences between the rates charged for services and reimbursements by government-sponsored healthcare programs and insurance companies for such services . the company 's contracts with customers often include multiple products and services , and the company evaluates these arrangements to determine the unit of accounting for revenue recognition purposes based on whether the product or service is distinct from other products or services in the arrangement and should be accounted for as separate performance obligation . a product or service is distinct if the customer can benefit from it on its own or together with other readily available resources and the company 's ability to transfer the goods or services is separately identifiable from other promises in the contractual arrangement with the customer ( e.g . patient ) . revenue is then allocated to each separately identifiable good or service based on their relative standalone selling price of the items underlying the performance obligations . most of the company 's products fall in the medicare fee-for-service ( โ ffs โ ) program which is a payment model where services are unbundled and paid for separately . these services are paid based on a medicare determined price that is publicly available on the website for cms . for commercial payors , dme companies must negotiate in-network pricing separately , though in general , the company 's payors tend to benchmark their contract rates and coverage policies closely to those of medicare . the company considers performance obligations for sales and rentals to be met when the customer receives the equipment , and revenue for rentals is recognized straight line , over the respective rental period . for revenue associated with dme rentals , the company recognizes revenue in accordance with fasb asu 2016-02 โ leases , โ ( topic 842 ) . for any dme sales and services , the company recognizes revenue under fasb asu 2014-09 , โ revenue from contracts with customers , โ ( topic 606 ) and related amendments . the company recognizes equipment rental revenue over the non-cancelable lease term , which is one month , less estimated adjustments , in accordance with topic 842 , `` leases '' . the company has separate contracts with each patient that are not subject to a master lease agreement with any third-party payor . the company would first consider the lease classification issue ( sales-type lease or operating lease ) and then appropriately recognize or defer rental revenue over the lease term . revenue accounting under topic 842 the company leases dme such as non-invasive and invasive ventilators , pap machines , percussion vests , oxygen concentrator units and other small respiratory equipment to customers for a fixed monthly amount on a month-to-month basis . the customer generally has the right to cancel the lease at any time during the rental period . the company considers these rentals to be operating leases . under fasb accounting standards codification topic 842 , โ leases โ , the company recognizes rental revenue on operating leases on a straight-line basis over the contractual lease term . the lease term begins on the date products are delivered to patients , and revenues are recorded at amounts estimated to be received under reimbursement arrangements with third-party payors , including medicare , private commercial payors , and medicaid . certain customer co-payments are included in revenue when considered probable of payment , which is generally when paid . story_separator_special_tag due to the nature of the industry and the reimbursement environment in which the company operates , certain estimates are required to record net revenue and accounts receivable at their net realizable values . inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available . specifically , the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded . such adjustments are typically identified and recorded at the point of cash application or claim denial . page 32 viemed healthcare , inc. ( tabular amounts expressed in thousands of us dollars , except per share amounts ) december 31 , 2019 and 2018 revenue accounting under topic 606 the company sells dme , replacement parts and supplies to customers and recognizes revenue based on contractual payment rates as determined by the payors at the point in time where control of the good or service is transferred through delivery to the customer . the customer and , if applicable , the payors are generally charged at the time that the product is sold . the company also provides sleep study services to customers and recognizes revenue when the results of the sleep study are complete as that is when the performance obligation is met . the transaction price on both equipment sales and sleep studies is the amount that the company expects to receive in exchange for the goods and services provided . due to the nature of the durable medical equipment business , gross charges are retail charges and generally do not reflect what the company is ultimately paid . as such , the transaction price is constrained for the difference between the gross charge and what is estimated to be collected from payors and from patients . the transaction price therefore is predominantly based on contractual payment rates as determined by the payors . the company does not generally contract with uninsured customers . the payment terms and conditions of customer contracts vary by customer type and the products and services offered . the company determines its estimates of contractual allowances and discounts based upon contractual agreements , its policies and historical experience . while the rates are fixed for the product or service with the customer and the payors , such amounts typically include co-payments , co-insurance and deductibles , which vary in amounts , and are due from the patient . the company includes in the transaction price only the amount that the company expects to be entitled , which is substantially all of the payor billings at contractual rates . due to the nature of the industry and the reimbursement environment in which the company operates , certain estimates are required to record net revenue and accounts receivable at their net realizable values . inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available . specifically , the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded . such adjustments are typically identified and recorded at the point of cash application or claim denial . returns and refunds are not accepted on either equipment sales or sleep study services . the company does not offer warranties to customers in excess of the manufacturer 's warranty . any taxes due upon sale of the products or services are not recognized as revenue . the company does not have any partially or unfilled performance obligations related to contracts with customers and as such , the company has no contract liabilities as of december 31 , 2019 . allowance for doubtful accounts the company estimates that a certain portion of receivables from customers may not be collected and maintains an allowance for doubtful accounts . the company evaluates the net realizable value of accounts receivable as of the date of the consolidated balance sheets . specifically , we consider historical realization data including current and historical cash collections , accounts receivable aging trends , other operating trends and relevant business conditions . because of continuing changes in the health care industry and third-party reimbursement , it is possible that the estimates could change , which could have a material impact on the operations and cash flows . if circumstances related to certain customers change or actual results differ from expectations , our estimate of the recoverability of receivables could fluctuate from that provided for in our consolidated financial statements . a change in estimate could impact bad debt expense and accounts receivable . our allowance for doubtful accounts was $ 7.8 million and $ 4.3 million as of december 31 , 2019 and 2018 , respectively , and based on our analysis , we believe the reserve is adequate for any exposure to credit losses . stock-based compensation the company accounts for its stock-based compensation in accordance with asc 718โcompensationโstock compensation , which establishes accounting for share-based awards exchanged for employee services and requires companies to expense the estimated fair value of these awards over the requisite employee service period . stock-based compensation cost for stock options are determined at the grant date using the black-scholes option pricing model . stock-based compensation costs for restricted stock units are determined at the grant date based on the closing stock price . the expense of such stock-based compensation awards is recognized using the graded vesting attribution method over the vesting period and the offsetting credit is recorded as an increase in additional paid-in capital . forfeitures are recorded as incurred . any excess tax benefit or deficiency is recognized as a component of income taxes and within operating cash flows upon vesting of the share-based award .
| results of operations the following financial information includes certain prior period corrections relating to daily revenue recognition of the company 's home medical equipment rentals . the company concluded that the cumulative effect of such corrections in fiscal year 2019 would materially misstate the company 's consolidated statement of income for the year ended december 31 , 2019 . the financial results for the prior year have been restated . comparison of the years ended december 31 , 2019 and 2018 : the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018 : years ended december 31 , 2019 ( 2 ) % of net revenue 2018 ( 1 ) % of net revenue $ change % change net revenue $ 80,256 100.0 % $ 64,464 100.0 % $ 15,792 24.5 % cost of revenue 24,250 30.2 % 16,689 25.9 % 7,561 45.3 % gross profit $ 56,006 69.8 % $ 47,775 74.1 % $ 8,231 17.2 % selling , general and administrative 41,381 51.6 % 34,304 53.2 % 7,077 20.6 % research and development 848 1.1 % โ โ % 848 100.0 % stock-based compensation 3,886 4.8 % < td
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part a is evaluating srk-181 as a single-agent and in combination with an approved anti-pd- ( l ) 1 therapy and part b will evaluate srk-181 in combination with an approved anti-pd- ( l ) 1 therapy across 111 multiple solid tumor types , including urothelial carcinoma , cutaneous melanoma and non-small cell lung cancer , and other solid tumors . we expect to advance to part b of the trial in the second quarter of 2021 with initial clinical response and safety data anticipated in the second half of 2021. since inception , we have incurred significant operating losses . our net losses were $ 86.5 million and $ 51.0 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 244.3 million . we expect to continue to incur significant expenses and operating losses for the foreseeable future . in addition , we anticipate that our expenses will increase in connection with our ongoing activities , as we : โ continue development activities for apitegromab , including the completion of our topaz phase 2 clinical trial and the planning , for our phase 3 clinical trial program and associated drug supply ; โ continue research and development activities for srk-181 , including the conduct of our dragon phase 1 clinical trial ; โ continue research and development activities to support our collaboration with gilead ; โ continue to discover , validate and develop additional product candidates through the use of our proprietary platform ; โ maintain , expand and protect our intellectual property portfolio ; โ hire additional research , development and business personnel ; and โ continue to build the infrastructure to support our operations as a public company . โ to date , we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future . if we successfully complete clinical development and obtain regulatory approval for apitegromab , srk-181 or any of our future product candidates , we may generate revenue in the future from product sales . in addition , if we obtain regulatory approval for apitegromab , srk-181 or any of our future product candidates , we expect to incur significant expenses related to developing our commercialization capability to support product sales , marketing and distribution activities . covid-19 pandemic in march 2020 , the world health organization declared the outbreak of a novel coronavirus , or covid-19 , as a pandemic ( the โ covid-19 pandemic โ ) , which continues to spread throughout the u.s. and worldwide . we could be materially and adversely affected by the risks , or the public perception of the risks , related to an epidemic , pandemic , outbreak , or other public health crisis , such as the covid-19 pandemic . the ultimate extent of the impact of any epidemic , pandemic , outbreak , or other public health crisis on our business , financial condition and results of operations will depend on future developments , which are highly uncertain and can not be predicted , including new information that may emerge concerning the severity of such epidemic , pandemic , outbreak , or other public health crisis and actions taken to contain or prevent the further spread , including the development and deployment of any vaccine program . accordingly , we can not predict the extent to which our business , including our clinical trials , financial condition and results of operations will be affected . as a result of the covid-19 pandemic , we have experienced disruptions that have impacted our business , preclinical studies and clinical trials , including disruptions or restrictions on our ability to access and monitor certain clinical trial sites , restrictions on clinical trial participants ' ability to access our clinical trial sites and delays in enrollment . some clinical trial participants have missed or experienced delays in receiving doses of study drug and completing their clinical trial assessments . for example , three patients ( one in cohort 2 and two in cohort 3 ) of the topaz clinical trial each missed three doses of apitegromab and the six-month interim analysis timepoint due to covid-19-related site access restrictions ; the six-month timepoint from these patients was not included in the interim analysis . the covid-19 pandemic has affected our clinical trials and could result in further impacts , including delays in or adverse impacts to data readouts ( e.g . poor or negative efficacy results or adverse safety signal ) from our clinical trials , delays in our ability to identify and enroll patients in current or future clinical trials and decisions by enrolled patients to discontinue from our clinical trials due to covid-19 related concerns . additionally , our laboratory operations have been reduced since the declaration of the pandemic and our research activities will continue to be impacted until our laboratory operations are able to return to normal levels of operation that existed prior to the covid-19 pandemic . in addition , delays in the development of covid-19 vaccines or the deployment of approved vaccines , a 112 recurrence or โ subsequent waves โ of covid-19 cases , or the discovery of vaccine-resistant covid-19 variants could cause other widespread or more severe impacts . we continue to monitor developments as we deal with the disruptions and uncertainties relating to the covid-19 pandemic . financial operations overview revenue no revenues have been recorded from the sale of any commercial product . revenue generation activities have been limited to collaborations , containing research services and the issuance of a license . story_separator_special_tag currently , revenue is being recognized related to the gilead collaboration agreement which was executed on december 19 , 2018 ( the โ effective date โ ) , and we began recognizing associated revenue in 2019. under the gilead collaboration agreement , gilead has exclusive options to license worldwide rights to product candidates that emerge from three of the company 's tgfฮฒ programs ( each a โ gilead program โ ) . each option may be exercised by gilead at any time from the effective date through a date that is 90 days following the expiration of the research collaboration term for a given gilead program ( no later than march 19 , 2022 ) , or until termination of the gilead program , whichever is earlier ( the โ option exercise period โ ) . revenue associated with the research and development and license performance obligations relating to the gilead programs is recognized as revenue as the research and development services are provided using an input method . the input method is based on the costs incurred on each gilead program and the costs expected to be incurred in the future to satisfy the performance obligation . the transfer of control occurs over time . in management 's judgment , this input method is the best measure of progress towards satisfying the performance obligations . we evaluate the measure of progress each reporting period and , if necessary , adjust the measure of performance and related revenue recognition . the estimate of remaining costs is highly subjective , as the research is novel , therefore efforts to be successful may be significantly different than the estimated costs made at the balance sheet date . the amounts received that have not yet been recognized as revenue are recorded in deferred revenue on our consolidated balance sheet . we expect to recognize the deferred revenue related to the research and development services based on the cost input method described above , over the remaining research term for each respective gilead program , which is up to three years from the execution of the agreement . each research term is dependent on the timing of gilead either exercising its options for the gilead programs or terminating further development on the gilead programs prior to the expiration date of the research term . the deferred revenue related to the material rights will be recognized as options are exercised by gilead or at the conclusion of the option exercise period . operating expenses research and development research and development expenses consist primarily of costs incurred for our research and development activities , including our product candidate discovery efforts , preclinical studies , manufacturing , and clinical trials under our research programs , which include : โ employee-related expenses , including salaries , benefits and equity-based compensation expense for our research and development personnel ; โ expenses incurred under agreements with third parties that conduct research and development and preclinical activities on our behalf ; โ expenses incurred under agreements related to our clinical trials , including the costs for investigative sites and cros , that conduct our clinical trials ; โ manufacturing process-development , manufacturing of clinical supplies and technology-transfer expenses ; โ consulting and professional fees related to research and development activities ; โ costs of purchasing laboratory supplies and non-capital equipment used in our internal research and development activities ; 113 โ costs related to compliance with clinical regulatory requirements ; and โ facility costs and other allocated expenses , which include expenses for rent and maintenance of facilities , insurance , depreciation and other supplies . โ research and development costs are expensed as incurred . costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks . nonrefundable advance payments for research and development goods and services to be received in the future from third parties are deferred and capitalized . the capitalized amounts are expensed as the related services are performed . a significant portion of our research and development costs have been external costs , which we track on a program-by-program basis after a clinical product candidate has been identified . however , we do not allocate our internal research and development expenses , consisting primarily of employee related costs , depreciation and other indirect costs , on a program-by-program basis as they are deployed across multiple projects . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials , as well as the associated clinical trial material requirements . we expect research and development costs to increase for the foreseeable future as our product candidate development programs progress , and we expect to incur additional costs in connection with our research and development activities under our collaboration with gilead . however , we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization . there are numerous factors associated with the successful commercialization of any of our product candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control will impact our clinical development programs and plans . the successful development of apitegromab , srk-181 and any future product candidates is uncertain . accordingly , at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of apitegromab , srk-181 and any future product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from the sale of our product candidates , if approved .
| the following table summarizes our research and development expense for the years ended december 31 , 2020 and 2019 ( in thousands , except percentages ) : replace_table_token_2_th โ the increase in research and development expense was primarily attributable to the following : โ an increase in our external research and development costs of $ 10.8 million , which primarily consisted of : o $ 8.6 million increase in costs associated with apitegromab , due primarily to costs from our topaz phase 2 clinical trial , including clinical drug supply manufacturing ; and o $ 2.3 million increase in costs associated with srk-181 . our dragon phase 1 clinical trial was initiated during the first quarter of 2020 and the increase is associated with clinical trial costs . โ $ 9.0 million increase in internal research and development costs , which was primarily driven by an increase in employee compensation and benefits costs , associated with increased headcount and related overhead as we continued to expand our research and development functions in addition to an increase in facility costs due to our new office and laboratory space at 301 binney street in cambridge , massachusetts . we expect our research and development expenses to increase as we continue to advance the development of our product candidates , including apitegromab , completing our topaz phase 2 clinical trial and planning for the phase 3 clinical trial program , and srk-181 , through our dragon phase 1 clinical trial . additionally , we expect to continue to conduct research under the gilead collaboration . however , as described above in covid-19 pandemic , the ultimate extent of the impact of the covid-19 pandemic on our results of operations will depend on future developments , which are highly uncertain . accordingly , we can not fully predict the extent to which our business and results of operations will be affected . 116 general and administrative general and administrative expense was $ 28.2 million for the year ended december 31 , 2020 compared to $ 20.8 million for the year ended december 31 , 2019 , an increase of $ 7.4 million or 35.6 % . the increase in general and administrative expense was primarily attributable to an increase of $ 4.4 million in employee compensation and benefits , related to increased headcount and separation related expenses , and
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the company 's goodwill impairment test includes two steps that are preceded by a , โ step zero โ , qualitative test . the qualitative test allows management to assess whether qualitative factors indicate that it is more likely than not that impairment exists . if it is not more likely than not that impairment exists , then the two step quantitative test would not be necessary . these qualitative indicators include factors such as earnings , share price , market conditions , etc . if the qualitative factors indicate that it is more likely than not that impairment exists , then the two step quantitative test would be necessary . step one is used to identify potential impairment and compares the estimated fair value of a reporting unit with its carrying amount , including goodwill . if the estimated fair value of a reporting unit exceeds its carrying amount , goodwill of the reporting unit is considered not impaired . if the carrying amount of a reporting unit exceeds its estimated fair value , the second step of the goodwill impairment test is performed to measure the amount of impairment loss , if any . step two of the goodwill impairment test compares the implied estimated fair value of reporting unit goodwill with the carrying amount of that goodwill . if the carrying amount of goodwill for that reporting unit exceeds the implied fair value of that unit 's goodwill , an impairment loss is recognized in an amount equal to the excess . identifiable intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or legal rights or because the assets are capable of being sold or exchanged either on their own or in combination with related contract , asset or liability . the company 's intangible assets primarily relate to core deposits . management periodically evaluates whether events or circumstances have occurred that would result in impairment of value . 27 financial condition assets . total assets at december 31 , 2013 were $ 1.44 billion , an increase of $ 29.1 million , or 2.1 % , from $ 1.41 billion at december 31 , 2012. the increase in total assets is from increased deposits and retained earnings that were invested into loans . investment securities . at december 31 , 2013 our securities portfolio consisted principally of u.s. treasury , u.s. government agency , corporate debt , and municipal securities . u.s. government agencies , also known as government sponsored enterprises ( `` gses '' ) , are privately owned but federally chartered companies . while they enjoy certain competitive advantages as a result of their government charters , their debt obligations are unsecured and are not direct obligations of the u.s. government . however , debt securities issued by gses are considered to be of high credit quality and the senior debt of gses is aa+/aaa rated . gses raise funds through a variety of debt issuance programs , including : โ federal home loan mortgage corporation ( `` fhlmc '' ) โ federal national mortgage association ( `` fnma '' ) โ federal home loan bank ( `` fhlb '' ) โ federal farm credit bank system ( `` ffcb '' ) with the variety of gse-issued debt securities and programs available , investors may benefit from a unique combination of high credit quality , liquidity , pricing transparency and cash flows that can be customized to closely match their objectives . gse securities in our portfolio are used to collateralize public fund deposits ( โ public funds โ ) . public funds continue to be a significant part of our deposit base and will need to be collateralized by securities in the investment portfolio . refer to the deposit section of this discussion for more information on public funds . at december 31 , 2013 and 2012 the carrying value of pledged securities totaled $ 503.1 million and $ 476.5 million , respectively corporate bonds are fully taxable debt obligations issued by corporations . these bonds fund capital improvements , expansions , debt refinancing or acquisitions that require more capital than would ordinarily be available from a single lender . corporate bond rates are set according to prevailing interest rates at the time of the issue , the credit rating of the issuer , the length of the maturity and the other terms of the bond , such as a call feature . corporate bonds have historically been one of the highest yielding of all taxable debt securities . interest may be paid monthly , quarterly or semi-annually . there are five main sectors of corporate bonds : industrials , banks/finance , public utilities , transportation , and yankee and canadian bonds . the secondary market for corporate bonds is fairly liquid . therefore , an investor who wishes to sell a corporate bond will often be able to find a buyer for the security at market prices . however , the market price of a bond may be significantly higher or lower than its face value due to fluctuations in interest rates and other price determining factors . other factors include credit risk , market risk , event risk , call risk , make-whole call risk and inflation risk . mortgage-backed securities ( mbs ) represent an investment in mortgage loans . an mbs investor owns an interest in a pool of mortgages , which serves as the underlying assets and source of cash flow for the security . the loans backing the mbs are issued by a nation-wide network of lenders consisting of mortgage bankers , savings and loan associations , commercial banks and other lending institutions . mbs are issued by government national mortgage association ( gnma or ginnie mae ) , federal home loan mortgage corporation ( fhlmc or freddie mac ) , and federal national mortgage association ( fnma or fannie mae ) . mortgage-backed securities typically carry some of the highest yields of any government or agency security . story_separator_special_tag the secondary market is generally liquid with active trading by dealers and investors . the risks associated with mbs including interest rate risk , prepayment risk and extension risk . a municipal bond is a bond issued by a city or other local government , or their agencies . potential issuers of municipal bonds include cities , counties , redevelopment agencies , hospitals , special-purpose districts , school districts , public utility districts , publicly owned airports and seaports , and any other governmental entity ( or group of governments ) below the state level . municipal bonds may be general obligations of the issuer or secured by specified revenues . interest income received by holders of municipal bonds is often exempt from the federal income tax and from the income tax of the state in which they are issued , although municipal bonds issued for certain purposes may not be tax exempt . mutual funds are a professionally managed type of collective investment that pools money from many investors and invests it in stocks , bonds , short-term money market instruments , and or other securities . the mutual fund will have a fund manager that trades the pooled money on a regular basis . mutual funds allow investors to spread their investment around widely . an equity security is a share in the capital stock of a company ( typically common stock , although preferred equity is also a form of capital stock ) . the holder of an equity security is a shareholder , owning a share , or fractional part of the issuer . unlike debt securities , which typically require regular payments ( interest ) to the holder , equity securities are not entitled to any payment . in bankruptcy , they share only in the residual interest of the issuer after all obligations have been paid out to creditors . however , equity generally entitles the holder to a pro rata portion of control of the company , meaning that a holder of a majority of the equity is usually entitled to control the issuer . equity also enjoys the right to profits and capital gain , whereas holders of debt securities receive only interest and repayment of principal regardless of how well the issuer performs financially . furthermore , debt securities do not have voting rights outside of bankruptcy . in other words , equity holders are entitled to the `` upside '' of the business and to control the business . equity securities may include , but not be limited to : bank stock , bank holding company stock , listed stock , savings and loan association stock , savings and loan association holding company stock , subsidiary structured as a limited liability company , subsidiary structured as a limited partnership , limited liability company and unlisted stock . equity securities are generally traded on either one of the listed stock exchanges , including nasdaq or an over-the-counter market . the market value of equity shares is influenced by prevailing economic conditions such as the company 's performance ( i.e . earnings ) supply and demand and interest rates . we believe our securities portfolio provides a stable source of income and provides a balance to credit risks relative to other categories of earning assets . average securities as a percentage of average interest-earning assets were 46.1 % and 50.1 % at december 31 , 2013 and 2012 , respectively . 28 investment securities continued . securities classified as available for sale are measured at fair market value . for these securities , we obtains fair value measurements from an independent pricing service . the fair value measurements consider observable data that may include dealer quotes , market spreads , cash flows , market yield curves , prepayment speeds , credit information and the instrument 's contractual terms and conditions , among other things . securities classified as held to maturity are measured at amortized cost . we have both the intent and ability to hold to maturity the htm securities . the investment portfolio has been modeled for liquidity risks which gives us the ability under multiple interest rate scenarios to hold the portfolio to maturity . a summary comparison of securities by type at december 31 , 2013 and december 31 , 2012 is shown below . replace_table_token_4_th 29 investment securities continued . the table below depicts changes in contractual maturity of the securities portfolio from 2012 to 2013. maturities are based on the final contractual payment dates , and do not reflect the impact of prepayments or early redemptions that may occur . actual maturities may be shorter than contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties . mortgage-backed securities are not due at a single maturity because of amortization and potential prepayment of the underlying mortgages . for this reason they are presented separately in the maturity table below . replace_table_token_5_th the table below is a summary of the yields for each category of securities within the portfolio . replace_table_token_6_th 30 investment securities continued . the table below depicts the weighted average yield for each category in the securities portfolio by contractual maturity time buckets . mortgage-backed securities are not due at a single maturity because of amortization and potential prepayment of the underlying mortgages . for this reason they are presented separately in the maturity table below .
| โ average weighted life of investment securities at december 31 , 2013 was 5.7 years a decline of 1.3 years when compared to the average life of 7.0 years at december 31 , 2012. the company has continued to reduce the average life of the securities portfolio as a part of its overall interest rate risk management process . โ the net loan portfolio at december 31 , 2013 totaled $ 692.8 million , a net increase of $ 73.7 million from $ 619.2 million at december 31 , 2012. net loans are reduced by the allowance for loan losses which totaled $ 10.4 million at december 31 , 2013 and $ 10.3 million at december 31 , 2012. total loans net of unearned income were $ 703.2 million at december 31 , 2013 compared to $ 629.5 million at december 31 , 2012 . โ total impaired loans decreased $ 18.7 million to $ 29.9 million at december 31 , 2013 compared to $ 48.6 million at december 31 , 2012 . โ nonaccrual loans decreased $ 6.2 million to $ 14.5 million at december 31 , 2013 compared to $ 20.7 million at december 31 , 2012 . โ retained earnings increased $ 4.4 million to $ 47.5 million at december 31 , 2013 when compared to $ 43.1 million at december 31 , 2012 . โ return on average assets for the year end december 31 , 2013 and december 31 , 2012 was 0.65 % and 0.89 % , respectively . โ return on average common equity adjusted for preferred stock dividends was 9.31 % and 10.90 % for 2013 and 2012 , respectively . โ book value per common share was $ 13.35 as of december 31 , 2013 compared to $ 15.06 as of december 31 , 2012. the decrease in book value is principally due to a change in accumulated other comprehensive income from an unrealized gain on afs securities of $ 6.0 million at december 31 , 2012 to an unrealized loss on afs securities
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our travel staffing business is operated from a relatively centralized business model servicing all of the assignment needs of our field employees and client facilities through operation centers located in boca raton , florida ; malden , massachusetts ; newtown square , pennsylvania ; tampa , florida ; and norcross , georgia . our per diem staffing operations are provided through a network of branch offices serving major metropolitan markets predominantly located on the east and west coasts of the u.s. our nurse and allied staffing revenue and earnings are impacted by the relative supply of nurses and demand for our staffing services at healthcare facilities . demand for our healthcare staffing services is primarily influenced by the strength or weakness of national acute care hospital admissions relative to expectations and the volume of patients at other medical facilities , as well as labor market dynamics that influence the number of hours worked by healthcare professionals . we believe demand for travel nurse staffing services will be favorably impacted in the long-term by an aging population and an increasing shortage of nurses . we rely significantly on our ability to recruit and retain nurses and other healthcare professionals who possess the skills , experience and , as required , licensure necessary to meet the specified requirements of our clients . shortages of qualified nurses and other healthcare professionals could limit our ability to fill open orders and grow our revenue and net income . in general , we believe nurses are more willing to seek travel assignments during relatively high levels of demand for contract employment , and conversely , are more reluctant to seek travel assignments during and immediately following periods of weak demand for contract employment . we market our nurse and allied staffing services primarily to acute care hospitals and health systems and provide our clients with staffing solutions through our cross country staffing ( ccs ) , medstaff ( medstaff local and medstaff healthcare solutions ) and allied health group brands . our professionals staff a broad range of clinical settings in the for-profit and not-for-profit sectors throughout the u.s. , including acute care hospitals , physician practice groups , skilled nursing facilities , nursing homes and sports medicine clinics , and , to a lesser degree , non-clinical settings , such as schools . ccs is our largest brand . the vast majority of ccs revenue is derived from helping to meet the ongoing temporary nurse and allied health staffing needs of a diverse customer base . additionally , as a part of its business strategy , ccs provides comprehensive managed service provider ( msp ) solutions to large hospitals and healthcare systems throughout the u.s. to manage and outsource clinical staffing , vendor resources and a full supplemental workforce that are specifically tailored to each hospital or health system based on their workforce goals and financial targets . our msp engagements typically incorporate one or more of our contract nurse , contract allied and or per diem staffing solutions . typically , such arrangements require ccs to : โ negotiate contracts with subcontractors in order to help meet the client 's fill rate expectations , โ verify that all nurses provided both by ccs and subcontractors meet ccs ' credential requirements and other standards and testing requirements established by the client , โ verify insurance coverage of the subcontractors and their candidates , โ manage orders for open positions from the client and distribute those needs to subcontractors as required , โ interview candidates presented to ensure they meet the client 's specifications , โ consolidate and reconcile the timecard approval and invoicing process for services provided by ccs and all subcontractors , โ distribute payments to subcontractors for services provided to the client , and โ capture and analyze data for the benefit of the client . 35 these services are particularly beneficial to larger facilities and systems that require many healthcare professionals across a broad spectrum of medical disciplines and specialties . during 2011 , approximately 26 % of the staffing volume in our nurse and allied staffing segment was at msp client facilities . in addition to directly supplying the vast majority of client needs under these msp programs , ccs has relationships with hundreds of subcontractors throughout the u.s. to ensure that clients have access to a large pool of candidates to meet their staffing needs . another growing component of our business is contract staffing for hospitals and health systems undergoing electronic medical record ( emr ) technology implementations pursuant to grants available to healthcare facilities under the federal health information technology for economic and clinical act ( hitech act ) . we supply temporary healthcare professionals to provide patient care while hospital staff nurses are away in classroom settings undergoing training and to provide support to the staff rns in utilizing the emr technology upon their return to bedside care . we expect that staffing related to emr technology implementations will be one of the growth drivers of our nurse and allied staffing segment in 2012. during 2011 , while hospital admission trends continued to remain relatively flat and the u.s. economy struggled to improve and national unemployment remained high , we experienced a significant broad-based increase in demand . this included an increase in demand from hospital customers that had largely been dormant over the past few years , increased staffing associated with hospital electronic health record implementations and ongoing staffing activity at msp accounts . we also experienced improved supply of qualified rns and other healthcare professionals seeking temporary assignment with us . we believe this improvement in demand is due , in part , to several factors : โ the non-sustainability of additional hours worked by full- and part-time staff rns working directly for hospital employers over the past few years due to economic and labor market dynamics that negatively impacted their family . story_separator_special_tag historically , high national unemployment typically results in rns increasingly seeking employment as hospital staff nurses and those already employed as staff nurses become more willing to work more hours at prevailing wages , which combine to reduce the need for our outsourced staffing services . the reverse begins to occur as the economy and more specifically the labor markets improve , although there is a lag between the improvement in demand for our nurse and allied staffing services and the improvement in supply of rns and other healthcare professionals . โ the recovery of the stock market allowing the return to retirement of many of the more than 100,000 older rns that previously returned to the nursing workforce due to the significant decline in their savings and investments when the recent economic downturn began . โ an acceleration of hospitals undergoing emr implementations pursuant to the hitech act . the improvement in demand for our nurse and allied staffing services resulted in higher relative booking activity for future assignments that translated into an 15 % revenue gain in 2011 from the prior year reflecting a 13 % increase in staffing volume and a 2 % increase in the average revenue per fte per day . demand was increasingly driven by staffing for emr implementations . typically , as admissions increase for our hospital customers , temporary employees are often added before full-time employees are hired . as admissions decline , clients tend to reduce their use of temporary employees before undertaking layoffs of their staff employees . in general , we evaluate the nurse and allied staffing business segment 's financial condition and operating results by revenue and contribution income ( see segment information ) . in addition , we monitor several key volume and profitability indicators such as number of open orders , contract bookings , number of ftes and bill rate per hour of service provided . physician staffing we added the physician staffing business segment in 2008 with the acquisition of mda holdings , inc. and its subsidiaries ( collectively , mda ) as described in the acquisitions section which follows . mda is headquartered in norcross , georgia and offers multi-specialty locum tenens ( temporary physician staffing ) services to the healthcare industry in all 50 states . our physician staffing business revenue and earnings are impacted by the demand for temporary physician staffing services and the supply of qualified physicians . when there are not enough physicians to fill the number of vacancies at hospitals , practice groups or other healthcare facilities , demand increases for our services . in general , we believe that in periods when physicians are looking for more flexibility , have concerns with cost and availability of malpractice insurance , or want to avoid managing a practice , supply increases . in periods where the physicians are looking for more stability , supply decreases . demand and supply constraints may vary based on the specialty of the physician . we monitor several key volume and profitability indicators for each specialty area of this business , such as physician staffing day filled and revenue per days filled . in addition , we monitor this segment 's revenue , contribution income and contribution income as a percentage of revenue . 36 during 2011 , the overall economic conditions and continuing concerns with impending health care reform changes proved challenging for overall growth in the physician staffing sector . unemployment and higher under-employment were also problematic for clients relative to outsourcing their staffing needs . given these ongoing uncertainties , physicians have increasingly opted to become employees of hospitals and health care systems . we expect this trend to continue for the short-term . despite the current negative economic metrics , we still believe that the future outlook for the physician staffing industry is positive . longer-term trends coupled with healthcare reform are favorable with demand for physicians projected to increase significantly over the next 15 years . the needs will be particularly strong in the primary care specialties due to recent decreases in medical school graduates entering the primary care field . locum tenens should benefit from these shortage trends and demands particularly with an ever increasing aging population . mda is well positioned to respond to the current and future needs of its healthcare partners . we also continue to believe the long-term demographic drivers of this business are favorable . these drivers include an aging population demanding more health care , an aging physician population from the baby boom generation nearing retirement age , and more females entering the profession , who historically have provided relatively less hours of service on average than males . clinical trial services our clinical trial services business segment is headquartered at the research triangle park ( rtp ) in durham , north carolina . we primarily provide traditional contract staffing and outsourcing services , as well as drug safety monitoring and regulatory consulting to pharmaceutical , biotechnology and medical device companies , as well as contract research organization ( cro ) customers . we market these services through multiple brand offerings that have allowed us to establish a significant geographic footprint in the u.s. along with an important presence in the european market . our clinical trial services revenue and earnings are impacted by the number of trials being planned and conducted by pharmaceutical , biotechnology and medical device companies . as a result , we are impacted by our customer 's ability to obtain financing for research and development efforts . we believe that pharmaceutical and biotech companies will continue to need to enhance their product pipelines and conduct human clinical trials to evaluate efficacy and safety . we can provide our customers with a broad range of services , from pre-clinical through post marketing . we rely on our ability to recruit and maintain professionals who possess the skills , experience , and , as required , licensure necessary to meet the specified requirements of our clients .
| ( b ) in the year ended december 31 , 2011 , the company refined its methodology for allocating certain corporate overhead expenses to the nurse and allied staffing segment to more accurately reflect this segment 's profitability . the segment data for the year ended december 31 , 2010 and 2009 has been reclassified by $ 1.5 million and $ 1.6 million , respectively , to conform to the current year 's presentation . comparison of results for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 revenue from services revenue from services increased $ 35.4 million , or 7.6 % , to $ 504.0 million for the year ended december 31 , 2011 , as compared to $ 468.6 million for the year ended december 31 , 2010. the increase was primarily due to higher revenue from our nurse and allied staffing segment , and secondarily to higher revenue from our clinical trial services staffing business segment ; partially offset by decreases in revenue from our physician staffing and other human capital management services business segments . nurse and allied staffing revenue from our nurse and allied staffing business segment increased $ 36.6 million , or 15.1 % , to $ 278.8 million for the year ended december 31 , 2011 , from $ 242.2 million for the year ended december 31 , 2010 , primarily due to higher volume . the higher staffing volume in 2011 reflects significant improvement in demand , as measured by the number of open orders , throughout 2011 , aided by an increase in applicants applying for assignments with us . the average number of nurse and allied staffing ftes on contract during the year ended december 31 , 2011 , increased 13.1 % from the year ended december 31 , 2010. average nurse and allied staffing revenue per fte increased approximately 1.6 % in the year ended december 31 , 2011 compared to the year ended december 31 , 2010 , reflecting an increase in our
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in addition , we also continue to monitor the state of the credit and capital markets and could satisfy any unredeemed portion with additional indebtedness , new capital or a combination of both . results of operations for 2009 as compared to 2008 financial highlights earnings per share ( ยepsย ) increased substantially to $ 4.36 per share on a dilutive basis in 2009 compared to $ 1.29 per share on a dilutive basis in 2008. this increase was primarily due to the benefit from income taxes that we incurred related to the reversal of substantially all of our valuation allowance on our deferred tax assets , which had an impact of $ 3.23 per share on a dilutive basis . consolidated earnings before interest , taxes , depreciation , amortization , and other operating expenses ( ยadjusted ebitdaย ) , which is calculated starting with net income , was relatively flat in 2009 compared to 2008. while total revenues decreased $ 4.9 million , we effectively reduced costs at both the restaurant level and the corporate support level while expanding the gross margins in our manufacturing and commissaries segment . use of non-gaap financial information in addition to the results reported in accordance with accounting principles generally accepted in the united states of america ( ยgaapย ) included in this filing , the company has provided certain non-gaap financial information , adjusted ebitda and free cash flow . management believes that the presentation of this non-gaap financial information provides useful information to investors because this information may allow investors to better evaluate ongoing business performance and certain components of the company 's results . this information should be considered in addition to the results presented in accordance with gaap , and should not be considered a substitute for the gaap results . the company has reconciled the non-gaap financial information included in this release to the nearest gaap measure in context . 24 consolidated results replace_table_token_7_th * * not meaningful system-wide comparable store sales decreased 2.4 % in 2009. when the year began , we had negative 3.4 % system-wide comparable store sales comprised of negative 8.1 % in transactions and positive 5.2 % for the average check related to a prior year price increase . by december of 2009 our system-wide comparable store sales were virtually flat at a negative 0.4 % and negative 0.2 % in both transactions and average check . we achieved this through our increased marketing initiatives , focused around our core breakfast product offerings as well as other value-oriented initiatives aimed at increasing transactions and the frequency of guest visits . we believe that the difficult economic climate also put pressure on our catering sales as demand from our business customers has declined . our gross profit margins have been pressured due primarily to the unfavorable deleveraging of certain operating expenses , higher health care benefit costs and the impact of increased investments in marketing initiatives . during periods of lower sales , we typically experience deleveraging in those cost elements that are not fully variable to changes in sales . these costs include other operating expenses , rent and related costs , and to a lesser extent , labor costs . our health care benefit costs increased $ 1.9 million in 2009. we also continued to support our focus around our core breakfast offerings and other value-oriented initiatives by increasing our investments in marketing by $ 2.3 million in 2009. while our revenues declined in 2009 and our cost of sales reflected a $ 1.9 million increase in health care benefit costs , our focus on our cost initiatives resulted in our adjusted ebitda being virtually flat in 2009 compared to 2008 . 25 company-owned restaurant operations our company-owned restaurants vary in their unit volume , profitability and recent comparable store sales performance . as of december 29 , 2009 , we had 110 restaurants that generated an average unit volume in excess of $ 1 million . these 110 restaurants had an average unit volume of approximately $ 1.2 million and an average gross profit of $ 0.3 million . in the aggregate , these restaurants contribute approximately 36 % of total restaurant sales and 51 % of total restaurant gross profit . company-owned restaurant sales for 2009 decreased , which was primarily related to the decline in our 2009 company-owned restaurant comparable store sales to a negative 3.4 % . this was due to a decrease in the number of transactions , and a slight decrease in our average check mostly due to greater coupon redemptions associated with our initiatives and a slightly unfavorable change in the mix of products sold . this was partially offset by the modest price increases in 2009 at our einstein bros. and noah 's company-owned restaurants , compared to the price increases taken during 2008 and , on average , the company-owned restaurants that were opened since late in 2008 until the end of 2009 had higher volumes than those that were closed over the same period , which positively contributed to our sales . replace_table_token_8_th comparable store sales for our restaurants for each quarter in 2008 and 2009 were as follows : replace_table_token_9_th our gross profit percentage decreased 1.6 % in 2009 primarily due to fixed costs that do not vary with changes in sales volume , an increase in health benefit costs , an increase in marketing initiatives , and an increase in rent expense for new restaurants . although we had a 1.7 % decrease in company-owned revenues , we were able to control and lower our variable cost of goods sold by 4.1 % to cause our cost of goods sold to decline from 29.9 % to 29.2 % as a percent of company-owned restaurant revenues . we expect to renegotiate a supply agreement with one of our suppliers in early 2010 that will further decrease our costs for certain products over the next several years . most of our commodity-based food costs decreased in 2009. flour represents the most significant raw ingredient we purchase . story_separator_special_tag to mitigate the risk of increasing market prices , we have utilized a third party advisor to 26 manage our wheat purchases for our company-owned manufacturing facility . as a result of this relationship , our wheat costs have declined throughout 2009. we will continue to work with our third party advisor to strategically source our wheat purchases . however , there can be no assurance that we will benefit from a decline in the cost of any of the commodity-based products that we purchase . although our staffing costs declined in response to decreased traffic , our health care benefit costs increased and we added new catering personnel throughout 2009. in the fourth quarter of 2009 we implemented a new on-line ordering system which allowed us to reduce our catering sales force at the end of the year . total labor costs increased 1.0 % as a percentage of company-owned restaurant sales in 2009. during 2009 , we doubled our investment in marketing to $ 4.6 million from $ 2.3 million in 2008. the increase was principally attributable to an investment in our marketing initiatives that we started early in 2009 , which were aimed at increasing transactions and launching of our new products . we intend to continue this trend as we believe the increased marketing creates awareness of our brand which will help facilitate trial , increase loyalty and frequency of our guest 's visits . in 2009 we had additional rent expense associated with the net opening of two restaurants over the last twelve months and the eight new restaurants that opened towards the end of 2008. during the year , we negotiated more favorable lease terms with many of our landlords . these lease modifications will result in lower future rent expense compared to the prior terms . manufacturing and commissary operations replace_table_token_10_th manufacturing and commissary revenues for 2009 were relatively flat compared to 2008. manufacturing gross profit increased substantially in 2009 as a result of substantial productivity improvements in 2009 at our bagel manufacturing facility . in addition , we experienced lower prices of our raw ingredient costs as a result of the decrease of most of our commodity-based food costs . franchise and license operations replace_table_token_11_th 27 overall , franchise and license revenue improvement was driven by strong royalty streams resulting from the net opening of 26 license locations and six franchise locations over the last twelve months . comparable store sales for the franchisees and licensees of the manhattan bagel and einstein bros. brands increased 1.1 % in 2009. during 2009 we revised a development agreement with one of our franchisees to modify the number of franchise stores to be built under the development agreement from 21 to four . corporate support replace_table_token_12_th * * not meaningful our general and administrative expenses decreased $ 0.9 million in 2009 compared to 2008 as a result of our cost reduction initiatives that were put into place throughout the year . in 2008 , we recorded $ 1.9 million in operating expenses to satisfy two california wage and hour settlements . these were fully paid in the second quarter of 2009. late in 2008 we also experienced turnover at the senior management level , and hired our new ceo , which resulted in $ 0.9 million in severance charges and $ 0.4 million in recruiting and other costs . depreciation and amortization expenses increased 17.9 % in 2009 compared to 2008 due to the additional assets invested in the company-owned restaurants that were added or upgraded in late 2008 and in 2009. we expect depreciation expense for 2010 to be approximately $ 20 million . interest expense , net increased in 2009 primarily due to the additional redemption amounts on our series z included in interest expense for the period of july 1 through december 29 , 2009 , partially offset by lower interest rates on our credit facility , inclusive of our interest rate swap . we have recorded current income tax expense of $ 1.1 million and $ 0.2 million in 2008 and 2009 , respectively . utilization of our net operating loss carryforwards reduced our federal and state income tax liability incurred in 2008 and 2009. additionally , we are completing several studies related to the timing and deductibility of property and equipment costs . the new estimates of the timing and deductibility of our property and equipment costs have reduced the expected current expense and the related liability . in 2009 , we have recorded a net deferred tax benefit of $ 53.4 million , comprised of a $ 61.0 million reversal of substantially all of our valuation allowance , partially offset by deferred tax expense of $ 7.6 million . in the third quarter of 2009 , we reduced our $ 65.9 million valuation allowance by $ 61.0 million to $ 4.9 million after concluding the likelihood for realization of the benefits of our deferred tax assets is more likely than not . 28 results of operations for 2008 as compared to 2007 story_separator_special_tag style= '' font-size:12px ; margin-top:0px ; margin-bottom:0px '' > replace_table_token_18_th * * not meaningful our general and administrative expenses decreased $ 4.3 million in 2008. the overall decrease was partially related to a decrease in stock-based compensation expense that was primarily due to the additional options that were granted and vested in the second quarter of 2007 related to the secondary public offering , which did not occur again in 2008. additionally , in 2008 compared to 2007 , the company had decreases in travel expense , recruiting and referral fees , sales and use tax expense and relocation expense related to our corporate headquarters , partially offset by an increase in our professional service fees . in addition , the company experienced a decrease in compensation and related benefits as a result of a reduction in administrative positions that occurred in the latter half of 2008 , decreased insurance costs , partially offset by an increase in incentive compensation expense .
| replace_table_token_14_th comparable store sales for our restaurants for each quarter in 2007 and 2008 , compared to the same periods in the previous year were as follows : replace_table_token_15_th company-owned restaurant sales for 2008 increased $ 3.7 million , when compared to 2007. these results were primarily due to price increases at einstein bros. and noah 's coupled with a net increase in the number of restaurants opened over the previous twelve months , partially offset by a decline in volume . on average , the restaurants opened since january 1 , 2008 had higher volumes relative to those that were closed over the same period , which positively contributed to our sales . for 2008 , our restaurant comparable store sales were relatively flat with a decrease of 0.1 % . this was due to a decrease in the number of units sold , which we believe was mostly related to both the economic climate and its negative impact on consumer discretionary spending and from a decrease in our hours of operation . this was offset by system-wide price increases since january 1 , 2008 and a shift in product mix to higher priced items . our gross profit decreased 3.0 % in 2008 primarily due to the increase in our commodity-based food costs and a rise in labor costs due to changes in base pay from minimum wage rate increases . most of our commodity-based food costs increased in 2008. flour represented the most significant raw ingredient we purchase . the market cost of wheat and in turn the cost to produce flour increased substantially in the last half of 2007 but stabilized by the end of the second quarter of 2008 and stayed at these levels through the remainder of 2008. to mitigate the risk of increasing market prices , we used a third party advisor to manage our wheat purchases for our company-owned production facility . as a result of this relationship , our wheat costs remained relatively constant throughout 2008 . 30 for 2008 , labor costs increased $ 0.5 million from a combination of the growth of
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story_separator_special_tag related to a decrease in the measurement date fair value of certain consultant restricted stock during the year ended december 31 , 2018 and greater compensation expense during the year ended december 31 , 2017 related to restricted stock granted to executive personnel . other general and administrative expenses . other general and administrative expenses increased by $ 1.9 million from $ 6.0 million for the year ended december 31 , 2017 to $ 7.9 million for the year ended december 31 , 2018. the increase was due primarily to increased personnel and other general and administrative costs . other expense ( income ) , net . other income increased by $ 0.7 million from $ 0.2 million for the year ended december 31 , 2017 to $ 0.9 million for the year ended december 31 , 2018. the increase is mainly due to an increase in interest income during 2018. liquidity and capital resources our primary sources of cash have been from the sale of equity securities , and the issuance of debt . we have not yet commercialized any of our drug candidates and can not be sure if we will ever be able to do so . even if we commercialize one or more of our drug candidates , we may not become profitable . our ability to achieve profitability depends on a number of factors , including our ability to obtain regulatory approval for our drug candidates , successfully complete any post-approval regulatory obligations and successfully commercialize our drug candidates alone or in partnership . we may continue to incur substantial operating losses even if we begin to generate revenues from our drug candidates . as of december 31 , 2019 , we had $ 140.4 million in cash and cash equivalents , and investment securities . we anticipate that our cash and cash equivalents , and investment securities as of december 31 , 2019 will provide sufficient liquidity for more than a twelve-month period from the date of filing this annual report on form 10-k. the actual amount of cash that we will need to operate is subject to many factors , including , but not limited to , the timing , design and conduct of clinical trials for our drug candidates . we are dependent upon significant future financing to provide the cash necessary to execute our current operations , including the commercialization of any of our drug candidates . cash used in operating activities for the year ended december 31 , 2019 was $ 132.8 million as compared to $ 128.9 million for the year ended december 31 , 2018. the increase in cash used in operating activities was due primarily to increased expenditures associated with our clinical development programs for ublituximab and umbralisib . for the year ended december 31 , 2019 , net cash used in investing activities was $ 0.7 million as compared to cash provided by investing activities of $ 1.2 million for the year ended december 31 , 2018. the decrease in net cash provided by investing activities was primarily due to greater proceeds from the sale of short-term securities during the year ended december 31 , 2018. for the year ended december 31 , 2019 , net cash provided by financing activities of $ 204.2 million related to the net proceeds from debt financings and net proceeds from the issuance of common stock as part of our atm program , a public offering in march 2019 , and a registered direct offering in december 2019 . 77 atm program in december 2014 , we filed a shelf registration statement on form s-3 ( the `` 2015 s-3 '' ) , which was declared effective in january 2015. under the 2015 s-3 , the company may sell up to a total of $ 250 million of its securities . in connection with the 2015 s-3 , we amended our 2013 at-the-market issuance sales agreement ( the `` 2015 atm '' ) with mlv & co. llc ( โ mlv โ ) such that we were able to issue and sell additional shares of our common stock , having an aggregate offering price of up to $ 175.0 million , from time to time through mlv and fbr capital markets & co. ( `` fbr '' , each of mlv and fbr individually an `` agent '' and collectively the `` agents '' ) , acting as the sales agents . under the 2015 atm , we paid the agents a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of common stock sold through the agents . during the year ended december 31 , 2017 , we sold a total of 3,104,253 shares of common stock under the 2015 atm for aggregate total gross proceeds of approximately $ 31.6 million at an average selling price of $ 10.18 per share , resulting in net proceeds of approximately $ 31.0 million after deducting commissions and other transaction costs . in may 2017 , we filed a shelf registration statement on form s-3 ( the `` 2017 s-3 '' ) , which was declared effective in june 2017. under the 2017 s-3 , we may sell up to a total of $ 300 million of securities . in connection with the 2017 s-3 , we entered into an at-the-market issuance sales agreement ( the `` 2017 atm '' ) with jefferies llc , cantor fitzgerald & co. , fbr capital markets & co. , suntrust robinson humphrey , inc. , raymond james & associates , inc. , ladenburg thalmann & co. inc. and h.c. wainwright & co. , llc ( each an `` agent '' and collectively , the `` 2017 agents '' ) , relating to the sale of shares of our common stock . under the 2017 atm we paid the 2017 agents a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of common stock . story_separator_special_tag during the year ended december 31 , 2018 , we sold a total of 9,025,222 shares of common stock under the 2017 atm for aggregate total gross proceeds of approximately $ 115.8 million at an average selling price of $ 12.83 per share , resulting in net proceeds of approximately $ 113.7 million after deducting commissions and other transactions costs . during the year ended december 31 , 2019 , we sold a total of 13,620,165 shares of common stock under the 2017 atm for aggregate total gross proceeds of approximately $ 99.3 million at an average selling price of $ 7.29 per share , resulting in net proceeds of approximately $ 97.5 million after deducting commissions and other transactions costs . on september 5 , 2019 , we filed an automatic `` shelf registration '' statement on form s-3 ( the `` 2019 wksi '' ) as a `` well-known seasoned issuer '' as defined in rule 405 under the securities act of 1933 , as amended . under this shelf process , we may sell any combination of the securities described in the related prospectus in one or more offerings . equity financings in march 2017 , we completed an underwritten public offering of 5,128,206 shares of our common stock ( plus a 30-day underwriter overallotment option to purchase up to an additional 769,230 shares of common stock , which was exercised ) at a price of $ 9.75 per share . net proceeds from this offering , including the overallotment option , were approximately $ 54 million , net of underwriting discounts and offering expenses of approximately $ 3.6 million . on march 1 , 2019 , we completed a public offering of 4,100,000 shares of our common stock ( plus a 30-day underwriter overallotment option to purchase up to an additional 615,000 shares of common stock , which was exercised ) at a price of $ 5.87. proceeds from this offering , including the overallotment , after underwriting discounts and offering expenses were approximately $ 27.5 million . on december 22 , 2019 , we completed a securities purchase agreement with an institutional investor in which we agreed to sell 5,434,783 shares of our common stock at a price of $ 9.20. net proceeds from this offering were approximately $ 50.0 million . debt financings on february 28 , 2019 ( the โ closing date โ ) , we entered into a term loan facility of up to $ 60.0 million ( โ term loan โ ) with hercules capital , inc. ( โ hercules โ ) , the proceeds of which will be used research and development programs and for general corporate purposes . the term loan is governed by a loan and security agreement , dated february 28 , 2019 ( the โ loan agreement โ ) , which provides for up to four separate advances . the first advance of $ 30.0 million was drawn on the closing date . two additional advances of $ 10.0 million may be drawn at our option but subject to certain clinical trial milestones , and the fourth advance of $ 10.0 million , available in minimum increments of $ 5.0 million , is available through december 15 , 2020 subject to the approval of hercules ' investment committee . 78 the term loan will mature on march 1 , 2022 ( the โ loan maturity date โ ) . each advance accrues interest at a per annum rate of interest equal to the greater of either ( i ) the โ prime rate โ as reported in the wall street journal plus 4.75 % , and ( ii ) 10.25 % . the term loan provides for interest-only payments until october 1 , 2020. the interest-only period may be extended to april 1 , 2021 if on or before september 30 , 2020 , we achieve either the third milestone or we have raised at least $ 150.0 million in unrestricted net cash proceeds from one or more equity financings , subordinated indebtedness and or upfront proceeds from business development transactions permitted under the loan agreement , in each case after february 7 , 2019 , and prior to september 30 , 2020 ( โ milestone iv โ ) . thereafter , amortization payments will be payable monthly in eighteen installments ( or , if the period requiring interest-only payments has been extended to april 1 , 2021 , in twelve installments ) of principal and interest ( subject to recalculation upon a change in prime rates ) . as a result of the company having raised in excess of $ 150 million before the required timeline in the loan agreement , the interest-only period has been extended to april 1 , 2021. at our option upon seven business days ' prior written notice to hercules , we may prepay all or any portion greater than or equal to $ 5.0 million of the outstanding advances by paying the entire principal balance ( or portion thereof ) , all accrued and unpaid interest , subject to a prepayment charge of 3.0 % , if such advance is prepaid in any of the first twelve months following the closing date ; 1.5 % , if such advance is prepaid after twelve months following the closing date but on or prior to twenty-four months following the closing date ; and 0 % thereafter . in addition , a final payment equal to 3.5 % of the aggregate principal amount of the loan extended by hercules is due on the maturity date . amounts outstanding during an event of default shall be payable on demand and accrue interest at an additional rate of 4.0 % per annum of the past due amount outstanding . the term loan is secured by a lien on substantially all of our assets , other than intellectual property and contains customary covenants and representations , including a liquidity covenant , financial reporting covenant and limitations on dividends , indebtedness , collateral , investments , distributions , transfers , mergers or acquisitions , taxes , corporate changes , deposit accounts , and subsidiaries .
| other research and development expenses decreased by $ 1.5 million from $ 149.8 million for the year ended december 31 , 2018 to $ 148.3 million for the year ended december 31 , 2019. the decrease in r & d expense is primarily attributable to the winding down of our late-stage clinical development programs during the year ended december 31 , 2019. we expect our other research and development costs to continue to decrease modestly during 2020. noncash compensation expense ( general and administrative ) . noncash compensation expense ( general and administrative ) related to equity incentive grants decreased by $ 1.8 million from $ 7.3 million for the year ended december 31 , 2018 to $ 5.5 million during the year ended december 31 , 2019. the decrease in noncash compensation expense was primarily related to more vesting of restricted stock granted to executive personnel during the year ended december 31 , 2018. other general and administrative expenses . other general and administrative expenses increased by $ 1.6 million from $ 7.9 million for the year ended december 31 , 2018 to $ 9.5 million for the year ended december 31 , 2019. the increase was due primarily to increased personnel and other general and administrative costs . we expect our other general and administrative expenses to increase during 2020 as commercial costs will increase in preparation for potential launch . interest expense . interest expense increased by $ 4.4 million to $ 5.3 million for the year ended december 31 , 2019 , as compared to expense of $ 0.9 million for year ended december 31 , 2018. the increase is mainly due to the interest expense related to the hercules financing agreement . we expect our interest expense to decrease modestly during 2020. other income . other income decreased by $ 0.3 million to $ 1.5 million for the year ended december 31 , 2019 , as compared to $ 1.8 million for the year ended december 31 , 2018. the decrease in other income is mainly due to a greater change in the fair value of notes payable during the year ended december 31 , 2018. we expect our other income to remain at a comparable level during 2020. years ended december 31 , 2018 and 2017 license revenue . license revenue was approximately $ 152,000 for each of the years
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we experienced an income tax benefit for the year ended december 31 , 2007 of approximately $ 0.2 million compared to an income tax provision of approximately $ 0.3 million for the year ended december 31,2006. the income tax benefit in the current year was largely due to our share of start-up expenses and initial operating losses from our joint venture with carlyle related to the opening of the crowne plaza hollywood beach resort . net income . net income for the year ended december 31 , 2007 decreased approximately $ 0.7 million or 22.6 % to approximately $ 2.5 million compared to approximately $ 3.2 million for the year ended december 31 , 2006 as a result of the operating results discussed above . sources and uses of cash operating activities . our principal source of cash to meet our operating requirements , including distributions to unit holders and stockholders as well as repayments of indebtedness , is the operations of our hotels . cash flow provided by operating activities for the year ended december 31 , 2007 was approximately $ 12.8 million . we expect that the net cash provided by operations will be adequate to fund the company 's operating requirements , debt service and the payment of dividends in accordance with federal income tax laws which require us make annual distributions to our stockholders of at least 90 % of our reit taxable income , excluding net capital gain . we declared dividends of $ 0.17 per share ( unit ) paid on january 11 , 2007 , april 11 , 2007 , july 11 , 2007 , and october 11 , 2007 , which we funded out of working capital . investing activities . approximately $ 18.6 million was spent during the year ended december 31 , 2007 on renovations and capital improvements . over $ 15.7 million was spent on renovations at wilmington hilton riverside and our property in jeffersonville , indiana . we expect that renovations at both properties will be completed in april 2008. at the end of 2007 , renovation at the savannah hilton desoto began , as well . on february 6 , 2007 , we received payment of $ 2.63 million for the first of three promissory notes originating from the sale on august 10 , 2006 of the holiday inn downtown williamsburg . on march 14 , 2007 , we received $ 1.4 million representing payment of the second of three promissory notes originating from the same sale . 39 on august 8 , 2007 , we contributed approximately $ 6.6 million to a joint venture which acquired the crowne plaza hollywood beach resort , a newly renovated 311-room hotel in hollywood , florida retaining a 25 % equity position . a portion of the aggregate purchase price of $ 74.0 million was financed with a two-year $ 57.6 million non-recourse loan from sociรฉtรฉ gรฉnรฉrale . the contribution to the joint venture was funded through draws on our credit facility . on october 29 , 2007 , the company completed the purchase of a 250-room hotel in tampa , florida , formerly known as the tampa clarion hotel for approximately $ 13.8 million , including transaction costs . to facilitate the closing of the acquisition , we drew approximately $ 13.8 million on our credit facility . these activities represent our cash flow used in investing activities for the year ended december 31 , 2007 of approximately $ 35.0 million . financing activities . for the year ended december 31 , 2007 , net cash provided by financing activities was approximately $ 24.8 million . during the course of the year we refinanced the mortgages on the wilmington hilton riverside and the savannah hilton desoto generating proceeds of approximately $ 13.9 million for the purpose of funding renovations at both properties pursuant to franchisor mandated capital improvement programs . we also borrowed approximately $ 19.2 million to fund continued renovations at our property in jeffersonville , indiana , our contribution to a joint venture with carlyle for the purchase of the crowne plaza hollywood beach resort in which we retain a 25 % indirect non-controlling interest , as well as the purchase of the property formerly known as the tampa clarion hotel in tampa , florida . we incurred costs of approximately $ 0.6 million associated with the extension of our revolving credit facility and made principal payments of approximately $ 0.5 million as required under various mortgage loan agreements . we also used approximately $ 7.2 million to make distributions to our unitholders and dividends to holders of our common stock . capital expenditures recurring capital expenditures for the replacement and refurbishment of furniture , fixtures and equipment , as well as debt service , are our most significant short-term liquidity requirements . during the next 12 months , we expect capital expenditures will be funded by our replacement reserve accounts , other than costs that we incur to make capital improvements required by our franchisors . with respect to three of our hotels , the reserve accounts are escrowed accounts with funds deposited monthly and reserved for capital improvements or expenditures . we deposit an amount equal to 4 % of gross revenue for both the hilton savannah desoto and hilton wilmington riverside and 4 % of room revenues for the crowne plaza jacksonville . our intent for the capital expenditures at all hotels is to maintain overall capital expenditures at 4 % of gross revenue . on september 20 , 2006 , we purchased the louisville ramada riverfront inn in jeffersonville , indiana with the intention of renovating and re-branding the hotel . on february 23 , 2007 , we obtained a 15-year franchise license agreement with starwood hotels and resorts to brand the property as a sheraton hotel . story_separator_special_tag renovation costs are estimated at approximately $ 15.9 million and the property is expected to re-open in april 2008. approximately $ 8.8 million had been expended as of december 31 , 2007. all costs have been and will be funded by additional borrowings on our credit facility . in february 2007 , the franchise license for the hilton wilmington riverside was renewed and extended to march 2018. to comply with the re-licensing agreement , we must complete a property improvement plan ( ยpipย ) . we estimate the cost of the required renovations to total approximately $ 10.4 million and be completed in april 2008. approximately $ 8.3 million had been expended as of december 31 , 2007. the remaining costs will be funded by additional borrowings on our credit facility . in july 2007 , the franchise license for the hilton savannah desoto hotel was renewed and extended to july 2018. to comply with the re-licensing agreement , we must complete a pip , which we expect to be completed in february 2009 and total approximately $ 11.0 million . approximately $ 2.0 million had been expended as of december 31 , 2007. the renovations will be funded by additional draws of $ 9.0 million on the mortgage that was refinanced in august 2007 . 40 on october 29 , 2007 , we purchased the property formerly known as the tampa clarion hotel in tampa , florida with the intention of renovating and re-branding the hotel . on october 31 , 2007 , we obtained a 10-year franchise agreement with intercontinental hotels group to brand the property as a crowne plaza hotel . renovation costs are estimated at approximately $ 20.0 million , of which approximately $ 1.0 million had been expended as of december 31 , 2007. the renovations will be funded by additional borrowings on our credit facility . on january 23 , 2008 , we entered into a definitive agreement to purchase the hampton marina hotel in hampton , virginia for the aggregate purchase price of $ 7.85 million . on february 27 , 2008 , we obtained a 10-year franchise agreement with intercontinental hotels group to brand the property as a crowne plaza hotel . in conjunction with the license agreement , we expect that we will be required to complete a pip . however , the scope of the required renovations has not been determined . we estimate the cost of renovation to range between $ 3.0 million and $ 6.0 million and anticipate that the costs will be expended between the third quarter 2008 and the first quarter 2009. we intend to fund the acquisition and the renovations through a first mortgage on the hotel and additional borrowings on our credit facility . liquidity and capital resources as of december 31 , 2007 , we had cash and cash equivalents of approximately $ 5.7 million , of which $ 1.7 million was in restricted reserve accounts and real estate tax escrows . as of december 31 , 2007 , our revolving credit facility , under which we may borrow up to $ 60.0 million , had an outstanding balance of approximately $ 34.4 million . we expect that our cash on hand combined with our cash flow from our hotels should be adequate to fund continuing operations , recurring capital expenditures for the refurbishment and replacement of furniture , fixtures and equipment as well as debt service . we estimate that in order to complete all the capital projects to which we are committed , we will require capital ranging from approximately $ 48.0 million to $ 52.0 million . most of the capital will be required before the end of the fourth quarter 2008 and should not exceed $ 6.0 million in the first quarter 2009. we expect that $ 9.0 million will be obtained through additional draws on the mortgage on the hilton savannah desoto . we also expect to acquire the property in hampton , virginia subject to a first mortgage ranging between $ 3.5 and $ 6.0 million . we expect that the remaining capital will be funded by additional borrowings on our credit facility . the facility contains an uncommitted accordion facility that we intend to exercise and expect to expand the commitment from $ 60.0 million to $ 75.0 million . we believe the expanded facility will provide sufficient capital to accommodate our needs for committed capital projects as well as working capital . our ability to fund future acquisitions relies on our ability to raise additional capital . sources of additional capital may include a combination of some or all of the following : the issuance by the operating partnership of the company and or their subsidiary entities of secured and unsecured debt securities ; the incurrence by the subsidiaries of the operating partnership of mortgage indebtedness through the refinance of an existing or new indebtedness on our hotel properties ; the issuance of additional shares of our common stock or preferred stock ; the issuance of additional units in the operating partnership ; the selective disposition of non-core assets ; and the sale or contribution of some of our wholly owned properties , development projects or development land to strategic joint ventures to be formed with unrelated investors , which would have the net effect of generating additional capital through such sale or contribution . without additional capital , we would have to forego future acquisitions . 41 beyond the funding of future acquisitions and development activity , our medium and long-term capital needs will generally include the retirement of mortgage debt , amounts outstanding under our secured credit facility , and obligations under our tax indemnity agreements , if any . we remain committed to maintaining a flexible capital structure .
| occupancy increases at our properties in savannah , georgia and jacksonville , florida were offset by occupancy decreases at our property in wilmington , north carolina that has been undergoing significant renovations which should be completed by april 2008. we expect that anticipated increases in occupancy in 2008 at our property in wilmington , north carolina will be offset by decreases in occupancy at our property in savannah , georgia where significant renovations have just begun and are not expected to be complete until december 2008. food and beverage revenues at our properties for the year ended december 31 , 2007 increased approximately $ 0.4 million or 2.1 % to approximately $ 19.5 million compared to food and beverage revenues for the year ended december 31 , 2006 of approximately $ 19.1 million . with the exception of our savannah , georgia and philadelphia properties where we saw a significant increase in demand for banqueting services , the remainder of our properties experienced weaker demand for such services . overall , while room sales from group business have remained strong , the demand for banqueting services from those groups has not been as strong . other operating revenues for the year ended december 31 , 2007 decreased approximately $ 0.5 million or 11.4 % to approximately $ 3.7 million compared to other operating revenues for the year ended december 31 , 2006 of approximately $ 4.2 million . in the last half of 2006 , we realized approximately $ 0.7 million in non-recurring consulting fees from the developer of the hollywood , florida property . hotel operating expenses . hotel operating expenses , which consist of room expenses , food and beverage expenses , other direct expenses , indirect expenses , and management fees , increased approximately $ 1.7 million or 3.3 % for the year ended december 31 , 2007 to approximately $ 51.9 million compared to hotel operating expenses for the year ended december 31 , 2006 of approximately $ 50.2 million . rooms expense at our properties for the year ended december 31 ,
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by san francisco ; โ โ other property-level expenses , which includes our property-level general and administrative expenses , such as payroll , benefits and other employee-related expenses , contract and professional fees , credit and collection expenses , employee recruitment , relocation and training expenses , consulting fees , management fees and other expenses ; โ โ corporate overhead expense , which includes our corporate-level expenses , such as payroll , benefits and other employee-related expenses , amortization of deferred stock compensation , business acquisition and due diligence expenses , legal expenses , association , contract and professional fees , board of director expenses , entity-level state franchise and minimum taxes , travel expenses , office rent and other customary expenses ; 39 โ โ depreciation and amortization expense , which includes depreciation on our hotel buildings , improvements , furniture , fixtures and equipment ( โ ff & e โ ) , along with amortization on our finance lease right-of-use assets , franchise fees and certain intangibles . additionally , this category includes depreciation and amortization related to ff & e for our corporate office ; and โ โ impairment loss , which includes the charges we have recognized to reduce the carrying values of certain hotels on our balance sheet to their fair values in association with our impairment evaluations . โ other revenue and expense . other revenue and expense consists of the following : โ โ interest and other income , which includes interest we have earned on our restricted and unrestricted cash accounts , as well as any energy or other rebates or property insurance proceeds we have received , miscellaneous income or any gains or losses we have recognized on sales or redemptions of assets other than real estate investments ; โ โ interest expense , which includes interest expense incurred on our outstanding fixed and variable-rate debt and finance lease obligations , gains or losses on interest rate derivatives , amortization of deferred financing costs , and any loan fees incurred on our debt ; โ โ gain on sale of assets , which includes the gains we recognized on our hotel sales that do not qualify as discontinued operations ; โ โ loss on extinguishment of debt , which includes losses recognized on amendments or early repayments of mortgages or other debt obligations from the accelerated amortization of deferred financing costs , along with any other costs incurred ; โ โ income tax benefit ( provision ) , net which includes federal and state income taxes related to continuing operations charged to the company net of any refunds received , any adjustments to deferred tax assets , liabilities or valuation allowance , and any adjustments to unrecognized tax positions , along with any related interest and penalties incurred ; โ โ income from discontinued operations , which includes the results of operations for any hotels or other real estate investments sold during the reporting period that qualify as a discontinued operation , along with the gain or loss realized on the sale of these assets and any extinguishments of related debt or income tax provisions ; โ โ income from consolidated joint venture attributable to noncontrolling interest , which includes net income attributable to a third-party 's 25.0 % ownership interest in the joint venture that owns the hilton san diego bayfront ; and โ โ preferred stock dividends , which includes dividends accrued on our series e cumulative redeemable preferred stock ( โ series e preferred stock โ ) and our series f cumulative redeemable preferred stock ( โ series f preferred stock โ ) . โ operating performance indicators . the following performance indicators are commonly used in the hotel industry : โ โ occupancy , which is the quotient of total rooms sold divided by total rooms available ; โ โ average daily room rate ( โ adr โ ) , which is the quotient of room revenue divided by total rooms sold ; โ โ revenue per available room ( โ revpar โ ) , which is the product of occupancy and adr , and does not include food and beverage revenue , or other operating revenue ; โ 40 โ comparable revpar , which we define as the revpar generated by hotels we owned as of the end of the reporting period , but excluding those hotels that we classified as held for sale , those hotels that are undergoing a material renovation or repositioning and those hotels whose room counts have materially changed during either the current or prior year . for hotels that were not owned for the entirety of the comparison periods , comparable revpar is calculated using revpar generated during periods of prior ownership . we refer to this subset of our hotels used to calculate comparable revpar as our โ comparable portfolio. โ currently our comparable portfolio is comprised of the 20 hotels , and includes both our ownership and prior ownership results for the oceans edge resort & marina acquired in july 2017. we obtained prior ownership information from the oceans edge resort & marina 's previous owner during the due diligence period before acquiring the hotel . we performed a limited review of the information as part of our analysis of the acquisition . we caution you not to place undue reliance on the prior ownership information ; โ โ revpar index , which is the quotient of a hotel 's revpar divided by the average revpar of its competitors , multiplied by 100. a revpar index in excess of 100 indicates a hotel is achieving higher revpar than the average of its competitors . story_separator_special_tag in addition to absolute revpar index , we monitor changes in revpar index ; โ โ ebitdare , which is net income ( loss ) excluding : interest expense ; benefit or provision for income taxes , including any changes to deferred tax assets , liabilities or valuation allowances and income taxes applicable to the sale of assets ; depreciation and amortization ; gains or losses on disposition of depreciated property ( including gains or losses on change in control ) ; and any impairment write-downs of depreciated property ; โ โ adjusted ebitdare , excluding noncontrolling interest , which is ebitda re adjusted to exclude : the net income ( loss ) allocated to a third-party 's 25.0 % ownership interest in the joint venture that owns the hilton san diego bayfront , along with the noncontrolling partner 's pro rata share of any ebitda re components ; amortization of deferred stock compensation ; amortization of favorable and unfavorable contracts ; amortization of right-of-use assets and liabilities ; the cash component of ground lease expense for our finance lease obligations that has been included in interest expense ; the impact of any gain or loss from undepreciated asset sales or property damage from natural disasters ; any lawsuit settlement costs ; prior year property tax assessments or credits ; the write-off of development costs associated with abandoned projects ; and any other nonrecurring identified adjustments ; โ โ funds from operations ( โ ffo โ ) attributable to common stockholders , which is net income ( loss ) , excluding : preferred stock dividends ; gains and losses from sales of property ; real estate-related depreciation and amortization ( excluding amortization of deferred financing costs and right-of-use assets ) ; any real estate-related impairment losses ; and the noncontrolling partner 's pro rata share of net income ( loss ) and any ffo components ; and โ โ adjusted ffo attributable to common stockholders , which is ffo attributable to common stockholders adjusted to exclude : amortization of favorable and unfavorable contracts ; real estate-related amortization of right-of-use assets and liabilities ; noncash interest on our derivative and finance lease obligations ; income tax benefits or provisions associated with any changes to deferred tax assets , liabilities or valuation allowances , the application of net operating loss carryforwards and uncertain tax positions ; gains or losses due to property damage from natural disasters ; any lawsuit settlement costs ; prior year property tax assessments or credits ; the write-off of development costs associated with abandoned projects ; non-real estate-related impairment losses ; the noncontrolling partner 's pro rata share of any adjusted ffo components ; and any other nonrecurring identified adjustments . โ factors affecting our operating results . the primary factors affecting our operating results include overall demand for hotel rooms , the pace of new hotel development , or supply , and the relative performance of our operators in increasing revenue and controlling hotel operating expenses . โ โ demand . the demand for lodging generally fluctuates with the overall economy . in 2018 , comparable portfolio revpar , which was impacted by renovations at the hyatt regency san francisco , the jw marriott new orleans , the marriott boston long wharf and the renaissance los angeles airport ( the โ four 2018 renovation hotels โ ) , increased 2.9 % as compared to 2017 , with a 30 basis point decrease in occupancy . in 41 2019 , comparable portfolio revpar , which was impacted by renovations at the hilton san diego bayfront , the hyatt regency san francisco , the oceans edge resort & marina and the renaissance harborplace ( the โ four 2019 renovation hotels โ ) , increased 1.9 % as compared to 2018 , with a 10 basis point increase in occupancy . โ โ supply . the addition of new competitive hotels affects the ability of existing hotels to absorb demand for lodging and , therefore , impacts the ability to drive revpar and profits . the development of new hotels is largely driven by construction costs and expected performance of existing hotels . in aggregate , we expect the u.s. hotel supply to increase over the near term . on a market-by-market basis , some markets may experience new hotel room openings at or greater than historic levels , including in boston , los angeles , new york city , orlando and portland where there are currently higher-than-average new hotel room openings . additionally , an increase in the supply of vacation rental or sharing services such as airbnb also affects the ability of existing hotels to drive revpar and profits . โ โ revenues and expenses . we believe that marginal improvements in revpar index , even in the face of declining revenues , are a good indicator of the relative quality and appeal of our hotels , and our operators ' effectiveness in maximizing revenues . similarly , we also evaluate our operators ' effectiveness in minimizing incremental operating expenses in the context of increasing revenues or , conversely , in reducing operating expenses in the context of declining revenues . โ with respect to improving revpar index , we continually work with our hotel operators to optimize revenue management initiatives while taking into consideration market demand trends and the pricing strategies of competitor hotels in our markets . we also develop capital investment programs designed to ensure each of our hotels is well renovated and positioned to appeal to groups and individual travelers fitting target guest profiles . increased capital investment in our properties may lead to short-term revenue disruption and negatively impact revpar index . our revenue management initiatives are generally oriented towards maximizing adr even if the result may be lower occupancy than may be achieved through lower adr . increases in revpar attributable to increases in adr may be accompanied by minimal additional expenses , while increases in revpar attributable to higher occupancy may result in higher variable expenses such as housekeeping , guest supplies , labor and utilities expense .
| the overall increase in adr was primarily driven by changes in the average daily rate at the following hotels : โ โ โ โ adr increases โ decreases hyatt regency san francisco โ chicago hotels jw marriott new orleans โ hilton times square oceans edge resort & marina โ โ renaissance long beach โ โ renaissance orlando at seaworldยฎ โ โ wailea beach resort โ โ โ the increase in occupancy at the 20 hotels in 2019 as compared to 2018 was caused by 21,765 more transient room nights partially offset by 13,925 fewer group room nights . the overall changes in room nights occurred primarily at the following hotels : โ โ โ โ transient room nights increases โ decreases boston hotels โ embassy suites la jolla chicago hotels โ hilton san diego bayfront hyatt regency san francisco โ oceans edge resort & marina jw marriott new orleans โ renaissance harborplace renaissance los angeles airport โ renaissance orlando at seaworldยฎ renaissance washington dc โ โ wailea beach resort โ โ โ โ โ โ โ โ group room nights increases โ decreases boston hotels โ chicago hotels jw marriott new orleans โ hilton new orleans st. charles renaissance orlando at seaworldยฎ โ hilton san diego bayfront โ โ renaissance washington dc โ โ renaissance westchester โ room revenue generated by the 20 hotels was negatively impacted during 2019 as compared to 2018 by the four 2019 renovation hotels , where a combined total of 19,678 room nights were out of service , displacing approximately $ 4.7 million in room revenue based on the hotels achieving a combined potential 79.1 % occupancy rate and revpar of $ 195.63 without the renovations . โ food and beverage revenue . food and beverage revenue decreased $ 11.8 million , or 4.1 % , in 2019 as compared to 2018 . โ the seven sold hotels caused food and beverage revenue to decrease by $ 18.7 million in 2019 as compared to 2018 . โ food and beverage revenue generated by the 20 hotels increased $ 6.9 million in 2019 as compared
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segment data we follow financial accounting standards board ( `` fasb โ ) asc 280 , โ segment reporting โ ( โ asc 280 โ ) , which establishes standards for reporting information about operating segments in annual and interim financial statements , and requires that companies report financial and descriptive information about their reportable segments based on a management approach . asc 280 also establishes standards for related disclosures about products and services , geographic areas and major customers . we currently divide our operations into three operating segments : complex machining ; aerostructures & electronics ; and turbine engine components . effective january 1 , 2015 , all operating costs are allocated to our three operating segments . as our businesses continue to develop and evolve we may deem it appropriate to reallocate our companies into different operating segments . along with our operating subsidiaries , we report the results of our corporate division as an independent segment . the accounting policies of each of the segments are the same as those described in the summary of significant accounting policies . we evaluate performance of each segment based on revenue , gross profit contribution and assets employed . story_separator_special_tag each of our operating segments , caused , in the case of our complex machining and aerostructures & electronics segments , by a substantial reduction in sales . 21 selling , general & administrative ( โ sg & a โ ) : consolidated sg & a costs for the year ended december 31 , 2016 totaled approximately $ 17,509,000 and increased by $ 952,000 or 5.7 % compared to $ 16,557,000 for the year ended december 31 , 2015. the increase in sg & a costs reflects the addition of a number of management level personnel at the company 's headquarters . due to the failure of sales to increase as anticipated , we have begun to take steps to reduce the growth in sg & a costs . interest and financing costs of approximately $ 2,596,000 for the year ended december 31 , 2016 increased $ 738,000 or 39.7 % as compared to $ 1,858,000 for the year ended december 31 , 2015. this increase can be attributed to additional amounts of debt incurred from term loans due to the amk and sterling acquisitions , the purchase of inventory from circor aerospace which was not sold in 2016 and cash used for operations to fund our losses . in addition to increasing our debt in absolute terms , the convertible debt issued during 2016 bears a higher per annum rate of interest than our bank debt . due to our inability to generate significant cash from operations , however , during 2016 we paid the interest accrued on our convertible debt โ inโkind โ through the issuance of additional debt , which further increased the amount of our debt outstanding . the company had an income tax expense of $ 2,112,000 for the year ended december 31 , 2016 compared to an income tax benefit of $ 286,000 for the year ended december 31 , 2015. the tax provision for 2016 was primarily the result of providing a full valuation allowance on the company 's deferred tax asset . net loss for the year ended december 31 , 2016 was $ 15,623,000 , an increase of $ 14,791,000 , compared to a net loss of $ 832,000 for the year ended december 31 , 2015 , for the reasons discussed above . impact of inflation inflation has not had a material effect on our results of operations . liquidity and capital resources we are highly leveraged and rely upon our ability to continue to borrow under our credit facility ( the โ loan facility โ ) with pnc bank n.a . ( โ pnc โ ) or to raise debt and equity from third parties to support operations and acquisitions . substantially all of our assets are pledged as collateral under our loan facility . we are required to maintain a lockbox account with pnc , into which substantially all of our cash receipts are paid . if pnc were to cease lending , we would lack funds to continue our operations . over the past twelve months we have also relied upon our ability to borrow money from certain stockholders and raise equity capital to support our operations . should we continue to need to borrow funds from our principal stockholders or raise equity , there is no assurance that we will be able to do so or that the terms on which we borrow funds or raise equity will be favorable to us or our existing shareholders . the loan facility has been amended many times during its term . the loan facility was amended in june 2016 ( the โ twelfth amendment โ ) and september 2016 ( the โ thirteenth amendment โ ) . in connection with the twelfth amendment , we paid a fee of $ 100,000 and reimbursed pnc for the fees and expenses of its counsel . the twelfth amendment provides for a $ 33,000,000 revolving loan in addition , in the twelfth amendment the four term loans ( term loan a , term loan b , term loan c and term loan d ) then outstanding were consolidated into a single term loan with the initial principal amount of $ 7,387,854. further , in the twelfth amendment we acknowledged that there were then outstanding excess advances under the revolver in the amount of $ 12,500,000 . 22 under the terms of the loan facility , as amended , the revolving loan now bears interest at ( a ) the sum of the alternate base rate plus one and three-quarters of one percent ( 1.75 % ) with respect to domestic rate loans ; and ( b ) the sum of the libor rate plus four and one-half of one percent ( 4.50 % ) with respect to libor rate loans . story_separator_special_tag the amount outstanding under the revolving loan , exclusive of the excess advance , was $ 24,393,000 and $ 29,604,000 , as of december 31 , 2016 and december 31 , 2015 , respectively . the loan facility was further amended pursuant to the thirteenth amendment , to modify the advance rate with respect to our inventory to be the lesser of ( i ) 75 % of the eligible inventory , an increase from 50 % , and ( ii ) 90 % of the liquidation value of the eligible inventory , an increase from 85 % , subject to the inventory sublimit of $ 12,500,000 and such reserves as pnc may deem proper . in addition , in the thirteenth amendment the lender waived any default resulting from our obligation to comply with the minimum ebitda covenant for the period ended june 30 , 2016 , consented to the issuance of our 12 % subordinated convertible notes and the amendment to our articles of incorporation to increase the authorized number of shares of preferred stock and series a preferred stock . the repayment terms of term loan a had previously been amended in 2014 when the company borrowed $ 2,676,000 , representing an additional $ 1,328,000 and term loan a as amended was to be repaid in monthly installments of $ 31,859 continuing until november 2016. on october 1 , 2014 , the company borrowed $ 3,500,000 under term loan b for the acquisition of amk . term loan b was to be repaid in sixty consecutive monthly principal installments of $ 58,333 continuing until november 2019. prior to the twelfth amendment , term loans a and b bore interest at ( a ) the sum of the alternate base rate plus one and three quarters of one percent ( 1.75 % ) with respect to domestic rate loans and ( b ) the sum of the libor rate plus three percent ( 3.00 % ) with respect to libor rate loans . on december 31 , 2014 , we borrowed $ 2,500,000 under term loan c to refinance the seller note and mortgage of $ 2,500,000 issued as part of the acquisition of amk . term loan c was originally to be repaid in monthly installments of $ 34,722 continuing until january 2021. prior to the twelfth amendment , term loan c bore interest at ( a ) the sum of the alternate base rate plus two percent ( 2.00 % ) with respect to domestic rate loans and ( b ) the sum of the libor rate plus three and one-quarter percent ( 3.25 % ) with respect to libor rate loans . on march 9 , 2015 , we borrowed $ 3,500,000 under term loan d for the acquisition of sterling . prior to the twelfth amendment , term loan d was to be repaid through twenty consecutive monthly installments of $ 62,847 continuing until november 2016. term loan d bore interest at ( a ) the sum of the alternate base rate plus two and one quarter percent ( 2.25 % ) with respect to domestic rate loans and ( b ) the sum of the libor rate plus three and one-half percent ( 3.50 % ) with respect to libor rate loans . the repayment terms of the term loan provided for in the twelfth amendment consist of sixty ( 60 ) consecutive monthly principal installments , the first fifty-nine ( 59 ) of which shall be in the amount of $ 123,133 commencing on the first business day of july , 2016 , and continuing on the first business day of each month thereafter , with a sixtieth ( 60th ) and final payment of any unpaid balance of principal and interest payable on the last business day of june , 2021. under the terms of the loan facility , as amended , the revolving loan now bears interest at ( a ) the sum of the alternate base rate plus one and three-quarters of one percent ( 1.75 % ) with respect to domestic rate loans ; and ( b ) the sum of the libor rate plus four and one-half of one percent ( 4.50 % ) with respect to libor rate loan . at the closing of the twelfth amendment we paid $ 1,500,000 to reduce the outstanding excess under the revolving loan . it also agreed that to reduce the excess advances by $ 100,000 each week commencing the second week after the closing of the twelfth amendment . 23 the terms of the loan facility require that , among other things , we maintain a specified fixed charge coverage ratio and maintain a minimum ebitda . in addition , we are limited in the amount of capital expenditures we can make . we are also limited to the amount of dividends we can pay our shareholders as defined in the loan facility . as of december 31 , 2016 , we were not in compliance with the fixed charge coverage ratio covenant . the failure to maintain the requisite fixed charge coverage ratio constitutes a default under the loan facility and pnc at its option may give notice to us that all amounts under the loan facility are immediately due and payable . consequently , all amounts due under the term loans are also classified as current . as of december 31 , 2016 , we were not in compliance with the minimum ebitda requirement . we have requested a waiver from pnc for the failure to meet the minimum ebitda covenant . in connection with the sale of amk to meyer tool , inc. , on january 27 , 2017 we , together with our wholly-owned subsidiaries , entered into the fourteenth amendment to the loan facility which amends certain terms and conditions of the loan facility and releases amk from its obligations under the loan facility .
| net sales of our aerostructures & electronics segment were approximately $ 18,818,000 and decreased by $ 8,316,000 , or 30.6 % , from $ 27,134,000 in the prior year . this decline can be attributed to decreased volume at each of the divisions within our aerostructures & electronics segment other than compac which experienced an increase in annual sales largely due to the fact that it was owned for all of 2016 as compared to four months in 2015. approximately $ 4.2 million of the decrease is attributed to the expected loss of a biennial contract with raytheon which was awarded in 2015 , but not in 2016. an additional $ 2.2 million of the decline resulted from a delay in the shipment of a single $ 3 million order received in 2016. the balance of the decline is attributable to delays in producing products . net sales in our turbine engine components segment were approximately $ 10,973,000 , an increase from net sales of $ 10,952,000 in the prior year . the stability of sales in our turbine engine components reflects the fact that during 2016 they included the results of both sterling and amk , and an increase in sales of $ 453,000 at amk were substantially offset by a decrease in sales at stering , despite the fact that the results of sterling were included for only ten months in 2015. amk was sold in january 2017. as indicated in the table below , four customers represented 56.4 % and four customers represented 59.3 % of total sales for the years ended december 31 , 2016 and 2015 , respectively . customer percentage of sales 2016 2015 sikorsky aircraft 19.1 % 20.5 % goodrich landing gear systems 12.3 % 15.4 % united states department of defense 14.3 % 12.0 % northrup grumman corporation 10.7 % 11.4 % sikorsky aircraft and goodrich landing gear systems are units of united technologies corporation . as indicated in the table below , one customer represented 19.9 % and four customers represented 61.1 %
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