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buyer demand steadily improved throughout the year and drove year-over-year increases in our monthly net new orders for the final five months of 2019. the 2019 fourth quarter was particularly strong with monthly sales pace up 83 % resulting in a 106 % increase in net new orders over the 2018 fourth quarter . demand during 2019 was strongest at our more affordable , entry level communities where the monthly absorption rate increased to 3.3 for the year compared to the company average of 2.1 further underscoring the benefit of our ongoing strategy to diversify our product portfolio and expand our customer base . the company also delivered 62 % more spec homes in 2019 as compared to 2018 due in part to an increase in spec homes from a shift to more affordable product and also due to a higher beginning balance of specs to start 2019 due to slower sales in the fourth quarter of 2018. the increase in spec deliveries , along with a higher number of homes in beginning backlog , drove a 15 % increase in deliveries for 2019 , which contributed to a 6 % increase in home sales revenue for 2019 and was partially offset by an 8 % drop in average selling price that accompanied the delivery mix shift . we expect this shift to more affordable product to continue as approximately 58 % of homes in the 2019 ending backlog were from entry level and first time move up communities compared to only about 29 % at the end of 2018. ending backlog for 2019 totaled $ 125.8 million from 149 homes compared to $ 207.1 million from 191 homes at december 31 , 2018. total revenues for the year ended december 31 , 2019 were $ 669.3 million compared to $ 667.6 million for the prior year . in addition to the increase in homebuilding revenue , the company also recorded land sales revenue of $ 41.7 million for 2019 compared to no land sales revenue during 2018. the land sales revenue related to three land parcels sold in northern california as part of a strategic decision to generate cash flow and reduce our concentration of capital investments in certain communities . partially offsetting these revenue increases was a 42 % year-over-year decrease in fee building revenue driven by a decrease in construction activity at fee building communities in irvine , california due to lower demand levels in that market . for the full year 2019 , the company reported a net loss of $ 8.0 million , or $ ( 0.40 ) per diluted share . adjusted net income for the year was $ 3.3 million * , or $ 0.16 * per diluted share , after excluding $ 10.2 million in pretax inventory impairment charges , including $ 1.9 million related to a land sale , a $ 3.5 million pretax joint venture impairment charge , and $ 1.5 million in land sales losses . the company 's net loss for 2018 was $ 14.2 million , or $ ( 0.69 ) per diluted share . adjusted net income for 2018 was $ 7.6 million * , or $ 0.37 * per diluted share , and excluded $ 10.0 million in pretax inventory impairment charges and a $ 20.0 million pretax joint venture impairment charge . the year-over-year decrease in net loss was primarily attributable to a $ 16.5 decrease in joint venture impairment charges , a 6 % increase in home sales revenue , and a 60 basis point improvement in selling , general and administrative expenses as percentage of home sales revenue . these increases were partially offset by a 120 basis point decline in home sales margin ( a 160 basis point decline before impairments * ) , a 42 % decrease in fee building revenue , and a reduction in income tax benefit . the decrease in home sales gross margin before impairments was the result of increased incentives and higher interest costs , which were partially offset by a product mix shift . the company 's wholly owned lots owned and controlled at december 31 , 2019 was 2,701 , of which approximately 42 % were controlled through option contracts . the company ended the year with $ 79.3 million in cash and cash equivalents , $ 304.8 million in debt , of which none was outstanding under its $ 130 million unsecured revolving credit facility . the company 's debt-to-capital ratio at december 31 , 2019 was 56.7 % and its net debt-to-capital ratio was 49.2 % * . during 2019 , the company repurchased and retired approximately $ 17.0 million of its 7.25 % senior notes due 2022 and recognized a $ 1.2 million gain on the early extinguishment of debt . the company also repurchased and retired 153,916 shares of common stock under the repurchase program authorized during 2018 and had remaining authorization to purchase $ 5.4 million of common shares , subject to debt covenant restrictions , under this plan . * net-debt-to capital ratio , adjusted net income , adjusted earnings per diluted share and home sales gross margin before impairments are non-gaap measures . for a reconciliation of the net debt-to-capital ratio to the appropriate gaap measure , please see `` liquidity and capital resources - debt-to-capital ratios . '' we believe that the ratio of net debt-to-capital is a relevant financial measure for management and investors to understand the leverage employed in our operations and as an indicator of the company 's ability to obtain financing . we believe adjusted net income and adjusted earnings per diluted share are meaningful as the impact of impairments , loss on land sales and deferred tax asset adjustments are removed to provide investors with an understanding of the impact these noncash items had on earnings . we believe home sales gross margin before impairments is meaningful , as it isolates the impact home sales impairments have on homebuilding gross margin and provides investors better comparisons with our competitors , who may adjust gross margins in a similar fashion . story_separator_special_tag 37 non-gaap footnote ( continued ) replace_table_token_7_th 38 story_separator_special_tag compared to the prior year where backlog units were concentrated in higher-priced communities in orange county and los angeles . backlog units and dollar value for arizona at december 31 , 2019 were down from the prior year primarily due to the near close-out at our gilbert community , which had very little inventory remaining in the second half of 2019 ; however , the arizona average selling price in backlog was up due to higher contract prices at this community at december 31 , 2019. the number of homes in backlog at the end of 2018 was up 25 % compared to 2017 due to a 30 % increase in net new home orders from a higher average community count , and the impact of closing delays at a few communities . the 28 % increase in backlog dollar value to $ 207.1 million at december 31 2018 , was driven mostly by the increase in the number of homes in backlog , and to a lesser extent , a 2 % increase in average selling price . northern california average sales price was up 6 % year-over-year due to sales price increases at one particular community in the bay area . this increase was partially offset by a decrease in southern california average selling price related to the close-out of higher-priced communities and an increase in orders from more affordable communities during 2018 . 40 lots owned and controlled replace_table_token_11_th ( 1 ) includes lots that we control under purchase and sale agreements or option agreements that are subject to customary conditions and have not yet closed . there can be no assurance that such acquisitions will occur . ( 2 ) lots owned by third party property owners for which we perform general contracting or construction management services . the company 's wholly owned lots owned and controlled decreased 4 % year-over-year to 2,701 lots , of which 42 % were controlled through option contracts compared to 41 % optioned in the prior year period . the decrease in wholly owned lots owned and controlled was primarily due to an increase in home deliveries to 574 compared to 2018 , partially offset by executed contracts primarily for new developments in southern california 's inland empire , and to a lesser extent , for new developments across northern california during the year ended december 31 , 2019. also in 2019 , the company sold 181 lots as part of a strategic decision to generate cash flow and reduce our concentration of capital investments in certain markets . the increase in fee building lots at december 31 , 2019 as compared to the prior year period was primarily attributable to new contracts entered into during the year ended december 31 , 2019 , for 600 lots located in irvine , california with our largest customer and an additional 38 lots with a new customer . these fee lot additions were partially offset by the delivery of 309 homes to fee building customers during 2019. the company increased the number of wholly owned lots owned and controlled by 2 % for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017. the increase in wholly owned lots owned and controlled was due to contracts entered into during 2018 for new developments across all markets . in southern california , contracts were executed in 2018 for three communities for control of 272 lots within the inland empire . also in 2018 , purchase agreements for two new communities in the greater phoenix area were executed for a total of 226 lots that increased our geographic footprint in the arizona market . in northern california , we entered into an agreement for 60 lots in a community in rocklin , ca . the increase in wholly owned lots owned and controlled was partially offset by a 46 % increase in home deliveries for 2018. the decrease in fee building lots at december 31 , 2018 as compared to 2017 was primarily attributable to the delivery of 600 homes to customers during 2018. this impact was offset by fee lot additions of 486 lots for new contracts entered into during 2018 , including construction management contracts the company entered into with a new customer during the 2018 second quarter that totaled 165 lots across five communities . 41 home sales revenue and new homes delivered replace_table_token_12_th replace_table_token_13_th new home deliveries increased 15 % for the year ended december 31 , 2019 compared to the prior year period primarily due to higher quarterly backlog conversion rates including the delivery of more spec homes and a higher number of beginning backlog units . home sales revenue for the year ended december 31 , 2019 increased 6 % compared to 2018 , primarily due to the increase in new home deliveries , partially offset by an 8 % decrease in average selling price per delivery for the period related to the company 's shift to more affordable product in california , partially offset by the addition of arizona deliveries in 2019 where the average selling price exceeded $ 1.1 million . average selling price in northern california for the year ended december 31 , 2019 declined year-over-year on a nearly equal number of home deliveries due to the significant increase in deliveries from more affordable communities in the sacramento region and fewer bay area deliveries , which generally are higher-priced . average selling price was down in southern california due to a mix shift of deliveries with 2018 including deliveries from several higher-priced , closed-out , orange county communities compared to 2019 which saw an increase in closings from more affordable , entry level and first move up homes . partially offsetting the decline in average selling price for southern california were the initial deliveries from a multifamily condominium community in los angeles and a luxury community in south orange county , which accounted for approximately 25 % of 2019 southern california deliveries .
| during the year ended december 31 , 2019 , the 15 % decrease in northern california 's monthly absorption rate from 2018 was driven by bay area communities where current buyer affordability constraints impacted new orders compared to the strong sales volume experienced in 2018. southern california 's monthly absorption rate for the year ended december 31 , 2019 compared to 2018 was relatively unchanged as we believe an overall run up in home prices and a slowdown in demand from foreign national buyers in the market continued to temper demand for our move-up and luxury product mostly within orange county while our more affordable , entry level communities enjoyed a higher sales pace . the arizona monthly absorption rate for the year ended december 31 , 2019 was down to 1.2 as compared to 1.7 for the prior year period primarily due a lack of inventory at our belmont community in gilbert , az which was nearly sold out as of the beginning of the 2019 third quarter . 39 net new home orders for the year ended december 31 , 2018 were up 30 % compared to 2017 as a result of a 54 % increase in average selling communities , partially offset by a decline in the monthly sales absorption rate . demand was healthy across our markets throughout the first half of 2018 , however , buyer hesitancy emerged in the second half of 2018 , particularly in the fourth quarter , which was spurred by higher interest rates and higher absolute home prices and resulted in an overall decline in sales per community for 2018. orders were up 53 % in 2 018 compared to 2017 for southern california primarily driven by a 71 % increase in average selling communities . the increase in more affordably priced communities helped maintain southern california 's monthly sales absorption rate at 2.2 sales per community , nearly flat with the pace in 2017 , as lower priced product was less impacted by the
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we are also dependent on third-party suppliers and manufacturers providing us with an adequate supply of high-quality products . we are optimistic on housing and expect the current moderate pace of improvement to continue for several years . the u.s. housing market has grown from approximately 587,000 housing starts in 2010 to approximately 1,202,000 housing starts in 2017 , well below the 50-year historical average of approximately 1.5 million housing starts per year . while the current headwinds of credit availability , student debt , and labor shortages within the construction industry are moderating the rate of recovery , we believe that they are also extending the recovery cycle . we believe there is pent-up demand for housing , and this demand will eventually be satisfied with higher levels of new construction . story_separator_special_tag style= '' font-family : timesnewromanpsmt ; font-weight : normal ; font-style : normal ; color : # 000000 ; font-size:10pt ; display : inline ; '' > the following table sets forth our net sales , gross profit , operating profit , and margins , as reported in our consolidated statements of operations , in thousands : replace_table_token_9_th 24 the following table details our same branch sales and sales from acquired businesses , in thousands : replace_table_token_10_th ( a ) we define same branch sales as sales from branches in operation for at least 12 full calendar months . comparison of the years ended december 31 , 2017 and december 31 , 2016 sales and operations net sales for 2017 increased 9.4 percent , or $ 163.4 million , to $ 1.9 billion . the increase was principally driven by our seven acquisitions completed during 2017 and 2016 , increased organic sales volume , and overall increased selling prices . our sales benefited primarily from the overall continued improvement in the housing market , as well as continued focus on organically growing our residential and commercial activity . our gross profit margins were 24.2 percent and 23.0 percent for 2017 and 2016 , respectively . gross profit margin was positively impacted by favorable leverage on overall higher sales volume , increased selling prices , and improved labor utilization , partially offset by higher material cost . selling , general , and administrative expense , exclusive of the significant legal settlement discussed below , as a percent of sales was 15.4 percent and 16.0 percent for 2017 and 2016 , respectively . decreased selling , general , and administrative expense as a percent of sales was a result of lower salaries expense relative to sales , lower health insurance expense , partially offset by higher bonus , share-based compensation , and amortization expenses , as well as closure and related costs noted below . we incurred a $ 30 million legal settlement during 2017 , related to the settlement of a breach of contract action related to our termination of an insulation supply agreement with owens corning . operating margins , exclusive of the significant legal settlement discussed above , were 8.8 percent and 7.0 percent for the 2017 and 2016 , respectively . the increase in operating margins was a result of overall increased sales volume , higher selling prices , and lower health insurance costs , partially offset by higher share-based compensation , amortization , and bonus expenses . closure and related costs w e incurred expense of $ 2.0 million in 2017 , related to the consolidation of certain back-office operations to our daytona beach , florida , branch support center . other income ( expense ) , net other income ( expense ) , net increased $ 3.5 million to $ 8.8 million in 2017 compared with 2016. the increase primarily related to the $ 1.1 million loss on extinguishment of debt as well as higher interest expense due to our higher outstanding long-term debt balance related to our debt refinancing completed on may 5 , 2017. income tax benefit ( expense ) from continuing operations our etr decreased from 37.6 percent in 2016 to ( 23.5 ) percent in 2017. the lower rate was primarily due to a beneficial adjustment of our deferred tax assets and liabilities to reflect the change in the federal statutory rate from 35 percent to 21 percent , enacted in december of 2017 and effective january 1 , 2018 , as well as a benefit from share-based compensation . 25 income from continuing operations income from continuing operations increased $ 85.5 million from $ 72.6 million for 2016 to $ 158.1 million for 2017. comparison of the years ended december 31 , 2016 and december 31 , 2015 sales and operations net sales for 2016 increased 7.8 percent , or $ 126.3 million , to $ 1.7 billion . the increase was principally driven by overall increased sales volume and overall increased selling prices . our sales benefited primarily from the overall continued improvement in the housing market , as well as continued focus on organically growing our residential and commercial activity . our gross profit margins were 23.0 percent and 22.1 percent for 2016 and 2015 , respectively . gross profit margin was positively impacted by favorable leverage on overall higher sales volume , overall increased selling prices , improved labor utilization , and lower material cost . selling , general , and administrative expense as a percent of sales was 16.0 percent and 17.0 percent for 2016 and 2015 , respectively . reduced selling , general , and administrative expense as a percent of sales is a result of overall increasing sales volume and price , benefits associated with business rationalizations , and other cost savings initiatives , partially offset by higher bonus and share-based compensation expense . for the periods prior to the separation , our selling , general , and administrative expense included an allocation of masco general corporate expense of $ 13.6 million in 2015. such expense may not be indicative of our general corporate expense in the future . story_separator_special_tag during the fourth quarter of 2015 , we modified our vacation policy from being granted based on prior year service to being earned on a per pay period approach . this employee benefit policy change resulted in a $ 9.9 million expense reduction , which is reflected as a $ 6.1 million reduction of cost of sales and a $ 3.8 million reduction of selling , general , and administrative expenses in our consolidated statements of operations . this item is reflected as a non-cash employee benefit policy change in our consolidated statements of cash flows . operating margins for 2016 and 2015 were 7.0 percent and 5.2 percent , respectively . changes in operating margins were positively impacted by increased sales volume , overall increased selling prices , lower material cost , improved labor utilization , lower corporate expenses , lower rationalization charges , and benefits associated with cost savings initiatives , partially offset by higher bonus and share-based compensation expense , and closure costs discussed below . closure and related costs as part of the closure of 13 locations within our installation and distribution segments and the elimination of certain positions at our corporate headquarters , as announced in the first quarter of 2016 , we incurred expenses of $ 0.9 million . other income ( expense ) , net interest expense was $ 5.6 million in 2016 incurred under the credit facility . interest expense was $ 9.5 million in 2015 , of which $ 3.2 million was incurred under the old credit agreement while $ 6.3 million was allocated by masco prior to the separation . income tax benefit ( expense ) from continuing operations our etr for income from continuing operations were 37.6 percent and ( 6.8 ) percent in 2016 and 2015 , respectively . compared to our normalized tax rate of 38.0 percent , the variance in the etr in 2016 was primarily due to the release of a valuation allowance related to state net operating losses . 26 income from continuing operations income from continuing operations was $ 72.6 million and $ 79.1 million in 2016 and 2015 , respectively . material trends in our business i n general , the residential and commercial new construction industries are continuing to recover . we believe that household formations and the available housing supply point towards continued growth in new home construction . increasing rental demand across multiple markets has led to an increase in multi-family housing construction , and the demand for commercial space is also increasing . however , residential construction activity remains below historical averages . we believe a number of factors , including credit availability , student debt , labor availability , and attitudes towards home ownership will continue to cause volatility in the housing market . we normally experience stronger sales during the third and fourth calendar quarters , corresponding with the peak season for residential new construction and residential repair/remodel activity . sales during the winter weather months are seasonally slower due to lower construction activity . historically , the installation of insulation lags housing starts by several months . 27 2017 and 2016 business segment results the following table sets forth our net sales and operating profit information by business segment , in thousands : replace_table_token_11_th ( a ) all of our operations are located in the u.s. ( b ) intercompany eliminations include the elimination of intercompany profit of $ 16.5 million and $ 14.4 million for the years ended december 31 , 2017 and 2016 , respectively . ( c ) segment operating profit for years ended december 31 , 2017 and 2016 , includes an allocation of general corporate expenses attributable to the operating segments which is based on direct benefit or usage ( such as salaries of corporate employees who directly support the segment ) . ( d ) general corporate expense , net included expenses not specifically attributable to our segments for functions such as corporate human resources , finance , legal , including salaries , benefits , and other related costs . 2017 and 2016 business segment results discussion changes in operating profit margins in the following business segment results discussion exclude general corporate expense , net in 2017 and 2016 , as applicable . the construction industry continues to expand both in residential new home and commercial construction , however it is subject to inflationary pressures on costs . while we are seeing the impact of this growth with increases in the cost of building materials , we have been successful to date in achieving price increases , which more than offset the increased commodity costs . installation sales sales increased $ 131.1 million , or 11.4 percent , in 2017 compared to 2016. sales increased 6.3 percent from acquired branches and 1.5 percent due to increased selling prices . sales also increased due to increased sales volume related to a higher level of activity in new home construction and an increased sales volume of commercial installation . 28 operating results operating margins in the installation segment were 8.5 percent and 8.4 percent for 2017 compared to 2016. the increase in operating margins was primarily due to increased sales volume and related absorption of fixed costs , higher selling prices , improved sales productivity , as well as the benefits associated with cost savings initiatives . the increase was partially offset by the $ 30 million legal settlement with owens corning , as well as higher legal fee expense and higher material cost . exclusive of the significant legal settlement , operating margins were 10.9 percent for 2017. distribution sales sales increased $ 43.1 million , or 6.4 percent , in 2017 compared to 2016. the increase was primarily due to increased sales volume related to a higher level of activity in new home construction . sales also benefited from a 0.1 percent increase in selling prices .
| the following table summarizes our total liquidity , in thousands : replace_table_token_6_th ( a ) our cash and cash equivalents consist of aaa-rated money market funds as well as cash held in our demand deposit accounts . we occasionally use performance bonds to ensure completion of our work on certain larger customer contracts that can span multiple accounting periods . performance bonds generally do not have stated expiration dates ; rather , we are released from the bonds as the contractual performance is completed . we also have bonds outstanding for licensing and insurance . the following table summarizes our outstanding bonds , in thousands : replace_table_token_7_th 22 cash flows significant sources and ( uses ) of cash and cash equivalents are summarized as follows , in thousands : replace_table_token_8_th ( a ) net sales for the ttm have been adjusted for the pro forma effect of acquired branches . net cash flows provided by operating activities increased $ 36.4 million for the twelve months ended december 31 , 2017. the increase was due to a $ 85.5 million increase in net income , as well as the satisfaction of payables during 2016 related to strategic inventory purchases in the fourth quarter of 2015 which were not replicated in 2016 , as well as nominal changes to payment terms for select suppliers which accelerated payments in 2016. the increase in the generation of cash for prepaid expenses and other current assets related to a change in our prepaid income tax account tied to the timing of estimated tax payments . generators of cash were partially offset by strategic inventory purchases in the fourth quarter of 2017 which did not occur in 2016. an additional decrease in cash provided by operations related to the decrease in the december 31 , 2017 , deferred income taxes , net balance related to the change in the federal statutory rate from 35 percent to 21 percent , enacted in december 2017 , and effective january 1 , 2018. the increase
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total bill payment revenue continued to be adversely impacted in 2012 in particular sectors such as auto , collections and credit card , which was partially offset with growth in the corrections , telecom and utilities sectors . the company continues to actively pursue strategic initiatives to mitigate the economic impact on bill payment products , including the addition of approximately 2,000 billers to the moneygram network and expansion of the products into canada during 2012. walmart renewal on september 30 , 2012 , the company and walmart entered into the new agreement , pursuant to which the company will provide certain money transfer services , bill payment services and money order services for customers in walmart stores located in the u.s. and puerto rico . the terms of the existing agreement between the company and walmart remain in full force and effect until april 1 , 2013 , at which point the existing agreement will terminate in its entirety and be superseded by the new agreement . the new agreement has an initial term of three years , commencing on april 1 , 2013. pursuant to the terms of the new agreement , the company will serve as the preferred provider for money transfer services conducted at walmart agent locations that are not otherwise conducted under a walmart brand name , subject to certain exceptions . the company will pay walmart certain fees and commissions for each money transfer , bill payment and money order transaction conducted at a walmart agent location . the commission rates in the new agreement are substantially the same as in the existing agreement . in connection with the services to be provided pursuant to the new agreement , the company has agreed to reimburse certain expenditures for upgrade and development costs , marketing , innovation , growth and development initiatives . money transfer pricing in august , we adjusted our online prices to match online competitor pricing . in november , we matched a competitor 's prices at all u.s. walmart locations . we have limited our pricing actions primarily to these two changes . we continue to monitor industry pricing moves . global transformation initiative in the second quarter of 2010 , we announced the implementation of a global transformation initiative to realign our management and operations with the changing global market and streamline operations to promote a more efficient and scalable cost structure . the initiative includes investment in technology , organizational changes and relocation of certain operations , among other items . the company has incurred $ 25.1 million , $ 20.7 million and $ 5.4 million of cash outlays in 2012 , 2011 and 2010 , respectively , and recorded $ 19.8 million , $ 23.5 million and $ 5.9 million of expenses during 2012 , 2011 and 2010 , respectively . this initiative has generated annual pre-tax cost savings of approximately $ 30.0 million . the company 's reorganization and restructuring activities were substantially complete in 2012 , with an anticipated $ 3.0 million of expenses extending into early 2013. basis of presentation the financial statements in this annual report on form 10-k are presented on a consolidated basis and include the accounts of the company and our subsidiaries . see note 2 summary of significant accounting policies of the notes to the consolidated financial statements for further information regarding consolidation . references to moneygram , the company , we , us and our are to moneygram international , inc. and its subsidiaries and consolidated entities . our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states of america , also referred to as gaap . components of revenues and expense fee and other revenue fee and other revenue consists of transaction fees , foreign exchange revenue and miscellaneous revenue . transaction fees are earned on money transfer , money order , bill payment and official check transactions . money transfer transaction fees vary based on the principal amount of the transaction and the 34 selected corridor in which the transaction will be completed . money order , bill payment and official check transaction fees are fixed per transaction . foreign exchange revenue is derived from the management of currency exchange spreads on money transfer transactions involving different send and receive currencies . miscellaneous revenue primarily consists of processing fees on rebate checks and controlled disbursements , service charges on aged outstanding money orders and money order dispenser fees . investment revenue investment revenue consists of interest and dividends generated through the investment of cash balances received primarily from the sale of official checks , money orders and other payment instruments . these cash balances are available to us for investment until the payment instrument is presented for payment . investment revenue varies depending on the level of investment balances and the yield on our investments . investment balances vary based on the number of payment instruments sold , the principal amount of those payment instruments and the length of time that passes until the instruments are presented for payment . fee and other commissions expense we incur fee commissions primarily on our money transfer products . in a money transfer transaction , both the agent initiating the transaction and the receiving agent receive a commission that is generally based on a percentage of the fee charged to the consumer . in a bill payment transaction , the agent initiating the transaction receives a commission that is generally based on a percentage of the fee charged to the consumer and , in limited circumstances , the biller receives a commission that is based on a percentage of the fee charged to the consumer . we generally do not pay commissions to agents on the sale of money orders . in certain limited circumstances for large agents , we may pay a fixed commission amount based on money order volumes transacted by that agent . other commissions expense includes the amortization of capitalized agent signing bonus payments . story_separator_special_tag investment commissions expense investment commissions consist of amounts paid to financial institution official check customers based on short-term interest rate indices times the average outstanding cash balances of official checks sold by that financial institution . compensation and benefits compensation and benefits includes salaries and benefits , management incentive programs , related payroll taxes and other employee related costs . transaction and operations support transaction and operations support expense primarily includes : marketing ; professional fees and other outside services ; telecommunications ; agent support costs , including forms related to our products ; non-compensation employee costs , including training , travel and relocation ; bank charges ; and the impact of foreign exchange rate movements on our monetary transactions , assets and liabilities denominated in a currency other than the u.s. dollar . occupancy , equipment and supplies occupancy , equipment and supplies expense includes facilities rent and maintenance costs , software and equipment maintenance costs , freight and delivery costs and supplies . depreciation and amortization depreciation and amortization expense includes depreciation on point of sale equipment , agent signage , computer hardware and software , capitalized software development costs , office furniture , equipment and leasehold improvements and amortization of intangible assets . 35 results of operations 2012 2011 2012 2011 vs. vs. vs. vs. year ended december 31 , 2012 2011 2010 2011 2010 2011 2010 ( amounts in millions ) ( $ ) ( $ ) ( % ) ( % ) revenue fee and other revenue $ 1,328.6 $ 1,230.9 $ 1,145.4 $ 97.7 $ 85.5 8 % 7 % investment revenue 12.6 16.9 21.3 ( 4.3 ) ( 4.4 ) ( 25 ) % ( 21 ) % total revenue 1,341.2 1,247.8 1,166.7 93.4 81.1 7 % 7 % expenses fee and other commissions expense 599.2 547.6 500.8 51.6 46.8 9 % 9 % investment commissions expense 0.3 0.4 0.7 ( 0.1 ) ( 0.3 ) ( 25 ) % ( 43 ) % total commissions expense 599.5 548.0 501.5 51.5 46.5 9 % 9 % compensation and benefits 241.6 235.7 226.4 5.9 9.3 3 % 4 % transaction and operations support 355.7 227.8 185.8 127.9 42.0 56 % 23 % occupancy , equipment and supplies 47.7 47.7 46.5 1.2 0 % 3 % depreciation and amortization 44.3 46.0 48.1 ( 1.7 ) ( 2.1 ) ( 4 ) % ( 4 ) % total operating expenses 1,288.8 1,105.2 1,008.3 183.6 96.9 17 % 10 % operating income 52.4 142.6 158.4 ( 90.2 ) ( 15.8 ) ( 63 ) % ( 10 ) % other ( income ) expense net securities gains ( 10.0 ) ( 32.8 ) ( 2.1 ) 22.8 ( 30.7 ) 70 % nm interest expense 70.9 86.2 102.1 ( 15.3 ) ( 15.9 ) ( 18 ) % ( 16 ) % debt extinguishment costs 37.5 ( 37.5 ) 37.5 ( 100 ) % nm other costs 0.4 11.9 ( 11.5 ) 11.9 ( 97 ) % nm total other expense , net 61.3 102.8 100.0 ( 41.5 ) 2.8 ( 40 ) % 3 % ( loss ) income before income taxes ( 8.9 ) 39.8 58.4 ( 48.7 ) ( 18.6 ) nm ( 32 ) % income tax expense ( benefit ) 40.4 ( 19.6 ) 14.6 60.0 ( 34.2 ) nm nm net ( loss ) income $ ( 49.3 ) $ 59.4 $ 43.8 $ ( 108.7 ) $ 15.6 nm 36 % nm = not meaningful fee and other revenue and related commission expense the following discussion provides a summary overview of results . see discussion for the global funds transfer and financial paper products segments for more detailed explanations of our results . replace_table_token_7_th fee and other revenue in 2012 , fee and other revenue growth of $ 97.7 million , or eight percent , was primarily driven by money transfer transaction volume growth , partially offset by a lower euro valuation against the u.s dollar , changes in corridor mix and a lower average face value per transaction . bill payment products primarily experienced revenue 36 declines from lower average fees per transaction , while money order and official check fee and other revenue decreased due to volume declines . see the segment performance section for more detailed discussion . in 2011 , fee and other revenue growth of $ 85.5 million , or seven percent , was primarily driven by money transfer transaction volume growth , a higher euro exchange rate and higher foreign exchange revenue , partially offset by changes in corridor mix , lower average face value per transaction and the $ 50 price band in the u.s. due to increased pricing competition , in the first half of 2010 we introduced a $ 50 price band that allows consumers to send $ 50 of principal for a $ 5 fee at most locations , or $ 4.75 at a walmart location . bill payment products , money order and official check fee and other revenue decreased due to volume declines . fee and other commissions in 2012 , fee and other commissions expense growth of $ 51.6 million , or nine percent , was primarily due to money transfer volume growth and increased commission rates , partially offset by a lower euro valuation against the u.s. dollar and lower financial paper products volumes . commissions expense grew at a faster rate than revenue due to corridor mix and payment at a higher tier from volume growth achievement for certain key agents . commissions expense as a percentage of fee and other revenue increased to 45.1 percent in 2012 from 44.5 percent in 2011 , primarily from the continued shift in overall product mix towards the global funds transfer segment , particularly the money transfer product . agents in the global funds transfer segment are compensated through commissions we pay to them , whereas our financial paper products agents and financial institution customers primarily earn their revenue through per item fees they charge directly to the consumer .
| 44 following is a reconciliation of segment operating income to the consolidated operating results : year ended december 31 , 2012 2011 2010 ( amounts in millions ) operating income : global funds transfer $ 149.6 $ 124.8 $ 139.3 financial paper products 32.7 29.2 36.5 total segment operating income 182.3 154.0 175.8 other ( 129.9 ) ( 11.4 ) ( 17.4 ) total operating income 52.4 142.6 158.4 net securities gains ( 10.0 ) ( 32.8 ) ( 2.1 ) interest expense 70.9 86.2 102.1 debt extinguishment costs 37.5 other costs 0.4 11.9 ( loss ) income before income taxes $ ( 8.9 ) $ 39.8 $ 58.4 global funds transfer segment replace_table_token_9_th total revenue in the global funds transfer segment consists primarily of fees on money transfers and bill payment transactions . for 2012 and 2011 , global funds transfer total revenue increased $ 102.5 million and $ 99.4 million , respectively , driven by money transfer volume growth , partially offset by a decline in bill payment revenue . 45 money transfer fee and other revenue year ended december 31 , 2012 2011 ( amounts in millions ) money transfer fee and other revenue for the prior year $ 1,039.5 $ 926.5 change from : volume 141.6 126.7 euro exchange rate ( 20.7 ) 16.5 corridor mix and average face value per transaction ( 10.5 ) ( 19.9 ) other ( 1.4 ) ( 1.0 ) introduction of $ 50 price band ( 9.3 ) money transfer fee and other revenue $ 1,148.5 $ 1,039.5 in 2012 , money transfer fee and other revenue increased 10 percent , driven by transaction volume growth of 14 percent , partially offset by a lower euro exchange rate and unfavorable corridor mix . in 2011 , money transfer fee and other revenue increased 12 percent , driven by transaction volume growth of 14 percent and a higher euro exchange rate , partially offset by unfavorable changes in corridor mix , lower average face value per transaction and lower average money transfer fees from the $ 50 price band in the u.s. money
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the pretax effect of all deferred compensation-related activities ( including realized and unrealized gains and losses on the mutual fund assets held to fund the deferred compensation obligations ) and the income statement line items in which the effects of the activities were recorded are presented in the following table : replace_table_token_6_th replace_table_token_7_th ( 1 ) see the applicable corporate expenses section of this md & a for details regarding the period-to-period changes in deferred compensation . 23 effects of foreign currency translation the company 's foreign subsidiaries transact business and report financial results in their respective local currencies . as a result , foreign subsidiary income statements are translated into u.s. dollars at average foreign exchange rates appropriate for the reporting period . because foreign exchange rates fluctuate against the u.s. dollar over time , foreign currency translation affects year-to-year comparisons of financial statement items ( i.e. , because foreign exchange rates fluctuate , similar year-to-year local currency results for a foreign subsidiary may translate into different u.s. dollar results ) . the following tables present the effects that foreign currency translation had on the year-over-year changes in consolidated net sales and various income line items for 2014 compared to 2013 and 2013 compared to 2012 : replace_table_token_8_th replace_table_token_9_th results of operations 2014 compared with 2013 summary net income attributable to the company for 2014 declined 22 percent year over year to $ 57.1 million , or $ 2.49 per diluted share , compared to $ 72.8 million , or $ 3.18 per diluted share , for 2013. below is a summary discussion of the major factors leading to the year-over-year changes in net sales , profits and expenses . a detailed discussion of segment operating performance for 2014 follows the summary . consolidated net sales for 2014 increased $ 46.4 million , or two percent , over consolidated net sales for 2013. higher average selling prices favorably affected the year-over-year net sales change by $ 131.2 million . a four percent decline in sales volume and the effects of foreign currency translation unfavorably affected the net sales change by $ 74.0 million and $ 10.8 million , respectively . the increase in average selling prices was attributable to higher raw material costs , primarily for surfactants . the sales volume decline was mainly driven by the surfactants segment , which reported an eight percent year-over-year volume decrease . most of 24 the sales volume decline was attributable to north american operations . sales volume for the polymers segment increased 13 percent due to solid organic growth in north america and europe and growth from the north american polyester resins business acquired from bayer materialscience llc ( bms ) in june 2013. sales volume for specialty products declined four percent . operating income for 2014 declined $ 18.5 million , or 17 percent , from operating income for 2013. gross profit decreased $ 32.1 million , or 11 percent , largely due to lower profits for surfactants caused by reduced sales volumes and higher expenses for north american operations . polymers gross profit improved nine percent between years due to sales volume growth that more than offset the effect of a $ 3.7 million business interruption insurance recovery that benefited the prior year . specialty products reported a five percent year-over-year gross profit decline . operating expenses , including business restructuring and asset impairment charges , declined $ 13.7 million , or eight percent , year over year . lower deferred compensation and incentive-based compensation expenses were the major contributors to the decrease . the following summarizes the year-over-year changes in the individual income statement line items that comprise the company 's operating expenses : · selling expenses increased $ 1.5 million , or three percent , year over year . the increase was primarily attributable to $ 3.2 million in additional bad debt expense , most of which related to a $ 2.4 million bad debt charge necessitated when a major polymer customer filed for bankruptcy protection in september 2014. the remainder of the bad debt expense increase reflected changes in allowances for certain high risk customers . a decline in incentive-based compensation , due to lower company earnings , partially offset the effect of higher bad debt expense . · administrative expenses declined $ 16.8 million , or 24 percent , year over year primarily due to a $ 21.4 million reduction in deferred compensation expense and to a decline in incentive-based compensation partially offset by $ 7.2 million of higher corporate legal and environmental expenses . a decrease in the value of company stock for 2014 compared to an increase in the value of company common stock 2013 led to the year-over-year decline in deferred compensation expense ( see the ‘ overview ' and ‘ corporate expenses ' sections of this md & a for further details ) . the decline in incentive-based compensation reflected lower 2014 company earnings . a $ 7.1 million charge to increase the best estimate of the remediation liability for the company 's maywood , new jersey , site accounted for the higher corporate legal and environmental expenses . the issuance of the final record of decision for the site in september 2014 by the u.s. environmental protection agency ( usepa ) as well as other subsequent communications with the usepa led to the increase in the best estimate of the remediation liability . · r & d expenses declined $ 1.4 million , or three percent , year over year . lower incentive-based compensation , partially offset by higher salary expense accounted for most of the decline . 25 · business restructuring and asset impairments – expenses for business restructuring and asset impairments were $ 4.0 million in 2014 compared to $ 1.0 million in 2013. the following are brief descriptions of the restructuring and impairment activities for each year . see note 21 , business restructuring and asset impairments , in the notes to consolidated financial statements for additional details . story_separator_special_tag 2014 in the fourth quarter of 2014 , a restructuring plan was approved that affects certain company functions , principally the r & d function and to a lesser extent product safety and compliance and plant-site accounting functions . the objective of the plan is to better align staffing resources with the needs of the company 's diversification and growth initiatives . in connection with the plan , the company recognized a $ 1.7 million charge against income for the three and twelve months ended december 31 , 2014. in the fourth quarter of 2014 , the company wrote off the net book values of three assets , resulting in a charge against income of $ 2.3 million for the three and twelve months ended december 31 , 2014. all three assets were part of the company 's surfactants segment , although the write-off charges were excluded from surfactants segment results . 2013 for the three and twelve months ended december 31 , 2013 , the company recorded a $ 1.0 million restructuring charge for estimated severance expense related to an approved plan to reduce future costs and increase operating efficiencies by consolidating a portion of its north american surfactants manufacturing operations ( part of the surfactants reportable segment ) . in the third quarter of 2014 , the company shut down certain production areas at its canadian manufacturing site . the future savings resulting from the restructuring are expected to run approximately $ 2.5 million per year . net interest expense for 2014 increased $ 1.1 million , or 10 percent , over net interest expense for 2013. the increase reflected the recognition of a full year 's interest on the $ 100.0 million private placement loan the company executed in june 2013 to finance the bms north american polyester resins acquisition and other capital expenditures . the loss from the company 's 50-percent equity joint venture ( tiorco ) declined $ 0.3 million year over year largely due to higher commission income . other , net for 2014 was $ 1.3 million of income compared to $ 2.2 million of income for 2013. investment income ( including realized and unrealized gains and losses ) for the company 's deferred compensation and supplemental defined contribution mutual fund assets declined $ 2.2 million between years to $ 1.5 million for 2014 from $ 3.7 million for 2013. foreign exchange losses declined $ 1.3 million to $ 0.2 million for 2014 from $ 1.5 million for 2013. the effective tax rate was 24.4 percent in 2014 compared to 24.4 percent in 2013. even though the tax rate remained the same year over year , there were significant offsetting items that impacted the rate . the tax rate was driven higher by certain retroactive tax benefits recorded in 2013 that were nonrecurring in 2014. the 2013 benefits included the income exclusion of 26 certain biodiesel excise tax credits for the 2010 through 2012 tax periods and the federal research and development tax credit for the 2012 tax period . the 2014 tax rate was also negatively impacted by a lower domestic production activities deduction as a result of lower u.s. taxable income and by higher state taxes as a result of certain tax benefits recorded in 2013 that were nonrecurring in 2014. these items were offset by a greater percentage of consolidated income being generated outside the u.s. in 2014 where the effective tax rates are lower . see note 9 to the consolidated financial statements for a reconciliation of the statutory u.s. federal income tax rate to the effective tax rate . segment results replace_table_token_10_th replace_table_token_11_th surfactants surfactants net sales for 2014 declined $ 20.5 million , or two percent , from net sales for 2013. an eight percent decrease in sales volume and the effects of foreign currency translation accounted for $ 103.0 million and $ 11.1 million , respectively , of the net sales decline . all regions contributed to the drop in sales volume , although most of the decline was attributable to north american operations . an increase in average selling prices favorably affected the net sales change by $ 93.6 million . a year-over-year comparison of net sales by region follows : replace_table_token_12_th 27 net sales for north american operations declined one percent due to a 10 percent drop in sales volume and the unfavorable effects of foreign currency translation , which accounted for $ 82.8 million and $ 4.3 million , respectively , of the net sales decrease . lower year-over-year sales of products used in biodiesel , laundry and cleaning , personal care and agricultural chemical applications accounted for the north american sales volume decline . these sales volume decreases were partially offset by sales volume growth for products used in oil field and household , industrial and institutional ( hi & i ) applications and for surfactants sold through distributors . the company chose not to manufacture and sell biodiesel products in 2014 because to do so would not have been economically advantageous . the decline in laundry and cleaning sales volume was largely attributable to customers bringing surfactant production in-house to more fully utilize their internal capacity . sales volumes for laundry and cleaning and personal care products were negatively affected by the severe winter weather earlier in the year that caused production issues at some company and customer manufacturing facilities . the decline in agricultural chemical sales volume reflected lower customer demand resulting from a shortened spring planting season resulting from prolonged winter weather in parts of the u.s. average selling prices increased 11 percent , which offset the effects of the sales volume decline and unfavorable foreign currency translation by $ 76.8 million . the higher average selling prices were primarily attributable to higher raw material costs . net sales for european operations increased less than one percent between years due to a $ 5.5 million favorable effect of foreign currency translation offset by lower average selling prices and sales volume . the foreign currency translation effect was primarily the result of a year-over-year stronger british pound sterling relative to the u.s.
| million effect on the year-over-year net sales change . lower raw material costs and price competition led to the reduction in selling prices . the effects of foreign currency translation had a $ 4.3 million positive effect on the net sales change . net sales for latin american operations increased three percent as a result of a 12 percent increase in sales volume partially offset by a five percent decline in average selling prices and a four percent negative effect of foreign currency translation . the increased sales volume had an $ 18.0 million positive effect on the year-over-year net sales change , while the decreased selling prices and impact of foreign currency translation had negative effects of $ 9.0 million and $ 5.1 million , respectively . sales volume for all three latin american locations improved between years , with most of the increase derived from brazil , where the company has focused on expanding its surfactants franchise . the decrease in average selling prices reflected declines in raw material costs . net sales for asia operations increased 28 percent due to a 33 percent increase in sales volume , reflecting sales from the singapore subsidiary that was not commercially operational until the fourth quarter of 2012. surfactants operating income for 2013 declined $ 18.4 million , or 16 percent , from operating income for 2012. gross profit fell $ 17.7 million , or nine percent . included in 2013 surfactants gross profit were approximately $ 9.0 million of expenses resulting from the consumption of higher cost raw material inventory built to support the company 's singapore plant start-up , contractual timing differences between changes in raw material costs and selling prices and non-recurring costs to secure a strategic raw material for specialty surfactant growth . the effects of foreign currency translation contributed $ 1.0 million to the gross profit decline . operating expenses increased $ 0.7 million , or one percent . year-over-year comparisons
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million or 10.0 % from 2011 , to $ 197.0 million . components of net interest and loan fee income ( fte ) replace_table_token_7_th comparing 2013 with 2012 , net interest and loan fee income ( fte ) decreased $ 29.3 million or 14.9 % , primarily due to a lower average volume of loans ( down $ 360 million ) and lower yields on interest-earning assets ( down 74 basis points ) , partially offset by higher average balances of investments ( up $ 355 million ) , lower average balances of interest-bearing liabilities ( down $ 161 million ) and lower rates paid on interest-bearing deposits ( down 2 basis points ) . loan volumes have declined due to problem loan workout activities , particularly with purchased loans , and reduced volumes of loan originations . in management 's opinion , competitive loan pricing does not currently provide adequate forward earnings potential . as a result , the company has not currently taken an aggressive posture relative to loan portfolio growth . management has maintained relatively stable interest-earning asset volumes by increasing investment securities as loan volumes have declined . - 21 - yields on interest-earning assets have declined due to relatively low interest rates prevailing in the market . management 's response to prevailing economic conditions and competitive loan pricing has been to reduce loan volumes , placing greater reliance on lower-yielding investment securities . rates on interest-bearing deposits have declined to offset some of the decline in asset yields . in 2013 , interest and loan fee income ( fte ) was down $ 30.4 million or 15.0 % from 2012. the decrease resulted from a lower average volume of loans and lower yields on interest-earning assets , partially offset by higher average balances of investments . the total average balances of loans declined due to decreases in the average balances of commercial real estate loans ( down $ 155 million ) , taxable commercial loans ( down $ 63 million ) , consumer loans ( down $ 57 million ) , residential real estate loans ( down $ 53 million ) , tax-exempt commercial loans ( down $ 22 million ) and construction loans ( down $ 11 million ) . the average investment portfolio increased largely due to higher average balances of corporate securities ( up $ 205 million ) , collateralized mortgage obligations ( up $ 172 million ) and municipal securities ( up $ 47 million ) , partially offset by decreases in average balances of mortgage backed securities ( down $ 37 million ) and securities of u.s. government sponsored entities ( down $ 30 million ) . the average yield on the company 's earning assets decreased from 4.93 % in 2012 to 4.19 % in 2013. the composite yield on loans declined 41 basis points to 5.36 % mostly due to lower yields on commercial real estate loans ( down 45 basis points ) , consumer loans ( down 62 basis points ) , residential real estate loans ( down 14 basis points ) , taxable commercial loans ( down 8 basis points ) and tax-exempt loans ( down 20 basis points ) . nonperforming loans are included in average loan volumes used to compute loan yields ; fluctuations in nonaccrual loan volumes impact loan yields . the yield on construction loans in 2013 was elevated due to interest received on nonaccrual loans and discount accretion on purchased loans . the investment yields in general declined due to market rates . the investment portfolio yield decreased 71 basis points to 3.13 % in 2013 primarily due to lower yields on collateralized mortgage obligations and mortgage backed securities ( down 65 basis points ) , municipal securities ( down 55 basis points ) and corporate securities ( down 46 basis points ) . comparing 2013 with 2012 , interest expense declined $ 1.1 million or 18.7 % due to lower average balances of interest-bearing liabilities and lower rates paid on interest-bearing deposits . lower-cost checking and savings deposits accounted for 86.3 % of total average deposits in 2013 compared with 82.8 % in 2012. average interest-bearing liabilities fell $ 161 million in 2013 compared with 2012 primarily due to declines in the average balances of time deposits $ 100 thousand or more ( down $ 120 million ) and time deposits less than $ 100 thousand ( down $ 36 million ) , preferred money market accounts ( down $ 23 million ) and customer sweep accounts ( down $ 23 million ) , partially offset by increases in the average balances of regular savings ( up $ 25 million ) and money market savings ( up $ 17 million ) . rates paid on interest-bearing deposits averaged 0.14 % in 2013 compared with 0.16 % for 2012 as a result of decreases in rates paid on time deposits less than $ 100 thousand ( down 10 basis points ) . comparing 2012 with 2011 , net interest and loan fee income ( fte ) declined $ 21.8 million mostly due to a lower average volume of loans ( down $ 422 million ) and lower yields on interest earning assets ( down 59 basis points ) , partially offset by higher average balances of investments ( up $ 424 million ) , lower average balances of interest-bearing liabilities ( down $ 103 million ) and lower rates on interest-bearing deposits ( down 9 basis points ) . interest and loan fee income ( fte ) was down $ 24.5 million or 10.8 % from 2012 to 2011. the decrease resulted from a lower average volume of loans and lower yields on interest-earning assets , partially offset by higher average balances of investments . average interest earning assets increased $ 2 million in 2012 compared with 2011 due to a $ 424 million increase in average investments , offset by a $ 422 million decrease in average loans . story_separator_special_tag the average investment portfolio increased mostly due to higher average balances of collateralized mortgage obligations and mortgage backed securities ( up $ 271 million ) , municipal securities ( up $ 108 million ) and corporate securities ( up $ 92 million ) , partially offset by a $ 57 million decline in securities issued by u.s. government sponsored entities . the decrease in the average balance of the loan portfolio was attributable to decreases in average balances of commercial real estate loans ( down $ 183 million ) , taxable commercial loans ( down $ 118 million ) , construction loans ( down $ 31 million ) , residential real estate loans ( down $ 48 million ) , tax-exempt commercial loans ( down $ 19 million ) and consumer loans ( down $ 22 million ) . the average yield on earning assets in 2012 was 4.93 % compared with 5.52 % in 2011. the loan portfolio yield for 2012 compared with 2011 was lower by 22 basis points mostly due to lower yields on consumer loans ( down 76 basis points ) , residential real estate loans ( down 33 basis points ) and tax-exempt commercial loans ( down 35 basis points ) and taxable commercial loans ( down 9 basis points ) , partially offset by higher yields on commercial real estate loans ( up 15 basis points ) . nonperforming loans are included in average loan volumes used to compute loan yields ; fluctuations in nonaccrual loan volumes impact loan yields . the yield on commercial real estate loans in 2012 and 2011 was elevated due to interest received on nonaccrual loans and discount accretion on purchased loans . the investment portfolio yield decreased 76 basis points to 3.84 % from 2012 to 2011 primarily due to lower yields on collateralized mortgage obligations and mortgage backed securities ( down 118 basis points ) , municipal securities ( down 55 basis points ) , and securities of u.s. government sponsored entities ( down 26 basis points ) , partially offset by a 5 basis points increase in yields on corporate securities which contain floating interest rate structures . - 22 - interest expense was reduced by lowering rates paid on interest-bearing deposits and borrowings and by reducing the volume of higher-cost funding sources . lower-cost checking and savings deposits accounted for 82.8 % of total average deposits in 2012 compared with 79.6 % in 2011. in 2012 interest expense declined $ 2.6 million or 31.5 % from 2011 , due to lower average balances of interest-bearing liabilities and lower rates paid on interest-bearing deposits . in 2012 average interest-bearing deposits fell $ 62 million compared with 2011 primarily due to declines in the average balances of time deposits $ 100 thousand or more ( down $ 75 million ) , time deposits less than $ 100 thousand ( down $ 49 million ) , and preferred money market savings ( down $ 38 million ) , partially offset by increases in the average balances of money market checking accounts ( up $ 41 million ) , money market savings ( up $ 30 million ) and regular savings ( up $ 29 million ) . average balances of debt financing declined $ 7 million due to the redemption of a $ 10 million subordinated note in august 2011. increases were partially offset by higher average balances of term repurchase agreement ( up $ 6 million ) . rates paid on interest-bearing deposits averaged 0.16 % in 2012 compared with 0.25 % in 2011 mainly due to lower rates on money market savings ( down 7 basis points ) , preferred money market savings ( down 32 basis points ) , regular savings ( down 5 basis points ) , time deposits $ 100 thousand and more ( down 10 basis points ) and time deposits less than $ 100 thousand ( down 10 basis points ) . [ the remainder of this page intentionally left blank ] - 23 - summary of average balances , yields/rates and interest differential the following tables present information regarding the consolidated average assets , liabilities and shareholders ' equity , the amounts of interest income earned from average interest earning assets and the resulting yields , and the amounts of interest expense incurred on average interest-bearing liabilities and the resulting rates . average loan balances include nonperforming loans . interest income includes reversal of previously accrued interest on loans placed on non-accrual status during the period and proceeds from loans on nonaccrual status only to the extent cash payments have been received and applied as interest income and accretion of purchased loan discounts . yields on tax-exempt securities and loans have been adjusted upward to reflect the effect of income exempt from federal income taxation at the current statutory tax rate . distribution of assets , liabilities & shareholders ' equity and yields , rates & interest margin replace_table_token_8_th ( 1 ) amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate . ( 2 ) net interest spread represents the average yield earned on interest earning assets less the average rate incurred on interest-bearing liabilities . ( 3 ) net interest margin is computed by calculating the difference between interest income and expense , divided by the average balance of interest-earning assets . the net interest margin is greater than the net interest spread due to the benefit of noninterest-bearing demand deposits . - 24 - distribution of assets , liabilities & shareholders ' equity and yields , rates & interest margin replace_table_token_9_th ( 1 ) amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate . ( 2 ) net interest spread represents the average yield earned on interest earning assets less the average rate incurred on interest-bearing liabilities . ( 3 ) net interest margin is computed by calculating the difference between interest income and expense , divided by the average balance of interest-earning assets .
| - 28 - noninterest income components of noninterest income replace_table_token_13_th in 2013 , noninterest income was $ 57.0 million , unchanged from 2012. in 2012 noninterest income included a $ 1.3 million loss realized from the sale of a collateralized mortgage obligation bond whose underlying support tranches began experiencing escalating losses . service charges on deposits decreased $ 2.0 million or 7.2 % due to declines in fees charged on overdrawn accounts and insufficient funds ( down $ 1.1 million ) and deficit fees charged on analyzed accounts ( down $ 762 thousand ) . merchant processing services income decreased $ 703 thousand mainly due to lower transaction volumes . atm processing fees decreased $ 638 thousand primarily because the bank customers had fewer transactions at non-westamerica atms and other cash dispensing terminals . offsetting these decreases were higher debit card fees ( up $ 656 thousand ) due to higher transaction volumes . additionally , trust fees and financial services commissions increased $ 235 thousand and $ 142 thousand , respectively , from increased sales . other noninterest income increased $ 963 thousand primarily due to higher recoveries of charged off purchased loans and life insurance proceeds . in 2012 , noninterest income decreased $ 3.1 million compared with 2011. the decline in 2012 noninterest income is partially due to a $ 1.3 million loss realized from the sale of a collateralized mortgage obligation bond whose underlying support tranches began experiencing escalating losses . service charges on deposits decreased $ 1.8 million or 6.2 % due to declines in fees charged on overdrawn and insufficient funds accounts ( down $ 2.2 million ) , partially offset by higher deficit fees charged on analyzed accounts ( up $ 298 thousand ) and higher fees charged on checking accounts ( up $ 134 thousand ) . atm processing fees decreased $ 419 thousand or 11.0 % primarily because the bank customers had fewer transactions at non-westamerica atms and other cash dispensing terminals . merchant processing services income increased $ 298 thousand or 3.2 % mainly due to
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cash paid for interest was approximately $ 1.5 million and $ 1.2 million for fiscal 2014 and fiscal 2013 , respectively . detailed information regarding our borrowings , including a summary of modifications to the fourth amended and restated credit facility agreement , is provided in note 8—credit facilities . the provision for income taxes was $ 0.6 million for fiscal 2014 as compared to a benefit from income taxes of $ 5.5 million for the prior fiscal year . this difference is primarily due to a larger pre-tax loss in the prior year as well as an additional valuation allowance in fiscal 2014. recent new york state corporate tax reform has resulted in the reduction of the business income base tax rate to 0 % for qualified manufactures in new york state . the 0 % tax rate becomes effective for iec beginning in fiscal 2015. as a result of this legislation , we no longer consider it to be more likely than not that the new york state nols and credits will be realized . as such , we recorded a valuation allowance of $ 1.1 million . in addition , state deferred tax assets were decreased by $ 0.2 million as a result of this legislation . a benefit due to a change in state and local tax strategy as well as additional true-ups resulting from our prior year tax return offset a portion of the increase . 23 liquidity and capital resources capital resources as of september 30 , 2014 outstanding capital expenditure commitments were $ 1.2 million for manufacturing equipment and building improvements . we generally fund capital expenditures with cash flow from operations and our revolving credit facility . summary of cash flows a summary of selected cash flow amounts for the years ended follows : replace_table_token_7_th operating activities cash flows provided by operations , before considering changes in working capital , were $ 4.1 million in fiscal 2014 and $ 4.5 million in fiscal 2013 . although the cash decrease was not significant , our net loss , impacted by an impairment charge in the prior year and deferred tax expense in the current year , decreased by $ 7.4 million . our 2013 net loss included an impairment charge of $ 14.2 million . deferred tax expense increased by $ 6.4 million compared to fiscal 2013. working capital provided cash flows of $ 5.0 million in fiscal 2014 and used cash flows of $ 8.9 million in fiscal 2013 . the change in working capital in fiscal 2014 was primarily due to a decrease in accounts receivable of $ 5.5 million and an increase in customer deposits of $ 1.4 million as well as an increase in accounts payable and accrued expenses . these improvements in working capital were partially offset by an increase in other current assets of $ 3.0 million and an increase in inventory of $ 1.3 million . accounts receivable decreased primarily due to lower revenue in the fourth quarter of fiscal 2014 compared to the same quarter of fiscal 2013 , as well as increased collection efforts during fiscal 2014 . the increase in inventory was primarily due to maintaining inventory levels commensurate with demand . other current assets increased primarily due to recording a receivable for a partial insurance reimbursement for certain restatement and related expenses as well as for test equipment we are building for a customer . in fiscal 2013 , accounts receivable increased primarily due to increased revenue during the last month of fiscal 2013. inventory levels increased in fiscal 2013 due to additional safety stock at the request of a customer as well as anticipated increased sales in the first quarter of fiscal 2014. the transition from utilization of customer furnished materials to turn-key manufacturing services for a telecom customer during the prior fiscal year also caused a portion of the fiscal 2013 increase . investing activities cash flows used by investing activities were $ 4.1 million and $ 5.1 million for fiscal 2014 and 2013 , respectively . cash flows used in fiscal 2014 primarily consisted of the celmet building purchase of $ 1.3 million and purchases of equipment . cash used in fiscal 2013 primarily related to purchases of equipment . financing activities cash flows used in financing activities were $ 5.5 million for fiscal 2014 and cash flows provided by financing activities were $ 9.3 million for fiscal 2013 . during fiscal 2014 , net repayments under all credit facilities were $ 5.4 million . net repayments of the revolver of $ 3.8 million and repayments of other term debt of $ 2.9 million were partially offset by the borrowings in connection with the purchase of the celmet building of $ 1.3 million . repayments of the revolver were possible due to increased cash flow provided by operations and less equipment purchases during fiscal 2014 . in fiscal 2013 , net cash flows provided by credit facilities of $ 9.2 million were necessary to fund operations . 24 credit facilities the company 's credit facilities , including the 2013 credit agreement , are discussed in detail in note 8—credit facilities . at september 30 , 2014 , borrowings outstanding under the revolving credit facility ( “ revolver ” ) amounted to $ 7.4 million , and the maximum available was $ 20.0 million . borrowings on the revolver during the current fiscal year were used to fund working capital changes discussed above . the company believes that its liquidity is sufficient to satisfy anticipated operating requirements during the next twelve months . the financial covenants in the 2013 credit agreement include ( i ) a minimum level of quarterly ebitdars , ( ii ) a ratio of total debt to twelve month ebitdars ( “ debt to ebitdars ratio ” ) that is below a specified limit , and ( iii ) a minimum fixed charge coverage ratio ( “ fixed charge coverage ratio ” ) . story_separator_special_tag ebitdars is defined as earnings before interest , taxes , depreciation , amortization , rent expense and non-cash stock compensation expense . the 2013 credit agreement did not require measurement of financial covenants for the quarter ended december 28 , 2012. at march 28 , 2014 , the company was not in compliance with the quarterly ebitdars covenant . at december 27 , 2013 , the company was not in compliance with quarterly ebitdars covenant or the debt to ebitdars ratio . the company was not in compliance with the debt to ebitdars ratio and fixed charge coverage ratio at september 30 , 2013. we have obtained waivers for each period from m & t bank with respect to such noncompliance . an amendment to the 2013 credit agreement obtained in february 2014 , does not require measurement of the debt to ebitdars ratio or the fixed charge coverage ratio for any quarter during fiscal 2014. amendments to the 2013 credit agreement obtained in may 2013 , august 2013 , december 2013 and february 2014 , which modified financial covenants and related definitions , are more particularly described in note 8—credit facilities . at september 30 , 2014 , the company was in compliance with the quarterly ebitdars covenant . the calculation of financial covenants follows : replace_table_token_8_th ( a ) compliance waived . ( b ) the ratio compares ( i ) 12-month ebitda plus non-cash stock compensation expense , plus permitted fiscal 2013 restatement related expenses minus unfinanced capital expenditures minus cash taxes paid ( “ adjusted ebitda ” ) , to ( ii ) the sum of interest expense , principal payments , sale-leaseback payments and dividends , if any ( fixed charges ) . a reconciliation of ebitdars to net income follows : replace_table_token_9_th 25 a reconciliation of adjusted ebitda to net income follows : replace_table_token_10_th ( a ) net income as defined by the 2013 credit agreement ( as amended ) is adjusted to add back up to $ 1.1 million of legal and accounting fees associated with the restatement ( all of which were added back in the third quarter of fiscal 2013 ) . there were no restatement related expenses added back to net income for the periods presented in the reconciliation tables above . ( b ) net income as defined by the 2013 credit agreement ( as amended ) is adjusted to exclude the effect of any non-cash loss arising from any write-up or write-down of assets . ( c ) during the fourth quarter of fiscal 2013 , we were refunded a payment charged in error during the third quarter of fiscal 2013. ebitdars and adjusted ebitda are non-gaap financial measures . they should not be considered in isolation or as a measure of the company 's profitability or liquidity . they are in addition to , and are not a substitute for , financial measures under gaap . ebitdars and adjusted ebitda may be different from non-gaap financial measures used by other companies , and may not be comparable to similarly titled measures reported by other companies . non-gaap financial measures have limitations since they do not reflect all of the amounts associated with the company 's results of operations as determined in accordance with gaap . ebitdars and adjusted ebitda do not take into account working capital requirements , capital expenditures , debt service requirements and other commitments , and accordingly , ebitdars and adjusted ebitda are not necessarily indicative of amounts that may be available for discretionary use . we present ebitdars and adjusted ebitda because certain covenants in our credit facilities are tied to these measures . we also view ebitdars and adjusted ebitda as useful measures of operating performance given our large net operating loss carryforward and because , as supplemental measures : ( i ) they are a basis upon which we assess our liquidity position and performance and ( ii ) we believe that investors will find the data useful in assessing our ability to service and or incur indebtedness . we believe that ebitdars and adjusted ebitda , when considered with both our gaap results and the reconciliation to net income , provide a more complete understanding of our business than could be obtained absent this disclosure . off-balance sheet arrangements iec is not a party to any material off-balance sheet arrangements . critical accounting policies and use of estimates iec 's financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the united states of america , as presented in the financial accounting standards board 's ( “ fasb ” ) accounting standards codification ( “ asc ” ) . in preparing financial statements , management is required to ( i ) determine the manner in which accounting principles are applied and ( ii ) make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses . a discussion of the company 's critical accounting policies follows . revenue recognition : under fasb asc 605-10 ( revenue recognition ) , revenue from sales is recognized when ( i ) goods are shipped or title and risk of ownership have passed , ( ii ) the price to the buyer is fixed or determinable , and ( iii ) realization is reasonably assured . service revenues are generally recognized as services are rendered or , in the case of material management 26 contracts , in proportion to materials procured to date . provisions for discounts and rebates to customers , estimated returns and allowances and other adjustments are recorded in the period the related sales are recognized . doubtful accounts : fasb asc 310-10-35 ( receivables ) requires us to establish an allowance for doubtful accounts when it is probable that losses have been incurred in the collection of accounts receivable and the amount of loss can reasonably be estimated . if losses are probable and estimable , they are to
| these decreases were partially offset by a temporary increase in demand of $ 1.0 million from another customer as they transition to a new product . lower demand from one of our medical customers was partially offset by increases from several other customers resulting in a net decrease of $ 0.5 million . the decreased demand of $ 9.5 million was due to the customer awaiting fda approval for modifications to its existing programs which caused the programs to be put on hold . the hold was lifted during the third quarter and the customer 's testing is complete . we began shipping production orders late in the fourth quarter . we anticipate revenue related to these programs to continue to ramp up in the first quarter of fiscal 2015. offsetting increases of $ 7.6 million 22 were the result of higher volume from existing programs . revenue from new programs with existing customers of $ 0.6 million and revenue from one of our new customers of $ 0.9 million also partially offset the decrease . the net increase in the industrial market sector of $ 4.6 million is primarily due to revenue from new customers as well as fluctuations in demand for existing customers . three new customers comprised $ 2.5 million of the increase . fluctuations in demand resulted in a net increase of $ 1.9 million as increased demand for several existing programs was partially offset by lower demand for one program . gross profit in fiscal 2014 represented 11.8 % of sales compared to 12.5 % of sales in the prior fiscal year . throughout fiscal 2013 and the majority of the first quarter of fiscal 2014 , we maintained a level of overhead in our business to support higher revenue expected in future periods . cost reductions implemented during the first quarter of fiscal 2014 decreased our labor and overhead expense during the first part of the fiscal year ; however , the full impact was not realized due to lower sales volumes as
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effective with the closing of the transaction all of the closing conditions had been met , modified or waived by idtec , and we issued the 12,000,000 shares to idtec in exchange for idtec providing access to personnel , experience , funding to assist with the development of our sobr device , as well as the robotics assets . the description of the apa set forth in this report is qualified in its entirety by reference to the full text of that document and the amendment , which are attached hereto as exhibits 10.1 and 10.12 , respectively . in advance of closing the transaction , idtec and a few other affiliated parties ( i ) loaned funds directly to us , ( ii ) spent funds for the general costs related to the transaction , and or ( iii ) spent funds to further develop and enhance the current sobr product . as a result of closing the transaction , all the funds spent by idtec for any reason related to the transaction were turned into a convertible promissory note . these note totaled approximately $ 1,500,000 at closing , carry a simple interest rate of 10 % per annum , are due upon demand , and may be convertible into shares of our common stock at $ 0.50 per share ( after giving effect to the reverse stock split and subject to anti-dilution protection against any future securities we may issue at an effective price of less than $ 0.50 per share ) at the discretion of the holder . the promissory note is due on demand of the holder . the repayment of this promissory note is secured by a first priority security lien or security interest in our patents , trademarks , tradenames and other intellectual property described in exhibit a of the promissory note . the convertible promissory notes we issued are in the form attached hereto as exhibit 10.13. as noted above , in connection with the closing of the transaction , both companies had certain closing conditions under the apa that had to be met . at closing , some of the closing conditions under the apa were either waived and or modified by the parties . in order to document those modifications and waivers , we entered into a waiver under asset purchase agreement and post-closing covenant agreement with idtec . the description of the waiver under asset purchase agreement and post-closing covenant agreement set forth in this report is qualified in its entirety by reference to the full text of that document , which is attached hereto as exhibit 10.14 . 27 one of the closing conditions that was the subject of the waiver under asset purchase agreement and post-closing covenant agreement was the requirement that we have under $ 125,000 in permitted liabilities ( not including aged liabilities ) after closing of the transaction . at closing we had approximately $ 158,000 in non-permitted liabilities under the apa . as a result , we issued a warrant to purchase common stock to idtec ( the “ warrant ” ) , under which idtec will purchase up to 320,000 shares of our common stock ( post-split ) at an exercise price of $ 0.50 per share , if either ( i ) we are forced to pay a non-permitted liability , then we may force idtec to exercise the warrant and pay the exercise price to pay the non-permitted liability , but only in an amount sufficient to pay the non-permitted liability ( which are listed on exhibit a of the warrant ) , or ( ii ) if idtec otherwise elects to exercise the warrant and acquire some or all of the shares underlying the warrant . the warrant expires five years after the date of issuance . the description of the warrant set forth in this report is qualified in its entirety by reference to the full text of that document , which is attached hereto as exhibit 10.15. corporate overview we were incorporated under the name imagine media , ltd. in august 2007 to publish and distribute image magazine , a monthly guide and entertainment source for the denver , colorado area . we generated only limited revenue and essentially abandoned the business plan in january 2009. on september 19 , 2011 , we , imagine media , ltd. , a delaware corporation , acquired approximately 52 % of the outstanding shares of transbiotec , inc. ( the “ company ” or “ tbt ” ) , a california corporation , from tbt 's directors in exchange for 373,315 shares of our common stock . on january 17 , 2012 , our board of directors amended our certificate of incorporation changing our name from imagine media , ltd. to transbiotec , inc. on january 31 , 2012 , we acquired approximately 45 % of the remaining outstanding shares of tbt in exchange for 329,936 shares of our common stock . with the acquisitions in september 2011 and january 2012 of tbt common stock , we own approximately 99 % of the outstanding shares of tbt . as a result of the acquisitions , tbt 's business is our business , and , unless otherwise indicated , any references to “ we ” or “ us ” include the business and operations of tbt . on march 9 , 2020 , in connection with our transaction with idtec , llc ( as detailed herein ) our board of directors approved the amendment to our certificate of incorporation on march 9 , 2020 and stockholders holding 52.24 % of our then outstanding voting stock approved the amendment to our articles of incorporation . story_separator_special_tag the certificate of amendment to our certificate of incorporation was for the purpose of , among other things , ( i ) changing our name from “ transbiotec , inc. ” to “ sobr safe , inc. ” , ( ii ) effecting a 1-for-33.26 reverse stock split of our common stock , and ( iii ) decreasing our authorized common stock from 800,000,000 shares to 100,000,000 shares , and became effective with the state of delaware on april 24 , 2020. as a result of the reverse stock split effected by our certificate of amendment to our certificate of incorporation , every 33.26 shares of our outstanding common stock prior to the effect of that amendment were combined and reclassified into one share of our common stock , and the number of outstanding shares of our common stock at the time was reduced from 266,097,657 ( pre-split ) to approximately 8,000,000 ( post-split ) . no fractional shares were issued in connection with the reverse stock split , and any of our stockholders that would have been entitled to receive a fractional share as a result of the reverse stock split will instead receive one additional share of our common stock in lieu of the fractional share . the reverse stock split will not in itself affect any stockholder 's ownership percentage of our common stock , except to the extent that any fractional share is rounded up to the nearest whole share . 28 at the open of trading on june 8 , 2020 , our new name and reverse stock split went effective with otc markets , and we began trading on the “ otc pink current information ” tier of otc markets on a post reverse stock split basis . our ticker symbol for the quotation of our common stock is now “ sobr ” . on november 16 , 2020 , we began trading on the “ otcqb ” tier of otc markets . our corporate offices are located at 885 arapahoe road , boulder , co 80302 , telephone number ( 844 ) 762-7723. the following discussion : o summarizes our plan of operation ; and o analyzes our financial condition and the results of our operations for the year ended december 31 , 2020. this discussion and analysis should be read in conjunction with our financial statements included as part of this annual report . results of operations for the years ended december 31 , 2020 and 2019 story_separator_special_tag > interest expense decreased by $ 315,993 , from $ 457,505 for the year ended december 31 , 2019 to $ 141,512 for the year ended december 31 , 2020. for both periods these amounts are largely due to the interest on outstanding debt . the decrease between the two periods is largely related to the fact that during 2020 we converted many of the instruments that we were paying interest on in 2019. amortization of interest – beneficial conversion feature during the year ended december 31 , 2020 , we had amortization of interest – beneficial conversion feature expense of $ 1,407,675 compared to $ 11,509 during the year ended december 31 , 2019. the expense in 2020 was related to a convertible note payable of $ 1,485,189 and was accounted for as amortization of interest - beneficial conversion feature . the expense in 2019 was related to the amortized discount on convertible non-related party notes payable . asset impairment adjustment we had an asset impairment adjustment of $ 25,320,555 in the year ended december 31 , 2020. we did not have an asset impairment adjustment in the year ended december 31 , 2019. the asset impairment adjustment in 2020 was related to the value of the stock we issued to idtec that was attributed to the robotic assets we acquired from idtec versus the value of the assets . when we negotiated the transaction with idtec in early-to-mid-2019 , we agreed to issue idtec 12,000,000 shares of our common stock ( post-split ) in exchange for the consideration they were transferring to us at the close of the transaction . at the time we negotiated the transaction and signed the asset purchase agreement , our common stock was trading at a lower price than what it was trading at when we closed the transaction and issued the shares . as a result , during the year ended december 31 , 2020 , we impaired the value of the robotic assets we received in the transaction . 31 liquidity and capital resources introduction during the years ended december 31 , 2020 and 2019 , because of our operating losses , we did not generate positive operating cash flows . our cash on hand as of december 31 , 2020 was $ 232,842 and our monthly cash flow burn rate is approximately $ 100,000. we are currently satisfying our cash needs from proceeds from the sales of our securities . we currently do not believe we will be able to satisfy our cash needs from our revenues for some time and there is no guarantee we will be successful in the future satisfying these needs through the proceeds from the sales of our securities . our cash , current assets , total assets , current liabilities , and total liabilities as of december 31 , 2020 and 2019 , respectively , are as follows : replace_table_token_3_th our current assets decreased by $ 342,741 as of december 31 , 2020 as compared to december 31 , 2019 , due to us having less cash on hand , partially offset by an increase in prepaid expenses .
| stock-based compensation expense we had stock-based compensation expense increased by $ 229,361 , to $ 273,443 for the year ended december 31 , 2020 , compared to $ 44,082 for the year ended december 31 , 2019. the stock-based compensation expense for both years was related to the issuance of our common stock as compensation to certain consultants and employees . management salaries and consulting fees management salaries and consulting fees increased by $ 872,435 , to $ 1,370,681 for the year ended december 31 , 2020 , compared to $ 498,246. the management salaries and consulting fees in both years were related to salaries and fees paid to our management and consultants , which includes our new management team we hired in connection with the transaction with idtec . research and development research and development was $ 633,050 for the year ended december 31 , 2020 , compared to $ 12,787 for the year ended december 31 , 2019. the research and development in both years was related to expenses to developing our sobr® safe system , including , but not limited to , the developing and testing of sobrcheck , our unique alcohol sensor technology . 30 loss on debt extinguishment loss on extinguishment of debt , net was $ 224,166 for the year ended december 31 , 2020 , compared to $ 0 for the year ended december 31 , 2019. this increase was due to us converting several notes payable with conversion prices less than the fair market price on the conversion date during the year ended december 31 , 2020 , but none during the year ended december 31 , 2019. loss on disposal of property and equipment loss on disposal of property and equipment was $ 39,434 for the year ended december 31 , 2020 , compared to $ 0 for the year ended december 31 , 2019. this loss on disposal of property and equipment during the year ended december 31 , 2020 was related to equipment acquired in the idtec
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our business is materially affected by economic conditions in the financial markets , political conditions , broad trends in business and finance , the housing and mortgage markets , changes in volume and price levels of securities transactions , and changes in interest rates , including overnight funding rates , all of which can affect our profitability and are unpredictable and beyond our control . these factors may affect the financial decisions made by investors and companies , including their level of participation in the financial markets and their willingness to participate in corporate transactions . severe market fluctuations or weak economic conditions could reduce our trading volume and revenues , negatively affect our ability to generate new issue and advisory revenue , and adversely affect our profitability . as a general rule , our trading business benefits from increased market volatility . increased volatility usually results in increased activity from our clients and counterparties . however , periods of extreme volatility may at times result in clients reducing their trading volumes , which would negatively impact our results . also , periods of extreme volatility may result in large fluctuations in securities valuations and we may incur losses on our holdings . also , our mortgage group 's business benefits when mortgage volumes increase , and may suffer when mortgage volumes decrease . among other things , mortgage volumes are significantly impacted by changes in interest rates . in addition , as a smaller firm , we are exposed to intense competition . although we provide financing to our customers , larger firms have a much greater capability to provide their clients with financing , giving them a competitive advantage . we are much more reliant upon our employees ' relationships , networks , and abilities to identify and capitalize on market opportunities . therefore , our business may be significantly impacted by the addition or loss of key personnel . we try to address these challenges by ( i ) focusing our business on clients and asset classes that are underserved by the large firms , ( ii ) continuing to monitor our fixed costs to enhance operating leverage and limit our losses during periods of low volumes , and ( iii ) attempting to hire and retain entrepreneurial and effective traders and salespeople . our business environment is rapidly changing . new risks and uncertainties emerge continuously and it is not possible for us to predict all the risks we will face . this may negatively impact our operating performance . a portion of our revenue is generated from net trading activity . we engage in proprietary trading for our own account , provide securities financing for our customers , and execute “ riskless ” trades with a customer order in hand resulting in limited market risk to us . the inventory of securities held for our own account , as well as held to facilitate customer trades , and our market making activities are sensitive to market movements . a portion of our revenue is generated from new issue and advisory engagements . the fees charged and volume of these engagements are sensitive to the overall business environment . we provide investment banking and advisory services in europe primarily through our subsidiar y ccfel and new issue services in the u.s. through our subsidiary jvb . currently , our primary source of new issue revenue is from originating assets for our u.s. insurance asset management business and the pride funds and managed accounts . a portion of our revenue is generated from management fees . our ability to charge management fees and the amount of those fees is dependent upon the underlying investment performance and stability of the investment vehicles . if these types of investments do not provide attractive returns to investors , the demand for such instruments will likely fall , thereby reducing our opportunity to earn 47 new management fees or maintain existing management fees . as of december 31 , 2019 , 79.7 % of our existing aum were cdos . the creation of cdos has depended upon a vibrant securitization market . since 2008 , volumes within the securitization market have dropped significantly and have not fully recovered since that time . we have not completed a new securitization since 2008. the remaining portion of our aum is from a diversified mix of other investment vehicles most of which were more recently formed . a substantial portion of our asset management revenue is earned from the management of cdos . as a result , our asset management revenue has declined from its historical highs as the assets of the cdos decline due to maturities , repayments , auction call redemptions , and defaults . our ability to complete securitizations in the future will depend upon , among other things , our asset origination capacity and success , our ability to arrange warehouse financing to originate assets , our willingness and capacity to fund required amounts to obtain warehouse financing and securitized financings , and the demand in the markets for such securitizations . a portion of our revenues is generated from our principal investing activities . therefore , our revenues are impacted by the overall market supply and demand of these investments as well as the individual performance of each investment . our principal investments are included within other investments , at fair value in our consolidated balance sheets . see note 9 to our consolidated financial statements included in this annual report on form 10-k. margin pressures in fixed income brokerage business performance in the financial services industry in which we operate is highly correlated to the overall strength of the economy and financial market activity . overall market conditions are a product of many factors beyond our control and can be 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 . story_separator_special_tag with respect to financial market activity , our profitability is sensitive to a variety of factors including the volatility of the equity and fixed income markets , the level and shape of the various yield curves , and the volume and value of trading in securities . margins and volumes in certain products and markets within the fixed income brokerage business continue to decrease materially as competition has increased and general market activity has declined . further , we continue to expect that competition will increase over time , resulting in continued margin pressure . our response to this margin compression has included : ( i ) building a diversified fixed income trading platform ; ( ii ) acquiring or building out new product lines and expanding existing product lines ; ( iii ) building a hedging execution and funding operation to service mortgage originators ; ( iv ) becoming a full netting member of the ficc enabling us to expand our matched book repo business , and ( v ) monitoring our fixed costs . our cost management initiatives are ongoing . however , there can be no certainty that these efforts will be sufficient . if insufficient , we will likely see a decline in profitability . u.s. housing market in recent years , our mortgage group has grown in significance to our capital markets segment and our company overall . the mortgage group primarily earns revenue by providing hedging execution , securities financing , and trade execution services to mortgage originators and other investors in mortgage backed securities . therefore , this group 's revenue is highly dependent on the volume of mortgage originations in the u.s. origination activity is highly sensitive to interest rates , the u.s. job market , housing starts , sale activity of existing housing stock , as well as the general health of the u.s. economy . in addition , any new regulation that impacts u.s. government agency mortgage backed security issuance activity , residential mortgage underwriting standards , or otherwise impacts mortgage originators will impact our business . we have no control over these external factors and there is no effective way for us to hedge against these risks . our mortgage group 's volumes and profitability will be highly impacted by these external factors . other business and transactions the 2019 senior notes on september 25 , 2019 , we amended and restated the previously outstanding 2013 convertible notes that were scheduled to mature on september 25 , 2019. the material terms and conditions of the 2013 convertible notes remained substantially the same , except that ( i ) the maturity date thereof changed from september 25 , 2019 to september 25 , 2020 ; ( ii ) the conversion feature in the 2013 convertible notes was removed ; ( iii ) the interest rate thereunder changed from 8 % per annum ( 9 % in the event of certain events of default ) to 12 % per annum ( 13 % in the event of certain events of default ) ; and ( iv ) the restrictions regarding prepayment w ere removed . the post amendment notes are referred to herein as the “ 2019 senior notes ” and the pre-amendment notes are referred to herein as the “ 2013 convertible notes. ” see note 33 to our consolidated financial statements included in this annual report on form 10-k for discussion of the issuance of the 2020 senior notes and partial repayment of the 2019 senior notes . 48 amendments to 2013 convertible notes the original maturity date of the 2013 convertible notes was september 25 , 2018. immediately prior to maturity , the 2013 convertible notes were held by three parties . on september 25 , 2018 , we fully paid off one holder in the amount of $ 1,461. we entered into amendments with the holders of the remaining $ 6,786 aggregate principal amount of the 2013 convertible notes : the edward e. cohen ira and the ebc 2013 family trust . edward e. cohen is the benefactor of the edward e. cohen ira and is the father of daniel g. cohen , the chairman of our board of directors and the president and chief executive of our european operations and chairman of our board of directors . daniel g. cohen is a trustee of the ebc 2013 family trust . pursuant to the amendments , ( i ) the maturity date of each of the 2013 convertible notes was extended from september 25 , 2018 to september 25 , 2019 and ( ii ) the conversion price under each of the 2013 convertible notes was reduced from $ 30.00 per share of common stock to $ 12.00 per share of common stock . see note 20 to our consolidated financial statements included in this annual report on form 10-k. vianova in 2018 , we formed a new subsidiary , vianova , for the purpose of building a rtl business . rtls are small balance commercial loans secured by first lien mortgages used by professional investors and real estate developers to finance the purchase and rehabilitation of residential properties . vianova 's business plan includes buying , aggregating , and distributing these loans to produce superior risk-adjusted returns through the pursuit of opportunities overlooked by commercial banks . to that end , we have hired four professionals and entered into a line of credit with legacytexas bank . see notes 4 , 19 , and 20 to our consolidated financial statements included in this annual report on form 10-k. u.s. insurance jv in may 2018 , we committed to invest up to $ 3,000 in a newly formed joint venture ( the “ u.s . insurance jv ” ) with an outside investor that committed to invest approximately $ 63,000 of equity in the u.s. insurance jv .
| due to volatility and uncertainty in the capital markets , the net trading revenue recognized during the year may not be indicative of future results . furthermore , from time to time , some of the assets included in the investments-trading line of our consolidated balance sheets represent level 3 valuations within the fasb valuation hierarchy . level 3 assets are carried at fair value based on estimates derived using internal valuation models and other estimates . see notes 9 and 10 to our consolidated financial statements included in this annual report on form 10-k. the fair value estimates made by us may not be indicative of the final sale price at which these assets may be sold . we consider our matched book repo business to be subject to significant concentration risk . see note 11 to our consolidated financial statements included in this annual report on form 10-k. asset management assets under management our aum equals the sum of : ( 1 ) the gross assets included in cdos that we have sponsored and manage ; plus ( 2 ) the nav of investment funds we manage ; plus ( 3 ) the nav or gross assets of other accounts we manage . our calculation of aum may differ from the calculations used by other asset managers and , as a result , this measure may not be comparable to similar measures presented by other asset managers . this definition of aum is not necessarily identical to the definition s of aum that may be used in our management agreements . replace_table_token_6_th ( 1 ) other investment vehicles include any investment vehicle that is not a company sponsored cdo . ( 2 ) in some cases , accounts we manage employ leverage . in some cases , our fees are based on gross assets while in other cases our fees are based on net assets . aum included herein is calculated using either the gross or net assets of each investment vehicle based on
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we evaluate at each balance sheet date whether the present value of our purchased credit impaired loans determined using the effective interest rates has decreased significantly and if so , recognize a provision for loan loss in our consolidated statement of income . for any significant increases in cash flows expected to be collected , we adjust the amount of accretable yield recognized on a prospective basis over the remaining life of the purchased credit impaired loan . as mentioned above , our methodology and calculations regarding the allowance for loan losses will change significantly due to a change in accounting guidance . this change will also impact our accounting for purchased credit impaired loans . see note 20 , new accounting standards , in the accompanying notes to consolidated financial statements included elsewhere in this report for additional information regarding implementation and adoption of credit losses on financial instruments . 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 – goodwill and other , as amended by asu 2011-08 – testing goodwill for impairment . 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 . intangible assets with finite lives are amortized over the estimated life of the asset , and are reviewed for impairment whenever events or changes in circumstances indicated that the carrying value may not be recoverable . impairment losses on recorded goodwill , if any , will be recorded as operating expenses . employee benefit 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 – 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 31 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 – 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 . 2019 overview the following discussion and analysis presents the more significant factors that affected our financial condition as of december 31 , 2019 and 2018 and results of operations for each of the years then ended . refer to “ management 's discussion and analysis of financial condition and results of operations ” included in our 2018 form 10-k filed with the sec on february 27 , 2019 for a discussion and analysis of the more significant factors that affected periods prior to 2018. 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 . our net income available to common shareholders for the year ended december 31 , 2019 was $ 237.8 million and diluted earnings per share were $ 2.41 , increases of $ 22.1 million and $ 0.09 , respectively , compared to the same period in 2018 . included in both 2019 and 2018 results were non-core items related to our acquisitions and branch right sizing initiatives , and with respect to our 2019 results only , early retirement program expenses . excluding all non-core items , core earnings for the year ended december 31 , 2019 were $ 269.6 million , or $ 2.73 core diluted earnings per share , compared to $ 220.2 million , or $ 2.37 core diluted earnings per share , in 2018 . see “ gaap reconciliation of non-gaap financial measures ” for additional discussion and reconciliation of non-gaap measures . story_separator_special_tag in addition to producing remarkable results for 2019 , we completed two acquisitions - reliance in st. louis , missouri and landrum in columbia , missouri - which added a total of $ 4.9 billion in assets . we had several notable events during 2019 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 ( “ white star ” ) ( further discussed below in “ provision for loan 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 ( “ cre ” ) loans resulting in a net loss of $ 5.1 million . in april 2019 , we completed the acquisition of reliance . 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 reliance transaction and the opportunities we now 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 . in october 2019 , we completed the acquisition of landrum . the systems conversion was completed in february 2020 , at which time landrum 's subsidiary bank , landmark bank , was merged with and into simmons bank , with simmons bank as the surviving entity . as a result of that transaction , we have enhanced our ability to provide quality financial products and services to our customers throughout missouri , oklahoma and texas . in december 2019 , we entered into a branch purchase and assumption agreement with spirit of texas bank , ssb , a wholly-owned subsidiary of spirit of texas bancshares , inc. , to sell five branches in austin , san antonio and tilden , texas . see note 4 , other assets and other liabilities held for sale , for additional information related to the sale of these locations . in 2018 , we announced our next generation banking ( “ ngb ” ) strategic initiative that we believe positions us to provide competitive banking services well into the future . through this program , we have evaluated the primary information technology systems and functions that support our operations and are improving or replacing many of them with updated and or enhanced banking technologies . this initiative will , among other things , assist us in our efforts to create a differentiated experience for our customers across all channels , including digital . 32 we are beginning to see changes as a result of our ngb investments . for example , we accomplished a major milestone in the third quarter 2019 when we successfully completed the migration of our core banking platform to our vendor hosted environment . the transition was successful and has increased security and the reliability of our systems . in addition , in october 2019 , we successfully launched our new mobile banking application . we believe our new application makes us more competitive in mobile banking , and customer response to date has been very positive . we expect to continue to expand customer offerings through our digital channel . during 2020 , we expect to continue to implement our technology initiatives , including the expansion of our digital offerings , and adjust , as appropriate , our business strategy to take advantage of our successful growth over the past few years . stockholders ' equity as of december 31 , 2019 was $ 3.0 billion , book value per share was $ 26.30 and tangible book value per share was $ 15.89 . our ratio of common stockholders ' equity to total assets was 14.1 % and the ratio of tangible common stockholders ' equity to tangible assets was 9.0 % at december 31 , 2019 . see “ gaap reconciliation of non-gaap financial measures ” for additional discussion and reconciliation of non-gaap measures . the company 's tier i leverage ratio of 9.6 % , as well as our other regulatory capital ratios , remain significantly above the “ well capitalized ” minimum requirements . see table 19 – risk-based capital for regulatory capital ratios . total loans , including loans acquired , were $ 14.4 billion at december 31 , 2019 , an increase of $ 2.7 billion , or 23.0 % , from the same period in 2018 , primarily due to the landrum and reliance acquisitions completed during 2019. the increase was partially offset by the reclassification of $ 260 million in loan balances associated with the branches held for sale in south texas . at december 31 , 2019 , the allowance for loan losses for legacy loans was $ 67.8 million . the allowance for loan losses for loans acquired was $ 444,000 and the acquired loan discount credit mark was $ 87.3 million . the allowance for loan losses and discount mark provides a total of $ 155.5 million of coverage . the ratio of discount mark and related allowance to loans acquired was 1.80 % . as mentioned above , during the year we incurred a loss related to the white star bankruptcy . the white star loss is disappointing and contrary to the credit culture at simmons . because we were only a participant in the shared national credit , we were limited both in our ability to act unilaterally and in our access to timely information . we have learned some valuable lessons from this experience .
| quarterly results selected unaudited quarterly financial information for the last eight quarters is shown in table 28. table 28 : quarterly results replace_table_token_32_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 . 64 item
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research and development expenses our research and development expenses consist primarily of costs incurred in connection with the development of our product candidates , including : · personnel‑related costs , such as salaries , bonuses , benefits , travel and other related expenses , including stock‑based compensation ; · expenses incurred under our agreements with cros , clinical sites , contract laboratories , medical institutions and consultants that plan and conduct our preclinical studies and clinical trials , including , in the case of consultants , stock‑based compensation ; · costs associated with regulatory filings ; · upfront and milestone payments under in‑license or acquisition agreements with third parties ; · costs of acquiring preclinical study and clinical trial materials , and costs associated with formulation and process development ; and · depreciation , maintenance and other facility‑related expenses . we expense all research and development costs as incurred . clinical development expenses for our product candidates are a significant component of our current research and development expenses as we progress our product candidates into and through clinical trials . product candidates in later stage clinical development generally have higher research and development costs than those in earlier stages of development , primarily due to increased size and duration of the clinical trials . we recognize costs for each grant project , preclinical study or clinical trial that we conduct based on our evaluation of the progress to completion , including the use of information and data provided to us by our external research and development vendors and clinical sites . we expect our research and development expenses to increase in absolute dollars in the future as we continue to in‑license or acquire product candidates and as we advance our existing and any future product candidates into and through clinical trials and pursue regulatory approval of our product candidates . the process of conducting the necessary clinical research to obtain regulatory approval of a product candidate is costly and time consuming . the probability that any of our product candidates receives regulatory approval and eventually is able to generate revenue depends on a 70 variety of factors , including the quality of our product candidates , early clinical data , investment in our clinical program , competition , manufacturing capability and commercial viability . as a result of these uncertainties , we are unable to determine the duration and completion costs of our research and development projects or if , when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates , if approved . we may never succeed in achieving regulatory approval for any of our product candidates . we do not allocate personnel‑related research and development costs , including stock‑based compensation or other indirect costs , to specific programs , as they are deployed across multiple projects under development . interest expense interest expense represents interest paid to our lender , amortization of our debt discount , and issuance costs associated with loan and security agreements . in december 2018 , we extinguished all of our outstanding debt . amortization of intangible assets amortization of intangible assets relates to the amortization of our product rights to keveyis and macrilen . both intangible assets were ( and keveyis will continue to be ) amortized using the straight-line method , using an amortization period of eight years for keveyis and ten years for macrilen . in december 2018 , we sold the rights to macrilen and , therefore , will no longer record amortization of the related intangible asset . other income ( expense ) , net other income ( expense ) , net , consists of our gain on the sale of our subsidiary , unrealized gain ( loss ) on the remeasurement of the fair value of warrant liability , interest expense recognized on our long-term debt , the loss on the extinguishment of our pre-existing long-term debt , interest income generated from our cash and cash equivalents , foreign exchange gains and losses and gains and losses on investments . critical accounting policies and estimates this operating and financial review of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ u.s. gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as expenses incurred during the reporting periods . 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 . while 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 and estimates are critical . revenue recognition we follow accounting standards codification ( “ asc ” ) topic 606 , revenue from contracts with customers ( “ asc 606 ” ) . topic 606 applies to all contracts with customers , except for contracts that are within the scope of other standards , such as leases , insurance , collaboration arrangements and financial instruments . under topic 606 , an entity recognizes revenue when its customer obtains control of promised goods or services , in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services . story_separator_special_tag to determine revenue recognition for arrangements that an entity determines are within the scope of topic 606 , the entity performs the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . 71 revenues from sales of our products are recorded at the net sales price ( transaction price ) , which includes estimates of variable consideration for which reserves are established and that result from rebates , co-pay assistance and other allowances that are offered by us and the patients ' payors . these reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable ( if the amount is payable to our customer ) or a current liability ( if the amount is payable to a party other than our customer ) . where appropriate , these estimates may take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as our historical experience , current contractual and statutory requirements , specific known market events and trends , industry data and forecasted customer buying and payment patterns . overall , these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract . for a complete discussion of accounting for net product revenue , see note 3 , `` revenue recognition '' to our consolidated financial statements . warrant liability the fair values of certain outstanding warrants were measured using the black-scholes option-pricing model . inputs used to determine estimated fair value of the warrant liabilities include the fair value of the underlying stock at the valuation date , the term of the warrants , risk-free interest rates , expected dividends and the expected volatility of the underlying stock . the significant unobservable inputs used in the fair value measurement of the warrant liabilities were the fair value of the underlying stock at the valuation date and the estimated term of the warrants . generally , increases ( decreases ) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement . intangible assets certain intangible assets were acquired as part of an asset purchase and have been capitalized at their acquisition date at fair value . acquired definite life intangible assets are amortized using the straight-line method over their respective estimated useful lives . the company evaluates the potential impairment of intangible assets if events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate . in connection with the asset purchase and supply agreement we entered into with taro pharmaceuticals north america , inc. , we paid taro an upfront payment in two installments of $ 1 million in december 2016 and $ 7.5 million in march 2017. we have concluded that the supply price payable by us exceeds fair value and , therefore , have used a discounted cash flow method with a probability assumption to value the payments in excess of fair value at $ 29.3 million , for which we have recorded an intangible asset and corresponding liability . this liability is amortized as we purchase inventory over the term of the agreement . in addition , we incurred transaction costs of $ 2.4 million resulting in the recording of an intangible asset of $ 40.2 million . this intangible asset is being amortized over an eight-year period using the straight-line method . we entered into a license and assignment agreement in 2018 with aeterna zentaris gmbh , pursuant to which we acquired the u.s. and canadian rights to manufacture and commercialize macrilen ( macimorelin ) for $ 24 million and incurred transaction costs of $ 0.7 million , resulting in an initial intangible asset of $ 24.7 million . we recorded any royalty liability as an increase to the intangible asset . this asset was being amortized over a ten-year period using the straight-line method , until the sale of our subsidiary that held this asset in december 2018. as of december 31 , 2018 , no impairment of intangible assets has been identified . goodwill we test goodwill for impairment on an annual basis or whenever events occur that may indicate possible impairment . this analysis requires us to make a series of critical assumptions to ( 1 ) evaluate whether any impairment exists and ( 2 ) measure the amount of impairment . 72 because we have one operating segment , when testing for a potential impairment of goodwill , we are required to estimate the fair value of our business as a whole and determine the carrying value . if the estimated fair value is less than the carrying value of our business , then we are required to estimate the fair value of all identifiable assets and liabilities in a manner similar to a purchase price allocation for an acquired business . only after this process is completed can the goodwill impairment be determined , if any . we did not record a charge for impairment for the years ended december 31 , 2018 , 2017 and 2016. as of december 31 , 2018 , there were no events or changes in circumstances indicating possible impairment . stock‑based compensation we account for stock-based compensation awards in accordance with financial accounting standards board ( “ fasb ” ) asc topic 718 , compensation—stock compensation ( “ asc 718 ” ) .
| research and development expenses the following table summarizes our research and development expenses during the years ended december 31 , 2018 and 2017 : replace_table_token_6_th research and development expenses were $ 25.4 million for the year ended december 31 , 2018 , an increase of $ 8.2 million compared to the year ended december 31 , 2017. the $ 5.7 million increase in expenses for product development and supporting activities was primarily due to additional clinical development expenses for recorlev and life cycle management activities for keveyis . compensation and other personnel costs increased by $ 1.8 million for the year ended december 31 , 2018 as compared to the same period in 2017 due to increased headcount . amortization of intangible assets amortization of intangible assets was $ 7.2 million for the year ended december 31 , 2018 , an increase of $ 2.2 million , due to the commencement of amortization of the macrilen product rights that we acquired in january 2018. we subsequently sold the subsidiary that held the asset to novo in december 2018. other income ( expense ) , net replace_table_token_7_th other income ( expense ) , net , increased by $ 152.3 million for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017. the increase was primarily due to a $ 130.8 million gain on the sale of our subsidiary and a $ 16.3 million unrealized gain on the fair value of our warrant liability in 2018 , offset in part by a $ 8.2 million increase in interest expense and $ 21.5 million loss on extinguishment of debt . the 2017 period included a $ 30.2 million unrealized loss on the fair value of our warrant liability and a $ 3.5 million of expense relating to the loss on the extinguishment of debt . income tax expense we recorded income tax expense of $ 0.5 million for the year ended december 31 , 2018 as a result of tax liability expected in connection with the intercompany transfer of intellectual property . we recorded income tax expense 76 of $ 1.8 million for the year ended december 31 , 2017 as a result of recording full valuation allowances against our deferred tax asset and deferred tax liability . liquidity and capital resources we believe that our cash resources of $
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we also offer a seamless solution for small-run decoration needs with our on-demand digital print services , powered by dtg2go . the recent successful launch of our newest distribution center in phoenix , arizona adds a fifth integrated digital print and distribution facility to our network , combining dtg2go 's digital print business with delta apparel 's own supply of garments . demand for the salt life brand was strong through fiscal year 2020 , as consumers sought out the lifestyle brand products in various channels , particularly direct-to-consumer channels . in addition to strong ecommerce sales , we saw consumers flock to our salt life branded retail stores , leading over 50 % sales growth in the retail channel in fiscal year 2020 compared to the prior year and driven by both same store sales growth as well as new retail doors . in the coming year , we continue to see growth opportunities with our salt life consumer ecommerce site , opening additional retail doors in select markets , and continuing to partner with our wholesale customers to expand the floor space and enhance the salt life experience within their doors . our fiscal 2020 results included approximately $ 25.2 million of expenses associated with the impacts from the covid-19 pandemic , which resulted in an operating loss for the year of $ 7.0 million compared to operating income of $ 15.9 million in the prior year . these covid-19 related costs primarily related to the curtailment of our manufacturing operations , incremental costs to right size production to new forecasted demand , and increased accounts receivable and inventory reserves related to the heightened risks in the market as the u.s. continues its recovery . excluding these discrete items , operating income would have been $ 18.1 million , a $ 0.7 million or 4 % improvement compared to adjusted operating income of $ 17.4 million in the prior year . as we enter the next fiscal year , although the environment comprises a level of uncertainty , we are well positioned to capitalize on multiple market demand opportunities across our businesses . there are many factors outside of our control that can influence how the upcoming year unfolds , including levels of consumer spending , higher unemployment rates , potential future covid-19 disruptions , and the overall general economic conditions . we remain confident that our diversified sales channels and uniquely positioned business model provide the optimal strategy that should allow us to successfully navigate near-term challenges and drive future profitable growth . story_separator_special_tag `` times new roman '' , times , serif ; font-size : 10pt ; margin-top : 0pt ; margin-bottom : 0pt ; ' > 22 interest expense for fiscal year 2020 decreased by approximately $ 0.5 million to $ 7.0 million , compared to $ 7.6 million in fiscal year 2019. the decrease is due primarily to lower average debt levels . our fiscal year 2020 effective income tax rate is 23.6 % . this compares to a rate of 5.5 % in the prior year . see note 9—income taxes for more information . net loss attributable to shareholders in fiscal year 2020 was $ 10.6 million , or $ 1.53 loss per diluted share , and adjusted net income was $ 8.6 million , or $ 1.22 income per diluted share . the prior year net income was $ 8.2 million , or $ 1.17 per diluted share , and adjusted net income was $ 9.7 million , or $ 1.38 per diluted share non-gaap financial measures we provide all information required in accordance with gaap , but we believe that evaluating our ongoing operating results may be difficult if limited to reviewing only gaap financial measures . in an effort to provide investors with additional information regarding the company 's results , we also provide non-gaap information that management believes is useful to investors . we discuss gross margin , sg & a expenses , operating income , net income and earnings per diluted share as performance measures because management uses these measures in evaluating the company 's underlying performance on a consistent basis across periods . we also believe these measures are frequently used by securities analysts , investors and other interested parties in the evaluation of the company 's ongoing performance . these non-gaap measures have limitations as analytical tools , and securities analysts , investors and other interested parties should not consider any of these non-gaap measures in isolation or as a substitute for analysis of the company 's results as reported under gaap . these non-gaap measures may not be comparable to similarly titled measures used by other companies . the tables below reconcile operating income , net income and earnings per diluted share to adjusted operating income , adjusted net income and adjusted earnings per diluted share ( in thousands except per share data ) : replace_table_token_3_th ( 1 ) our fiscal 2020 results included approximately $ 25.2 million of pre-tax expenses associated with the impacts from the covid-19 pandemic and primarily related to the curtailment of manufacturing operations ( $ 11.9 million ) , incremental costs to right size production to new forecasted demand ( $ 2.6 million ) , increased accounts receivable and inventory reserves related to the heightened risks in the market as the u.s. continues its recovery ( $ 6.6 million ) , and other expenses ( $ 4.1 million ) . these costs are included within net sales ( $ 0.5 million ) , cost of goods sold ( $ 14.2 million ) , sg & a expenses ( $ 2.4 million ) , and other loss ( income ) , net ( $ 8.1 million ) . story_separator_special_tag ( 2 ) our fiscal 2019 results included approximately $ 2.5 million of unfavorable litigation settlement due to the bankruptcy of a customer in the delta group segment in the first quarter of fiscal year 2019 , partially offset by approximately $ 1.3 million in other income as the result of a favorable litigation settlement in the salt life group segment in the third quarter fiscal year 2019 . ( 3 ) totals may not add due to rounding . 23 liquidity and capital resources operating cash flows cash provided by operating activities in fiscal year 2020 was $ 31.8 million compared to $ 9.4 million for fiscal year 2019. the improved operating cash flows in 2020 primarily relate to a decrease in inventory levels as inventory sold was not replaced as quickly as the prior year because of the covid-19 manufacturing disruptions from mid-march through june 2020. investing cash flows cash used in investing activities in fiscal years 2020 and 2019 was $ 12.1 million and $ 11.5 million , respectively . capital expenditures during fiscal years 2020 and 2019 were $ 13.6 and $ 16.2 million , respectively . capital expenditures in both periods primarily related to investments in our distribution expansion , digital print equipment , information technology , and retail stores . there were $ 3.8 million in expenditures financed under capital lease arrangements and $ 2.7 million in unpaid expenditures as of october 3 , 2020. we expect to spend approximately $ 18 million to $ 20 million in capital expenditures in fiscal year 2021 , primarily on our distribution expansion , digital print equipment , manufacturing equipment , information technology , and direct-to-consumer investments including additional salt life retail store openings . financing activities cash used by financing activities was $ 3.9 million in fiscal year 2020 compared to cash provided by financing activities of $ 2.2 million in fiscal year 2019. we utilized the cash proceeds from our credit facility in both fiscal years to fund our operating activities , certain capital investments , and share repurchases . in fiscal year 2020 , we paid $ 2.5 million in contingent consideration related to the dtg2go acquisition compared to $ 0.6 million in the prior year . future liquidity and capital resources see note 8 – long-term debt to the consolidated financial statements for discussion of our various financing arrangements , including the terms of our revolving u.s. credit facility . our credit facility , as amended on august 28 , 2020 , as well as cash flows from operations , are intended to fund our day-to-day working capital needs , along with capital lease financing arrangements , to fund our planned capital expenditures . however , any material deterioration in our results of operations , such as those that could occur due to the covid-19 pandemic , may result in the loss of our ability to borrow under our u.s. revolving credit facility and to issue letters of credit to suppliers , or may cause the borrowing availability under that facility to be insufficient for our needs . availability under our credit facility is primarily a function of the levels of our accounts receivable and inventory . a significant deterioration in our accounts receivable or inventory levels could restrict our ability to borrow additional funds or service our indebtedness . prior to the fifth amendment and sixth amendment executed on april 27 , 2020 and on august 28 ,2020 , respectively , ( collectively , the “ bridge amendments ” ) , our credit facility included a financial covenant that if the availability under our credit facility falls below the amounts specified in our credit agreement , our fixed charge coverage ratio ( “ fccr ” ) ( as defined in our credit agreement ) for the preceding 12-month period must not be less than 1.1 to 1.0. the bridge amendments amend the financial covenant provisions from the amendment dates through july 3 , 2021 , including effectively lowering the minimum availability thresholds and removing the requirement that our fccr for the preceding 12-month period must be not be less than 1.1 to 1.0. our availability at october 3 , 2020 , was above the minimum thresholds specified in our credit agreement , and we were above the 1.1 to 1.0 fccr for the preceding 12-month period . following the expiration of the terms of the bridge amendments on july 3 , 2021 , a significant deterioration in our business could cause our availability to fall below minimum thresholds , thereby requiring us to maintain the minimum fccr specified in our credit agreement , which we may not be able to maintain . derivative instruments from time to time , we may purchase cotton option contracts to economically hedge the risk related to market fluctuations in the cost of cotton used in our operations . we do not receive hedge accounting treatment for these derivatives . as such , the realized gains and losses associated with them were recorded within cost of goods sold on the consolidated statement of operations . there were no material option agreements that were outstanding at october 3 , 2020 . 24 from time to time , we may use interest rate swaps or other instruments to manage our interest rate exposure and reduce the impact of future interest rate changes . these financial instruments are not used for trading or speculative purposes . we have designated our interest rate swap contracts as cash flow hedges of our future interest payments . as a result , the gains and losses on the swap contracts are reported as a component of other comprehensive income and are reclassified into interest expense as the related interest payments are made . as of october 3 , 2020 , all of other comprehensive income was attributable to shareholders ; none related to the non-controlling interest .
| however , the sales in the wholesale business , as well as our own retail stores , began to accelerate in late may and continued that growth through the fourth quarter , which resulted in double-digit sales growth in the september quarter . our salt life direct-to-consumer web sales increased over 50 % compared to the prior year . overall gross margin for fiscal year 2020 was 17.9 % , down from prior year margin of 19.7 % . adjusting for the $ 14.7 million impact of covid-19 related expenses , gross margins would have been 21.8 % . this is a 210 basis point improvement over prior year and is attributable to favorable product mix , lower raw material prices , and manufacturing efficiencies and process improvements within the delta group segment 's integrated vertical manufacturing platform . the prior year was impacted by costs associated with product changes in the private label business and the impact of acquisition and integration activities in dtg2go . delta group segment gross margins of 15.2 % were unfavorably impacted by the $ 14.7 million of covid-19 related expenses . adjusting for these discrete impacts , gross margins would have been 19.4 % , an improvement of 260 basis points compared to the 16.8 % gross margins in the prior year . fiscal years 2020 and 2019 were impacted by the items noted above . salt life group segment gross margins were 43.6 % compared to 46.7 % in fiscal year 2019. margins were impacted by increased product costs from tariffs enacted during the fiscal year as well as higher freight costs . this was partially offset by a higher sales mix of more profitable direct-to-consumer ecommerce and retail sales . fiscal year 2020 selling , general and administrative ( “ sg & a ” ) expenses were $ 68.4 million , or 17.9 % of sales , compared to $ 70.2 million , or 16.3 % of sales , in fiscal year 2019. adjusting for $ 2.4 million of covid-19 related expenses , adjusted sg & a for fiscal year 2020 was $ 66.0 million , or 17.3 %
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gross margin was 78 % of revenue in 2016 compared to 77 % of revenue in 2015. operating expenses increased by $ 17,914,000 , or 8 % , from the prior year due to higher incentive compensation plan accruals and higher personnel-related costs resulting primarily from headcount additions . operating income was $ 160,784,000 , or 31 % of revenue , in 2016 compared to $ 121,521,000 , or 27 % of revenue , in 2015 ; net income from continuing operations was $ 149,827,000 , or 29 % of revenue , in 2016 compared to $ 107,664,000 , or 24 % of revenue , in 2015 ; and net income from continuing operations per diluted share was $ 1.72 in 2016 compared to $ 1.22 in 2015. the following table sets forth certain consolidated financial data for continuing operations as a percentage of revenue : replace_table_token_5_th story_separator_special_tag / > be recorded as investment income as they occur . the remaining increase in investment income was due to increased funds available for investment , as well as higher yields on the company 's portfolio of debt securities . the company recorded other income of $ 871,000 in 2016 and $ 645,000 in 2015. other income included a benefit of $ 463,000 in 2016 and $ 790,000 in 2015 resulting from a decrease in the fair value of the contingent consideration liability that arose from a 2015 business acquisition ( refer to note 20 to the consolidated financial statements in part ii - item 8 of this annual report on form 10-k for further information ) . other income also included a foreign government subsidy of $ 422,000 in 2016 and $ 268,000 in 2015. in addition , other income ( expense ) included rental income , net of associated expenses , from leasing space in buildings adjacent to the company 's corporate headquarters . rental expenses declined from the prior year , while rental income was relatively flat . income tax expense the company 's effective tax rate was 11 % of the company 's pre-tax income in 2016 compared to 15 % in 2015. the effective tax rate for 2016 included a decrease in tax expense of $ 11,889,000 from the excess tax benefit arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock option exercises . in 2016 , the company adopted accounting standards update 2016-09 , `` improvements to employee share-based payment accounting , '' which was issued by the financial accounting standards board in march 2016. this update requires excess tax benefits to be recognized as income tax benefit in the income statement . previous guidance required excess tax benefits to be recognized as additional paid-in-capital in shareholders ' equity on the balance sheet . the effective tax rate for 2016 also included the impact of the following additional discrete tax events : ( 1 ) a decrease in tax expense of $ 893,000 from the expiration of the statutes of limitations for certain reserves for income tax uncertainties , ( 2 ) a decrease in tax expense of $ 439,000 from the final true-up of the prior-year 's tax accrual upon filing the actual tax returns , ( 3 ) an increase in tax expense of $ 547,000 from a 5 % withholding tax triggered by the movement of intellectual property purchased as part of a foreign business acquisition , and ( 4 ) an increase in tax expense of $ 1,260,000 from the write-off of a deferred tax asset related to foreign branches resulting from an irs rule change . the effective tax rate for 2015 included the impact of the following discrete tax events : ( 1 ) a decrease in tax expense of $ 1,105,000 from the final true-up of the prior year 's tax accrual upon filing the actual tax returns , ( 2 ) a decrease in tax expense of $ 975,000 from the expiration of statutes of limitations for certain reserves for income tax uncertainties , ( 3 ) a decrease in tax expense , net of reserves , of $ 910,000 from the retroactive application of the 2015 research and development tax credit passed by congress in december 2015 and applied retroactively to january 1 , 2015 , and ( 4 ) an increase in tax expense of $ 65,000 from the write down of a deferred tax asset . excluding the impact of these discrete tax events , the company 's effective tax rate was 18 % in both 2016 and 2015. the majority of income earned outside of the united states is permanently reinvested to provide funds for international expansion . the company is tax resident in numerous jurisdictions around the world and has identified its major tax jurisdictions as the united states , ireland and china . the statutory tax rate is 12.5 % in ireland and 25 % in china , compared to the u.s. federal statutory corporate tax rate of 35 % . international rights to certain of the company 's intellectual property are held by a subsidiary whose legal jurisdiction does not tax this income , resulting in a foreign effective tax rate lower than the above mentioned statutory rates . discontinued operations on july 6 , 2015 , the company completed the sale of its surface inspection systems division ( sisd ) that specialized in machine vision products that inspect the surfaces of materials processed in a continuous fashion . the financial results of sisd are reported as a discontinued operation for all periods presented . net loss from discontinued operations was $ 255,000 in 2016 compared to net income of $ 79,410,000 in 2015. net income in 2015 included a gain on the sale of sisd , net of tax , of $ 78,182,000. refer to note 19 to the consolidated financial statements in part ii - item 8 of this annual report on form 10-k for further information . story_separator_special_tag a binding arbitration was concluded in the second quarter of 2016 with respect to certain product performance claims made by an sisd customer , for which the company remained responsible under the indemnity provisions of the sale transaction . in that proceeding , the tribunal ordered the company to pay the customer approximately $ 326,000 , primarily representing a refund of the product purchase price . the tribunal also ordered the customer to pay the company approximately $ 45,000 , primarily representing reimbursement of legal fees . the net settlement of $ 281,000 was recorded in discontinued operations in the second quarter of 2016 , along with $ 123,000 of legal fees . the tax benefit related to this expense was $ 149,000 , resulting in a net loss from discontinued operations of $ 255,000 . 20 year ended december 31 , 2015 compared to year ended december 31 , 2014 revenue revenue for the year ended december 31 , 2015 increased by $ 24,108,000 , or 6 % , from the prior year . excluding the impact of foreign currency exchange rate changes , revenue increased by $ 46,718,000 , or 11 % , as sales denominated in foreign currencies , primarily the euro and japanese yen , were translated into u.s. dollars at a lower rate . revenue from factory automation customers increased by $ 48,682,000 , or 12 % , on a constant-currency basis due primarily to a higher volume of machine vision products sold , with the highest growth coming from greater china and europe . factory automation revenue in the americas was relatively flat . revenue from semiconductor and electronics capital equipment manufacturers decreased by $ 1,964,000 , or 7 % , on a constant-currency basis from the prior year , with the majority of the decline coming from japan . gross margin gross margin as a percentage of revenue was 77 % in 2015 compared to 78 % in 2014. changes in foreign currency exchange rates had a negative impact on gross margin , as a significant amount of revenue is denominated in euros while inventories are predominantly purchased in u.s. dollars . a shift in revenue mix to relatively-lower margin products and services also had a negative impact on gross margin . these gross margin decreases were partially offset by lower inventory charges in 2015 as compared to 2014. operating expenses research , development , and engineering expenses research , development , and engineering ( rd & e ) expenses in 2015 increased by $ 13,960,000 , or 25 % , from the prior year as detailed in the table below ( in thousands ) . replace_table_token_8_th rd & e expenses increased due to higher personnel-related costs resulting from headcount additions , such as salaries and fringe benefits , as well as modest salary increases granted early in 2015. the company also incurred higher spending on outsourced engineering costs , primarily related to the development of engineering prototypes for anticipated customer orders . in addition , stock-based compensation expense increased due to a higher valuation of stock options granted early in 2015. offsetting these increases was the favorable impact on expenses of changes in foreign currency exchange rates , which resulted in lower u.s. dollar expenses when expenses denominated in foreign currencies , primarily the euro , were translated into u.s. dollars . selling , general , and administrative expenses selling , general , and administrative ( sg & a ) expenses in 2015 increased by $ 7,975,000 , or 5 % , from the prior year as detailed in the table below ( in thousands ) . replace_table_token_9_th sg & a expenses increased due to higher personnel-related costs resulting from headcount additions , such as salaries , fringe benefits , sales commissions , and travel expenses , as well as modest salary increases granted early in 2015. in addition , stock-based compensation expense increased due to a higher valuation of stock options granted early in 2015. offsetting these increases were lower expenses related to incentive compensation plans , such as company 21 bonuses and sales commissions , resulting from lower achievement levels on plans that were set at the beginning of the year . in addition , changes in foreign currency exchange rates resulted in lower u.s. dollar expenses when expenses denominated in foreign currencies , primarily the euro , were translated into u.s. dollars . in the second quarter of 2015 , the company reached a settlement of outstanding patent litigation with microscan systems , inc. for $ 3,500,000. the settlement included a patent license agreement valued at $ 1,667,000 that allows the company to continue producing current models of its handheld barcode readers , which was recorded as an asset and is being amortized to cost of revenue over the five year life of the patent starting in the third quarter of 2015. the remaining $ 1,833,000 of the settlement was recorded as sg & a expense in the second quarter of 2015. legal fees related to this litigation were $ 572,000 higher in 2015 than the prior year . non-operating income ( expense ) the company recorded foreign currency gains of $ 1,122,000 in 2015 and $ 1,031,000 in 2014. the foreign currency gains in each period resulted primarily from the revaluation and settlement of accounts receivable , accounts payable , and intercompany balances that are reported in one currency and collected in another . investment income increased by $ 518,000 , or 16 % , from the prior year due to increased funds available for investment . the company recorded other income of $ 645,000 in 2015 compared to other expense of $ 283,000 in 2014. other income in 2015 included a $ 790,000 benefit resulting from a decrease in the fair value of the contingent consideration liability that arose from a business acquisition completed earlier in 2015 ( refer to note 20 to the consolidated financial statements in part ii - item 8 of this annual report on form 10-k ) .
| this increase from all other factory automation customers came from all major regions , including a 12 % increase from customers based in the americas , a 17 % increase from customers based in europe , and a 19 % increase from customers based in asia . gross margin gross margin as a percentage of revenue was 78 % in 2016 compared to 77 % in 2015. the increase in gross margin was due primarily to the favorable impact of material cost reductions and volume purchasing , as well as manufacturing efficiencies achieved from a higher revenue level as fixed manufacturing costs were spread over a larger revenue base . these increases were partially offset by a trend toward higher hardware content in our product sales as we 18 move away from software-only solutions , higher inventory charges , and an increased level of projects in the logistics industry that require installation services with lower margins . operating expenses research , development , and engineering expenses research , development , and engineering ( rd & e ) expenses in 2016 increased by $ 8,478,000 , or 12 % , from the prior year as detailed in the table below ( in thousands ) . replace_table_token_6_th rd & e expenses increased due to higher personnel-related costs resulting primarily from headcount additions to support new product initiatives and the higher business level . these headcount additions included engineering talent from four business acquisitions completed in the last few months of 2016 that are expected to help accelerate the development of future products . in addition , higher incentive compensation plan accruals were recorded in 2016 as a result of higher achievement levels based upon the company 's performance . stock-based compensation expense was also higher than the prior year . rd & e expenses as a percentage of revenue were 15 % in both 2016 and 2015. 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 , as well as to provide engineering support for large customers . in addition , we consider our ability to accelerate time
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the closing followed the ftc approval of the acquisition and was finalized pursuant to the terms of the purchase agreement announced on april 25 , 2014. pursuant to the insight purchase agreement , the company acquired 27 otc brands sold in north america ( including related tradenames , contracts and inventory ) , which extended the company 's portfolio of otc brands to include a leading feminine care platform in the united states and canada anchored by monistat , the leading north american brand in otc yeast infection treatment . the acquisition also added brands to the company 's cough & cold , pain relief , ear care and dermatological platforms . in connection with the ftc 's approval of the insight acquisition , we sold one of the competing brands that we acquired from insight on the same day as the insight closing . insight is primarily included in our north american otc healthcare segment . acquisition of the hydralyte brand on april 30 , 2014 , we completed the acquisition of the hydralyte brand in australia and new zealand from the hydration pharmaceuticals trust of victoria , australia , which was funded through a combination of cash on hand and our existing senior secured credit facility . hydralyte is the leading otc brand in oral rehydration in australia and is marketed and sold through our care pharma subsidiary . hydralyte is available in pharmacies in multiple forms and is indicated for oral rehydration following diarrhea , vomiting , fever , heat and other ailments . hydralyte is included in our international otc healthcare segment . divestitures and sale of license rights on july 7 , 2016 , we completed the sale of the pediacare® , new skin® and fiber choice® brands for $ 40.0 million plus the cost of inventory . during the year ended march 31 , 2017 , we recorded a pre-tax loss on sale of $ 56.2 million . the proceeds were used to repay debt and related income taxes due on the dispositions . concurrent with the completion of the sale of these brands , we entered into a transitional services agreement with the buyer , whereby we agreed to provide the buyer with various services , including marketing , operations , finance and other services , from the date of the acquisition through january 7 , 2017. we also entered into an option agreement with the buyer to purchase dermoplast® at a specified earnings multiple as defined in the option agreement . the buyer paid a $ 1.25 million deposit for this option in september 2016 and later notified us of its election to exercise the option . in december 2016 , we completed the sale of the dermoplast® brand , and in a separate transaction , the e.p.t® brand , for an aggregate amount of $ 59.6 million . as a result , we recorded a pre-tax net gain on these divestitures of $ 3.9 million . historically , we received royalty income from the licensing of the names of certain of our brands in geographic areas or markets in which we do not directly compete . we have had royalty agreements for our comet brand for several years , which included options on behalf of the licensee to purchase license rights in certain geographic areas and markets in perpetuity . in december 2014 , we amended these agreements and we sold rights to use of the comet brand in certain eastern european countries to a third-party licensee in exchange for $ 10.0 million as a partial early buyout of the license . the amended agreement provided that we would continue to receive royalty payments of $ 1.0 million per quarter for the remaining geographic areas and also granted the licensee an option to acquire the license rights in the remaining geographic areas any time after june 30 , 2016. in july 2016 , the licensee elected to exercise its option . in august 2016 , we received $ 11.0 million for the purchase of the remaining license rights and , as a result , we recorded a pre-tax gain of $ 1.2 million and reduced our indefinite-lived tradenames by $ 9.0 million . furthermore , the licensee is no longer required to make additional royalty payments to us , and as a result , our royalty income was reduced accordingly . critical accounting policies and estimates our significant accounting policies are described in the notes to the consolidated financial statements included elsewhere in this annual report on form 10-k. while all significant accounting policies are important to our consolidated financial statements , certain of these policies may be viewed as being critical . such policies are those that are both most important to the portrayal of our financial condition and results of operations and require our most difficult , subjective and complex estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses or the related disclosure of contingent assets and liabilities . these estimates are based on our historical experience and on various other assumptions that we believe to be reasonable 33 under the circumstances . actual results may differ materially from these estimates . the most critical accounting policies are as follows : revenue recognition we recognize revenue when the following revenue recognition criteria are met : ( i ) persuasive evidence of an arrangement exists ; ( ii ) the selling price is fixed or determinable ; ( iii ) the product has been shipped and the customer takes ownership and assumes the risk of loss ; and ( iv ) collection of the resulting receivable is reasonably assured . we have determined that these criteria are met and the transfer of risk of loss generally occurs when product is received by the customer , and , accordingly , we recognize revenue at that time . provisions are made for estimated discounts related to customer payment terms and estimated product returns at the time of sale based on our historical experience . story_separator_special_tag as is customary in the consumer products industry , we participate in the promotional programs of our customers to enhance the sale of our products . the cost of these promotional programs varies based on the actual number of units sold during a finite period of time . these promotional programs consist of direct-to-consumer incentives , such as coupons and temporary price reductions , as well as incentives to our customers , such as allowances for new distribution , including slotting fees , and cooperative advertising . estimates of the costs of these promotional programs are based on ( i ) historical sales experience , ( ii ) the current promotional offering , ( iii ) forecasted data , ( iv ) current market conditions , and ( v ) communication with customer purchasing/marketing personnel . we recognize the cost of such sales incentives by recording an estimate of such cost as a reduction of revenue , at the later of ( a ) the date the related revenue is recognized , or ( b ) the date when a particular sales incentive is offered . at the completion of the promotional program , these estimated amounts are adjusted to actual amounts . we also periodically run coupon programs in newspaper inserts , on our product websites , or as on-package coupons . we utilize a national clearing house to process coupons redeemed by customers . at the time a coupon is distributed , a provision is made based upon historical redemption rates for that particular product , information provided as a result of the clearing house 's experience with coupons of similar dollar value , the length of time the coupon is valid , and the seasonality of the coupon drop , among other factors . the amount recorded against revenues and accrued for these events during 2018 , 2017 and 2016 was $ 8.0 million , $ 7.3 million and $ 5.6 million , respectively . cash settlement of coupon redemptions during 2018 , 2017 and 2016 was $ 6.2 million , $ 4.6 million and $ 3.5 million , respectively . allowances for product returns due to the nature of the consumer products industry , we are required to estimate future product returns . accordingly , we record an estimate of product returns concurrent with recording sales . such estimates are made after analyzing ( i ) historical return rates , ( ii ) current economic trends , ( iii ) changes in customer demand , ( iv ) product acceptance , ( v ) seasonality of our product offerings , and ( vi ) the impact of changes in product formulation , packaging and advertising . lower of cost or net realizable value for obsolete and damaged inventory we value our inventory at the lower of cost or net realizable value . accordingly , we reduce our inventories for the diminution of value resulting from product obsolescence , damage or other issues affecting marketability , equal to the difference between the cost of the inventory and its estimated net realizable value . factors utilized in the determination of estimated net realizable value include ( i ) current sales data and historical return rates , ( ii ) estimates of future demand , ( iii ) competitive pricing pressures , ( iv ) new product introductions , ( v ) product expiration dates , and ( vi ) component and packaging obsolescence . many of our products are subject to expiration dating . as a general rule , our customers will not accept goods with expiration dating of less than 12 months from the date of delivery . to monitor this risk , management utilizes a detailed compilation of inventory with expiration dating between zero and 15 months and reserves for 100 % of the cost of any item with expiration dating of 12 months or less . inventory obsolescence costs charged to operations for 2018 , 2017 , and 2016 were $ 1.0 million , $ 4.6 million and $ 2.6 million , respectively , or 0.1 % , 0.5 % and 0.3 % , respectively , of net sales . pension expense certain employees of c.b . fleet company , inc. ( `` fleet `` ) are covered by defined benefit pension plans . the company 's policy is to contribute at least the minimum amount required under the employee retirement income security act of 1974 ( `` erisa '' ) . the company may elect to make additional contributions . benefits are based on years of service and levels of compensation . on december 16 , 2014 , the decision was made to freeze the benefits under the company 's u.s. qualified defined benefit pension plan with an effective date of march 1 , 2015. the funded status of our pension plans is dependent upon many factors , including returns on invested assets and the level of certain market interest rates . we review pension assumptions regularly and we may from time to time make voluntary contributions to our pension plans that exceed the amounts required by statute . during fiscal 2018 , we made total pension contributions to our 34 pension plans of $ 0.4 million . changes in interest rates and the market value of the securities held by the plans could materially change , positively or negatively , the funded status of the plans and affect the level of pension expense and required contributions . our discount rate assumption for our defined benefit plans changed to 3.93 % to 4.07 % at march 31 , 2018 from 3.92 % to 4.21 % at march 31 , 2017 . while we do not currently anticipate a change in our fiscal 2019 assumptions , as a sensitivity measure , a 0.25 % decline or increase in our qualified discount rate would increase or decrease our qualified pension expense by less than $ 0.1 million . similarly , a 0.25 % decrease or increase in the expected return on our pension plan assets would increase or decrease our qualified pension expense by approximately $ 0.1 million .
| household cleaning segment revenues for the household cleaning segment decreased by $ 7.3 million , or 8.3 % , during 2018 versus 2017 . this decrease was primarily attributable to decreased sales related to the comet brand . gross profit the following table represents our gross profit and gross profit as a percentage of total segment revenues , by segment for each of the fiscal years ended march 31 , 2018 and 2017 . replace_table_token_11_th gross profit for 2018 increased $ 76.2 million , or 15.2 % , versus 2017 . as a percentage of total revenues , gross profit decreased to 55.4 % in 2018 from 56.7 % in 2017 . the decrease in gross profit as a percentage of revenues was primarily the result of higher distribution costs and the acquisition of fleet , which has lower gross margins . north american otc healthcare segment gross profit for the north american otc healthcare segment increased $ 73.5 million , or 16.8 % , during 2018 versus 2017 . the increase to gross profit was primarily attributable to increased revenue from the acquisition of fleet . as a percentage of north american otc healthcare revenues , gross profit decreased to 58.9 % during 2018 from 60.8 % during 2017 , primarily due to higher distribution costs and the acquisition of fleet , which has lower gross margins . international otc healthcare segment gross profit for the international otc healthcare segment increased $ 8.9 million , or 20.9 % , during 2018 versus 2017 . the increase to gross profit was primarily attributable to increased revenue from the acquisition of fleet . as a percentage of international otc healthcare revenues , gross profit decreased to 56.1 % during 2018 from 58.0 % during 2017 , primarily due to the acquisition of fleet , which has lower gross margins . household cleaning segment gross profit for the household cleaning segment decreased $ 6.2 million , or 31.4 % , during 2018 versus 2017 . as a percentage of household
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we currently market and sell our technology and solutions primarily through our sales and business development personnel , but we also utilize agents , strategic partners , and lead generators who provide us with access to additional sales , business development and licensing opportunities . our expenses our expenses are primarily comprised of three categories : sales and marketing , research and development , and general and administrative . sales and marketing expenses include salaries and benefits for our sales , business development solution management and marketing personnel , and commissions paid on sales . this category also includes amounts spent on marketing networking events , promotional materials , hardware and software to prospect new customers , including those expenses incurred in trade shows and product demonstrations , and other related expenses . our research and development expenses represent the salaries and benefits of those individuals who develop and maintain our proprietary software platforms and other software applications we design and sell to our customers . our general and administrative expenses consist of corporate overhead , including administrative salaries , real property lease payments , salaries and benefits for our corporate officers and other expenses such as legal and accounting fees . critical accounting policies and estimates the company 's significant accounting policies are described in note 1 of the company 's consolidated financial statements included elsewhere in this filing . the company 's consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states . certain accounting policies involve significant judgments , assumptions , and estimates by management that could have a material impact on the carrying value of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . revenue recognition the company recognizes revenue primarily from these sources : ● software and software license sales ● system hardware sales ● professional service revenue ● software design and development services ● implementation services ● maintenance and hosting support contracts the company applies the provisions of accounting standards codification subtopic 605-985 , revenue recognition : software ( or asc 605-35 ) to all transactions involving the sale of software licenses . in the event of a multiple element arrangement , the company evaluates if each element represents a separate unit of accounting , taking into account all factors following the guidelines set forth in “ fasb asc 605-985-25-5. ” 21 the company recognizes revenue when ( i ) persuasive evidence of an arrangement exists ; ( ii ) delivery has occurred , which is when product title transfers to the customer , or services have been rendered ; ( iii ) customer payment is deemed fixed or determinable and free of contingencies and significant uncertainties ; and ( iv ) collection is reasonably assured . the company assesses collectability based on a number of factors , including the customer 's past payment history and its current creditworthiness . if it is determined that collection of a fee is not reasonably assured , the company defers the revenue and recognizes it at the time collection becomes reasonably assured , which is generally upon receipt of cash payment . if an acceptance period is required , revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period . sales and use taxes are reported on a net basis , excluding them from sales and cost of sales . multiple-element arrangements — the company enters into arrangements with customers that include a combination of software products , system hardware , maintenance and support , or installation and training services . the company allocates the total arrangement fee among the various elements of the arrangement based on the relative fair value of each of the undelivered elements determined by vendor-specific objective evidence ( vsoe ) . in software arrangements for which the company does not have vsoe of fair value for all elements , revenue is deferred until the earlier of when vsoe is determined for the undelivered elements ( residual method ) or when all elements for which the company does not have vsoe of fair value have been delivered . the company has determined vsoe of fair value for each of its products and services . the vsoe for maintenance and support services is based upon the renewal rate for continued service arrangements . the vsoe for installation and training services is established based upon pricing for the services . the vsoe for software and licenses is based on the normal pricing and discounting for the product when sold separately . each element of the company 's multiple element arrangements qualifies for separate accounting . however , when a sale includes both software and maintenance , the company defers revenue under the residual method of accounting . under this method , the undelivered maintenance and support fees included in the price of software is amortized ratably over the period the services are provided . the company defers maintenance and support fees based upon the customer 's renewal rate for these services . software and software license sales the company recognizes revenue when a fixed fee order has been received and delivery has occurred to the customer . the company assesses whether the fee is fixed or determinable and free of contingencies based upon signed agreements received from the customer confirming terms of the transaction . software is delivered to customers electronically or on a cd-rom , and license files are delivered electronically . system hardware sales the company recognizes revenue on system hardware sales generally upon shipment of the product or customer acceptance depending upon contractual arrangements with the customer . shipping charges billed to customers are included in sales and the related shipping costs are included in cost of sales . professional service revenue included in services and other revenues is revenue derived from implementation , maintenance and support contracts , content development , software development and training . story_separator_special_tag the majority of consulting and implementation services and accompanying agreements qualify for separate accounting . implementation and content development services are bid either on a fixed-fee basis or on a time-and-materials basis . for time-and-materials contracts , the company recognizes revenue as services are performed . for fixed-fee contracts , the company recognizes revenue upon completion of specific contractual milestones or by using the percentage-of-completion method . software design and development services revenue from contracts for technology integration consulting services where the company designs/redesigns , builds and implements new or enhanced systems applications and related processes for clients are recognized on the percentage-of-completion method in accordance with “ fasb asc 605-985-25-88 through 107. ” percentage-of-completion accounting involves calculating the percentage of services provided during the reporting period compared to the total estimated services to be provided over the duration of the contract . estimated revenues from applying the percentage-of-completion method include estimated incentives for which achievement of defined goals is deemed probable . this method is followed where reasonably dependable estimates of revenues and costs can be made . the company measures its progress for completion based on either the hours worked as a percentage of the total number of hours of the project or by delivery and customer acceptance of specific milestones as outlined per the terms of the agreement with the customer . estimates of total contract revenue and costs are continuously monitored during the term of the contract , and recorded revenue and costs are subject to revision as the contract progresses . such revisions may result in increases or decreases to revenue and income and are reflected in the financial statements in the periods in which they are first identified . if estimates indicate that a contract loss will occur , a loss provision is recorded in the period in which the loss first becomes probable and reasonably estimable . contract losses are determined to be the amount by which the estimated direct and indirect costs of the contract exceed the estimated total revenue that will be generated by the contract and are included in cost of sales and classified in accrued expenses in the balance sheet . the company 's presentation of revenue recognized on a contract completion basis has been consistently applied for all periods presented . 22 the company classifies the revenue and associated cost on the “ services and other ” line within the “ sales ” and “ cost of sales ” sections of the consolidated statement of operations . in all cases where the company applies the contract method of accounting , the company 's only deliverable is professional services , thus , the company believes presenting the revenue on a single line is appropriate . costs and estimated earnings recognized in excess of billings on uncompleted contracts are recorded as unbilled services and are included in accounts receivable on the balance sheet . billings in excess of costs and estimated earnings on uncompleted contracts are recorded as deferred revenue until revenue recognition criteria are met . implementation services implementation services revenue is recognized when installation is completed . maintenance and hosting support contracts maintenance and hosting support consists of software updates and support . software updates provide customers with rights to unspecified software product upgrades and maintenance releases and patches released during the term of the support period . support includes access to technical support personnel for software and hardware issues . the company also offers a hosting service through its network operations center , or noc , allowing the ability to monitor and support its customers ' networks 7 days a week , 24 hours a day . maintenance and hosting support revenue is recognized ratably over the term of the maintenance contract , which is typically one to three years . maintenance and support is renewable by the customer . rates for maintenance and support , including subsequent renewal rates , are typically established based upon a specified percentage of net license fees as set forth in the arrangement . the company 's hosting support agreement fees are based on the level of service provided to its customers , which can range from monitoring the health of a customer 's network to supporting a sophisticated web-portal . accounts receivable accounts receivable are comprised of sales made primarily to entities located in the united states and canada . accounts receivable are recorded at the invoiced amounts and do not bear interest . the allowance requires judgment and is reviewed monthly , and the company establishes reserves for doubtful accounts on a case-by-case basis based on historical collection experience and a current review of the collectability of accounts . the company 's collection experience has been consistent with our estimates . 23 goodwill and intangible assets goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired in a purchase business combination and is tested annually at september 30 for impairment or tested for impairment more frequently if events and circumstances indicate that the asset might be impaired . an impairment loss is recognized to the extent that the carrying value exceeds the asset 's fair value . the company has one reporting unit and the company determines the fair value of the reporting unit and compares it to its carrying value . second , if the carrying value of the reporting unit exceeds its fair value , an impairment loss is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the implied fair value of that goodwill . the implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation , in accordance with accounting standards codification ( “ asc ” ) 805 , business combinations . the residual fair value after this allocation is the implied fair value of the reporting unit goodwill . the fair values calculated in the company 's impairment tests are determined using discounted cash flow models involving several assumptions .
| for example when net sales increase from one period to the next that change is shown as a positive period to the next , that change is shown as a negative in both columns . replace_table_token_2_th replace_table_token_3_th 26 sales sales increased by $ 1,846 or 16 % in 2014 compared to 2013 , primarily reflecting the increase associated with incorporating the sales results of wrt beginning from the merger date of august 20 , 2014. gross profit gross profit margin on a percentage basis increased to 25 % in 2014 from 9 % in 2013 , and increased by an estimated $ 2,355 in absolute dollars during the same period . both the increase in gross profit margin and increase in absolute dollars are generally the result of the increase in sales overall , the improved mix of higher margin services and lower estimated hardware sales overall . sales and marketing expenses sales and marketing expenses generally include the salaries , taxes , and benefits of our sales and marketing personnel , as well as trade show activities , travel , and other related sales and marketing costs . total sales and marketing expenses increased 30 % to $ 1,178 in 2014 from $ 906 in 2013. the increase is primarily due to an increase of $ 238 in total marketing related expenses across the combined company . research and development expenses research and development expenses increased to $ 492 in 2014 compared to $ 0 in 2013. the increase is attributable to the payroll related expenses of our software development personnel and consultants responsible for maintaining , supporting and enhancing our proprietary content management system platforms acquired in connection with the merger transactions described herein . general and administrative expenses total general and administrative expenses increased 120 % to $ 5,765 in 2014 from $ 2,624 in 2013. the increase is mainly the result of an increase of $ 1,554 in payroll related expenses related to the acquisitions , some of which are nonrecurring , as it includes approximately $ 585 of one-time severance costs . we performed a comprehensive review of our aged outstanding
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the consumer lending department continues to sell fixed rate residential mortgage loans into the secondary market , which helps mitigate and manage interest rate risk . summary of critical accounting policies and estimates a summary of our accounting policies is described in note 1 to the financial statements . 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 that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions . the jobs act contains provisions that , among other things , reduce certain reporting requirements for qualifying public companies . as an emerging growth company , we may elect to delay adoption of new or revised financial accounting standards until such date that the standards are required to be adopted by non-issuer ( private ) companies . if such standards would not apply to non-issuer companies , no deferral would be applicable . such an election is irrevocable during the period that a company is an emerging growth company . we have elected to take advantage of the benefits of extended transition periods . accordingly , our financial statements may not be comparable to those of public companies that adopt new or revised financial accounting standards as of an earlier date . management believes the accounting policies discussed below to be the most critical accounting policies , which involve the most complex or subjective decisions or assessments . allowance for loan losses . the allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income . loan losses are charged against the allowance when management believes that specific loans , or portions of loans , are uncollectible . the allowance for loan losses is evaluated on a regular basis , and at least quarterly , by management . management reviews the nature and volume of the loan portfolio , local and national conditions that may adversely affect the borrower 's ability to repay , loss experience , the estimated value of any underlying collateral , and other relevant factors . the evaluation of the allowance for loan losses is characteristically subjective as estimates are required that are subject to continual change as more information becomes available . the allowance consists of general and specific reserve components . the specific reserves are related to loans that are considered impaired . loans that are classified as impaired are measured in accordance with applicable accounting guidance . the general reserve is allocated for non-impaired loans and includes evaluation of changes in the trend and volume of delinquency , our internal risk rating process and external conditions that may affect credit quality . 28 a loan is considered impaired when , based on current information and events , it is probable that we will be unable to collect the scheduled principal and interest when due according to the contractual terms of the loan agreement . factors considered by management in determining impairment include payment status and the financial condition of the borrower . loans that experience payment shortfalls and insignificant payment delays are typically not considered impaired . management looks at each loan individually and considers all the circumstances around the shortfall or delay including the borrower 's prior payment history , borrower contact regarding the reason for the delay or shortfall and the amount of the shortfall . collateral dependent loans are measured against the fair value of the collateral , while other loans are measured by the present value of expected future cash flows discounted at the loan 's effective interest rate . from time to time , we may choose to restructure the contractual terms of certain loans at the borrower 's request . we review all scenarios to determine the best payment structure with the borrower to improve the likelihood of repayment . management reviews modified loans to determine if the loan should be classified as a trouble debt restructuring . a trouble debt restructuring is when a creditor , for economic or legal reasons related to a debtor 's financial difficulties , grants a concession to the borrower that it would not otherwise consider . management considers the borrower 's ability to repay when a request to modify existing loan terms is presented . a transfer of assets to repay the loan balance , a modification of loan terms or a combination of these may occur . if an appropriate arrangement can not be made , the loan is referred to legal counsel , at which time foreclosure will begin . if a loan is accruing at the time of restructuring , we review the loan to determine if it should be placed on non-accrual . it is our policy to keep a troubled debt restructured loan on non-accrual status for at least six months to ensure the borrower can repay , at that time management may consider its return to accrual status . troubled debt restructured loans are considered to be impaired loans . income taxes . we account for income taxes in accordance with accounting guidance ( asc 740 , income taxes ) . the income tax accounting guidance results in two components of income tax expense : current and deferred . current income tax reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues . u.s. gaap requires that we use the balance sheet method to determine the deferred income , which affects the differences between the book and tax bases of assets and liabilities , and any changes in tax rates and laws are recognized in the period of enactment . deferred taxes are based on a valuation model and the determination on a quarterly basis whether all or a portion of the deferred tax asset will be recognized . fair value measurements . story_separator_special_tag the fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties , other than in a forced or liquidation sale . we estimate the fair value of a financial instrument and any related asset impairment using a variety of valuation methods . where financial instruments are actively traded and have quoted market prices , quoted market prices are used for fair value . when the financial instruments are not actively traded , other observable market inputs , such as quoted prices of securities with similar characteristics , may be used , if available , to determine fair value . when observable market prices do not exist , we estimate fair value . these estimates are subjective in nature and imprecision in estimating these factors can impact the amount of revenue or loss recorded . a more detailed description of the fair values measured at each level of the fair value hierarchy and the methodology we utilize can be found in note 16 of the financial statements . investment securities . available for sale and held to maturity securities are reviewed quarterly for possible other-than-temporary impairment . the review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss , the length of time the fair value has been below cost , the expectation for that security 's performance , the creditworthiness of the issuer and our intent and ability to hold the security to recovery . a decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the statements of net income . at december 31 , 2018 , we believe the unrealized losses are primarily a result of increases in market yields from the time of purchase . in general , as market yields rise , the fair value of securities will decrease ; as market yields fall , the fair value of securities will increase . management generally views changes in fair value caused by changes in interest rates as temporary ; therefore , these securities have not been classified as other-than-temporarily impaired . management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance . furthermore , management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value . 29 loan portfolio story_separator_special_tag times new roman , times , serif ; margin : 0 ; text-indent : 0.5in '' > allowance for loan losses . the allowance for loan losses is maintained at levels considered adequate by management to provide for probable incurred loan losses inherent in the loan portfolio at the balance sheet reporting dates . the allowance for loan losses is based on management 's assessment of various factors affecting the loan portfolio , including portfolio composition , delinquent and non-accrual loans , national and local business conditions and loss experience and an overall evaluation of the quality of the underlying collateral . 35 the following table sets forth activity in our allowance for loan losses for the years indicated . replace_table_token_13_th allocation of allowance for loan losses . the following tables set forth the allowance for loan losses allocated by loan category . the allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories . replace_table_token_14_th 36 see notes 2 and 7 to the financial statements for a complete discussion of the allowance for loan losses . although we believe that we use the best information available to establish the allowance for loan losses , future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations . furthermore , while we believe we have established our allowance for loan losses in conformity with u.s. gaap , there can be no assurance that regulators , in reviewing our loan portfolio , will not require us to increase our allowance for loan losses . in addition , because future events affecting borrowers and collateral can not be predicted with certainty , there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above . any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations . securities portfolio the following table sets forth the amortized cost and estimated fair value of our securities portfolio at the dates indicated . replace_table_token_15_th at december 31 , 2018 and 2017 , we had no investments in a single issuer ( other than securities issued by the u.s. government and government agency ) , which had an aggregate book value in excess of 10 % of our stockholders ' equity . 37 securities portfolio maturities and yields . the following table sets forth the stated maturities and weighted average yields of investment securities at december 31 , 2018 and 2017. weighted-average yields on tax-exempt securities are not presented on a tax equivalent basis . certain mortgage-backed securities have adjustable interest rates and will reprice annually within the various maturity ranges . these repricing schedules are not reflected in the table below . weighted average yield calculations on investment securities available for sale do not give effect to changes in fair value that are reflected as a component of equity .
| the risk rating is monitored annually for most loans ; however , it may change during the life of the loan as appropriate . delinquency procedures . when a borrower fails to make a required loan payment , we take a number of steps to have the borrower cure the delinquency and restore the loan to current status , including contacting the borrower by letter and phone at regular intervals . when the borrower is in default , we may commence collection proceedings . if a foreclosure action is instituted and the loan is not brought current , paid in full , or refinanced before the foreclosure sale , the real property securing the loan may be sold at foreclosure . 32 delinquent loans . the following tables set forth our loan delinquencies , including non-accrual loans , by type and amount at the dates indicated . replace_table_token_9_th replace_table_token_10_th 33 non-performing assets . non-performing assets include loans that are 90 or more days past due or on non-accrual status , including troubled debt restructurings on non-accrual status , and real estate and other loan collateral acquired through foreclosure and repossession . troubled debt restructurings include loans where management has granted a concession from the original terms to a borrower that is experiencing financial difficulties . loans 90 days or greater past due may remain on an accrual basis if adequately collateralized and in the process of collection . for non-accrual loans , interest previously accrued but not collected is reversed and charged against income at the time a loan is placed on non-accrual status . loans generally are returned to accrual status when the borrower has become current and has demonstrated continued ability to service the loan . real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed real estate until it is sold . when property is acquired , it is initially recorded at the fair value less costs to sell
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additionally , increases in health insurance costs and higher transportation costs , across our businesses , further compounded our unfavorable year-over-year performance . as a result , adjusted ebitda declined from $ 85.9 million in fiscal 2017 to $ 78.9 million in fiscal 2018. although our adjusted ebitda was below our expectations , the company believes that it is well positioned , and plans to take advantage of current conditions to increase its share across all markets that we operate in . during fiscal 2018 , the company : ● strengthened its balance sheet - the company continued its responsible stewardship of shareholders ' capital . following the sale of its fannie may and harry london brands in may of 2017 , which resulted in a gain of $ 14.6 million , and added approximately $ 103.6 million of cash to its balance sheet , the company was able to fund its christmas holiday working capital requirements primarily through the use of cash on hand . in fiscal 2018 , the company continued to pay down its outstanding term loan , repurchase shares , and invest in capital to grow its businesses utilizing cash generated from operations . when combined with the company 's amended credit facility , the company believes that its strong balance sheet , and growing cash flows , provide it with significant liquidity and flexibility to invest and enhance future growth , both organically , as well as through potential acquisitions . ● invested in business operations – the company continued to invest in the key areas that will allow for accelerated growth in the future , including : o manufacturing , production and distribution - expanded production capacity for cheryl 's , including the automation of cookie frosting ; expanded its fulfillment capabilities for harry & david , cheryl 's and 1-800-flowers brands ; invested in harry & david orchard plantings , as well as manufacturing and fulfillment technology upgrades , o technology – improved multi-brand responsive wide-screen web design and industry award winning mobile transactional progressive web application platforms , and o business intelligence – customer database mining to effectively market and target key demographics . 21 ● multi-brand customer initiatives - the company continued to expand its multi-brand customer initiatives , a key ingredient in our strategy to enhance customer engagement and facilitate long-term growth . the multi-brand website provides the customer with an enriched shopping experience using cross-brand marketing and merchandising programs and by providing access to the company 's celebrations suite of services , including passport free shipping and reminders membership programs , as well as our digital self-service portal . ● innovation and positioning for emerging technologies – the company has built a reputation as an innovator and an early adopter of new technologies . this was illustrated by the company 's initiatives in conversational commerce , including : o floral industry-first applications on facebook 's messenger platform o voice enabled skill on amazon 's alexa platform o google assistant applications , o apple business chat applications , o samsung chatbot applications , and o google rich business messaging recognizing the need to balance the company 's short and long-term operating and financial objectives , a key tenet of the company 's fiscal 2019 strategy is to accelerate revenue growth through strategic investments in marketing and merchandising programs designed to take advantage of market conditions and build on the momentum gained in the second half of fiscal 2018 across all three of its business segments . in addition , the company is assuming the restoration of 100 percent bonus payout compared with minimal payout in fiscal 2018. as a result , in fiscal 2019 , the company anticipates : ● consolidated revenue growth of 5.0 % -to-7.0 % compared with fiscal 2018 ; ● eps in a range of $ 0.38-to- $ 0.42 ( anticipating a normalized effective tax rate of 26 percent ) ; and ● adjusted ebitda in a range of $ 77.0 million-to- $ 80.0 million . the company anticipates that it will return to double-digit ebitda and eps growth by fiscal 2020. definitions of non-gaap financial measures : we sometimes use financial measures derived from consolidated financial information , but not presented in our financial statements prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . certain of these are considered `` non-gaap financial measures '' under the sec rules . see below for definitions and the reasons why we use these non-gaap financial measures . where applicable , see the segment information and results of operations sections below for reconciliations of these non-gaap measures to their most directly comparable gaap financial measures . these non-gaap financial measures are referred to as “ adjusted '' or “ on a comparable basis ” below , as these terms are used interchangeably . adjusted /comparable revenues adjusted , or comparable , revenues measure gaap revenues adjusted for the effects of acquisitions , dispositions , and other items affecting period to period comparability . see segment information for details on how adjusted revenues were calculated for each period presented . we believe that this measure provides management and investors with a more complete understanding of underlying revenue trends of established , ongoing operations by excluding the effect of activities which are subject to volatility and can obscure underlying trends . management recognizes that the term `` adjusted revenues '' may be interpreted differently by other companies and under different circumstances . although this may influence comparability of absolute percentage growth from company to company , we believe that these measures are useful in assessing trends of the company and its segments , and may therefore be a useful tool in assessing period-to-period performance trends . adjusted gross profit and adjusted gross profit percentage adjusted gross profit measures gaap revenues less cost of revenues , adjusted for the effects of acquisitions , dispositions , and other items affecting period to period comparability . adjusted gross profit percentage measures adjusted gross profit divided by adjusted revenues . story_separator_special_tag see segment information for details on how adjusted gross profit and adjusted gross profit percentage were calculated for each period presented . we believe that these measures provide management and investors with a more complete understanding of underlying gross profit trends of established , ongoing operations by excluding the effect of activities which are subject to volatility and can obscure underlying trends . management recognizes that the term `` adjusted gross profit '' or “ adjusted gross profit percentage ” may be interpreted differently by other companies and under different circumstances . although this interpretation may vary from company to company , we believe that these consistently applied measures are useful in assessing trends of the company and its segments , and may therefore be a useful tool in assessing period-to-period performance trends . ebitda and adjusted ebitda we define ebitda as net income ( loss ) before interest , taxes , depreciation and amortization . adjusted ebitda is defined as ebitda adjusted for the impact of stock-based compensation , non-qualified plan investment appreciation/depreciation , and certain items affecting period to period comparability . see segment information for details on how ebitda and adjusted ebitda were calculated for each period presented . the company presents ebitda because it considers such information a meaningful supplemental measure of its performance and believes such information is frequently used by the investment community in the evaluation of similarly situated companies . the company uses ebitda and adjusted ebitda as factors used to determine the total amount of incentive compensation available to be awarded to executive officers and other employees . the company 's credit agreement uses ebitda and adjusted ebitda to measure compliance with covenants such as interest coverage and debt incurrence . ebitda and adjusted ebitda are also used by the company to evaluate and price potential acquisition candidates . ebitda and adjusted ebitda have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap . some of the limitations are : ( a ) ebitda and adjusted ebitda do not reflect changes in , or cash requirements for , the company 's working capital needs ; ( b ) ebitda and adjusted ebitda do 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 . ebitda should only be used on a supplemental basis combined with gaap results when evaluating the company 's performance . 22 segment contribution margin and adjusted segment contribution margin we define segment contribution margin as earnings before interest , taxes , depreciation and amortization , before the allocation of corporate overhead expenses . adjusted segment contribution margin is defined as segment contribution margin adjusted for certain items affecting period to period comparability . see segment information for details on how segment contribution margin and comparable segment contribution margin were calculated for each period presented . when viewed together with our gaap results , we believe segment contribution margin and comparable segment contribution margin provide management and users of the financial statements information about the performance of our business segments . segment contribution margin and comparable segment contribution margin are used in addition to and in conjunction with results presented in accordance with gaap and should not be relied upon to the exclusion of gaap financial measures . the material limitation associated with the use of the segment contribution margin and adjusted segment contribution margin is that it is an incomplete measure of profitability as it does not include all operating expenses or non-operating income and expenses . management compensates for these limitations when using this measure by looking at other gaap measures , such as operating income and net income . adjusted net income and adjusted net income per common share we define adjusted net income and adjusted net income per common share as net income and net income per common share adjusted for certain items affecting period to period comparability . see segment information below for details on how adjusted net income and adjusted net income per common share were calculated for each period presented . we believe that adjusted net income and adjusted net income per common share are meaningful measures because they increase the comparability of period to period results . since these are not measures of performance calculated in accordance with gaap , they should not be considered in isolation of , or as a substitute for , gaap net income and net income per common share , as indicators of operating performance and they may not be comparable to similarly titled measures employed by other companies . 23 segment information the following table presents the net revenues , gross profit and segment contribution margin from each of the company 's business segments , as well as consolidated ebitda , adjusted ebitda and adjusted net income . replace_table_token_5_th 24 rec onciliation of net income to adjusted net income ( non-gaap ) : replace_table_token_6_th rec onciliation of net income t o adjusted ebitda ( non-gaap ) : replace_table_token_7_th ( a ) 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 .
| the increases above were partially offset by a decline in harry & david revenues , due to the closure of a number of underperforming retail locations , and a reduction in e-commerce demand , primarily during the christmas holiday selling season , and the timing of certain factors including : ( i ) the closing of the company 's sale of the fannie may confection brands business on may 30 , 2017 , ( ii ) a 52-week fiscal year in fiscal 2017 versus 53-week fiscal year in fiscal 2016 , reflecting the company 's retail calendar , and ( iii ) the shift of harry & david 's fruit of the month club® cherries shipment out of the company 's fiscal fourth quarter in fiscal 2017 , due to a late harvest , into the first quarter of fiscal 2018. on a comparable basis , adjusting fiscal year 2016 gaap revenues to remove : ( i ) the 53rd week ( $ 8.0 million ) , ( ii ) fannie may 's june 2016 revenues ( $ 4.8 million ) , and ( iii ) the june 2016 harry & david fruit of the month club® cherry shipment ( $ 2.4 million ) , net revenues during fiscal 2017 increased 3.1 % in comparison to fiscal 2016. e-commerce revenues ( combined online and telephonic sales channels ) increased 2.8 % during the year ended july 1 , 2018 compared to the prior year . on a comparable basis , adjusting fiscal 2017 e-commerce revenues to exclude the revenues of fannie may , e-commerce revenues increased 4.3 % during fiscal 2018 , due to the aforementioned e-commerce growth within the company 's consumer floral segment , as well as growth in the gourmet foods & gift baskets segment , reflecting year-over-year growth by harry & david and 1-800-baskets . during the year ended july 1 , 2018 , the company fulfilled approximately 12.4 million e-commerce orders , at an average order value of $ 74.04 , representing increases of 2.4 % and 0.4 % , respectively , compared to fiscal 2017. adjusted to exclude fannie may 's revenue and orders , in fiscal 2018 , orders increased 5.2 % , while average order value decreased 0.9 % , in comparison to fiscal 2017. e-commerce revenues increased 1.6 % during the year ended july 2 , 2017 compared to the prior year , as a result of the aforementioned e-commerce growth within the company 's consumer floral segment , partially offset by unfavorable e-commerce growth within the gourmet foods & gift baskets segment due
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as a result of continued losses in compx 's marine components reporting unit , we evaluated the recoverability of the marine components long-lived assets during the third quarter of 2013. we determined that the undiscounted cash flows exceed the current net asset value and therefore the marine components long-lived assets are not impaired . however , if our future cash flows from operations less capital expenditures were to drop significantly below our current expectations ( approximately 85 % below our expectations for each of the custom marine and livorsi marine reporting units ) , it is reasonably likely we would conclude an impairment was present . at december 31 , 2013 , the net asset carrying values of custom marine and livorsi marine were $ 3.4 million and $ 2.8 million , respectively . no other long-lived assets in our other reporting unit were tested for impairment during 2013 because there were no circumstances indicating an impairment might exist . · goodwill - our net goodwill totaled $ 27.2 million at december 31 , 2013. we perform a goodwill impairment test annually in the third quarter of each year . goodwill is also evaluated for impairment at other times whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value . all of our net goodwill at december 31 , 2013 is related to compx . in september 2011 , the financial accounting standards board issued asu no . 2011-08 , which provided new guidance on testing goodwill for impairment . the new guidance allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test . an entity is no longer required to calculate the fair value of a reporting unit unless the entity determines , based on a qualitative assessment considering the totality of relevant events and circumstances , that it is more likely than not that its fair value of the reporting unit is less than its carrying amount . we adopted this accounting standard in the third quarter of 2013 . - 33 - · benefit plans - we maintain various defined benefit pension plans and postretirement benefits other than pensions ( opeb ) . the amounts recognized as defined benefit pension and opeb expenses and the reported amounts of pension asset and accrued pension and opeb costs are actuarially determined based on several assumptions , including discount rates , expected rates of returns on plan assets and expected health care trend rates . variances from these actuarially assumed rates will result in increases or decreases , as applicable , in the recognized pension and opeb obligations , pension and opeb expenses and funding requirements . these assumptions are more fully described below under the heading “ assumptions on defined benefit pension plans and opeb plans. ” income taxes - we recognize deferred taxes for future tax effects of temporary differences between financial and income tax reporting . while we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance , it is possible that in the future we may change our estimate of the amount of the deferred income tax assets that would more-likely-than-not be realized in the future resulting in an adjustment to the deferred income tax asset valuation allowance that would either increase or decrease , as applicable , reported net income in the period the change in estimate was made . we record a reserve for uncertain tax positions in accordance with the provisions of asc topic 740 , income taxes , for tax positions where we believe it is more-likely-than-not our position will not prevail with the applicable tax authorities . it is possible that we may change our assessment regarding the probability that our tax positions will prevail that would require an adjustment to the amount of our reserve for uncertain tax positions that could either increase or decrease , as applicable , reported net income in the period the change in assessment was made . see note 14 to our consolidated financial statements . contingencies - we record accruals for environmental , legal and other contingencies and commitments when estimated future expenditures associated with such contingencies become probable , and the amounts can be reasonably estimated . however , new information may become available , or circumstances ( such as applicable laws and regulations ) may change , thereby resulting in an increase or decrease in the amount required to be accrued for such matters ( and therefore a decrease or increase in reported net income in the period of such change ) . income from operations of compx and kronos is impacted by certain significant judgments and estimates , as summarized below : chemicals ( kronos ) - allowance for doubtful accounts , impairment of equity method investments , long-lived assets , defined benefit pension and opeb plans , loss accruals and income taxes , and component products ( compx ) - impairment of goodwill and long-lived assets , loss accruals and income taxes . in addition , general corporate and other items are impacted by the significant judgments and estimates for impairment of marketable securities and equity method investments , defined benefit pension and opeb plans , deferred income tax asset valuation allowances and loss accruals . - 34 - loss from operations attributable to continuing operations the following table shows the components of our loss from operations attributable to continuing operations . replace_table_token_7_th n.m. - not meaningful the following table shows the components of our income before income taxes attributable to continuing operations exclusive of our income from operations . story_separator_special_tag replace_table_token_8_th compx international inc. replace_table_token_9_th net s ales - net sales increased approximately $ 8.8 million in 2013 principally due to higher demand for high security pin tumbler locks within the security products business , and to a lesser extent from an increase in marine component sales outside of the high performance boat market through gains in market share . relative changes in selling prices did not have a material impact on net sales comparisons . - 35 - net sales increased approximately $ 3.4 million in 2012 principally due to growth in customer demand within both of compx 's businesses resulting from somewhat improved economic conditions in north america . additionally , the marine components business experienced a $ .1 million increase in sales to the ski/wakeboard boat market . relative changes in selling prices did not have a material impact on net sales comparisons . cost of s ales and gross margin - cost of sales and gross margin both increased from 2012 to 2013 primarily due to increased sales volumes . as a percentage of sales , cost of sales decreased 1 % resulting in an increase in gross margin of 1 % primarily due to improved cost efficiencies from higher sales , partially offset by higher self-insured medical costs in 2013 as discussed below . cost of sales and gross margin both increased from 2011 to 2012 primarily due to increased sales volumes . as a percentage of sales , cost of sales increased 1 % resulting in a decrease in gross margin of 1 % primarily due to the net effects of the increase in sales partially offset by higher self-insured medical costs as discussed below . operating c osts and expenses - operating costs and expenses consists primarily of sales and administrative related personnel costs , sales commissions and advertising expenses directly related to product sales and administrative costs relating to business unit and corporate management activities , as well as gains and losses on property , plant and equipment . operating costs and expenses increased in 2013 compared to 2012 , and increased in 2012 as compared to 2011 , as a result of increased administrative support costs relating to the higher sales . additionally , in 2012 we incurred higher costs relating to the assets held for sale . write-down and loss on disposal of assets held for sale - we recorded write-downs on assets held for sale of $ 1.1 million and $ 1.2 million ( including a $ .8 million loss on disposal of assets held for sale ) in 2011 and 2012 , respectively , relating to certain facilities held for sale that were no longer in use . the write-downs are included in corporate operating expense . see note 9 to the consolidated financial statements . income from o perations - as a percentage of net sales , compx 's income from operations increased by 3 % in 2013 compared to 2012 and decreased by 1 % in 2012 compared to 2011 and was primarily impacted by the factors affecting cost of sales , gross margin and operating costs discussed above . general - compx 's profitability primarily depends on our ability to utilize our production capacity effectively , which is affected by , among other things , the demand for our products and our ability to control our manufacturing costs , primarily comprising labor costs and materials . the materials used in our products consist of purchased components and raw materials some of which are subject to fluctuations in the commodity markets such as zinc , brass and stainless steel . total material costs represented approximately 44 % of our cost of sales in 2013 , with commodity related raw materials accounting for approximately 11 % of our cost of sales . worldwide commodity raw material costs increased throughout 2011 , although during 2012 and 2013 they were mostly stable . we occasionally enter into short-term commodity related raw material supply arrangements to mitigate the impact of future increases in commodity related raw material costs . these arrangements generally provide for stated unit prices based upon specified purchase volumes , which helps us to stabilize commodity related raw material purchase prices to a certain extent . we enter into such arrangements for zinc and brass . we expect commodity related raw material prices to increase in 2014 in conjunction with higher demand as a result of the expected growth in the world wide economy . these raw materials purchased on the spot market are sometimes subject to unanticipated and sudden price increases . we generally seek to mitigate the impact of fluctuations in commodity raw material costs on our margins through improvements in production efficiencies or other operating cost reductions . in the event we are unable to offset cost increases for these raw materials with other cost reductions , it may be difficult to recover those cost increases through increased product selling prices or raw material surcharges due to the competitive nature of the markets served by our products . consequently , overall operating margins may be affected by raw material cost pressures . - 36 - results by reporting unit the key performance indicator for compx 's reporting units is the level of their income from operations ( see discussion below ) . replace_table_token_10_th security products - security products net sales increased 11 % to $ 81.5 million in 2013 compared to $ 73.7 million in 2012. the increase in sales is primarily due to an increase in sales to certain high security pin tumbler lock customers of $ 7.6 million . growth of our security products operations was aided by our ongoing efforts to diversify our products and customers . income from operations margin percentages increased in 2013 compared to 2012 by 1 % primarily due to improved cost efficiencies from higher sales , partially offset by higher self-insured medical costs of $ .6 million in 2013 , $ .5 million of which impacted cost of sales and $ .1 million of which impacted selling and administration expenses .
| income from continuing operations overview our net loss from continuing operations attributable to nl stockholders was $ 55.3 million , or $ 1.14 per share , in 2013 compared to net income from continuing operations attributable to nl stockholders of $ 56.7 million , or $ 1.16 per share in 2012 and $ 78.1 million , or $ 1.61 per share in 2011. as more fully discussed below , the decrease in our earnings per share attributable to continuing operations from 2012 to 2013 is primarily due to the net effect of : · equity in losses from kronos in 2013 compared to equity in earnings from kronos in 2012 , · higher environmental remediation and related costs in 2013 of $ 54.4 million , · a pre-tax gain on the sale of the shares of the titanium metals corporation ( timet ) common stock we owned in 2012 of $ 16.6 million , · a real-estate litigation settlement gain of $ 15.0 million recognized in 2012 related to the settlement of condemnation proceedings on real property we formerly owned , · higher income from operations from components products in 2013 of $ 3.9 million , and · higher litigation and related costs in 2013 of $ 2.7 million . as more fully discussed below , the decrease in our earnings per share attributable to continuing operations from 2011 to 2012 is primarily due to the net effects of : · lower equity in earnings of kronos in 2012 due to kronos ' lower income from operations , · a pre-tax gain on the sale of the shares of the timet common stock we owned in 2012 of $ 16.6 million , · a real-estate litigation settlement gain of $ 15.0 million recognized in 2012 related to the settlement of condemnation proceedings on real property we formerly owned , · lower insurance recoveries in 2012 of $ 13.6 million due to an insurance recovery settlement in 2011 for certain past defense costs , · goodwill impairment related to our acquisition of ewi of $ 6.4 million in 2012 , · higher environmental remediation and related costs in 2012 of $ 3.2 million , and - 31 - · lower income from operations from components products in 2012 of $ 1.0 million . our 2013 net loss from continuing operations attributable to nl stockholders includes : · income of $ .13 per share , net of income taxes , related to insurance recoveries we recognized , · an aggregate charge of $ .09
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used cores , the used core value of work in process , and the remanufactured core portion of finished goods are classified as long-term core inventory as described below under the caption “ long-term core inventory. ” used cores are a source of raw materials used in the remanufacturing of our products . non-core inventory is stated at the lower of cost or market . the cost of non-core remanufactured inventory approximates average historical purchase prices paid for raw materials , and is based upon the direct costs of material and an allocation of labor and variable and fixed overhead costs . the cost of purchased finished goods inventory approximates average historical purchase prices paid , and an allocation of fixed overhead costs . the cost of non-core inventory is evaluated at least quarterly during the fiscal year and adjusted as necessary to reflect current lower of cost or market levels . these adjustments are determined for individual items of inventory within each of the three classifications of non-core inventory as follows : non-core raw materials are recorded at average cost , which is based on the actual purchase price of raw materials on hand . the average cost is updated quarterly . this average cost is used in the inventory costing process and is the basis for allocation of materials to finished goods during the production process . non-core work in process is in various stages of production and is valued at the average cost of materials issued to the open work orders . historically , non-core work in process inventory has not been material compared to the total non-core inventory balance . the cost of remanufactured finished goods includes the average cost of non-core raw materials and allocations of labor and variable and fixed overhead . the allocations of labor and variable and fixed overhead costs are determined based on the average actual use of the production facilities over the prior twelve months which approximates normal capacity . this method prevents the distortion in allocated labor and overhead costs that would occur during short periods of abnormally low or high production . in addition , we exclude certain unallocated overhead such as severance costs , duplicative facility overhead costs , and spoilage from the calculation and expense these unallocated overhead as period costs . during fiscal 2016 and 2015 there were no unallocated overhead charged directly to cost of sales due to the usage of our u.s. facilities for wheel hub and brake master cylinder products . for the fiscal year ended march 31 , 2014 , approximately $ 1,070,000 was considered unallocated overhead charged directly to cost of sales . 20 we record an allowance for potentially excess and obsolete inventory based upon recent sales history , the quantity of inventory on-hand , and a forecast of potential use of the inventory . we periodically review inventory to identify excess quantities and part numbers that are experiencing a reduction in demand . any part numbers with quantities identified during this process are reserved for at rates based upon management 's judgment , historical rates , and consideration of possible scrap and liquidation values which may be as high as 100 % of cost if no liquidation market exists for the part . the quantity thresholds and reserve rates are subjective and are based on management 's judgment and knowledge of current and projected industry demand . the reserve estimates may , therefore , be revised if there are changes in the overall market for our products or market changes that in management 's judgment , impact our ability to sell or liquidate potentially excess or obsolete inventory . we recorded reserves of $ 3,626,000 and $ 2,675,000 for excess and obsolete inventory at march 31 , 2016 and 2015 , respectively , based on higher inventory levels to support our growth . we record vendor discounts as reductions of inventories that are recognized as reductions to cost of sales as the inventories are sold . inventory unreturned inventory unreturned represents our estimate , based on historical data and prospective information provided directly by the customer , of finished goods shipped to customers that we expect to be returned , under our general right of return policy , after the balance sheet date . because all cores are classified separately as long-term assets , the inventory unreturned balance includes only the added unit value of a finished good . the return rate is calculated based on expected returns within the normal operating cycle of one year . as such , the related amounts are classified in current assets . inventory unreturned is valued in the same manner as our finished goods inventory . long-term core inventory long-term core inventory consists of : used cores purchased from core brokers and held in inventory at our facilities , used cores returned by our customers and held in inventory at our facilities , used cores returned by end-users to customers but not yet returned to us which are classified as remanufactured cores until they are physically received by us , remanufactured cores held in finished goods inventory at our facilities ; and remanufactured cores held at customer locations as a part of the finished goods sold to the customer . for these remanufactured cores , we expect the finished good containing the remanufactured core to be returned under our general right of return policy or a similar used core to be returned to us by the customer , in each case , for credit . long-term core inventory is recorded at average historical purchase prices determined based on actual purchases of inventory on hand . the cost and market value of used cores for which sufficient recent purchases have occurred are deemed the same as the purchase price for purchases that are made in arm 's length transactions . long-term core inventory recorded at average historical purchase prices is primarily made up of used cores for newer products related to more recent automobile models or products for which there is a less liquid market . story_separator_special_tag we must purchase these used cores from core brokers because our customers do not have a sufficient supply of these newer used cores available for the core exchange program . 21 used cores obtained in core broker transactions are valued based on average purchase price . the average purchase price of used cores for more recent automobile models is retained as the cost for these used cores in subsequent periods even as the source of these used cores shifts to our core exchange program . long-term core inventory is recorded at the lower of cost or market value . in the absence of sufficient recent purchases , we use core broker price lists to assess whether used core cost exceeds used core market value on an item by item basis . the primary reason for the insufficient recent purchases is that we obtain most of our used core inventory from the customer core exchange program . we classify all of our core inventories as long-term assets . the determination of the long-term classification is based on our view that the value of the cores is not consumed or realized in cash during our normal operating cycle , which is one year for most of the cores recorded in inventory . according to guidance provided under the fasb asc , current assets are defined as “ assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business. ” we do not believe that core inventories , which we classify as long-term , are consumed because the credits issued upon the return of used cores offset the amounts invoiced when the remanufactured cores included in finished goods were sold . we do not expect the core inventories to be consumed , and thus we do not expect to realize cash , until our relationship with a customer ends , a possibility that we consider remote based on existing long-term customer agreements and historical experience . however , historically for a portion of finished goods sold , our customer will not send us a used core to obtain the credit we offer under our core exchange program . therefore , based on our historical estimate , we derecognize the core value for these finished goods upon sale , as we believe they have been consumed and we have realized cash . we realize cash for only the core exchange program shortfall . this shortfall represents the historical difference between the number of finished goods shipped to customers and the number of used cores returned to us by customers . we do not realize cash for the remaining portion of the cores because the credits issued upon the return of used cores offset the amounts invoiced when the remanufactured cores included in finished goods were sold . we do not expect to realize cash for the remaining portion of these cores until our relationship with a customer ends , a possibility that we consider remote based on existing long-term customer agreements and historical experience . for these reasons , we concluded that it is more appropriate to classify core inventory as long-term assets . long-term core inventory deposit during fiscal 2016 , we completed the core buy-back program with one of our largest customers . as a result of the completion of this buy-back program and related long-term core inventory reconciliations , $ 25,805,000 from long-term core inventory deposit was transferred to remanufactured cores held at customers ' locations within long-term core inventory . at march 31 , 2015 , $ 26,002,000 of remanufactured cores in connection with this core buy-back program was included in long-term core inventory deposit . the remaining long-term core inventory deposit represents the cost of remanufactured cores we have purchased from customers , which are held by the customers and remain on the customers ' premises . the costs of these remanufactured cores were established at the time of the transaction based on the then current cost , determined as noted under the caption “ long-term core inventory ” . the selling value of these remanufactured cores was established based on agreed upon amounts with these customers . we expect to realize the selling value and the related cost of these remanufactured cores when our relationship with a customer ends , a possibility that we consider remote based on existing long-term customer agreement and historical experience . 22 revenue recognition we recognize revenue when our performance is complete , and all of the following criteria have been met : persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the seller 's price to the buyer is fixed or determinable , and collectability is reasonably assured . for products shipped free-on-board ( “ fob ” ) shipping point , revenue is recognized on the date of shipment . for products shipped fob destination , revenues are recognized on the estimated or actual date of delivery . we include shipping and handling charges in the gross invoice price to customers and classify the total amount as revenue . shipping and handling costs are recorded in cost of sales . revenue recognition ; net-of-core-value basis the price of a finished remanufactured product sold to customers is generally comprised of separately invoiced amounts for the remanufactured core included in the product ( “ remanufactured core value ” ) and the unit value . the unit value is recorded as revenue based on our then current price list , net of applicable discounts and allowances . based on our experience , contractual arrangements with customers and inventory management practices , a significant portion of the remanufactured automobile parts we sell to customers are replaced by similar used cores sent back for credit by customers under our core exchange program . in accordance with our net-of-core-value revenue recognition policy , we do not recognize the remanufactured core value as revenue when the finished products are sold .
| our gross profit percentage increased to 27.4 % for fiscal 2016 from 27.0 % for fiscal 2015. this increase was due primarily to overall lower per unit costs from an increased volume of purchases and production resulting in better absorption of overhead . the increase in our fiscal 2016 gross profit was partially offset by the following in connection with new business awarded to us : ( i ) $ 6,807,000 ( consists of net sales offset of $ 7,548,000 less cost of goods sold offset of $ 741,000 ) of returns , customer allowances , and core inventory purchases in connection with certain rotating electrical products , ( ii ) $ 3,396,000 offset to net sales of customer allowances in connection with core inventory purchases for remanufactured brake master cylinder products , ( iii ) $ 3,352,000 ( consists of net sales offset of $ 3,420,000 less cost of goods sold offset of $ 68,000 ) of returns associated with remanufactured brake master cylinder products , and ( iv ) $ 43,000 of start-up costs incurred related to a new product line . our gross profit for fiscal 2015 was impacted by ( i ) $ 5,746,000 ( offset to net sales ) of customer allowances recorded for the core purchases in connection with the new business awarded to us in our rotating electrical product line , which we began shipping in january 2015 , ( ii ) $ 5,003,000 ( consists of net sales offset of $ 5,468,000 less cost of goods sold offset of $ 465,000 ) recorded in connection with the returns of certain wheel hub and new brake master cylinder products , ( iii ) $ 2,879,000 offset to net sales of customer allowance recorded in connection with certain core inventory purchases , ( iv ) $ 2,819,000 offset to net sales of initial warranty accrual set up for the new brake master cylinder products and the new business awarded to us in our existing product lines , ( v ) $ 1,070,000 offset to net sales of upfront customer allowances incurred , ( vi ) $ 537,000 ( offset to net sales of $ 1,055,000
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optical security and performance products our osp segment leverages its core optical coating technologies and volume manufacturing capability to design , manufacture , and sell products targeting anti-counterfeiting , consumer and industrial , government , automotive , industrial and other markets . our anti-counterfeiting offerings for the currency market include ovp® and ovmp® . ovp® enables a color-shifting effect used by banknote issuers and security printers worldwide for anti-counterfeiting applications on banknotes and other high-value documents . we also provide ovmp® , a technology that delivers depth and motion effects for authenticating banknotes . our anti-counterfeiting technologies are deployed on the banknotes of more than 100 countries today . leveraging our expertise in spectral management and our unique high-precision coating capabilities , osp provides a range of products and technologies for the consumer and industrial market , including , for example , 3d sensing optical filters and engineered diffusers tm . osp value-added solutions meet the stringent requirements of commercial and government customers . our products are used in a variety of aerospace and defense applications , including optics for guidance systems , laser eye protection and night vision systems . these products , including coatings and optical filters , are optimized for each specific application . osp serves customers such as sicpa holding sa company ( sicpa ) , stmicroelectronics holding n.v. , lockheed martin corporation and seiko epson corporation . covid-19 pandemic update the covid-19 pandemic has confirmed cases in the u.s. and most of the countries and territories we operate in worldwide . the pandemic has prompted authorities worldwide to implement measures to contain the virus , which include and are not limited to , travel bans and restrictions , quarantines , shelter-in-place orders , temporary business closures among others . the covid-19 pandemic and these aforementioned measures , have had and continue to have , a substantial macroeconomic impact on businesses and economies worldwide . these conditions may continue and result in an adverse impact to our operations . our priority during the covid-19 pandemic has remained focused on protecting the health and safety of all those we serve , - our employees , customers , suppliers , and communities , including implementing early and regular updates to our health and safety policies and procedures . we have shut down , slowed , or modified business operations and activities in certain geographies , including in some instances , limiting production to essential business services , all in conjunction with federal , state , and local health and safety regulations and shelter-in-place directives . we continue to follow the guidance of local and national governments , including monitoring the health of our employees who have returned to our offices , by limiting the gathering size of employee groups in indoor spaces per social distancing guidelines , and requiring those employees to wear masks and to undergo screenings prior to entering our offices . 28 the covid-19 pandemic has not had a substantial net impact on our liquidity position in the second half of the fiscal year . we continue to generate operating cash flows to meet our short-term liquidity needs , and we expect to maintain access to the capital markets enabled by our strong credit ratings . to date , we have not observed any material or materially adverse indication of impairments under the authoritative guidance , to any of our assets or a significant change to the fair value of assets due to the covid-19 pandemic . we have experienced and may continue to experience disruption of our facilities , suppliers and contract manufacturers , which has and may continue to negatively impact our sales and operating results . in addition , we have experienced and may continue to experience shipping and logistics challenges as many of our customers have also closed their facilities and are operating under similar restrictions . both ne and se net revenue declined in the second half of fiscal 2020. ne revenue declined as the covid-19 pandemic resulted in certain customer operation and logistic shutdowns that resulted in shipment or acceptance delays , which resulted in a demand slowdown in field instruments with orders pushed out into future periods , and se revenue declined as customers were unable to provide on-site verification and acceptance due to facility closures and other restrictions . we have a global supply chain footprint with our primary manufacturing partners located in china , france , germany , united kingdom and the united states . supply chain challenges resulting from the covid-19 pandemic such as diminished manufacturing capacity and materials shortages resulted in extended lead-times to our customers , increased logistics costs , and impacted the volume of product we were able to deliver , which negatively impacted our ability to fully recognize the associated revenue in the second half of 2020. while covid-19 has brought unprecedented challenges , we believe that we have a robust and adaptable supply chain . our supply chain team has been working to meet our customer needs by executing on a risk mitigation plan , including multi-sourcing , pre-ordering components , transforming our logistics network , prioritizing critical customers , working with local government agencies to understand challenges , and partnering on solutions that limit disruptions to our operations while ensuring the safety of our employees , partners and suppliers . we have also experienced shipping and logistics challenges with respect to our ne field instruments products as many of our customers closed facilities and are continuing to operate under similar restrictions , and have delayed purchase decisions or placed orders on hold due to shipment or acceptance delays . in addition , many of our customers have been unable provide on-site verification and acceptance of our se products due to facility closures and other restrictions . capital markets and worldwide economies have also been significantly impacted by the covid-19 pandemic , and on june 8 , 2020 , the national bureau of economic research announced that the u.s. was in a recession . story_separator_special_tag deterioration of macro-economic conditions could have a material adverse impact on our longer-term business as customers curtail and reduce overall spending . as the pandemic spread across the globe , there has been a tightening of the credit markets . we entered into a $ 300 million secured credit facility in may 2020 to strengthen our liquidity position but have not drawn on this facility to date . under a prolonged global recession , we could face future liquidity challenges and may not be able to obtain additional financing on favorable terms or at all . despite the continued challenges that we are facing due to the covid-19 pandemic , we remain confident that the actions that we are taking to manage such challenges , combined with our strong liquidity , position us well to navigate through the current economic environment and continue to execute on our long-term value creation strategy . recently issued accounting pronouncements refer to “ note 2. recently issued accounting pronouncements ” regarding the effect of certain recent accounting pronouncements on our consolidated financial statements . critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( u.s. gaap ) , which require management to make judgments , estimates and assumptions that affect the reported amounts of assets and liabilities , net revenue and expenses , and the disclosure of contingent assets and liabilities . our estimates are based on historical experience and assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities . we believe that the accounting estimates employed and the resulting balances are reasonable ; however , actual results may differ from these estimates and such differences may be material . we believe the following critical accounting policies are affected by significant estimates , assumptions and judgments used in the preparation of our consolidated financial statements : 29 revenue recognition we derive revenue from a diverse portfolio of network solutions and optical technology products and services , as follows : products : ne and se products include instruments , microprobes and perpetual software licenses that support the development , production , maintenance and optimization of network systems . our osp products include proprietary pigments used for optical security and optical filters used in commercial and government 3d sensing applications . services : we also offer a range of product support and professional services designed to comprehensively address customer requirements . these include repair , calibration , extended warranty , software support , technical assistance , training and consulting services . implementation services provided in conjunction with hardware or software solution projects include sale of the products along with project management , set-up and installation . steps of revenue recognition we account for revenue in accordance with the revenue standard , in which the following five steps are applied to recognize revenue : 1. identify the contract with a customer : generally , we consider customer purchase orders which , in some cases are governed by master sales or other purchase agreements , to be the customer contract . all of the following criteria must be met before we consider an agreement to qualify as a contract with a customer under the revenue standard : ( i ) it must be approved by all parties ; ( ii ) each party 's rights regarding the goods and services to be transferred can be identified ; ( iii ) the payment terms for the goods and services can be identified ; ( iv ) the customer has the ability and intent to pay and collection of substantially all of the consideration is probable ; and , ( v ) the agreement has commercial substance . we exercise reasonable judgment to determine the customer 's ability and intent to pay , which is based upon various factors including the customer 's historical payment experience or credit and financial information and credit risk management measures that we implement . 2. identify the performance obligations in the contract : we assess whether each promised good or service is distinct for the purpose of identifying the various performance obligations in each contract . promised goods and services are considered distinct provided that : ( i ) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and ( ii ) our promise to transfer the good or service to the customer is separately identifiable or distinct from other promises in the contract . our performance obligations consist of a variety of products and services offerings , which include networking equipment ; proprietary pigment ; optical filters ; proprietary software licenses ; and support and maintenance , which includes hardware support that extends beyond our standard warranties , software maintenance , installation , professional and implementation services , and training . identifying and evaluating whether products and services are considered distinct performance obligations may require significant judgment particularly in nse due to the underlying nature of the product and service offerings . we may enter into contracts that involve a significant level of integration and interdependency between a software license and installation services . judgment may be required to determine whether the software license is considered distinct in the context of the contract and accounted for separately , or not distinct in the context of the contract and accounted for together with the installation service . 3. determine the transaction price : transaction price reflects the amount of consideration to which we expect to be entitled in exchange for transferring goods or services to the customer . our contracts may include terms that could cause variability in the transaction price including rebates , sales returns , market incentives and volume discounts . variable consideration is generally accounted for at the portfolio level and estimated based on historical information .
| fiscal 2019 and 2018 if currency exchange rates had been constant in fiscal 2019 and 2018 , our consolidated net revenue in “ constant dollars ” would have increased by approximately $ 13.7 million , or 1.2 % of net revenue , which primarily impacted our ne and se segments . the impact of foreign currency fluctuations on net revenue was not indicative of the impact on net income due to the offsetting foreign currency impact on operating costs and expenses . if currency exchange rates had been constant in fiscal 2019 and 2018 , our consolidated operating expenses in “ constant dollars ” would have increased by approximately $ 10.1 million , or 0.9 % of net revenue . the results of operations are presented in accordance with u.s. gaap and not using constant dollars . refer to item 7a . qualitative and quantitative disclosures about market risk of this annual report on form 10-k for further details on foreign currency instruments and our related risk management strategies . net revenue revenue from our service offerings exceeds 10 % of our total consolidated net revenue and is presented separately in our consolidated statements of operations . service revenue primarily consists of maintenance and support , extended warranty , professional services and post-contract support in addition to other services such as calibration and repair services . when evaluating the performance of our segments , management focuses on total net revenue , gross profit and operating income and not the product or service categories . consequently , the following discussion of business segment performance focuses on total net revenue , gross profit , and operating income consistent with our approach for managing the business . fiscal 2020 and 2019 net revenue increase d by $ 6.0 million , or 0.5 % , during fiscal 2020 compared to fiscal 2019 . this increase was driven by a slight growth in ne revenue , partially offset by a small decrease in our osp and se segments . product revenues remained relatively flat by $ 1.0 million , or 0.1 % , during fiscal 2020 compared to fiscal 2019
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we submitted an investigational new drug application , or ind , to the fda in december 2017 and initiated a phase 2 clinical trial utilizing sb206 for the treatment of molluscum in the first quarter of 2018. the phase 2 multi-center , randomized , double-blind , vehicle-controlled , ascending dose clinical trial evaluated the efficacy , safety and tolerability of sb206 in 256 patients , ages 2 and above , with molluscum . patients were treated with one of three concentrations of sb206 or vehicle for up to 12 weeks . the primary endpoint is the proportion of patients achieving complete clearance of all molluscum lesions at week 12. we announced top-line results from this phase 2 clinical trial in the fourth quarter of 2018. sb206 demonstrated statistically significant results in the clearance of all molluscum lesions at week 12 , with signs of efficacy evident as early as week 2 with the 12 % once-daily dose . the safety and tolerability profiles were favorable overall with no serious adverse events reported , including the most effective dose , sb206 12 % once-daily . with the full results from this phase 2 trial made available , we held an end-of-phase 2 ( type b ) meeting with the fda in early march 2019. based on this meeting and the written minutes received , we target commencing the phase 3 development program for molluscum including two pivotal clinical trials in the second quarter of 2019 with sb206 12 % once-daily as the active treatment arm , subject to obtaining additional financing or strategic partnering . we are completing our clinical development plan for these trials , have engaged a contract research organization , or cro , for the execution of the pivotal trials and have conducted certain clinical start-up procedures . if we initiate this program in the second quarter of 2019 , we target top line results in the first half of 2020. refer to the section entitled “ liquidity and capital resources ” for further discussion of our current liquidity and our current and future funding needs . sb414 , a topical cream for the treatment of inflammatory skin diseases in 2018 , we completed two complementary phase 1b clinical trials with sb414 in patients with atopic dermatitis and psoriasis . the design of these complementary trials was to evaluate the safety , tolerability and pharmacokinetics of sb414 . the trials were also designed to assess overall and specific target engagement through a reduction of key inflammatory biomarkers , also known as pharmacodynamic assessment . we initiated a phase 1b trial with sb414 in adults with mild-to-moderate atopic dermatitis in december 2017. in the phase 1b trial , 48 adults with mild-to-moderate atopic dermatitis with up to 30 % body surface area at baseline , were randomized to receive one of 2 % sb414 cream , 6 % sb414 cream , or vehicle , twice daily for two weeks . in the complimentary phase 1b trial for mild-to-moderate chronic plaque psoriasis , 36 adults received sb414 6 % cream or vehicle twice daily for four weeks . atopic dermatitis we received and analyzed the preliminary top line results from the phase 1b clinical trials during the second and third quarters of 2018. in the atopic dermatitis trial , biomarkers from the th2 , th17 and th22 inflammatory pathways known to be highly relevant and indicative of atopic dermatitis , including interleukin-13 , or il-13 , il-4r , il-5 , il-17a and il-22 , were downregulated after two weeks of treatment with sb414 2 % . the changes in th2 and th22 biomarkers and clinical efficacy assessed as the percent change in eczema area severity index scores were highly correlated in the sb414 2 % group . additionally , the proportion of patients achieving a greater than or equal to 3-point improvement on the pruritus ( itch ) numeric rating scale after two weeks of treatment was greater for patients treated with sb414 2 % compared to patients treated with vehicle . the 2 % or 6 % doses of sb414 in the trial did not result in any serious adverse events , and sb414 2 % was more tolerable with no patients discontinuing treatment in the trial due to application site reactions . sb414 at the 6 % dose was not consistently effective in reducing biomarkers across both the atopic dermatitis and psoriasis trials . this lack of consistent biomarker movement could potentially be explained by the increased irritation score experienced by patients treated with sb414 6 % . additionally , sb414 6 % showed detectable systemic exposure in a subset of patients , which cleared in nearly all affected 60 patients within 12 hours , in both the atopic dermatitis and psoriasis trials . given the successful downregulation of key biomarkers , favorable tolerability and lack of systemic exposure with sb414 2 % , we intend to conduct a phase 2 trial of sb414 as a treatment for atopic dermatitis and additional exploratory trials in other inflammatory skin diseases , subject to obtaining additional financing or strategic partnering . psoriasis we initiated clinical development of sb414 , the company 's first use of our nitric oxide platform in the field of immunology by dosing the first patient in october 2017 in a phase 1b clinical trial to evaluate sb414 in a cream for the treatment of psoriasis . earlier in 2017 , we presented mechanistic evidence for sb414 , demonstrating a statistically significant reduction in composite psoriasis scores and an inhibition of il-17a and il-17f in an animal model . the purpose of the phase 1b trial was to evaluate safety and to assess target engagement through a reduction of key pro-inflammatory biomarkers like interleukin-17 , or il-17 , before progressing to phase 2 clinical trials . according to a recent peer-reviewed article in the british journal of dermatology , il-17 is known to be or is likely to be related to the mechanism and severity of a number of inflammatory skin disorders , including psoriasis , acne , atopic dermatitis , rosacea and alopecia areata . story_separator_special_tag in the phase 1b trial for mild-to-moderate chronic plaque psoriasis , 36 adults received sb414 6 % cream or vehicle twice daily for four weeks . we received and analyzed the preliminary top line results from this phase 1b clinical trial during the second and third quarters of 2018. sb414 at the 6 % dose did not result in any serious adverse events , but sb414 at the 6 % dose was not consistently effective in reducing biomarkers across the trial . this lack of consistent biomarker movement could potentially be explained by the increased irritation score experienced by patients treated with sb414 6 % . additionally , sb414 6 % showed detectable systemic exposure in a subset of patients , which cleared in nearly all affected patients within 12 hours . based on the results of the phase 1b trial in psoriasis , we will potentially explore the use of lower doses of sb414 in psoriasis , subject to obtaining additional financing or strategic partnering . sb204 , for the treatment of acne vulgaris in the second quarter of 2018 , we conducted a type c meeting to further discuss the path forward for our sb204 candidate and possible phase 3 programs for the treatment of acne vulgaris with the fda , and the potential for proceeding with a more narrowly defined patient segmentation . in that meeting , our focus was centered specifically on the severe patient population . in the third quarter of 2018 , the fda provided feedback in their minutes on two paths forward for the acne indication , confirming the need for one additional pivotal trial for moderate-to-severe acne patients prior to a nda submission or , as an alternative , additional preliminary trials for a severe-only patient population . following receipt of fda feedback via written minutes , we have determined that the most pragmatic development pathway for us will be to conduct one additional pivotal phase 3 trial in moderate-to-severe acne patients . we have completed our clinical development plan for this additional trial and have conducted certain initial clinical start-up procedures for a targeted trial initiation during the second half of 2019 , subject to obtaining additional financing or strategic partnering . business updates expansion of partnership with sato in japanese territory on october 5 , 2018 , we and sato pharmaceutical co. , ltd. entered into the second amendment to the initial license agreement dated january 12 , 2017 , or the sato amendment . the initial license agreement had focused on the development and commercialization of sb204 for the treatment of acne vulgaris in japan . the sato amendment also provides sato with the exclusive rights to develop and commercialize sb206 and related dosage forms for the treatment of viral skin infections , including but not limited to molluscum contagiosum and external genital warts , in japan . under the terms of the sato amendment , we will receive an upfront payment from sato of 1.25 billion jpy ( approximately $ 11.1 million usd ) to be paid in installments over the subsequent 12 months . we received the first installment of 0.25 billion jpy ( approximately $ 2.2 million usd ) in october 2018 and the second installment of 0.5 billion jpy ( approximately $ 4.5 million usd ) in march 2019. as part of the revised agreement , the parties adjusted potential future development and regulatory milestone payments , added additional sales-based milestone payments and adopted a tiered royalty structure on net sales of sb204 and sb206 in japan . while we will work closely with sato on the progression of these assets , sato is responsible for funding the development and commercial costs for the programs that are specific to japan . we expect the upfront installment payments under the amended license agreement to provide funding for a portion of our 2019 operating cash requirements . 61 drug substance and drug product agreements on october 15 , 2018 , we established a strategic alliance with orion , a finnish full-scale pharmaceutical company with broad experience in manufacturing . the alliance enables orion to manufacture our topical nitric oxide-releasing product candidates on our behalf and on the behalf of our global strategic partners . we have executed a master contract manufacturing agreement to enable technology transfer and manufacturing of clinical trial materials for future clinical trials with our topical product candidates . we plan to transfer the technology for the manufacture of sb204 and intend for orion to be able to manufacture the drug product , or the finished dosage form of the gel , in accordance with our established manufacturing processes , in compliance with applicable regulatory guidelines , as appropriate for clinical trials and alongside our current internal manufacturing capabilities . while the initial framework of the agreement enables the manufacture of sb204 , the companies plan to evaluate expanding the agreement to include other product candidates for the manufacture of clinical trial materials and , potentially , commercial quantities . importantly , this alliance is intended to support major global markets in which we and our partners pursue regulatory approvals for our product candidates and complements our present internal capability . we have selected a preferred cmo to manufacture our api upon completion of the transfer of manufacturing processes and analytical methods . in march 2019 , we signed a letter of intent with a full-scale api manufacturer , a cmo , for the production of our proprietary drug substance . the scope of this initial letter of intent includes the process and analytical method transfer necessary to advance the development and large-scale manufacture of our drug substance . our relationships with the aforementioned third-party manufacturers are integral to our operating strategy which includes an increased utilization of and reliance upon third-party vendors and strategic partners for the performance of activities , processes and services that ( i ) do not result in the generation of significant new intellectual property and ( ii ) can leverage existing robust infrastructure , systems , and facilities as well as associated subject matter expertise .
| these program costs were partially offset by an increase of $ 4.6 million in our sb206 program as we conducted a phase 2 clinical trial in molluscum contagiosum in 2018. we also had an increase in unallocated internal research and development expenses of $ 0.8 million due to a $ 1.9 million increase in facility , manufacturing , material and related consulting costs , which was offset by a $ 1.1 million decrease in research and development personnel costs . the increase of $ 1.9 million in facility , manufacturing , material and related consulting costs is associated with certain activities in 2018 that focused on optimizing the safety , quality and efficiency of our drug substance and drug product manufacturing capabilities , including our initial preparations to begin technical transfer of manufacturing methods and processes to third parties . the $ 1.9 million increase in facility , manufacturing , material and related consulting costs consists of ( i ) an increase in depreciation and asset write-offs of $ 0.4 million , ( ii ) purchases and testing of raw materials of $ 0.5 million and ( iii ) third-party manufacturing and facility consulting costs of $ 1.0 million , including $ 0.6 million paid to cilatus biopharma ag , or cilatus . cilatus is majority-owned by malin corporation plc . malin corporation plc is the parent company of malin life sciences holdings limited ( “ malin ” ) , which beneficially owns approximately 10 % of our outstanding common stock . the $ 1.1 million decrease in personnel costs consists of ( i ) a decrease in non-cash stock compensation expense of $ 0.6 million , ( ii ) a decrease of $ 0.4 million related to decreased personnel and related costs to support and administer our active development programs and ( iii ) a decrease of $ 0.1 million in personnel recruiting costs . the $ 0.6 million decrease in non-cash stock compensation expense was partially related to certain discrete charges of $ 0.4 million during the year ended december 31 , 2017
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the fair value of buildings , tenant improvements , and leasing costs are based upon current market replacement costs and other relevant market rate information . the fair value of the above-market or below-market component of an acquired lease is based upon the present value ( calculated using a market discount rate ) of the difference between ( i ) the contractual rents to be paid pursuant to the lease over its remaining term and ( ii ) management 's estimate of the rents that would be paid using fair market rental rates and rent escalations at the date of acquisition over the remaining term of the lease . an identifiable intangible asset or liability is recorded if there is an above-market or below-market lease at an acquired property . the fair value of acquired in-place leases is derived based on our assessment of lost revenue and costs incurred for the period required to lease the “ assumed vacant ” property to the occupancy level when purchased . this fair value is based on a variety of considerations including , but not necessarily limited to : ( 1 ) the value associated with avoiding the cost of originating the acquired in-place leases ; ( 2 ) the value associated with lost revenue related to tenant reimbursable operating costs estimated to be incurred during the assumed lease-up period ; and ( 3 ) the value associated with lost rental revenue from existing leases during the assumed lease-up period . factors considered in performing these analyses include an estimate of the carrying costs during the expected lease-up periods , such as real estate taxes , insurance , and other operating expenses , current market conditions , and costs to execute similar leases , such as leasing commissions , legal , and other related expenses . the amounts recorded for above-market leases are included in other assets on the balance sheets , and the amounts for below-market leases are included in other liabilities on the balance sheets . these amounts are amortized on a straight-line basis as an adjustment to rental income over the remaining term of the applicable leases . the amounts recorded for in-place leases are included in intangible assets on the balance sheets . these amounts are amortized as an increase to depreciation and amortization expense over the remaining term of the applicable leases . the determination of the fair value of the acquired tangible and intangible assets and assumed liabilities of operating property acquisitions requires significant judgment about the numerous inputs discussed above . the use of different assumptions in these fair value calculations could significantly affect the reported amounts of the allocation of the acquisition related assets and liabilities and the related amortization and depreciation expense recorded for such assets and liabilities . in addition , since the values of above-market and below-market leases are amortized as either a reduction or increase to rental income , respectively , the judgments for these intangibles could have a significant impact on reported rental revenues and results of operations . depreciation and amortization . we depreciate or amortize operating real estate assets over their estimated useful lives using the straight-line method of depreciation . we use judgment when estimating the useful life of real estate assets and when allocating certain indirect project costs to projects under development , which are amortized over the useful life of the property once it becomes operational . historical data , comparable properties , and replacement costs are some of the factors considered in determining useful lives and cost allocations . the use of different assumptions for the estimated useful life of assets or cost allocations could significantly affect depreciation and amortization expense and the carrying amount of our real estate assets . impairment . we review our real estate assets on a property-by-property basis for impairment . this review includes our operating properties , properties under development , and land holdings . the first step in this process is for us to determine whether an asset is considered to be held and used or held for sale , in accordance with accounting guidance . in order to be considered a real estate asset held for sale , we must , among other things , have the authority to commit to a plan to sell the asset in its current condition , have commenced the plan to sell the asset , and have determined that it is probable that the asset will sell within one year . if we determine that an asset is held for sale , we must record an impairment loss if the fair value less costs to sell is less than the carrying amount . all real estate assets not meeting the held for sale criteria are considered to be held and used . in the impairment analysis for assets held and used , we must use judgment to determine whether there are indicators of impairment . for operating properties , these indicators could include a decline in a property 's leasing percentage , a current period operating loss or negative cash flows combined with a history of losses at the property , a decline in lease rates for that property or others in the property 's market , or an adverse change in the financial condition of significant tenants . for land holdings , indicators could include an overall decline in the market value of land in the region , a decline in development activity for the intended use of the land , or other adverse economic and market conditions . for projects under development , indicators could include material budget overruns without a corresponding funding source , significant delays in construction , occupancy , or 23 stabilization schedule , regulatory changes or economic trends that have a significant impact on the market , or an adverse change in the financial condition of a significant tenant . if we determine that an asset that is held and used has indicators of impairment , we must determine whether the undiscounted cash flows associated with the asset exceed the carrying amount of the asset . story_separator_special_tag if the undiscounted cash flows are less than the carrying amount of the asset , we must reduce the carrying amount of the asset to fair value . in calculating the undiscounted net cash flows of an asset , we must estimate a number of inputs . for operating properties , we must estimate future rental rates , expenditures for future leases , future operating expenses , and market capitalization rates for residual values , among other things . for land holdings , we must estimate future sales prices as well as operating income , carrying costs , and residual capitalization rates for land held for future development . for projects under development , we must estimate the cost to complete construction , time period of lease-up , future rental rates , expenditures for future leases , future operating expenses , market capitalization rates for residual values , and future sales price , among other things . in addition , if there are alternative strategies for the future use of the asset , we must assess the probability of each alternative strategy and perform a probability-weighted undiscounted cash flow analysis to assess the recoverability of the asset . we must use considerable judgment in determining the alternative strategies and in assessing the probability of each strategy selected . in determining the fair value of an asset , we exercise judgment on a number of factors . we may determine fair value by using a discounted cash flow calculation or by utilizing comparable market information . we must determine an appropriate discount rate to apply to the cash flows in the discounted cash flow calculation . we must use judgment in analyzing comparable market information because no two real estate assets are identical in location and price . the estimates and judgments used in the impairment process are highly subjective and susceptible to frequent change . if we determine that an asset is held and used , the results of operations could be materially different than if we determine that an asset is held for sale . different assumptions we use in the calculation of undiscounted net cash flows of a project , including the assumptions associated with alternative strategies and the probabilities associated with alternative strategies , could cause a material impairment loss to be recognized when no impairment is otherwise warranted . our assumptions about the discount rate used in a discounted cash flow estimate of fair value and our judgment with respect to market information could materially affect the decision to record impairment losses or , if required , the amount of the impairment losses . investment in joint ventures we hold ownership interests in a number of joint ventures with varying structures . we evaluate all of our joint ventures and other variable interests to determine if the entity is a variable interest entity ( “ vie ” ) , as defined in accounting rules . if the venture is a vie , and if we determine that we are the primary beneficiary , we consolidate the assets , liabilities , and results of operations of the vie . quarterly , we reassess our conclusions as to whether the entity is a vie and whether consolidation is appropriate as required under the rules . for entities that are not determined to be vies , we evaluate whether or not we have control or significant influence over the joint venture to determine the appropriate consolidation and presentation . generally , entities under our control are consolidated , and entities over which we can exert significant influence , but do not control , are not consolidated and are accounted for under the equity method of accounting . we use judgment to determine whether an entity is a vie , whether we are the primary beneficiary of the vie , and whether we exercise control over the entity . if we determine that an entity is a vie and we are the primary beneficiary or if we conclude that we exercise control over the entity , the balance sheets and statements of operations would be significantly different than if we concluded otherwise . in addition , vies require different disclosures in the notes to the financial statements than entities that are not vies . we may also change our conclusions and , thereby , change our balance sheets , statements of comprehensive income , and notes to the financial statements , based on facts and circumstances that arise after the original consolidation determination is made . these changes could include additional equity contributed to entities , changes in the allocation of cash flow to entity partners , and changes in the expected results within the entity . we perform an impairment analysis of the recoverability of our investments in joint ventures on a quarterly basis . as part of this analysis , we first determine whether there are any indicators of impairment at any property held in a joint venture investment . if indicators of impairment are present for any of our investments in joint ventures , we calculate the fair value of the investment . if the fair value of the investment is less than the carrying value of the investment , we must determine whether the impairment is temporary or other than temporary , as outlined in gaap . if we assesses the impairment to be temporary , we do not record an impairment charge . if we conclude that the impairment is other than temporary , we record an impairment charge . we use considerable judgment in the determination of whether there are indicators of impairment present and in the assumptions , estimations , and inputs used in calculating the fair value of the investment . these judgments are similar to those outlined above in the impairment of real estate assets .
| at year-end , we had cash balances ( including restricted cash ) of $ 2.7 million , no amounts outstanding under our credit facility , and total consolidated debt of $ 1.1 billion , consistent with that of the prior year . in 2018 , we leased or renewed 1.6 million square feet of office space . the weighted average net effective rent per square foot , representing base rent less operating expense reimbursements and leasing costs , for new or renewed non-amenity leases with terms greater than one year was $ 23.35 per square foot . cash basis net effective rent per square foot increased 13.2 % on spaces that had been previously occupied in the past year . cash basis net effective rent represents net rent at the end of the term paid by the prior tenant compared to the net rent at the beginning of the term paid by the current tenant . our same property net operating income for the year increased by 2.1 % on a gaap basis and 4.7 % on a cash basis . the same property percentage leased increased slightly from 94.1 % at year-end 2017 to 94.5 % at year-end 2018. market conditions we believe that the sunbelt region , and in particular the five sunbelt markets in which we operate , possess some of the most attractive economic and real estate fundamentals in the nation . our markets are located in states that lead the nation in net migration as residents relocate from the northeast , midwest , and west coast to our markets . this migration , when combined with historically low levels of new supply , has led to steady office absorption and positive rent growth , supporting healthy office fundamentals . we believe that we are well positioned to benefit from , and ultimately outperform in , the current real estate environment . our atlanta portfolio totals 6.9 million square feet , representing 41.5 % of our net operating income for the fourth quarter of 2018 and was 93.4 % leased at december 31 , 2018. in addition , we had two projects under development in atlanta at december 31 , 2018 , one office property and
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f-4 odonate therapeutics , inc. statements of stockholders ' equity ( in thousands , except share amounts ) replace_table_token_15_th see accompanying notes . f-5 odonate therapeutics , inc. statements of cash flows ( in thousands ) replace_table_token_16_th see accompanying notes . f-6 odonate therapeutics , inc. notes to financial statements 1. story_separator_special_tag financial condition and results of operations you should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and the related notes and other financial information included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , include forward-looking statements that involve risks and uncertainties . you should review the “ risk factors ” set forth in this annual report on form 10-k for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a pharmaceutical company dedicated to the development of best-in-class therapeutics that improve and extend the lives of patients with cancer . our initial focus is on the development of tesetaxel , an investigational , orally administered chemotherapy agent that belongs to a class of drugs known as taxanes , which are widely used in the treatment of cancer . tesetaxel has several pharmacologic properties that make it unique among taxanes , including : oral administration with a low pill burden ; a long ( ~8-day ) terminal plasma half-life in humans , enabling the maintenance of adequate drug levels with relatively infrequent dosing ; no history of hypersensitivity ( allergic ) reactions ; and significant activity against chemotherapy-resistant tumors . in patients with metastatic breast cancer ( “ mbc ” ) , tesetaxel was shown to have significant , single-agent antitumor activity in two multicenter , phase 2 studies . we are currently conducting three studies in breast cancer , including a multinational , multicenter , randomized , phase 3 study in patients with mbc , known as contessa . enrollment in contessa is complete , and we expect to report top-line results from this study in the third quarter of 2020. our goal for tesetaxel is to develop an effective chemotherapy choice for patients that provides quality-of-life advantages over current alternatives . story_separator_special_tag provide for termination on notice and , therefore , are cancelable contracts . in 2013 , we licensed rights to tesetaxel in all major markets from daiichi sankyo company , limited ( “ daiichi sankyo ” ) , the original inventor of the product . under the daiichi sankyo license agreement , we are obligated to use commercially reasonable efforts to develop and commercialize tesetaxel in the following countries : france , germany , italy , spain , the united kingdom and the u.s. we are required to make aggregate future milestone payments of up to $ 31.0 million , contingent on attainment of certain 59 regulatory milestones . additionally , we are obligated to pay daiichi sankyo a tiered royalty that ranges from the low to high single digits , depending on annual net sales of tesetaxel . off–balance sheet arrangements during the periods presented , we did not have , nor do we currently have , any off-balance sheet arrangements as defined under the rules of the sec . jumpstart our business startups act we are an emerging growth company , as defined in the jumpstart our business startups act of 2012 ( the “ jobs act ” ) . under this act , an emerging growth company can delay the adoption of new or revised accounting standards issued subsequent to the enactment of the jobs act until those standards would otherwise apply to private companies . we have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and , therefore , will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . however , we intend to rely on other exemptions provided by the jobs act , including without limitation , not being required to comply with the auditor attestation requirements of section 404 ( b ) of the sarbanes-oxley act of 2002 , as amended . we will remain an emerging growth company until december 31 , 2023 unless , prior to that time , we : ( i ) have more than $ 1.07 billion in annual gross revenue ; ( ii ) have a market value for our common stock held by non-affiliates of more than $ 700 million as of the last day of our second quarter of any year ; or ( iii ) issue more than $ 1.0 billion of non-convertible debt over a three-year period . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial condition and results of operations is based on our audited financial statements , which have been prepared in accordance with generally accepted accounting principles in the u.s. ( “ gaap ” ) . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported expenses during the reporting periods . these items are monitored and analyzed by us for changes in facts and circumstances , and material changes in these estimates could occur in the future . story_separator_special_tag we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . changes in estimates are reflected in reported results for the period in which they become known . actual results may differ materially from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in the notes to our audited financial statements elsewhere in this annual report on form 10-k , we believe that the following accounting policies related to accrued expenses and equity-based compensation are most critical to understanding and evaluating our reported financial results . accrued expense s as part of the process of preparing our financial statements , we are required to estimate our accrued expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . examples of estimated accrued expenses include costs associated with 60 conducting our development and regulatory activities , including fees paid to third-party professional consultants and service providers , and costs to develop and m anufacture clinical study materials . we base our accrued expenses on our estimates of the services received and efforts expended pursuant to our contractual arrangements . 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 service providers will exceed the level of services provided and result in a prepayment of the expense . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual or prepayment accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , if our estimates of the status and timing of services performed differs from the actual status and timing of services performed , we may report amounts that are too high or too low in any particular period . to date , there have been no material differences from our estimates to the amount actually incurred . equity-based compensation expense equity-based compensation expense represents the grant-date fair value of employee awards recognized over the requisite service period of the awards ( usually the vesting period ) on a straight-line basis . for stock options with a performance condition , we recognize expense in accordance with accounting standards codification 718-10-25-20. in november 2017 , we adopted the odonate therapeutics , inc. 2017 stock option plan ( the “ 2017 plan ” ) in order to grant stock options to our employees , officers , directors and consultants . recipients of stock options are eligible to purchase shares of our common stock at an exercise price equal to the fair market value of such stock on the date of grant . the maximum term of options granted under the 2017 plan is 10 years . stock options granted prior to july 2019 generally vest over a 4-year period from either the date of grant or the commencement of service . beginning in july 2019 , stock options granted generally include a performance condition related to our development program . in november 2017 , we adopted the odonate therapeutics , inc. 2017 employee stock purchase plan ( the “ espp ” ) in order to provide a means for eligible employees to accumulate shares of our common stock over time through regular payroll deductions . under the espp , eligible employees may purchase shares of our common stock twice per month at a price equal to 85 % of the closing price of our common stock on the date of each purchase . eligible employees purchasing shares under the espp are subject to an annual cap equal to the lesser of $ 25,000 or 10 % of the employee 's annual cash compensation . shares purchased under the espp can not be sold for a period of one year following the purchase date ( or such shorter period of time if the participating employee 's employment terminates before this one-year anniversary ) . prior to our ipo , we , through odonate management holdings , llc ( “ management holdings ” ) , issued an aggregate of 2,931,402 incentive units under the odonate management holdings equity incentive plan ( the “ management plan ” ) . the incentive units were issued to certain of our directors , officers , employees and consultants in consideration for bona fide services provided to us . pursuant to the management plan , the incentive units are considered “ profits interests ” within the meaning of u.s. federal and state tax rules . incentive units do not entitle their holders to receive distributions if we were to be liquidated immediately after the grant . instead , the incentive unitholders are entitled to receive an allocation of a portion of our profits arising after the date of the grant and , subject to vesting conditions , distributions made out of a
| results of operations the following table summarizes our results of operations for each of the periods below ( in thousands ) : replace_table_token_1_th research and development expense the following table summarizes our research and development expense for each of the periods below ( in thousands ) : replace_table_token_2_th research and development expense was $ 104.0 million and $ 79.9 million for the years ended december 31 , 2019 and 2018 , respectively . the increase of $ 24.1 million was primarily due to increased activities and headcount in connection with our tesetaxel clinical development program , resulting in increased clinical development costs of $ 11.3 million , increased personnel and related costs of $ 7.0 million and increased equity-based compensation expense of $ 4.3 million . general and administrative expense the following table summarizes our general and administrative expense for each of the periods below ( in thousands ) : replace_table_token_3_th general and administrative expense of $ 10.9 million for the year ended december 31 , 2019 remained consistent compared to $ 10.8 million for the year ended december 31 , 2018 . 57 interest income interest income was $ 3.1 million and $ 1.8 million for the years ended december 31 , 2019 and december 31 , 2018 , respectively . the increase in interest income was due primarily to additional cash held in savings accounts as a result of the net proceeds from the june 2019 offering described below . liquidity and capital resources on june 28 , 2019 , we closed an underwritten public offering ( the “ june 2019 offering ” ) of 4,750,000 shares of common stock at a public offering price of $ 26.00 per share . on july 2 , 2019 , the underwriters exercised in full their option to purchase 712,500 additional shares of common stock . the aggregate gross proceeds from the june 2019 offering were $ 142.0 million , and the net proceeds were $ 135.1 million after deducting underwriting discounts and commissions and offering costs . as
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our results of operations depend in large part on our ability to accurately predict and effectively manage healthcare costs through effective contracting with providers of care to our members , product pricing , medical management and health and wellness programs , innovative product design and our ability to maintain or achieve improvement in our cms star ratings . several economic factors related to healthcare costs , such as regulatory mandates of coverage as well as direct-to-consumer advertising by providers and pharmaceutical companies , have a direct impact on the volume of care consumed by our members . the potential effect of escalating healthcare costs , any changes in our ability to negotiate competitive rates with our providers and any regulatory or market-driven restrictions on our ability to obtain adequate premium rates to offset overall inflation in healthcare costs , including increases in unit costs and utilization resulting from the aging of the population and other demographics , the impact of epidemics and pandemics , as well as advances in medical technology , may impose further risks to our ability to profitably underwrite our business , and may have a material adverse impact on our results of operations . for additional information about our business and reportable segments , see part i , item 1 , “ business ” and note 20 , “ segment information ” of the notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. covid-19 in march 2020 , the world health organization declared the outbreak of a novel strain of coronavirus ( “ covid-19 ” ) a global health pandemic . at the onset of the pandemic , to prevent its spread , most states issued shelter-in-place or stay-at-home orders , which generally required the businesses not considered essential to close their physical offices . while these orders were largely lifted during the second quarter of 2020 , many states and local authorities continued to impose certain restrictions on the conduct of businesses and individuals . the covid-19 pandemic continues to evolve , and the virus and mitigation efforts have continued to impact the global economy , cause market instability , increase unemployment and put pressure on the healthcare system . the covid-19 pandemic has impacted and will continue to impact our membership and benefit expense and has influenced and will likely continue to influence member behavior , impacting how members access healthcare services . although increased unemployment caused by the covid-19 pandemic resulted in a decline in our local group membership , our medicaid -45- membership grew as a result of the temporary suspension of eligibility recertification efforts in response to the covid-19 pandemic . while reduced or cancelled utilization of non-covid-19 health services by our members decreased our claim costs overall in 2020 , in the second half of 2020 utilization of such services began to rebound , and non-covid-19 claim costs began to normalize as the shelter-in-place , stay-at-home orders and other restrictions on the conduct of businesses were lifted . our expenses in 2020 included additional costs to cover covid-19 related testing , treatment , expanded coverage of insurance benefits , waivers for cost-sharing and actions to support our providers . furthermore , our expenses associated with covid-19 , including testing and treatment and the actions taken to support our members in response to the pandemic , accelerated in the fourth quarter of 2020 and exceeded the benefit we experienced during the quarter from the lower volume of healthcare claims attributable to decreased utilization of non-covid-19 health services . we remain focused on increasing access and coverage for our members and made several changes to our membership benefits and business operations , adopted tools and policies to assist consumers and care providers and provided support to our associates and our local communities , which were discussed in part i , item 1 , “ business — covid-19 , ” of this annual report on form 10-k. further , during 2020 we proactively took several actions to preserve our liquidity and financial flexibility and minimize the effects of the covid-19 pandemic , including : borrowing under our senior revolving credit facility in march 2020 , which was repaid in april 2020 ; delaying certain tax payments as permitted by the irs and the coronavirus aid , relief , and economic security act ( the “ cares act ” ) ; and temporarily suspending our share repurchase activity in march 2020 , which was resumed in late june 2020. the covid-19 pandemic has created unique and unprecedented challenges , and although it has impacted and will likely continue to impact our membership and benefit expense , it did not have a material adverse effect on our reported results in 2020. however , this may change in the future as the covid-19 pandemic is evolving , and the extent of its impact will depend on future developments , which are highly uncertain and can not be predicted at this time . we will continue to monitor the covid-19 pandemic as well as resulting legislative and regulatory changes that may impact our business . for additional discussion regarding our risks related to the covid-19 pandemic and our other risk factors , see part i , item 1a , “ risk factors ” in this annual report on form 10-k and “ business trends ” in this md & a . business trends the patient protection and affordable care act and the health care and education reconciliation act of 2010 , as amended ( collectively , the “ aca ” ) , has changed and may continue to make broad-based changes to the u.s. healthcare system . we expect the aca will continue to impact our business model and strategy . also , the legal challenges regarding the aca , including a federal district court decision invalidating the aca , which was argued before the u.s. supreme court in november 2020 and has been stayed pending the u.s. supreme court 's decision , could significantly disrupt our business . story_separator_special_tag we currently offer individual aca-compliant products in 103 of the 143 rating regions in which we operate . our strategy has been , and will continue to be , to only participate in rating regions where we have an appropriate level of confidence that these markets are on a path toward sustainability , including , but not limited to , factors such as expected financial performance , regulatory environment , and underlying market characteristics . in addition , the continuing growth in our government-sponsored business exposes us to increased regulatory oversight . in the second quarter of 2019 , we began using ingeniorx to market and offer pbm services to our affiliated health plan customers throughout the country , as well as to customers outside of the health plans we own . our comprehensive pbm services portfolio includes features such as formulary management , pharmacy networks , a prescription drug database , member services and mail order capabilities . ingeniorx delegates certain pbm administrative functions , such as claims processing and prescription fulfillment , to caremarkpcs health , l.l.c. , which is a subsidiary of cvs health corporation , pursuant to a five-year agreement . with ingeniorx , we retain the responsibilities for clinical and formulary strategy and development , member and employer experiences , operations , sales , marketing , account management and retail network strategy . from december 2009 through december 2019 , we delegated certain pbm functions and administrative services to express scripts , inc. ( “ express scripts ” ) . we began transitioning existing members from express scripts to ingeniorx in the second quarter of 2019 , and completed the transition of all of our members by january 1 , 2020. pricing trends : we strive to price our healthcare benefit products consistent with anticipated underlying medical cost trends . we continue to closely monitor the covid-19 pandemic and the impacts it may have on our pricing , such as surges -46- in covid-19 hospitalizations , infection rates , and the cost of covid-19 vaccines . we frequently make adjustments to respond to legislative and regulatory changes as well as pricing and other actions taken by existing competitors and new market entrants . product pricing in our commercial & specialty business segment , including our individual and small group lines of business , remains competitive . revenues from the medicare and medicaid programs are dependent , in whole or in part , upon annual funding from the federal government and or applicable state governments . the aca imposed an annual health insurance provider fee ( “ hip fee ” ) on health insurers that write certain types of health insurance on u.s. risks . we priced our affected products to cover the impact of the hip fee when it was in effect . the hip fee was suspended for 2019 , was resumed for 2020 and has been permanently repealed beginning in 2021. medical cost trends : our medical cost trends are primarily driven by increases in the utilization of services across all provider types and the unit cost increases of these services . we work to mitigate these trends through various medical management programs such as utilization management , condition management , program integrity and specialty pharmacy management , as well as benefit design changes . there are many drivers of medical cost trends that can cause variance from our estimates , such as changes in the level and mix of services utilized , regulatory changes , aging of the population , health status and other demographic characteristics of our members , epidemics , pandemics , advances in medical technology , new high cost prescription drugs , and healthcare provider or member fraud . our underlying local group medical cost trends reflect the “ allowed amount , ” or contractual rate , paid to providers . the covid-19 pandemic has caused a decrease in utilization of non-covid-19 health services , which decreased our claim costs in 2020. while the utilization of such services began to rebound and claim costs began to normalize in the second half of 2020 , further increases in the utilization of such services may increase our claim costs in the future and affect our medical cost trends . our expenses in 2020 include additional costs to cover covid-19 related testing , treatment , expanded benefits coverage and waivers for cost-sharing . in response to the current crisis , we expanded coverage for certain members in our affiliated health plans for testing and treatment related to a covid-19 diagnosis . governmental action has required us to provide full coverage for covid-19 testing to our members , and future governmental action could require us to provide additional coverage , including , for example , vaccines . increased member demand for care , along with continued covid-19 care , testing and vaccination costs , are expected to result in increased future medical costs . the continued cost and volume of covered services related to the covid-19 pandemic may have a material adverse effect on our future claim costs . we continue to closely monitor the covid-19 pandemic and its impacts on our business , financial condition , results of operations and medical cost trends . for additional discussion regarding business trends , see part i , item 1 , “ business ” of this annual report on form 10-k. regulatory trends and uncertainties federal and state legislation has been enacted , and is likely to continue to be enacted , in response to the covid-19 pandemic that has had , and we expect will continue to have , a significant impact on all of our lines of business , including mandates to waive cost-sharing on covid-19 testing , treatment and related services . the federal government enacted the coronavirus preparedness and response supplemental appropriations act , the families first coronavirus response act and the cares act in march 2020 , the paycheck protection program and health care enhancement act in april 2020 and the consolidated appropriations act of 2021 in december 2020 ( the “ appropriations act ” ) .
| prior year 2019 allocations were not restated to conform to the 2020 presentation ; however , operating margins for ingeniorx were approximately 8 % in 2019. for additional information , see note 20 , “ segment information , ” of the notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. the following table presents a summary of our reportable segment financial information for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_5_th nm not meaningful . 1 includes expenses of $ 524 for the bcbsa litigation and $ 311 for business optimization initiatives recognized in 2020 . 2 includes expenses of $ 205 for business optimization initiatives and $ 24 for the bcbsa litigation recognized in 2020 . 3 includes expenses of $ 4 for business optimization initiatives recognized in 2020 . 4 includes expenses of $ 133 for business optimization initiatives recognized in 2020 . 5 bp = basis point ; one hundred basis points = 1 % . year ended december 31 , 2020 compared to the year ended december 31 , 2019 commercial & specialty business operating revenue decreased primarily due to fully-insured membership declines as a result of increased unemployment caused by the covid-19 pandemic . the decrease in operating revenue was further attributable to the absence of pharmacy -57- administrative fee revenue that is now being recognized within the ingeniorx segment and the impact of premium credits provided to certain members in response to the covid-19 pandemic . these decreases were partially offset by higher premium revenue resulting from rate increases designed to cover the impact of the hip fee reinstatement for 2020. the decrease in operating gain was primarily driven by costs associated with actions taken to support our members and providers in response to the pandemic and covid-19 related care , as well as expenses for the bcbsa litigation and business optimization initiatives recognized in 2020. the decrease was further attributable to the shift of pharmacy
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manufacturing facility expansion transactions the may 2015 loi contemplated , among other things , that the coca‑cola company would work collaboratively with the company and certain other expanding participating bottlers in the u.s. to implement a national product supply system . as a result of subsequent discussions with the coca‑cola company , in september 2015 , the company and the coca‑cola company entered into a non-binding letter of intent ( the “ september 2016 loi ” ) pursuant to which ccr would sell six regional manufacturing facilities and related manufacturing assets ( collectively , the “ manufacturing assets ” ) to the company as the company becomes a regional producing bottler ( “ regional producing bottler ” ) in the national product supply system . similar to , and as an integral part of , the distribution territory expansion transactions described in the may 2015 loi , the sale of the manufacturing assets by ccr to the company would be accomplished in two phases : ( i ) the first phase would include three regional manufacturing facilities located in sandston , virginia ; silver spring , maryland ; and baltimore , maryland and ( ii ) the second phase would include three regional manufacturing facilities located in indianapolis , indiana ; portland indiana ; and cincinnati , ohio . on october 30 , 2015 , the company and ccr entered into an asset purchase agreement ( the “ october 2015 apa ” ) for the first phase of the regional manufacturing facilities acquisitions contemplated by the september 2015 loi , including regional manufacturing facilities located in sandston , virginia ; silver spring , maryland ; and baltimore , maryland , and was completed by the second quarter of 2016. following is a summary of key closing dates for the transactions covered by the october 2015 apa : january 29 , 2016 – the first closing under the october 2015 apa occurred for the sandston , virginia facility . april 29 , 2016 – the interim and final closings under the october 2015 apa occurred for the acquisition of regional manufacturing facilities located in silver spring , maryland and baltimore , maryland . on september 1 , 2016 , the company and ccr entered into an asset purchase agreement ( the “ september 2016 manufacturing apa ” ) for the second phase of the regional manufacturing facility acquisitions contemplated by the september 2015 loi which included regional manufacturing facilities located in indianapolis , indiana ; portland , indiana ; and cincinnati , ohio . on october 28 , 2016 , the first closing under the september 2016 manufacturing apa occurred for the regional manufacturing facility in cincinnati , ohio . 32 the rights for the manufacture , production and packaging of specified beverages at the regional manufacturing facilities acquired by the company have been granted by the coca‑cola company to the company pursuant to an initial regional manufacturing agreement in the form disclosed in the company 's current report on form 8‑k filed with the securities and exchange commission on may 5 , 2016 ( the “ initial rma ” ) . pursuant to its terms , the initial rma will be amended , restated and converted into a final form of regional manufacturing agreement ( the “ final rma ” ) concurrent with the conversion of the company 's bottling agreements ( as defined below ) to the final cba as described in the description of the territory conversion agreement ( defined and described below ) . under the final rma , the company 's aggregate business directly and primarily related to the manufacture of authorized covered beverages , permitted cross-licensed brands and other beverages and beverage products for the coca‑cola company will be subject to the same agreed upon sale process provisions included in the final cba as described below , which include the need to obtain the coca‑cola company 's prior approval of a potential purchaser of such manufacturing business . the coca‑cola company will also have the right to terminate the final rma in the event of an uncured default by the company . annapolis make-ready center acquisition as a part of the expansion transactions , on october 30 , 2015 , the company acquired from ccr a “ make-ready center ” in annapolis , maryland for a cash purchase price of $ 5.4 million , which includes all post-closing adjustments . the company recorded a bargain purchase gain of approximately $ 2.0 million on this transaction after applying a deferred tax liability of approximately $ 1.3 million . the company uses the make-ready center to deploy and refurbish vending and other sales equipment for use in the marketplace . the net cash purchase price for each of the expansion transactions , which includes both distribution territory expansion transactions and manufacturing facility expansion transactions , completed as of january 1 , 2017 , is as follows : replace_table_token_8_th * note : the cash purchase price amounts are subject to a final post-closing adjustment and , as a result , may either increase or decrease . the financial results of the expansion transactions , expansion territories and lexington expansion territory have been included in the company 's consolidated financial statements from their respective acquisition or exchange dates . these territories contributed the following amounts to the company 's consolidated statement of operations : fiscal year ( in thousands ) 2016 ( 1 ) 2015 ( 2 ) net sales $ 1,061,769 $ 437,084 operating income 24,280 6,917 ( 1 ) includes the results of the 2016 expansion transactions and the 2015 expansion territories . ( 2 ) includes the results of the 2015 expansion territories and the 2014 expansion territories . 33 2016 letters of intent for additional expansion transactions in february 2016 , the company entered into a non-binding letter of intent ( the “ february 2016 loi ” ) with the coca‑cola company to provide exclusive distribution rights for the company in following major markets : akron , elyria , toledo , willoughby , and youngstown county in ohio . story_separator_special_tag pursuant to the february 2016 loi , ccr would : ( i ) grant the company exclusive rights for the distribution , promotion , marketing and sale of the coca‑cola company-owned and -licensed products in additional territories served by ccr in northern ohio ; ( ii ) sell the company certain assets that included rights to distribute those cross-licensed brands distributed in the territories by ccr as well as the assets used by ccr in the distribution of the cross-licensed brands and the coca‑cola company brands ; and ( iii ) sell to the company an additional regional manufacturing facility currently owned by ccr located in twinsburg , ohio and related manufacturing assets . in june 2016 , the company entered into a non-binding letter of intent ( the “ ccr june 2016 loi ” ) with the coca‑cola company to provide exclusive distribution rights for the company in the following major markets : little rock , west memphis and southern arkansas ; memphis , tennessee ; and louisa , kentucky . pursuant to the ccr june 2016 loi , ccr would : ( i ) grant the company exclusive rights for the distribution , promotion , marketing and sale of the coca‑cola company-owned and -licensed products in additional territories in northeastern kentucky and southwestern west virginia served by ccr 's distribution center in louisa , kentucky ; ( ii ) sell the company certain assets that included rights to distribute those cross-licensed brands distributed in the territories by ccr as well as the assets used by ccr in the distribution of the cross-licensed brands and the coca‑cola company brands ; and ( iii ) transfer exclusive rights and associated distribution assets and working capital for territory in parts of arkansas , southwestern tennessee and northwestern mississippi and two additional regional manufacturing facilities located in memphis , tennessee and west memphis , arkansas currently owned by ccr in exchange for territory in southern alabama , southern mississippi and southern georgia and a regional manufacturing facility in mobile , alabama currently owned by the company . the exchange includes rights to the distribution , promotion , marketing and sale of the coca‑cola company-owned and –licensed products and certain cross-licensed brands in each territory and related manufacturing assets . in june 2016 , the company entered into a non-binding letter of intent with coca‑cola bottling company united , inc. ( “ united ” ) , an independent bottler that is unrelated to the company ( the “ united june 2016 loi ” ) . pursuant to this letter of intent , united would transfer exclusive rights and associated distribution assets and working capital in certain territory in and around spartanburg and bluffton , south carolina , currently served by united 's distribution centers located in spartanburg , south carolina and savannah , georgia , in exchange for certain territory in south-central tennessee , northwest alabama and northwest florida currently served by the company 's distribution centers located in florence , alabama and panama city , florida . the exchange includes rights to the distribution , promotion , marketing and sale of the coca‑cola company-owned and –licensed products and certain cross-licensed brands in each territory . as discussed above , on october 28 , 2016 , the company completed the acquisition of territories served by the distribution facility in louisa , kentucky contemplated by the ccr june 2016 loi . the company is continuing to work towards a definitive agreement or agreements with the coca‑cola company and ccr for the remaining proposed expansion transactions described in the february 2016 loi and the ccr june 2016 loi . the company is also continuing to work towards a definitive agreement or agreements with united for the proposed transactions described in the united june 2016 loi . national product supply governance agreement ( the “ npsg governance agreement ” ) in october 2015 , the company , the coca‑cola company and three other coca‑cola bottlers , including ccr , who are considered “ regional producing bottlers ” ( “ rpbs ” ) in the coca‑cola company 's national product supply system , entered into the npsg governance agreement . pursuant to the npsg governance agreement , the coca‑cola company and the rpbs have formed a national product supply group ( the “ npsg ” ) and agreed to certain binding governance mechanisms , including a governing board ( the “ npsg board ” ) comprised of a representative of ( i ) the company , ( ii ) the coca‑cola company and ( iii ) each other regional producing bottler . as the coca‑cola company continues its multi-year refranchising effort of its north american bottling territories , additional regional producing bottlers may be added to the npsg board . as of january 2017 , the npsg board consisted of the coca‑cola‑company , the company and five other rpbs , including ccr . the stated objectives of the npsg include , among others , ( i ) coca‑cola system strategic infrastructure investment and divestment planning ; ( ii ) network optimization of all plant to distribution center sourcing ; and ( iii ) new product/packaging infrastructure planning . 34 the npsg board makes and or oversees and directs certain key decisions regarding the npsg , including decisions regarding the management and staffing of the npsg and the funding for the ongoing operations of the npsg . the company is obligated to pay a certain portion of the costs of operating the npsg . pursuant to the decisions of the npsg board made from time to time and subject to the terms and conditions of the npsg governance agreement , the company and each other regional producing bottler will make investments in their respective manufacturing assets and will implement coca ‑cola system strategic investment opportunities that are consistent with the npsg governance agreement .
| 38 product category sales volume in 2016 and 2015 as a percentage of total bottle/can sales volume and the percentage change by product category were as follows : replace_table_token_11_th bottle/can volume to retail customers , excluding expansion territories , increased 3.3 % , which represented a 0.8 % increase in sparkling beverages and a 10.3 % increase in still beverages in 2016 , as compared to 2015. the increase in still beverages was primarily due to increases in energy beverages , which was primarily due to the company expanding the territories in which it distributes monster products . the company 's products are sold and distributed through various channels , which include selling directly to retail stores and other outlets such as food markets , institutional accounts and vending machine outlets . during 2016 , approximately 66 % of the company 's bottle/can volume to retail customers was sold for future consumption , while the remaining bottle/can volume to retail customers was sold for immediate consumption . all the company 's beverage sales were to customers in the united states . the company recorded delivery fees in net sales of $ 6.0 million in 2016 and $ 6.3 million in 2015. these fees are used to offset a portion of the company 's delivery and handling costs . the following table summarizes the percentage of the company 's total bottle/can volume and the percentage of the company 's total net sales , which are all included in the nonalcoholic beverages operating segment , attributed to its largest customers : replace_table_token_12_th cost of sales cost of sales includes the following : raw material costs , manufacturing labor , manufacturing overhead including depreciation expense , manufacturing warehousing costs , shipping and handling costs related to the movement of finished goods from manufacturing locations to sales distribution centers and purchase of finished goods . cost of sales increased $ 535.3 million , or 38.1 % , to $ 1.94 billion in 2016 , as compared to $ 1.41 billion in 2015. the increase in cost of sales was principally attributable to the following ( in millions ) : 39 2016 attributable to : $ 493.9 net sales increase related to the 2016 expansion territories , partially
| 12,403 |
we continued to increase share as well as new design win revenue at asia smartphone manufacturers , while led tv also showed strength . the growth in both of these markets offset the continued softness in pcs . generally speaking , the industrial and automotive end-markets remained relatively consistent in both north america and europe . for the third quarter of 2013 , we achieved record quarterly revenue , increased market share gains and solid operational performance across our business . our past design win momentum and strength in the tv market and at certain major oem customers were able to offset the continued weakness in the pc market . we also further improved our gross margin through our cost reduction efforts and improved bcd wafer fabrication facility loadings . additionally , we reduced our operating expenses on a dollar basis and as a percentage of revenue , demonstrating further progress towards achieving our target model of 20 % of revenue . these achievements are even more notable when considering the weakness of the u.s. dollar relative to most of the currencies where we have operations , in particular the british pound and the euro . our improved operational efficiencies and cost reductions were able to mostly offset this currency impact and allowed us to exceed our operational expectations for the quarter . our record third quarter revenue was driven by growth in all regions with strong increases in north america and europe after a relatively flat second quarter in these regions . we also achieved record sales in the china local market . in the communications end-market , our solid position with smartphone manufacturers continued to be a key driver of sales as a result of our growing new design win revenue . computing grew slightly in the quarter , primarily due to increased sales for our products used in tablets , partially offset by weakness in notebooks and motherboards . the automobile and industrial end-markets were also up in the quarter on the strength in both north america and europe . during the fourth quarter of 2013 , revenue reflected greater than normal seasonality due to weakness in the pc market as well as cautious inventory management at distributors . in addition , revenue in the quarter was down sequentially primarily due to a global reduction in distributor point of purchase , which was down for north america and europe was impacted to an even greater extent . distributors in all regions focused on inventory management as inventory declined sequentially . oem sales were down and distributor point of sale was up . global channel inventory remained in line and under three months . despite the prolonged weakness in the pc market , we have been able to gain market share across our business due to past design win momentum and new product initiatives . also during the quarter , we improved our balance sheet by reducing our long-term debt and inventory and generated positive cash flows from operations . all end-markets were down with industrial being down the greatest percentage due to declines in north america and europe followed by computing . the consumer and communications end-markets were the strongest performers in the fourth quarter compared to the third quarter . business acquisitions on march 5 , 2013 , we completed the acquisition of bcd for an aggregate consideration of approximately $ 155 million , excluding acquisition costs , fees and expenses . in addition , a $ 5 million retention plan for employees of bcd , payable at the 12 , 18 and 24 month anniversaries of the acquisition , has been established . - 39 - the acquisition was funded by drawings on our bank credit facilities . the results of operations of bcd have been included in the consolidated financial statements from march 1 , 2013. the purpose of this acquisition is to further our strategy of expanding our market and growth opportunities through select strategic acquisitions . this acquisition enhanced our analog product portfolio by expanding our standard linear and power management offerings , including ac/dc and dc/dc solutions for power adapters and chargers , as well as other electronic products . bcd 's established presence in asia , with a particularly strong local market position in china , offers us even greater penetration of the consumer , computing and communications end-markets . likewise , we believe we can achieve increased market penetration for bcd 's products by leveraging our global customer base and sales channels . in addition , bcd has in-house manufacturing capabilities in china , as well as a cost-effective development team , that can be deployed across multiple product families . we also believe we will be able to apply our packaging capabilities and expertise to bcd 's products in order to improve cost efficiencies , utilization and product mix . see note 17 of the notes to consolidated financial statements of this annual report for additional information regarding the acquisition of bcd . business outlook looking forward , we remain focused on achieving our goal of $ 1 billion in annual revenue with model profitability . the bcd acquisition has brought us one step closer toward achieving that goal . we have a solid pipeline of designs and expanded customer relationships across all regions and product lines . the success of our business depends , among other factors , on the strength of the global economy and the stability of the financial markets , our customers ' demand for our products , the ability of our customers to meet their payment obligations , the likelihood of customers canceling or deferring existing orders and end-user consumers ' demand for items containing our products in the end-markets we serve . we believe the long-term outlook for our business remains generally favorable despite the recent volatility in the global economy and the equity and credit markets as we continue to execute on the strategy that has proven successful for us over the years . story_separator_special_tag see risk factors the success of our business depends on the strength of the global economy and the stability of the financial markets , and any weaknesses in these areas may have a material adverse effect on our revenues , results of operations and financial condition. in part i , item 1a of this annual report for additional information . factors relevant to our results of operations in 2013 , the following factors affected , and , we believe , will continue to affect , our results of operations : we have experienced pressure from our customers and competitors to reduce the selling price for our standard products , and we expect future improvements in net income to result primarily from increases in sales volume and improvements in product mix as well as manufacturing cost reductions in order to offset any reduced average selling prices ( asp ) of our products . see risk factors we are and will continue to be under continuous pressure from our customers and competitors to reduce the price of our products , which could adversely affect our growth and profit margins in part i , item 1a of this annual report for additional information . for the years ended december 31 , 2013 , 2012 and 2011 , our original equipment manufacturer ( oem ) and electronic manufacturing services ( ems ) customers together accounted for 35 % , 47 % and 47 % of net sales , respectively , while our global network of distributors accounted for 65 % , 53 % and 53 % of net sales , respectively . the percentage of net sales to our global network of distributors has increased in 2013 primarily due to the fact that the majority of bcd net sales are to distributors . our gross profit margin was 29 % in 2013 , compared to 25 % in 2012 and 30 % in 2011. our gross profit margin increased in 2013 primarily due to lower gold prices , improved product mix , stable pricing , copper wire conversion and cost reduction efforts . future gross profit margins will depend primarily on market prices , our product mix , manufacturing cost savings , and the demand for our products . for 2013 , the percentage of our net sales derived from our asian subsidiaries was 82 % , compared to 79 % in 2012 and 75 % in 2011. the 2013 increase in sales in asia was primarily due to the acquisition of bcd . europe accounted for approximately 9 % , 11 % and 13 % of our net sales in 2013 , 2012 and - 40 - 2011 , respectively . the 2013 decrease in europe was primarily due to sales remaining relatively flat compared to 2012 , while asia sales increased . in addition , north america accounted for approximately 9 % , 10 % and 12 % of our net sales in 2013 , 2012 and 2011 , respectively . the 2013 decrease in north america was primarily due to sales remaining relatively flat compared to 2012 , while asia sales increased . as of december 31 , 2013 , we had invested approximately $ 529 million in our manufacturing and wafer fabrication facilities in china . during 2013 , we invested approximately $ 32 million in these facilities , and we expect to continue to invest in our facilities , although the amount to be invested will depend on product demand and new product developments . for 2013 , our capital expenditures , excluding capital expenditures related to our manufacturing facilities in chengdu , china , were approximately 5 % of our net sales , which is lower than our historical 10 % to 12 % of net sales model . during 2013 , we reduced our capital spending target range . therefore , for 2014 , based on current market conditions and excluding chengdu building expenditures , we expect capital expenditures to be 5 % to 8 % of net sales . our investment in research and development for 2013 increased to $ 48 million , or 6 % of net sales , compared to $ 34 million , or 5 % of net sales , in 2012. the 2013 increase in research and development was primarily due to the acquisition of bcd . we expect research and development costs to continue to increase as we look to invest in developing new products . description of sales and expenses net sales the principal factors that have affected or could affect our net sales from period to period are : the condition of the economy in general and of the semiconductor industry in particular , our customers ' adjustments in their order levels , changes in our pricing policies or the pricing policies of our competitors or suppliers , the addition or termination of key supplier relationships , the rate of introduction and acceptance by our customers of new products , our ability to compete effectively with our current and future competitors , our ability to enter into and renew key corporate and strategic relationships with our customers , vendors and strategic alliances , changes in foreign currency exchange rates , a major disruption of our information technology infrastructure , unforeseen catastrophic events , such as armed conflict , terrorism , fires , typhoons and earthquakes , and any other disruptions , such as labor shortages , unplanned maintenance or other manufacturing problems . cost of goods sold cost of goods sold includes manufacturing costs for our semiconductors and our wafers . these costs include raw materials used in our manufacturing processes as well as labor costs and overhead expenses . cost of goods sold is also impacted by yield improvements , capacity utilization and manufacturing efficiencies . in addition , cost of goods sold includes the cost of products that we purchase from other manufacturers and sell to our customers . cost of goods sold is also affected by inventory obsolescence if our inventory management is not efficient .
| replace_table_token_9_th - 43 - sg & a for 2013 increased $ 31 million , or 30 % , to $ 132 million , compared to $ 101 million for 2012. sg & a , as a percentage of net sales , was 16 % in 2013 and 2012. the dollar amount increase in sg & a included increases in wages , including bcd retention costs , freight and professional fees , which was primarily due to the acquisition of bcd . replace_table_token_10_th r & d for 2013 increased to $ 48 million , or 6 % of net sales , compared to $ 34 million , or 5 % of net sales , for 2012. the increase in r & d included increases in wages , including bcd retention costs , which was primarily due to the acquisition of bcd . replace_table_token_11_th amortization of acquisition-related intangibles was $ 8 million for 2013 , compared to $ 5 million for 2012. the $ 3 million increase was primarily due to the amortization expense on the acquired intangibles as part of the acquisition of bcd . replace_table_token_12_th impairment of goodwill was $ 5 million for 2013. the carrying amount of a reporting unit 's ( eris technology corporation ) goodwill exceeded its implied fair value , and therefore an impairment loss was recognized . replace_table_token_13_th restructuring was $ 2 million for 2013. in the second quarter of 2013 , we initiated restructuring plans primarily relating to our u.k. development team and the closure of our new york sales office . the amounts recorded primarily relate to termination and severance costs . all restructuring was completed in the third quarter of 2013. replace_table_token_14_th gain on sale of assets was $ 4 million for 2012 , which was mainly from the sale of an intangible asset located in europe and a sale of a building located in taiwan . replace_table_token_15_th interest income for 2013 and 2012 was $ 1 million , which was mainly from interest earned on bank accounts . replace_table_token_16_th interest expense for 2013 was $ 6 million , compared to $ 1 million for 2012. the $ 5 million increase is primarily due to the amounts borrowed under the $ 300 million revolving senior credit facility in connection with acquiring bcd . replace_table_token_17_th - 44 - gain on securities carried at fair value
| 12,404 |
on august 17 , 2017 , we issued and sold 2,400,000 shares of our series a preferred stock , raising approximately $ 58.1 million after underwriting discounts and commissions but before expenses of approximately $ 193,000. all of the net proceeds from the series a preferred stock offering were also invested in rmbs . see item 8. consolidated financial statements and supplementary data—note 6. equity and earnings per common share—preferred stock. in april 2018 , the company initiated an at-the-market offering program ( the preferred series a atm program ) pursuant to which it may offer through one or more sales agents and sell from time to time up to $ 35 million of its series a preferred stock at prices prevailing at the time , subject to volume and other regulatory limitations . in the period from the program 's inception and through december 31 , 2018 , the company has issued and sold 318,206 shares of its series a preferred stock pursuant to the preferred series a atm program for net proceeds of approximately $ 7.9 million . the net proceeds were used for general corporate purposes , including investment in rmbs . on june 4 , 2018 , the company issued and sold 2,750,000 shares of its common stock . the underwriters subsequently exercised their option to purchase an additional 338,857 shares for total proceeds of approximately $ 53.8 million after underwriting discounts and commissions but before expenses of approximately $ 265,000. all of the net proceeds were invested in rmbs . in august 2018 , the company initiated an at-the-market offering program ( the common stock atm program ) pursuant to which it may offer through one or more sales agents and sell from time to time up to $ 50 million of its common stock at prices prevailing at the time , subject to volume and other regulatory limitations . in the period from the program 's inception through december 31 , 2018 , the company has issued and sold 833,593 shares of its common stock pursuant to the common stock atm program for net proceeds of approximately $ 15.4 million . the net proceeds were used for general corporate purposes , including investment in rmbs . on february 11 , 2019 , we issued and sold 1,800,000 shares of our series b preferred stock , raising approximately $ 43.6 million after underwriting discounts and commissions but before expenses of approximately $ 285,000. all of the net proceeds from the series b preferred stock offering were also invested in rmbs . see item 8. consolidated financial statements and supplementary data—note 17. subsequent events. the company anticipates that a significant portion of the paydowns of the rmbs acquired as a result of these equity offerings will be deployed into the acquisition of msrs . the company may also sell certain of these rmbs and deploy the net proceeds from such sales to the extent necessary to fund the purchase price of msrs . factors impacting our operating results our income is generated primarily by the net spread between the income we earn on our assets and the cost of our financing and hedging activities as well as the amortization of any purchase premiums or the accretion of discounts . our net income includes the actual interest payments we receive on our rmbs , the net servicing fees we receive on our msrs and the accretion/amortization of any purchase discounts/premiums . changes in various factors such as market interest rates , prepayment speeds , estimated future cash flows , servicing costs and credit quality could affect the amount of premium to be amortized or discount to be accreted into interest income for a given period . prepayment speeds vary according to the type of investment , conditions in the financial markets , competition and other factors , none of which can be predicted with any certainty . our operating results may also be affected by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers whose mortgage loans underlay the msrs held by aurora or the non-agency rmbs held in our portfolio . 37 set forth below is the positive gross spread between the yield on rmbs and our costs of funding those assets at the end of each of the quarters indicated below : average net yield spread at period end replace_table_token_4_th the average cost of funds also includes the benefits of related swaps . changes in the market value of our assets we hold our servicing related assets as long-term investments . our excess msrs were , and our msrs are , carried at their fair value with changes in their fair value recorded in other income or loss in our consolidated statements of income . those values may be affected by events or headlines that are outside of our control , such as brexit , other events impacting the u.s. or global economy generally or the u.s. residential market specifically , and events or headlines impacting the parties with which we do business . see item 1a . risk factors – risks related to our business. our rmbs are carried at their fair value , as available-for-sale in accordance with asc 320 , investments – debt and equity securities , with changes in fair value recorded through accumulated other comprehensive income ( loss ) , a component of stockholders ' equity . as a result , we do not expect that changes in the market value of our rmbs will normally impact our operating results , but such changes will affect our book value . however , at least on a quarterly basis , we assess both our ability and intent to continue to hold our rmbs as long-term investments . as part of this process , we monitor our rmbs for other-than-temporary impairment . a change in our ability and or intent to continue to hold any of our rmbs could result in our recognizing an impairment charge or realizing losses while holding these assets . story_separator_special_tag impact of changes in market interest rates on our assets the value of our assets may be affected by prepayment rates on mortgage loans . prepayment speed is the measurement of how quickly borrowers pay down the upb of their loans or how quickly loans are otherwise liquidated or charged off . generally , in a declining interest rate environment , prepayment speeds tend to increase . conversely , in an increasing interest rate environment , prepayment speeds tend to decrease . when we acquire servicing related assets or rmbs , we anticipate that the underlying mortgage loans will prepay at a projected rate generating an expected cash flow ( in the case of servicing related assets ) and yield . if we purchase assets at a premium to par value and borrowers prepay their mortgage loans faster than expected , the corresponding prepayments on our assets may reduce the expected yield on such assets because we will have to amortize the related premium on an accelerated basis . similarly , if we purchase assets at a discount to par value , and borrowers prepay their mortgage loans slower than expected , the decrease in corresponding prepayments may reduce the expected yield on assets because we will not be able to accrete the related discount as quickly as originally anticipated . if prepayment speeds are significantly greater than expected , the fair value of the servicing related assets could be less than their fair value as previously reported on our consolidated balance sheets . such a reduction in the fair value of the servicing related assets would have a negative impact on our book value . furthermore , a significant increase in prepayment speeds could materially reduce the ultimate cash flows we receive from the servicing related assets , and we could ultimately receive substantially less than what we paid for such assets . we do not utilize derivatives to hedge against changes in the fair value of the servicing related assets . our balance sheet , results of operations and cash flows are susceptible to significant volatility due to changes in the fair value of , or cash flows from , the servicing related assets as interest rates change . 38 a slower than anticipated rate of prepayment due to an increase in market interest rates also will cause the life of the related rmbs to extend beyond that which was projected . as a result , we would have an asset with a lower yield than current investments for a longer period of time . in addition , if we have hedged our interest rate risk , extension may cause the security to be outstanding longer than the related hedge , thereby reducing the protection intended to be provided by the hedge . voluntary and involuntary prepayment rates may be affected by a number of factors including , but not limited to , the availability of mortgage credit , the relative economic vitality of the area in which the related properties are located , the servicing of the mortgage loans , possible changes in tax laws , other opportunities for investment , homeowner mobility and other economic , social , geographic , demographic and legal factors , none of which can be predicted with any certainty . we attempt to reduce the exposure of our msrs to voluntary prepayments through the structuring of recapture agreements with aurora 's subservicers . in june 2016 , aurora entered into a joint marketing recapture agreement with freedom mortgage . pursuant to this agreement , freedom mortgage attempts to refinance certain mortgage loans underlying aurora 's msr portfolio subserviced by freedom mortgage . if a loan is refinanced , aurora will pay freedom mortgage a fee for its origination services . freedom mortgage will be entitled to sell the loan for its own benefit and will transfer the related msr to aurora . the agreement had an initial term of one year , subject to automatic renewals of one year each . this agreement will terminate upon the termination of the subservicing agreement with freedom mortgage in the second or third quarter of 2019. see item 8. consolidated financial statements and supplementary data—note 7. transactions with affiliates and affiliated entities. in the year ended december 31 , 2018 , aurora received msrs with an aggregate upb of approximately $ 21.5 million and paid fees of approximately $ 32,000 to freedom mortgage under this joint marketing recapture agreement . in the year ended december 31 , 2017 , aurora received msrs with an aggregate upb of approximately $ 27.6 million and paid fees of approximately $ 43,000 to freedom mortgage under this joint marketing recapture agreement . with respect to our business operations , increases in interest rates , in general , may over time cause : the interest expense associated with our borrowings to increase ; the value of our assets to fluctuate ; the coupons on any adjustable-rate and hybrid rmbs we may own to reset , although on a delayed basis , to higher interest rates ; prepayments on our rmbs to slow , thereby slowing the amortization of our purchase premiums and the accretion of our purchase discounts ; and an increase in the value of any interest rate swap agreements we may enter into as part of our hedging strategy . conversely , decreases in interest rates , in general , may over time cause : prepayments on our rmbs to increase , thereby accelerating the amortization of our purchase premiums and the accretion of our purchase discounts ; the interest expense associated with our borrowings to decrease ; the value of our assets to fluctuate ; a decrease in the value of any interest rate swap agreements we may enter into as part of our hedging strategy ; and the coupons on any adjustable-rate and hybrid rmbs assets we may own to reset , although on a delayed basis , to lower interest rates .
| for the year ended december 31 , 2017. the $ 14.6 million increase for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 , was comprised of an increase of approximately $ 1.8 million from servicing related assets and an increase of approximately $ 12.8 million from rmbs . the changes were primarily due to additional servicing related assets financing , additional repurchase agreement borrowings and an overall increase in repurchase rates offset by a lower swap cost . interest expense for the year ended december 31 , 2017 was $ 19.9 million as compared to $ 7.8 million for the year ended december 31 , 2016. the $ 12.1 million increase for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 , was comprised of a decrease of approximately $ 865,000 from servicing related assets and an increase of approximately $ 12.9 million from rmbs . the changes were primarily due to additional repurchase agreement borrowings and an overall increase in repurchase rates offset by a lower swap cost . change in fair value of investments in servicing related assets the fair value of our investments in servicing related assets for the year ended december 31 , 2018 decreased by approximately $ 3.6 million . the decrease was a primarily due to changes in valuation inputs or assumptions . the fair value of our investments in servicing related assets for the year ended december 31 , 2017 increased by approximately $ 9.2 million . the increase was a primarily due to changes in valuation inputs or assumptions . 45 the fair value of our investments in servicing related assets for the year ended december 31 , 2016 , decreased by approximately $ 3.0 million . the decrease was primarily a function of a larger decrease in the fair value of our investments in msrs of
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our set of solutions currently consists of ( i ) identityiq , our on-premises identity governance solution , ( ii ) identitynow , our cloud-based , multi-tenant governance suite , which is delivered as a subscription service , and ( iii ) identityai , our cloud-based , multi-tenant advanced identity analytics solution , which is delivered as a subscription service . see part i , item 1 . “ business—products ” for more information regarding our solutions . for our identityiq solutions , our customers typically purchase a perpetual software license , which includes one year of maintenance . our maintenance provides software maintenance as well as access to our technical support services during the maintenance term . after the initial maintenance period , customers with perpetual licenses may renew their maintenance agreement for an additional fee . for our cloud-based solutions , identitynow and identityai , for a subscription fee , we offer customers access to these solutions and infrastructure support for the duration of their subscription agreement . our standard subscription agreement for our cloud solution has a duration of three years . pricing for each of our solutions is dependent on the number of digital identities of employees , contractors , business partners and other users that the customer is entitled to govern with the solution . we also package and price our identityiq , identitynow and identityai solutions into modules . each module has unique functionalities , and our customers are able to purchase one or more modules , depending on their needs . we also offer advanced integration modules for key applications and systems which can be purchased in addition to our base solution modules . they are also priced based on the total number of identities . thus , our revenue from any customer is generally determined by the number of identities that the customer is entitled to govern as well as the number of modules ( for our identityiq and identitynow solutions ) purchased by the customer . our go-to-market strategy consists of both direct sales and indirect sales through our partnership network of systems integrators , value-added resellers and adjacent technology vendors . we work closely with systems integrators , many of whom have dedicated sailpoint practices ( including accenture , deloitte , kpmg , and pwc and most recently ey ) , with some dating back more than eight years , and resellers ( including value-added resellers such as optiv ) to identify potential sales opportunities and help us increase our reach , and we frequently cooperate with systems integrators to make joint sales proposals to address our mutual customers ' requirements . we also collaborate with leading access management vendors by adding our identity governance capabilities to their access management services ( e.g. , okta and vmware ) . we do not have any material payment obligations to systems integrators , resellers or our technology partners ; nor do they have any material payment obligations to us , except that resellers typically purchase solutions directly from us and resell to customers . see part i , item 1 . “ business—partnerships and strategic relationships ” for more information regarding our partnership network . in addition to our solutions , we offer professional services to our customers and partners to configure and optimize the use of our solutions as well as training services related to the configuration and operation of our platform . most of our professional services activity is in support of our partners , who perform a significant majority of all initial and follow-on implementation work for our customers . most of our consulting services are priced on a time and materials basis ; our training services are provided through multiple pricing models , including on a per-person basis ( for courses provided at our headquarters and on-site at our customers ' offices ) and a flat-rate basis ( for our e-learning course ) . 46 we devote significant resources to acquire new customers , in both existing and new markets , in order to grow our customer base . in addition , we focus on three distinct opportunities to increase sales to existing customers : ( i ) expand the number of digital identities ; ( ii ) up-sell additional modules or target storage systems , as applicable , within a single solution ; and ( iii ) cross-sell additional solutions . key factors affecting our performance our historical financial performance has been , and we expect our financial performance in the future to be , driven by our ability to : add new customers within existing markets . based on data from s & p global market intelligence , we believe that we have penetrated less than 2 % of over 65,000 companies in the countries where we have customers today and that as a result , there is significant opportunity to expand our footprint in our existing markets through new , greenfield installations and displacement of our competitors ' legacy solutions . to do so , we plan to grow our sales organization , increase and leverage our indirect channel partners and enhance our marketing efforts . g enerate additional sales to existing customers . we believe that our existing customer base provides us with a significant opportunity to drive incremental sales . in most cases , our customers initially purchase a subset of the modules or solutions we offer based on their immediate need . we focus on generating more revenue from the modules that our customers have already purchased from us as our customers grow the number of identities our solutions manage and govern and as our customers deploy our solutions across other business units or geographies within their organizations . over time , we also identify up-selling and cross-selling opportunities and seek to sell additional modules and solutions to our existing customers . retain customers . we believe that our ability to retain our customers is an important component of our growth strategy and reflects the long-term value of our customer relationships . story_separator_special_tag for example , when we add a new customer , we generate new license revenue . if the customer renews , we generate incremental maintenance revenue . as we add new identityiq customers , our high renewal rates result in incremental maintenance revenue . our key strategies to maintain our high renewal rates include focusing on the quality and reliability of our solutions , customer service and support to ensure our customers receive value from our solutions , providing consistent software upgrades and having dedicated customer success teams . expand into new markets . we expect to continue to invest significantly in sales , marketing and customer service , as well as our indirect channel partner network , to expand into new geographies and vertical markets . we believe that our market opportunity is large and growing and that the global cyber security market represents a significant growth opportunity for us . in 2018 , we generated only 31 % of our revenue outside of the united states . key business metrics in addition to our gaap financial information such as revenue and net income discussed above , we monitor the following key metrics to help us measure and evaluate the effectiveness of our operations : replace_table_token_4_th number of customers . we believe that the size of our customer base is an indicator of our market penetration and that our net customer additions are an indicator of the growth of our business and our future revenue opportunity . we define a customer as a distinct entity , division or business unit of an organization that receives support or has the right to use our cloud-based solutions as of the specified measurement date . 47 subscription revenue as a percentage of total revenue . subscription revenue is a portion of our total revenue and is derived from ( i ) identitynow , our cloud-based solution where customers enter into saas subscription agreements with us , and ( ii ) identityiq maintenance and support agreements , but not licenses . as we generally sell our solutions on a per-identity basis , our subscription revenue for any customer is primarily determined by the number of identities that the customer is entitled to govern as part of a saas subscription , and the ongoing price paid per-identity under a maintenance and support agreement or saas subscription . thus , we consider our subscription revenue to be the recurring portion of our revenue base and believe that its continued growth as a percentage of total revenue will lead to a more predictable revenue model and increase our visibility to future period total revenues . because we recognize our subscription revenue ratably over the duration of those agreements , a portion of the revenue we recognize each period is derived from agreements we entered into in prior periods . in contrast , we typically recognize license revenue upon entering into the applicable license , the timing of which is less predictable and may cause significant fluctuations in our quarterly financial results . adjusted ebitda . we believe that adjusted ebitda is a measure widely used by securities analysts and investors to evaluate the financial performance of our company and other companies . we believe that adjusted ebitda is an important measure for evaluating our performance because it facilitates comparisons of our core operating results from period to period by removing the impact of our capital structure ( net interest income or expense from our outstanding debt ) , asset base ( depreciation and amortization ) , tax consequences , purchase accounting adjustments , acquisition and sponsor related costs and stock-based compensation . in addition , we base certain of our forward-looking estimates and budgets on adjusted ebitda . see the section titled “ non-gaap financial measures ” for more information regarding adjusted ebitda , including the limitations of using adjusted ebitda as a financial measure , and for a reconciliation of adjusted ebitda to net income ( loss ) , the most directly comparable financial measure calculated in accordance with gaap . non-gaap financial measures in addition to our financial information presented in accordance with gaap , we use certain non-gaap financial measures to clarify and enhance our understanding of past performance and future prospects . generally , a non-gaap financial measure is a numerical measure of a company 's operating performance , financial position or cash flow that includes or excludes amounts that are included or excluded from the most directly comparable measure calculated and presented in accordance with gaap . as discussed below , we monitor the non-gaap financial measures described below , and we believe they are helpful to investors . our non-gaap financial measures may not provide information that is directly comparable to that provided by other companies in our industry because they may calculate non-gaap financial results differently . in addition , there are limitations in using non-gaap financial measures because they are not prepared in accordance with gaap and exclude expenses that may have a material impact on our reported financial results . in particular , interest expense , which is excluded from adjusted ebitda has been and will continue to be a significant recurring expense in our business for the foreseeable future . the presentation of non-gaap financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with gaap . we urge you to review the reconciliations of our non-gaap financial measures to the comparable gaap financial measures included below , and not to rely on any single financial measure to evaluate our business . we exclude stock-based compensation expense because it is non-cash in nature and excluding this expense provides meaningful supplemental information regarding our operational performance and allows investors the ability to make more meaningful comparisons between our operating results and those of other companies .
| during 2017 , cash provided by operating activities was $ 21.9 million , which consisted of a net loss of $ 7.6 million , adjusted by non-cash charges of $ 20.2 million and a net change of $ 9.2 million in our net operating assets and liabilities . the non-cash charges are primarily comprised of depreciation and amortization of $ 10.2 million , amortization of debt issuance costs of $ 0.7 million , loss on modification and partial extinguishment of debt of $ 1.7 million , amortization of contract acquisition costs of $ 3.0 million and stock-based compensation of $ 4.5 million . the change in our net operating assets and liabilities was primarily as a result of an increase in deferred revenue of $ 28.0 million due to the timing of billings and cash received in advance of revenue recognition primarily for subscription 64 and support services , an increase in accrued expenses of $ 10.9 million due primarily to accrual of additional commissions and bonuses , an increase in accounts payable of $ 1.4 million due to timing of cash disbursements , an increase in income taxes payable of $ 0.6 million , partially offset by an increase in prepayments and other assets of $ 5 .2 million , and increase in other non-current assets of $ 2.5 million , and an increase in accounts receivable of $ 24.1 million due to the timing of receipts of payments from customers . during 2016 , cash provided by operating activities was $ 6.5 million , which consisted of a net loss of $ 3.2 million , adjusted by non-cash charges of $ 10.0 million and a net change of $ 0.3 million in our net operating assets and liabilities . the non-cash charges are primarily comprised of depreciation and amortization of $ 10.0 million , amortization of debt issuance costs of $ 0.7 million , amortization of contract acquisition costs of $ 1.3 million , and stock-based compensation of $ 0.6 million , partially offset by $ 2.5 million in deferred taxes . the change in our net operating assets and liabilities was primarily as a result of an increase in deferred revenue
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we currently outsource the manufacture of all components of our r-snm system . we plan to continue with an outsourced manufacturing arrangement for certain of our r-snm system components for the foreseeable future . we believe that our contract manufacturers are recognized in their field for their competency to manufacture the respective portions of our r-snm system and have quality systems established that meet fda requirements . we believe the manufacturers we currently utilize have sufficient capacity to meet our launch requirements and are able to scale up their capacity relatively quickly with limited capital investment . we have devoted substantially all of our resources to research and development activities related to our r-snm system , including clinical and regulatory initiatives to obtain marketing approvals . in anticipation of potential fda approval , we expect to continue to spend a significant amount of our resources on sales and marketing activities as we begin to commercialize and market our r-snm system in the united states . we incurred net losses of $ 32.5 million and $ 18.1 million for the years ended december 31 , 2018 and 2017 , and had an accumulated deficit of $ 99.6 million as of december 31 , 2018 . as of december 31 , 2018 , we had available cash , cash equivalents and short-term investments of approximately $ 157.5 million , current liabilities of approximately $ 5.9 million , and long-term liabilities of approximately $ 22.7 million . prior to our ipo , we financed our operations primarily through preferred stock financings and amounts borrowed under the loan agreement . we have invested heavily in product development and continuous improvement to our r-snm system . we have also made significant investments in clinical studies to demonstrate the safety and effectiveness of our r-snm system and to support regulatory submissions . because of these and other factors , we expect to continue to incur net losses for the next few years and we may require additional funding , which may include future equity and debt financings . adequate funding may not be available to us on acceptable terms , or at all . our failure to obtain sufficient funds on acceptable terms when needed could have a material and adverse effect on our business , financial condition , and results of operations . 84 initial public offering on november 2 , 2018 , we completed our ipo by issuing 9,200,000 shares of common stock , at an offering price of $ 15.00 per share , inclusive of 1,200,000 shares of our common stock issued upon the exercise by the underwriters of their option to purchase additional shares . the gross proceeds from the ipo were $ 138.0 million and the net proceeds were approximately $ 126.0 million , after deducting underwriting discounts , commissions and estimated offering expenses payable by us . in connection with the ipo , our outstanding shares of convertible preferred stock were automatically converted into an aggregate of 15,813,297 shares of common stock , and our outstanding warrants to purchase shares of series c convertible preferred stock were automatically converted into warrants to purchase up to an aggregate of 80,000 shares of common stock . amf license agreement on october 1 , 2013 , we entered into the license agreement pursuant to which amf granted us a royalty-bearing , sublicensable license to the amf ip . the license to the amf ip allows axonics to make , have made , lease , offer to lease , use , sell , offer for sale , market , promote , advertise , import , research , develop and commercialize the amf licensed products worldwide for the treatment of : ( i ) urinary and fecal dysfunction in humans through the application of electrical energy anywhere in or on the human body ; ( ii ) chronic pain in humans through the application of electrical energy to the nervous system ; and ( iii ) inflammatory conditions of the human body through the application of electrical energy to the vagus nerve , excluding , in each case , any product or method that involves the placement of electrodes or the administration of electrical stimulation inside the cranial cavity or to the ocular nervous system or the auditory nervous system . we have the right to expand the field of use for the amf licensed products to modulation of digestive process and treatment of digestive conditions in humans through the application of electrical energy anywhere in or on the body , subject to the exclusions described above . generally , the license is non-transferable without the prior written consent of amf , except to an affiliate of our company or in connection with the acquisition of our company ( whether by merger , consolidation , sale or otherwise ) or the part of our business to which the license agreement relates , provided that the assignee agrees in writing to be bound to the terms of the license agreement to which we are bound . we granted to amf a royalty-free , worldwide , sublicensable , perpetual , exclusive license to the axonics licensed ip . this license granted by us to amf explicitly excludes uses of the axonics licensed ip that are within the scope of the exclusive license of the amf ip granted by amf to us . such license is irrevocable unless we terminate the license agreement and amf does not agree to pay us compensation for such license mutually agreed between us and amf or determined by arbitration in accordance with the terms of the license agreement . to date , we have not made any improvements to the inventions claimed in the amf ip that constitute axonics licensed ip . story_separator_special_tag in addition , the license agreement provides amf with the amf option , to license from us any intellectual property owned by us or otherwise in our control , that is related to electrical stimulation of human tissue , separate from the axonics licensed ip and amf ip , on terms that are materially consistent with the terms upon which we license the amf ip pursuant to the license agreement , and subject to field of use restrictions that would be determined upon the exercise of the amf option . amf has expressly declined in writing to exercise the amf option . under the license agreement , for each calendar year beginning in 2018 , we are obligated to pay amf the greater of ( i ) 4 % of all net revenue derived from the amf licensed products , and ( ii ) the minimum royalty , payable quarterly . as of december 31 , 2018 , we have accrued $ 0.1 million toward the minimum royalty . the minimum royalty will automatically increase each year after 2018 , subject to a maximum amount of $ 200,000 per year . we have 60 days to pay amf the royalty amount due under the license agreement , and if we fail to pay amf within such 60-day period , amf may , at its election , convert the exclusive license to a non-exclusive license or terminate the license agreement . the initial term of the license agreement is from october 1 , 2013 to october 1 , 2033 , and will automatically continue until all patents are no longer in force . upon completion of the initial term , the license granted pursuant to 85 the license agreement will be fully paid-up and perpetual except that if we wish to continue to practice any of the patents licensed to us by amf that remain in force after such initial term , then we will have to continue to pay a reduced royalty for so long as such patent remains in force . each party may terminate the license agreement if the other party commits a material breach of any obligation under the license agreement and such breach is not cured within 90 days following receipt of notice of such breach from the other party . amf may terminate the license agreement upon ( i ) notice to us in the event we challenge or assist any other person or entity in challenging the patentability , enforceability or validity of any of the amf patents licensed to us under the license agreement , subject to certain exceptions including challenges that we are not infringing any such amf patent , and ( ii ) upon our filing of or the institution of bankruptcy , reorganization , liquidation or receivership proceedings , or upon an assignment of a substantial portion of our assets for the benefit of creditors , and in the case of involuntary bankruptcy , in the event we consent to such bankruptcy and it is not dismissed within 90 days . lastly , we may terminate the license agreement in full for any reason effective upon 60 days written notice to amf . the license agreement was amended twice in february 2014 in order to , among other things , include the field of the treatment of urinary and fecal dysfunction in humans through the application of electrical energy anywhere in or on the human body , within the scope of the licenses granted therein . the agreement allows for amf the right to use the amf ip for non-commercial research , educational and scholarly purposes . as of december 31 , 2018 , amf holds 2,102,970 shares of our common stock . john petrovich , a former member of our board of directors who retired from the board in early march 2019 , is the president , chief executive officer , senior vice president , business development and general counsel of amf . 86 components of our results of operations net revenue since we commenced operations in late 2013 , we have generated minimal revenue , as our activities have consisted primarily of developing our r-snm system , conducting our relax-oab post-market clinical follow up study in europe and our artisan-snm pivotal study in the united states and europe , and filing for regulatory approvals . in the future , if our r-snm system is approved in the united states , we expect to generate revenue from product sales . our ability to generate revenue and become profitable will depend on our ability to successfully commercialize our r-snm system and any product enhancements we may advance in the future . although we have begun limited commercial activities in europe , our main priority is the united states , where we expect to begin to commercialize and market our r-snm system and generate revenue from product sales if and when approved by the fda . we plan to establish a significant commercial infrastructure in anticipation of potential fda approval of our r-snm system . we expect to derive future revenue by increasing patient and physician awareness of our r-snm system , hiring our own dedicated sales force , and obtaining additional regulatory approvals . in addition , we plan to strategically expand into favorable international markets . if we are unable to accomplish any of these objectives , it could have a significant negative impact on our future revenue . if we fail to generate revenue in the future , our business , results of operations , financial condition , cash flows , and future prospects would be materially and adversely affected . cost of goods sold and gross margin cost of goods sold consists primarily of acquisition costs of the components of our r-snm system , third-party contract labor costs , overhead costs , as well as distribution-related expenses such as logistics and shipping costs , net of costs charged to customers . the overhead costs include the cost of material procurement and operations supervision and management personnel .
| for more information on forgiveness of stock subscriptions receivable , see note 6 to the consolidated financial statements in part ii , item 8 of this report . general and administrative expenses general and administrative expenses increased $ 4.5 million , or 94.1 % , to $ 9.4 million in fiscal year 2018 , compared to $ 4.8 million in fiscal year 2017 , primarily as a result of an in crease of $ 2.6 million related to personnel costs including $ 1.2 million of forgiveness of stock subscriptions receivable and $ 0.9 million of salaries and wages , and an in crease of $ 1.1 million in legal and consulting costs . for more information on forgiveness of stock subscriptions receivable , see note 6 to the consolidated financial statements in part ii , item 8 of this report . sales and marketing expenses sales and marketing expenses increased $ 2.7 million , or 261.6 % , to $ 3.7 million in fiscal year 2018 , compared to $ 1.0 million in fiscal year 2017 . the in crease in sales and marketing expenses was primarily due to an in crease of $ 1.5 million related to personnel costs and costs of initial hiring of the sales force and an in crease of $ 0.8 million related to expenses for general marketing expenses , conferences and tradeshows . other income ( expense ) , net other expense , net was $ 0.3 million in fiscal year 2018 , consisting primarily of interest expense incurred related to the loan agreement with silicon valley bank , partially offset by interest income earned on cash equivalents and short-term investments . other income , net was $ 0.1 million in fiscal year 2017 , which was primarily interest income earned on cash equivalents and short-term investments . income tax expense income tax expense was minimal in fiscal year 2018 and 2017 . liquidity and capital resources since we commenced operations in late 2013 , we have devoted
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( 3 ) filed or furnished herewith . ( 4 ) to be submitted by amendment . ( 5 ) in accordance with regulation s-t , the interactive data files in exhibit 101 to the annual report on form 10-k shall be deemed “ furnished ” and not “ filed . ” signatures pursuant to the requirements of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized . on the move systems corp. date : june 15 , 2016 by : robert wilson robert wilson president , chief executive officer , chief financial officer , principal accounting officer , treasurer and director - 35 - story_separator_special_tag this filing contains forward-looking statements . the words “ anticipated , ” “ believe , ” “ expect , ” “ plan , ” “ intend , ” “ seek , ” “ estimate , ” “ project , ” “ will , ” “ could , ” “ may , ” and similar expressions are intended to identify forward-looking statements . these statements include , among others , information regarding future operations , future capital expenditures , and future net cash flow . such statements reflect the company 's current views with respect to future events and financial performance and involve risks and uncertainties , including , without limitation , general economic and business conditions , changes in foreign , political , social , and economic conditions , regulatory initiatives and compliance with governmental regulations , the ability to achieve further market penetration and additional customers , and various other matters , many of which are beyond the company 's control . should one or more of these risks or uncertainties occur , or should underlying assumptions prove to be incorrect , actual results may vary materially and adversely from those anticipated , believed , estimated , or otherwise indicated . consequently , all of the forward-looking statements made in this filing are qualified by these cautionary statements and there can be no assurance of the actual results or developments . the following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein . this discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions , operations , plans , objectives , and performance that involve risk , uncertainties , and assumptions . the actual results may differ materially from those anticipated in such forward-looking statements . for example , when we indicate that we expect to increase our product sales and potentially establish additional license relationships , these are forward-looking statements . the words expect , anticipate , estimate or similar expressions are also used to indicate forward-looking statements . background of our company we are a company incorporated in nevada on march 25 , 2010. on the move systems corp. ( “ we ” , “ us ” , “ our ” , “ omvs ” , or the “ company ” ) was incorporated in nevada on march 25 , 2010. we reincorporated into nevada on february 17 , 2015. our business focus is transportation services . we are currently exploring the on-demand logistics market by developing a network of logistics partnerships . our year-end is february 28. the company is located at 701 north green valley parkway , suite 200 , henderson , nevada 89074. our telephone number is 702-990-3271. our business focus is transportation-related technology services . we are currently exploring the online , on-demand logistics market by developing a shared economy network of trucking partnerships . we are in the process of building a shared economy app designed to put independent drivers and brokers together for more efficient pricing and booking , optimized operations and quick delivery turnarounds . we have signed a letter of intent with a houston-area software design firm regarding development of such a platform . this app , when released , will revolutionize the trucking industry by connecting national and local carriers , enabling each to maximize revenues and reduce costs . plan of operations we believe we do not have adequate funds to fully execute our business plan for the next twelve months unless we obtain additional funding . however , should we not raise this capital , we will allocate our funding to first assure that all state , federal and sec requirements are met . as of february 29 , 2016 , we had cash on hand of $ 2,223. we intend to pursue capital through public or private financing , as well as borrowing and other sources in order to finance our business activities . we can not guarantee that additional funding will be available on favorable terms , if at all . if adequate funds are not available , then our ability to continue our operations may be significantly hindered . - 8 - story_separator_special_tag of revenues and expenses during the reporting period . actual results could differ from those estimates . - 10 - going conern - the accompanying financial statements have been prepared assuming that the company will continue as a going concern . for the year ended february 29 , 2016 , the company had a net loss of $ 1,267,955 and generated negative cash flow from operating activities in the amount of $ 555,840. in view of these matters , the company 's ability to continue as a going concern is dependent upon its ability to achieve a level of profitability or to obtain additional capital to finance its operations . the company intends on financing its future activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources , including term notes until such time that funds provided by operations are sufficient to fund working capital requirements . the financial statements story_separator_special_tag ( 3 ) filed or furnished herewith . ( 4 ) to be submitted by amendment . ( 5 ) in accordance with regulation s-t , the interactive data files in exhibit 101 to the annual report on form 10-k shall be deemed “ furnished ” and not “ filed . ” signatures pursuant to the requirements of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized . on the move systems corp. date : june 15 , 2016 by : robert wilson robert wilson president , chief executive officer , chief financial officer , principal accounting officer , treasurer and director - 35 - story_separator_special_tag this filing contains forward-looking statements . the words “ anticipated , ” “ believe , ” “ expect , ” “ plan , ” “ intend , ” “ seek , ” “ estimate , ” “ project , ” “ will , ” “ could , ” “ may , ” and similar expressions are intended to identify forward-looking statements . these statements include , among others , information regarding future operations , future capital expenditures , and future net cash flow . such statements reflect the company 's current views with respect to future events and financial performance and involve risks and uncertainties , including , without limitation , general economic and business conditions , changes in foreign , political , social , and economic conditions , regulatory initiatives and compliance with governmental regulations , the ability to achieve further market penetration and additional customers , and various other matters , many of which are beyond the company 's control . should one or more of these risks or uncertainties occur , or should underlying assumptions prove to be incorrect , actual results may vary materially and adversely from those anticipated , believed , estimated , or otherwise indicated . consequently , all of the forward-looking statements made in this filing are qualified by these cautionary statements and there can be no assurance of the actual results or developments . the following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein . this discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions , operations , plans , objectives , and performance that involve risk , uncertainties , and assumptions . the actual results may differ materially from those anticipated in such forward-looking statements . for example , when we indicate that we expect to increase our product sales and potentially establish additional license relationships , these are forward-looking statements . the words expect , anticipate , estimate or similar expressions are also used to indicate forward-looking statements . background of our company we are a company incorporated in nevada on march 25 , 2010. on the move systems corp. ( “ we ” , “ us ” , “ our ” , “ omvs ” , or the “ company ” ) was incorporated in nevada on march 25 , 2010. we reincorporated into nevada on february 17 , 2015. our business focus is transportation services . we are currently exploring the on-demand logistics market by developing a network of logistics partnerships . our year-end is february 28. the company is located at 701 north green valley parkway , suite 200 , henderson , nevada 89074. our telephone number is 702-990-3271. our business focus is transportation-related technology services . we are currently exploring the online , on-demand logistics market by developing a shared economy network of trucking partnerships . we are in the process of building a shared economy app designed to put independent drivers and brokers together for more efficient pricing and booking , optimized operations and quick delivery turnarounds . we have signed a letter of intent with a houston-area software design firm regarding development of such a platform . this app , when released , will revolutionize the trucking industry by connecting national and local carriers , enabling each to maximize revenues and reduce costs . plan of operations we believe we do not have adequate funds to fully execute our business plan for the next twelve months unless we obtain additional funding . however , should we not raise this capital , we will allocate our funding to first assure that all state , federal and sec requirements are met . as of february 29 , 2016 , we had cash on hand of $ 2,223. we intend to pursue capital through public or private financing , as well as borrowing and other sources in order to finance our business activities . we can not guarantee that additional funding will be available on favorable terms , if at all . if adequate funds are not available , then our ability to continue our operations may be significantly hindered . - 8 - story_separator_special_tag of revenues and expenses during the reporting period . actual results could differ from those estimates . - 10 - going conern - the accompanying financial statements have been prepared assuming that the company will continue as a going concern . for the year ended february 29 , 2016 , the company had a net loss of $ 1,267,955 and generated negative cash flow from operating activities in the amount of $ 555,840. in view of these matters , the company 's ability to continue as a going concern is dependent upon its ability to achieve a level of profitability or to obtain additional capital to finance its operations . the company intends on financing its future activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources , including term notes until such time that funds provided by operations are sufficient to fund working capital requirements . the financial statements
| the reduction in general and administrative expenses was due to reduced professional fees . interest expense interest expense increased from $ 375,412 for the year ended february 28 , 2015 to $ 647,990 for the year ended february 29 , 2016. interest expense for the year ended february 29 , 2016 included amortization of discount on convertible notes payable in the amount of $ 481,220 , compared to $ 256,695 for the comparable period of 2015. the remaining increase is the result of the company entering into interest-bearing convertible notes payable . gain on asset disposal during the year ended february 29 , 2016 , we recognized a $ 1,808 gain on the disposal of our leased race car . we did not dispose of any assets during the year ended february 28 , 2015. impairment of long lived assets during the year ended february 29 , 2016 , we recognized a $ 49,302 impairment of the value of our trailers and leased delivery van . we recognized no impairment during the corresponding period in 2015. net loss we incurred a net loss of $ 1,267,955 for the year ended february 29 , 2016 as compared to $ 1,049,428 for the comparable period of 2015. the increase in the net loss was primarily the result of higher interest expense and a loss on financial derivative instruments . - 9 - liquidity and capital resources we anticipate needing additional financing to fund our operations and to effectively execute our business plan over the next eighteen months . currently available cash is not sufficient to allow us to commence full execution of our business plan . our business expansion will require significant capital resources that may be funded through the issuance of common stock or of notes payable or other debt arrangements that may affect our debt structure . despite our current financial status , we believe that we may be able to issue notes payable or debt instruments in order to start executing our
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these risks include materially reduced demand for our services and challenges to the ongoing viability of some of our customers . an extended period of remote work arrangements could strain our business continuity plans , introduce operational risk , including but not limited to cybersecurity risks , and impair our ability to manage our business . 26 the effect of the covid-19 pandemic may last for a significant period of time and may continue to adversely affect our business , results of operations and financial condition even after the covid-19 outbreak has subsided . the extent to which the covid-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict , including : the severity and duration of the outbreak ; governmental , business and other actions ; the impact of the pandemic on economic activity ; the effect on consumer confidence and spending , customer demand and buying patterns ; the health of and the effect on our workforce and our ability to meet staffing needs ; any impairment in value of our tangible or intangible assets that could be recorded as a result of weaker economic conditions ; and the potential effects on our internal controls including those over financial reporting as a result of changes in working environments . p rovisions for bad debt expense may increase given the financial difficulty faced by our customers , which could impact our ability to borrow under our revolving credit facility . due to the unprecedented and evolving nature of the covid-19 pandemic , it remains very difficult to predict the extent of the impact on our industry generally and our business in particular . while we anticipate that our results of operations will continue to be impacted by this pandemic in fiscal year 2021 , we are unable to reasonably estimate the extent of the impact on our full-year results of operations , our liquidity or our overall financial position . we may face similar risks in connection with any future public health crises . our business model has also shown its strength in the diversity of our service offerings . although the pandemic has had a substantial negative impact on many of the industry verticals and customers that we serve , the radiant network is proud to be playing an active role in the fight against covid-19 : delivering personal protective equipment , food and beverage , consumer goods , technology and other essential products for our customers in north america and around the world . notwithstanding this great effort by our team , we anticipate the contraction in our business from the shelter-at-home mandates , closing of manufacturing facilities and general global economic slowdown will more than off-set any financial benefit from our support of essential businesses . the effects of covid-19 , however , will not be fully reflected in our financial results until future periods . the extent to which the covid-19 pandemic impacts our business going forward will depend on numerous evolving factors we can not reliably predict , including the duration and scope of the pandemic ; governmental , business , and individuals ' actions in response to the pandemic ; and the impact on economic activity including the possibility of recession or financial market instability . these factors may adversely impact consumer , business , and government spending as well as customers ' ability to pay for our services on an ongoing basis . this uncertainty also affects management 's accounting estimates and assumptions , which could result in greater variability in a variety of areas that depend on these estimates and assumptions , including receivables and forward-looking guidance . performance metrics our principal source of income is derived from freight forwarding and freight brokerage services we provide to our customers . as a third-party logistics provider , we arrange for the shipment of our customers ' freight from point of origin to point of destination . generally , we quote our customers a turnkey cost for the movement of their freight . our price quote will often depend upon the customer 's time-definite needs ( first day through fifth day delivery ) , special handling needs ( heavy equipment , delicate items , environmentally sensitive goods , electronic components , etc . ) , and the means of transport ( motor carrier , air , ocean or rail ) . in turn , we assume the responsibility for arranging and paying for the underlying means of transportation . our transportation revenue represents the total dollar value of services we sell to our customers . our cost of transportation includes direct costs of transportation , including motor carrier , air , ocean and rail services . our net transportation revenue ( gross transportation revenue less the direct cost of transportation ) is the primary indicator of our ability to source , add value and resell services provided by third parties , and is considered by management to be a key performance measure . in addition , management believes measuring its operating costs as a function of net transportation revenue provides a useful metric , as our ability to control costs as a function of net transportation revenue directly impacts operating earnings . our operating results will be affected as acquisitions occur . since all acquisitions are made using the acquisition method of accounting for business combinations , our financial statements will only include the results of operations and cash flows of acquired companies for periods subsequent to the date of acquisition . net revenues , a non-gaap financial measure , is our total revenue minus our total cost of transportation and other services ( excluding depreciation and amortization , which are reported separately ) and net margin is net revenues as a percentage of our total revenue . we believe that these provide investors meaningful information to understand our results of operations and the ability to analyze financial and business trends on a period-to-period basis . story_separator_special_tag 27 our gaap-based net income will be affected by non-cash charges relating to the amortization of customer related intangible assets and other intangible assets attributable to completed acquisitions . under applicable accounting standards , purchasers are required to allocate the total consideration in a business combination to the identified assets acquired and liabilities assumed based on their fair values at the time of acquisition . the excess of the consideration paid over the fair value of the identifiable net assets acquired is to be allocated to goodwill , which is tested at least annually for impairment . applicable accounting standards require that we separately account for and value certain identifiable intangible assets based on the unique facts and circumstances of each acquisition . as a result of our acquisition strategy , our net income will include material non-cash charges relating to the amortization of customer related intangible assets and other intangible assets acquired in our acquisitions . although these charges may increase as we complete more acquisitions , we believe we will be growing the value of our intangible assets ( e.g . customer relationships ) . thus , we believe that earnings before interest , taxes , depreciation and amortization , or ebitda , is a useful financial measure for investors because it eliminates the effect of these non-cash costs and provides an important metric for our business . ebitda is a non-gaap measure of income and does not include the effects of preferred stock dividends , interest and taxes , and excludes the “ non-cash ” effects of depreciation and amortization on long-term assets . companies have some discretion as to which elements of depreciation and amortization are excluded in the ebitda calculation . we exclude all depreciation charges related to property , technology , and equipment and all amortization charges ( including amortization of leasehold improvements ) . we then further adjust ebitda to exclude changes in fair value of contingent consideration , expenses specifically attributable to acquisitions , transition and lease termination costs , foreign currency transaction gains and losses , share-based compensation expense , litigation expenses unrelated to our core operations , and other non-cash charges . while management considers ebitda and adjusted ebitda useful in analyzing our results , it is not intended to replace any presentation included in our consolidated financial statements . our operating results are also subject to seasonal trends when measured on a quarterly basis . the impact of seasonality on our business will depend on numerous factors , including the markets in which we operate , holiday seasons , consumer demand , and economic conditions . since our revenue is largely derived from customers whose shipments are dependent upon consumer demand and just-in-time production schedules , the timing of our revenue is often beyond our control . factors such as shifting demand for retail goods and or manufacturing production delays could unexpectedly affect the timing of our revenue . as we increase the scale of our operations , seasonal trends in one area of our business may be offset to an extent by opposite trends in another area . we can not accurately predict the timing of these factors , nor can we accurately estimate the impact of any particular factor , and thus we can give no assurance any historical seasonal patterns will continue in future periods . critical accounting policies accounting policies , methods and estimates are an integral part of the consolidated financial statements prepared by management and are based upon management 's current judgments . these judgments are normally based on knowledge and experience regarding past and current events and assumptions about future events . certain accounting policies , methods and estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ from management 's current judgments . while there are a number of accounting policies , methods and estimates that affect our financial statements , the areas that are particularly significant include revenue recognition ; accruals for the cost of purchased transportation ; the fair value of acquired assets and liabilities ; fair value of contingent consideration ; and the assessment of the recoverability of long-lived assets , goodwill and intangible assets . we perform an annual impairment test for goodwill as of april 1 of each year unless events or circumstances indicate impairment may have occurred before that time . we assess qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than the carrying amount . after assessing qualitative factors , if further testing is necessary , we would determine the fair value of each reporting unit and compare the fair value to the reporting unit 's carrying amount . intangible assets consist of customer related intangible assets , trade names and trademarks , and non-compete agreements arising from our acquisitions . customer related intangible assets are amortized using the straight-line method over a period of up to ten years , trademarks and trade names are amortized using the straight-line method over 15 years , and non-compete agreements are amortized using the straight-line method over the term of the underlying agreements . we review long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable . if the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset is less than its carrying amount , the asset is considered to be impaired . impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset . when fair values are not available , we estimate fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset . assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell .
| the following table provides a reconciliation for the fiscal years ended june 30 , 2020 and 2019 of net revenues to gross profit , the most directly comparable gaap measure : replace_table_token_2_th 30 the following table compares consolidated statements of comprehensive income data by reportable operating segments for the fiscal years ended june 30 , 2020 and 2019 : replace_table_token_3_th replace_table_token_4_th ( 1 ) net revenue s are revenues net of cost of transportation and other services . operating partner commissions decreased $ 16.8 million , or 16.3 % , to $ 85.8 million for the year ended june 30 , 2020. the decrease is primarily due to decreased net revenues from operating partners , including the conversion of the dca and pit locations to radiant owned stores . as a percentage of net revenues , operating partner commissions decreased 358 basis points to 41.0 % from 44.6 % for the years ended june 30 , 2020 and 2019 , respectively . personnel costs decreased $ 2.7 million , or 4.5 % , to $ 57.7 million for the year ended june 30 , 2020. the decrease is primarily due to increased cost controls resulting in reduced headcount , hours , and compensation as a result of the covid-19 pandemic . as a percentage of net revenues , personnel costs increased 131 basis points to 27.5 % from 26.2 % for the years ended june 30 , 2020 and 2019 , respectively . selling , general and administrative ( “ sg & a ” ) expenses increased $ 1.1 million , or 3.8 % , to $ 29.5 million for the year ended june 30 , 2020. the increase is primarily attributable to increased bad debt expense , technology and professional services for the period . as a percentage of net revenues , sg & a increased 174 basis points to 14.1 % from 12.4 % for the years ended june 30 , 2020 and 2019 , respectively . 31 depreciation and amortization costs increased $ 1.4 million , or 9.0 % , to $ 16.6 million for the year ended june 30 , 2020 .
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factors that affect our results of operations and financial condition a variety of industry and economic factors may impact our results of operations and financial condition . these factors include : · interest rate trends ; · the difference between agency rmbs yields and our funding and hedging costs ; · competition for investments in agency rmbs ; · recent actions taken by the federal reserve and the u.s. treasury ; and · prepayment rates on mortgages underlying our agency rmbs , and credit trends insofar as they affect prepayment rates ; · other market developments . in addition , a variety of factors relating to our business may also impact our results of operations and financial condition . these factors include : · our degree of leverage ; · our access to funding and borrowing capacity ; · our borrowing costs ; · our hedging activities ; · the market value of our investments ; and · the requirements to qualify as a reit and the requirements to qualify for a registration exemption under the investment company act . story_separator_special_tag of operations are not necessarily representative of the total interest rate expense that the company will ultimately realize . this is because as interest rates move up or down in the future , the gains or losses the company ultimately realizes , and which will affect the company 's total interest rate expense in future periods , may differ from the unrealized gains or losses recognized as of the reporting date . the company 's presentation of the economic value of its hedging strategy has important limitations . first , other market participants may calculate economic interest expense and economic net interest income differently than the company calculates them . second , while the company believes that the calculation of the economic value of our hedging strategy described above helps to present our financial position and performance , it may be of limited usefulness as an analytical tool . therefore , the economic value of the company 's investment strategy should not be viewed in isolation and is not a substitute for interest expense and net interest income computed in accordance with gaap . the tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our derivative instruments , and the income statement line item , gains ( losses ) on derivative instruments , calculated in accordance with gaap for the years ended december 31 , 2015 , 2014 and 2013 and for each quarter during 2015 , 2014 and 2013. replace_table_token_6_th -47- economic interest expense and economic net interest income ( in thousands ) interest expense on borrowings gains ( losses ) on derivative instruments net interest income gaap attributed economic gaap economic interest interest to current interest net interest net interest income expense period ( 1 ) expense ( 2 ) income income ( 3 ) three months ended december 31 , 2015 $ 19,092 $ 2,371 $ ( 1,196 ) $ 3,567 $ 16,721 $ 15,525 september 30 , 2015 18,352 2,037 ( 881 ) 2,918 16,315 15,434 june 30 , 2015 16,753 1,567 ( 595 ) 2,162 15,186 14,591 march 31 , 2015 14,614 1,296 ( 306 ) 1,602 13,318 13,012 december 31 , 2014 12,146 1,126 ( 145 ) 1,271 11,020 10,875 september 30 , 2014 9,286 818 ( 25 ) 843 8,468 8,443 june 30 , 2014 6,589 676 ( 3 ) 679 5,913 5,910 march 31 , 2014 3,783 411 ( 30 ) 441 3,372 3,342 december 31 , 2013 2,806 309 ( 42 ) 351 2,497 2,455 september 30 , 2013 2,551 294 ( 28 ) 322 2,257 2,229 june 30 , 2013 2,429 322 ( 4 ) 326 2,107 2,103 march 31 , 2013 1,413 201 ( 65 ) 266 1,212 1,147 years ended december 31 , 2015 $ 68,811 $ 7,271 $ ( 2,978 ) $ 10,249 $ 61,540 58,562 december 31 , 2014 31,804 3,031 ( 203 ) 3,234 28,773 28,570 december 31 , 2013 9,199 1,126 ( 139 ) 1,265 8,073 7,934 ( 1 ) reflects the effect of derivative instrument hedges for only the period presented ( 2 ) calculated by subtracting the effect of derivative instrument hedges attributed to the period presented from gaap interest expense . ( 3 ) calculated by adding the effect of derivative instrument hedges attributed to the period presented to gaap net interest income . net interest income during the year ended december 31 , 2015 , we generated $ 61.5 million of net interest income , consisting of $ 68.8 million of interest income from rmbs assets offset by $ 7.3 million of interest expense on borrowings . for the year ended december 31 , 2014 , we generated $ 28.8 million of net interest income , consisting of $ 31.8 million of interest income from rmbs assets offset by $ 3.0 million of interest expense on borrowings . the $ 37.0 million increase in interest income and $ 4.2 million increase in interest expense for the year ended december 31 , 2015 primarily reflects the continued growth of our portfolio fueled by our capital raising activities throughout 2014 and through the first six months of 2015. for the year ended december 31 , 2013 , we generated $ 8.1 million of net interest income , consisting of $ 9.2 million of interest income from rmbs assets offset by $ 1.1 million of interest expense on borrowings . the $ 22.6 million increase in interest income and $ 1.9 million increase in interest expense for the year ended december 31 , 2014 primarily reflects the deployment of the proceeds from our capital raising activities into the rmbs portfolio on a leveraged basis . on an economic basis , our interest expense on borrowings for the years ended december 31 , 2015 , 2014 and 2013 was $ 10.2 million , $ 3.2 million and $ 1.3 million , respectively , resulting in $ 58.6 million , $ 28.6 million and $ 7.9 million of economic net interest income , respectively . story_separator_special_tag -48- the tables below provide information on our portfolio average balances , interest income , yield on assets , average borrowings , interest expense , cost of funds , net interest income and net interest spread for each quarter in 2015 , 2014 and 2013 and for the years ended december 31 , 2015 , 2014 and 2013 on both a gaap and economic basis . replace_table_token_7_th replace_table_token_8_th ( 1 ) portfolio yields and costs of borrowings presented in the tables above and the tables on pages 51-53 are calculated based on the average balances of the underlying investment portfolio/repurchase agreement balances and are annualized for the quarterly periods presented . average balances for quarterly periods are calculated using two data points , the beginning and ending balances . average balances for the year to date periods are calculated as the average of the average quarterly periods . ( 2 ) economic interest expense and economic net interest income presented in the table above and the tables on page 51 includes the effect of our derivative instrument hedges for only the periods presented . ( 3 ) represents interest cost of our borrowings and the effect of derivative instrument hedges attributed to the period divided by average rmbs held . ( 4 ) economic net interest spread is calculated by subtracting average economic cost of funds from yield on average rmbs . -49- interest income and average asset yield our interest income for the years ended december 31 , 2015 and 2014 was $ 68.8 million and $ 31.8 million , respectively . we had average rmbs holdings of $ 1,955.7 million and $ 937.4 million for the years ended december 31 , 2015 and 2014 , respectively . the yield on our portfolio was 3.52 % and 3.39 % for the years ended december 31 , 2015 and 2014 , respectively . for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 , there was a $ 37.0 million increase in interest income due to a $ 1,018.3 million increase in average rmbs , combined with a 13 basis point increase in the yield on average rmbs for the year ended december 31 , 2015 when compared to the year ended december 31 , 2014. the increase in average rmbs during the year ended december 31 , 2015 reflects the deployment of the proceeds of our capital raising activities , on a leveraged basis . for the year ended december 31 , 2013 we had interest income of $ 9.2 million and average rmbs holdings of $ 316.1 million , resulting in a yield on our portfolio of 2.91 % . for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 , there was a $ 22.6 million increase in interest income due to a $ 621.2 million increase in average rmbs , partially offset by a 48 basis point increase in the yield on average rmbs . the increase in average rmbs during the year ended december 31 , 2014 reflects the deployment of the proceeds of our ipo . the table below presents the average portfolio size , income and yields of our respective sub-portfolios , consisting of structured rmbs and pass-through rmbs ( “ pt rmbs ” ) for the years ended december 31 , 2015 , 2014 and 2013 and for each quarter during 2015 , 2014 and 2013. replace_table_token_9_th -50- interest expense and the cost of funds we had average outstanding borrowings of $ 1,782.1 million and $ 892.1 million and total interest expense of $ 7.3 million and $ 3.0 million for the years ended december 31 , 2015 and 2014 , respectively . our average cost of funds was 0.41 % and 0.34 % for years ended december 31 , 2015 and 2014 , respectively . there was a 7 basis point increase in the average cost of funds and a $ 890.0 million increase in average outstanding borrowings during the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. the increase in average outstanding borrowings , and the corresponding increase in interest expense , reflects the leveraging of the proceeds of our capital raising activities . for the year ended december 31 , 2013 , we had average outstanding borrowings of $ 284.5 million and total interest expense of $ 1.1 million , resulting in an average cost of funds of 0.40 % . there was a 6 basis point decrease in the average cost of funds and a $ 607.6 million increase in average outstanding borrowings during the year ended december 31 , 2014 as compared to the year ended december 31 , 2013. the increase in average outstanding borrowings , and the corresponding increase in interest expense , reflects the leveraging of the proceeds of our capital raising activities . our economic interest expense was $ 10.2 million , $ 3.2 million and $ 1.3 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . there was a 22 basis point increase in the average economic cost of funds to 0.58 % for the year ended december 31 , 2015 from 0.36 % for the year ended december 31 , 2014. there was an 8 basis point decrease in the average economic cost of funds to 0.36 % for the year ended december 31 , 2014 from 0.44 % for the year ended december 31 , 2013. since all of our repurchase agreements are short-term , changes in market rates directly affect our interest expense .
| the company has not elected to designate its derivative holdings for hedge accounting treatment under the financial accounting standards board , ( the “ fasb ” ) , accounting standards codification , ( “ asc ” ) , topic 815 , derivatives and hedging . changes in fair value of these instruments are presented in a separate line item in the company 's consolidated statements of operations and not included in interest expense . as such , for financial reporting purposes , interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments . in the future , the company may use other derivative instruments to hedge its interest expense and or elect to designate its derivative holdings for hedge accounting treatment . for the purpose of computing economic net interest income and ratios relating to cost of funds measures , gaap interest expense has been adjusted to reflect the realized gains or losses on specific derivative instruments that pertain to each period presented . as of december 31 , 2015 , the company had eurodollar and t-note futures contracts in place through 2019 and 2026 , respectively , and an interest rate swaption agreement in place covering periods beginning in 2016 through 2021. adjusting our interest expense for the periods presented by the gains or losses on all derivative instruments would not accurately reflect our economic interest expense for these periods . for each period presented , the company has combined the effects of the derivative financial instruments in place for the respective period with the actual interest expense incurred on borrowings to reflect total expense for the applicable period . interest expense , including the effect of derivative instruments for the period , is referred to as economic interest expense . net interest income , when calculated to include the effect of derivative instruments for the period , is referred to as economic net interest income . -46- however , because the company has not elected hedging treatment under asc 815 , the gains or losses on all of the company 's derivative instruments held during the period are reflected in our consolidated statements of operations . this presentation includes
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million non-cash expense related to the change in fair value of our warrant liabilities and a $ 2.5 million non-cash expense related to the vesting of warrants issued to an fi partner that accelerated upon our ipo . acquisition of dosh on february 26 , 2021 , we entered into an agreement and plan of reorganization ( the “ merger agreement ” ) with dosh holdings , inc. , a delaware corporation ( “ dosh ” ) , bspears merger sub i , inc. , a delaware corporation and our wholly owned subsidiary ( “ merger sub 1 ” ) , bspears merger sub ii , llc , a delaware limited liability company and our wholly owned subsidiary ( “ merger sub 2 ” ) , and certain other parties named therein . the merger agreement provides for merger sub 1 to merge with and into dosh ( “ merger 1 ” ) , with dosh surviving merger 1 as our wholly owned subsidiary , immediately followed by the merger of dosh with and into merger sub 2 , with merger sub 2 surviving merger 2 as our wholly owned subsidiary , subject to the terms and conditions set forth in the merger agreement . pursuant to the merger agreement , and upon the terms and subject to the conditions thereof , at the closing , we are required to pay the former equityholders of dosh ( other than former holders of unvested options to purchase dosh 's common stock ) ( collectively , the “ dosh equityholders ” ) consideration of $ 275.0 million , consisting of , and subject to adjustment with respect to , the following : ( a ) an amount in cash equal to $ 150.0 million , subject to adjustments and subject to escrows ; and ( b ) $ 125.0 million million of shares of our common stock at an agreed-upon price of $ 136.33 per share . in addition , we will assume the unvested options held by the holders of unvested options to purchase dosh 's common stock and issue up to $ 8.0 million in our performance stock units to certain key dosh executives . the merger agreement contains customary representations , warranties , covenants and indemnities of each of us and dosh . during the period from the date of the merger agreement to the closing , we and dosh have agreed to carry on their respective businesses in the ordinary course and consistent with past practices and have agreed to certain other operating covenants . the closing of the mergers is subject to the satisfaction or waiver of a number of customary closing conditions in the merger agreement , including , among others , the absence of certain governmental restraints and the absence of a material adverse effect on dosh . 44 the merger agreement may be terminated prior to the closing date by mutual written agreement of us and dosh . in addition , the merger agreement may be terminated by either we or dosh in certain circumstances , including if the acquisition has not been closed on or before may 31 , 2021 , or if the other party has materially breached any representation , warranty , covenant , obligation or agreement such that certain of the conditions to closing can not be satisfied . fi partners our fi partners include bank of america , national association ( `` bank of america '' ) , jpmorgan chase bank , national association ( “ chase ” ) and wells fargo bank , national association ( “ wells fargo ” ) , as well as many other national and regional financial institutions , including several of the largest bank processors and digital banking providers to reach customers of small and mid-sized fis . wells fargo began a phased launch of our platform in the fourth quarter of 2019 that was completed in the second quarter of 2020. for december 31 , 2019 and 2020 , our average fi monthly active users ( `` fi maus '' ) were 122.6 million and 155.8 million and our average cardlytics platform revenue per user ( `` arpu '' ) was 1.72 and 1.20 , respectively . fi mau and arpu are performance metrics defined under the heading `` non-gaap measures and other performance metrics '' below . the increase in fi maus is largely due to wells fargo completing their phased launch in the second quarter of 2020 and chase launching our cardlytics platform for its online banking channel in the second quarter of 2019. we expect u.s. bank to begin a phased launch of the cardlytics platform in the first half of 2021 , which will also impact fi mau growth . we expect a continued increase in fi maus year over year as a result of the launch of wells fargo and u.s. bank . over time , we expect year-over-year increases in arpu as both consumer spending and the advertising budgets of our clients recover from the negative impacts of the covid-19 pandemic . fi partner commitments agreements with certain fi partners require us to fund the development of specific enhancements , pay for certain implementation fees , or make milestone payments upon the deployment of our solution . certain of these agreements provide for future reductions in fi share due to the fi partner . during 2018 , development payments to a certain fi partner totaled $ 9.3 million which was partially offset by recoveries through fi share payment reductions of $ 4.6 million in 2019. during 2020 , one of our fi partners notified us of plans to end the use of certain platform features prior to the end of our contractual arrangement with the fi partner . as a result , we wrote off deferred fi implementation costs totaling $ 0.7 million to fi share and other third-party costs on our consolidated statements of operation . story_separator_special_tag we have an fi share commitment to a certain fi partner totaling $ 10.0 million over a 12-month period following the completion of certain milestones by the fi partner , which were not met as of december 31 , 2020. any expected shortfall penalty will be accrued during the 12-month period following the completion of the milestones . impacts of covid-19 pandemic we remain focused on supporting our marketers , fis partners , employees and communities during the covid-19 pandemic . the impact of covid-19 on the global economy and on our business continues to be a fluid situation . we responded quickly to adopt a virtual corporate strategy to enable all of our employees to work productively from home , guard the health and safety of our team , support our marketers and fi partners , mitigate risk and maximize our financial performance . we are focused on ensuring continuity for our marketers and fi partners . revenue for the year ended december 31 , 2020 was unfavorably affected by the covid-19 pandemic and its impact on both consumer discretionary spending and marketers ' ability to spend advertising budgets on our solution . revenue during the second quarter of 2020 was significantly affected by the covid-19 pandemic and its negative impact on both consumer spending and marketers ' ability to spend advertising budgets on our solution . during the third and fourth quarters of 2020 , we saw a recovery of both consumer spending as well as the advertising budgets of our clients . due to continuing uncertainty regarding the severity and duration of the impacts of covid-19 on the global economy , we will continue to monitor this situation and the potential impacts to our business . 45 the extent of the impact of covid-19 on our operational and financial performance will depend on certain developments , including the duration and spread of the outbreak , its impact on industry events , and its effect on consumer spending , our marketers , fi partners , suppliers and vendors and other parties with whom we do business , all of which are uncertain and can not be predicted at this time . to the extent possible , we are conducting business as usual , with necessary or advisable modifications to employee travel , employee work locations , and cancellation of marketing events . we will continue to actively monitor the rapidly evolving situation related to covid-19 and may take actions that alter our business operations , including those that may be required by federal , foreign , state or local authorities , or that we determine are in the best interests of our employees , marketers , fi partners , suppliers , vendors and stockholders . at this point , the extent to which the covid-19 pandemic may impact our business , results of operations and financial condition is uncertain . see “ risk factors ” for further discussion of the adverse impacts of the covid-19 pandemic on our business . non-gaap measures and other performance metrics we regularly monitor a number of financial and operating metrics in order to measure our current performance and estimate our future performance . our metrics may be calculated in a manner different than similar metrics used by other companies . replace_table_token_2_th ( 1 ) adjusted contribution and adjusted ebitda includes the impact of a $ 0.8 million gain during 2018 related to the renewal of our agreement with an fi partner , which contains certain amendments that are retroactively applied as of january 1 , 2018. monthly active users we define fi maus as targetable customers or accounts of our fi partners that logged in and visited the online or mobile banking applications of , or opened an email containing our offers from , our fi partners during a monthly period . we then calculate a monthly average of these fi maus for the periods presented . we believe that fi maus is an indicator of our and our fi partners ' ability to drive engagement with the cardlytics platform and is reflective of the marketing base that we offer to marketers through the cardlytics platform . average revenue per user we define arpu as the total cardlytics platform revenue generated in the applicable period calculated in accordance with generally accepted accounting principles in the united states ( `` gaap '' ) , divided by the average number of fi maus in the applicable period . we believe that arpu is an indicator of the value of our relationships with our fi partners with respect to the cardlytics platform . billings billings represents the gross amount billed to marketers for advertising campaigns in order to generate revenue . billings is reported gross of both consumer incentives and fi share . our gaap revenue is recognized net of consumer incentives and gross of fi share . we review billings for internal management purposes . we believe that billings provides useful information to investors for period-to-period comparisons of our core business and in understanding and evaluating our results of operations in the same manner as our management and board of directors . nevertheless , our use of billings has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under gaap . other companies , including companies in our industry that have similar business arrangements , may address the impact of consumer incentives differently . you should consider billings alongside our other gaap financial results . 46 the following table presents a reconciliation of billings to revenue , the most directly comparable gaap measure , for each of the periods indicated ( in thousands ) : replace_table_token_3_th adjusted contribution adjusted contribution measures the degree by which revenue generated from our marketers exceeds the cost to obtain the purchase data and the digital advertising space from our fi partners . adjusted contribution demonstrates how incremental marketing spend on our platform generates incremental amounts to support our sales and marketing , research and development , general and administration and other investments .
| 52 costs and expenses fi share and other third-party costs replace_table_token_9_th fi share and other third-party costs decreased by $ 8.8 million during 2020 compared to 2019 primarily due to decreased revenue from sales of the cardlytics platform . deferred fi implementation costs increased by $ 1.7 million during the 2020 compared to the 2019 primarily due to a write off of deferred fi implementation costs totaling $ 0.7 million relating to the discontinued use of certain platform features . we believe the near-term fluctuations in revenue caused by the economic impact of covid–19 would also result in similar percentage fluctuations in adjusted fi share and other third-party costs in future periods . delivery costs replace_table_token_10_th delivery costs increased by $ 1.4 million during 2020 compared to 2019 primarily due to a $ 0.7 million increase in hosting-related it costs , a $ 0.5 million increase in stock-based compensation expense and a $ 0.2 million increase in personnel costs associated with additional headcount to host the cardlytics platform for certain new fi partners . sales and marketing expense replace_table_token_11_th sales and marketing expense increased by $ 1.5 million during 2020 compared to 2019 primarily due to a $ 5.6 million increase in stock-based compensation expense , partially offset by a decrease of $ 3.0 million in incentive compensation and a $ 1.1 million decrease in travel and entertainment expense . 53 research and development expense replace_table_token_12_th research and development expense increased by $ 5.8 million during 2020 compared to 2019 primarily due to a $ 3.1 million increase in stock-based compensation expense , a $ 3.0 million increase in personnel costs associated with additional headcount , a $ 0.9 million increase in professional fees , partially offset by a $ 1.0 million decrease in personnel costs due to higher capitalization and a $ 0.2 million decrease in travel and entertainment . general and administrative expense replace_table_token_13_th general and administrative expense increased by $ 9.8 million during 2020 compared to 2019 primarily due to a $ 7.4 million
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in this project , we are developing and implementing an integrated software system to support a majority of our business processes to further streamline our operations and reduce costs . these systems are commonly referred to as enterprise resource planning ( erp ) systems . we view the technology as an important enabler of this project ; however the larger outcome of this project will be from transformed processes that standardize portions of our operations . this includes a shared business service center to centrally manage certain back-office functions that are currently performed at each operating company location . expanding our portfolio of products and services by initiating a customer-centric innovation program : we continually explore opportunities to provide new and improved products , technologies and services to our customers . exploring , assessing and pursuing new businesses and markets : this strategy is focused on identifying opportunities to expand the core business through growth in new international markets and in adjacent areas that complement our core foodservice distribution business . 14 as a part of our ongoing strategic analysis , we regularly evaluate business opportunities , including potential acquisitions and sales of assets and businesses . developing and effectively integrating a comprehensive , enterprise-wide talent management process : our ability to drive results and grow our business is directly linked to having the best talent in the industry . we are committed to the continued enhancement of our talent management programs in terms of how we recruit , select , train and develop our associates throughout sysco as well as succession planning . our ultimate objective is to provide our associates with outstanding opportunities for professional growth and career development . business transformation project in fiscal 2011 , we substantially completed the design and build phases of our multi-year business transformation project and we are testing the underlying erp system and processes through a pilot implementation . we took more time to test the underlying erp system and processes in fiscal 2011 than we originally anticipated . our pilot operating company implemented the project and our shared services center became active in its support role in the fourth quarter of fiscal 2011. we are also taking additional time in fiscal 2012 to improve the underlying systems prior to larger scale deployment . these actions have caused a delay in the project of approximately six to twelve months and until we reach the point where the underlying system functions as intended , our deployment timeline is still being determined . although we expect the investment in the business transformation project to provide meaningful benefits to the company over the long-term , the costs will exceed the benefits during the testing and deployment stages of implementation , including fiscal 2012. gross project expenses related to the business transformation project were $ 102.0 million in fiscal 2011 or $ 0.11 per share , $ 81.1 million in fiscal 2010 or $ 0.09 per share and $ 35.7 million in fiscal 2009 or $ 0.04 per share . our cash outlay for fiscal 2011 was $ 278.8 million , of which approximately $ 196 million was capitalized . provided the improvements needed in the underlying systems are obtained in the first half of fiscal 2012 , we anticipate the software will be ready for its intended use in the second half of fiscal 2012 , which will result in reduced capitalization as compared to fiscal 2011 and increased expense from both software amortization and deployment costs . we will also incur increased costs from the ramp up of our shared services center , continuing costs for additional phases of our business transformation project and information technology support costs . some of these increased costs will be partially offset by benefits obtained from the project , primarily in reduced headcount , however the costs will not exceed the benefits in fiscal 2012. we expect our gross project expenses related to the business transformation project for fiscal 2012 to be approximately $ 280 million to $ 300 million and capital expenditures to be approximately $ 100 million to $ 120 million . results of operations the following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated : replace_table_token_7_th 15 the following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the prior year : replace_table_token_8_th ( 1 ) other expense ( income ) , net was income of $ 14.2 million in fiscal 2011 , expense of $ 0.8 million in fiscal 2010 and income of $ 14.9 million in fiscal 2009. impact of 53-week fiscal year in fiscal 2010 sysco 's fiscal year ends on the saturday nearest to june 30th . this resulted in a 52-week year ending july 2 , 2011 , a 53-week year ending july 3 , 2010 for fiscal 2010 and a 52-week year june 27 , 2009 for 2009. because the fourth quarter of fiscal 2010 contained an additional week as compared to fiscal 2011 , our results of operations for fiscal 2010 are not directly comparable to the current or prior year . management believes that adjusting the fiscal 2010 results of operations for the estimated impact of the additional week provides more comparable financial results on a year-over-year basis . as a result , the results of operations discussion for fiscal 2010 presented below in certain instances discusses operating items that have been adjusted by one-fourteenth of the total metric for the fourth quarter , except as otherwise noted with respect to adjusted diluted earnings per share . failure to make these adjustments would cause the year-over-year changes in certain metrics such as sales , operating income , net earnings and diluted earnings per share to be overstated , whereas in certain cases , a metric may actually have increased rather than declined or declined rather than increased on a more comparable year-over-year basis . story_separator_special_tag our results of operations discussion includes reconciliations of the actual results for fiscal 2010 to the adjusted results for fiscal 2010 based on a 52-week fiscal year . sales sales for fiscal 2011 were 5.6 % higher in fiscal 2011 than fiscal 2010. after adjusting for the estimated impact of the 53 rd week in fiscal 2010 , the increase in sales in fiscal 2011 would have been 7.7 % . sales for fiscal 2010 were 1.1 % higher than fiscal 2009. after adjusting for the estimated impact of the 53 rd week in fiscal 2010 , fiscal 2010 would have had a sales decrease of 0.9 % . set forth below is a reconciliation of actual sales growth to adjusted sales growth/decline for the periods presented ( see further discussion at impact of 53-week fiscal year in fiscal 2010 above ) : replace_table_token_9_th sales for fiscal 2011 , excluding the negative impact of the extra week in fiscal 2010 , increased as a result of product cost inflation and the resulting increase in selling prices along with improving case volumes . estimated product cost increases , an internal measure of inflation , were approximately 4.6 % during fiscal 2011. sales from acquisitions in the last 12 months favorably impacted sales by 0.7 % for fiscal 2011. the changes in the exchange rates used to translate our foreign sales into u.s. dollars positively impacted sales by 0.5 % compared to fiscal 2010. sales for fiscal 2010 , in addition to the positive impact of the extra week in fiscal 2010 , were increased by improving case volumes . the changes in the exchange rates used to translate our foreign sales into u.s. dollars positively impacted sales by 0.9 % compared to fiscal 2009. sales from acquisitions within the last 12 months favorably impacted sales by 0.5 % for fiscal 2010. product cost deflation and the resulting decrease in selling prices had a significant impact on sales levels in fiscal 2010. estimated changes in product costs , an internal measure of deflation or inflation , were estimated as deflation of 1.5 % during fiscal 2010. a change in customer sales mix as compared to fiscal 2009 also negatively impacted fiscal 2010 sales . case volumes increased at a greater rate within our contract based customer group which generally receives lower pricing for higher volume . 16 operating income cost of sales primarily includes our product costs , net of vendor consideration , and includes in-bound freight . operating expenses include the costs of facilities , product handling , delivery , selling and general and administrative activities . fuel surcharges are reflected within sales and gross profit ; fuel costs are reflected within operating expenses . operating income decreased 2.2 % in fiscal 2011 over fiscal 2010 to $ 1.9 billion , and as a percentage of sales , declined to 4.9 % of sales . after adjusting for the estimated impact of the 53 rd week in fiscal 2010 , the decrease in operating income in fiscal 2011 over fiscal 2010 would have been 0.1 % . this adjusted decrease was primarily driven by gross profit dollars growing at a slower rate than sales and operating expenses increasing faster than gross profit partially due to a significant charge of $ 36.1 million from a withdrawal from a multi-employer pension plan . gross profit dollars increased 3.0 % in fiscal 2011 as compared to fiscal 2010 , and operating expenses increased 5.0 % in fiscal 2011. operating income increased 5.5 % in fiscal 2010 from fiscal 2009 to $ 2.0 billion , and as a percentage of sales , increased to 5.3 % of sales . after adjusting for the estimated impact of the 53 rd week in fiscal 2010 , the increase in operating income in fiscal 2010 over fiscal 2009 would have been 3.3 % . this adjusted increase in operating income was primarily driven by a decrease in operating expenses . gross profit dollars increased 1.0 % in fiscal 2010 as compared to fiscal 2009 , while operating expenses decreased 0.6 % in fiscal 2010. set forth below is a reconciliation of actual operating income to adjusted operating income for the periods presented ( see further discussion at impact of 53-week fiscal year in fiscal 2010 above ) : replace_table_token_10_th gross profit dollars increased in fiscal 2011 as compared to fiscal 2010 primarily due to increased sales , partially offset by the negative comparison of the additional week included in fiscal 2010. gross profit , as a percentage of sales , was 18.62 % in fiscal 2011 , a decline of 47 basis points from the gross profit as a percentage of sales of 19.08 % in fiscal 2010. this decline in gross profit percentage was primarily the result of the following factors described in the paragraphs below . first , sysco 's product cost inflation was estimated as inflation of 4.6 % during fiscal 2011. based on our product sales mix for fiscal 2011 , we were most impacted by higher levels of inflation in the dairy , meat and seafood product categories in the range of 10 % to 12 % . our largest selling product category , canned and dry , experienced inflation of 4 % . while we are generally able to pass through modest levels of inflation to our customers , we were unable to pass through fully these higher levels of product cost inflation with the same gross profit percentage in these product categories without negatively impacting our customers ' business and therefore our business . while we can not predict whether inflation will continue at these levels , prolonged periods of high inflation , either overall or in certain product categories , can have a negative impact on us and our customers , as high food costs can reduce consumer spending in the food-away-from-home market , and may negatively impact our sales , gross profit and earnings .
| inflation , as measured by changes in our product costs , was an estimated 4.6 % during fiscal 2011. the exchange rates used to translate our foreign sales into u.s. dollars positively impacted sales by 0.5 % and sales from acquisitions within the last 12 months favorably impacted sales by 0.7 % . operating income was $ 1.9 billion , a 2.2 % decrease from the prior year . after adjusting for the estimated impact of the 53 rd week in fiscal 2010 , this decrease would have been 0.1 % . this adjusted decrease was primarily driven by gross profit dollars growing at a slower rate than sales and operating expenses increasing faster than gross profit partially due to a significant charge of $ 36.1 million from a withdrawal from a multi-employer pension plan . gross profit dollars increased 3.0 % in fiscal 2011 from the comparable prior year period but declined as a percentage of sales . this result was primarily due to the impact of significant inflation in certain product categories and strategic pricing initiatives . operating expenses increased 5.0 % primarily due to higher pay-related expense , an increase in net company-sponsored pension costs , provisions for withdrawal from multi-employer pension plans and higher fuel costs as compared to the prior year period . the impact of these factors on operating expenses was partially offset by a decrease in operating expenses resulting from the absence of the 53 rd week in fiscal 2011. net earnings were $ 1.2 billion , an 2.4 % decrease from the prior year . after adjusting for the estimated impact of the 53 rd week in fiscal 2010 , the decrease would have been 0.3 % . this adjusted decrease was primarily due to the factors discussed above and an increase in the effective tax rate . the effective tax rate for fiscal 2011 was 36.96 % , compared to an effective tax rate of 36.20 % for fiscal 2010. the difference between the tax rates for the two periods resulted largely from the one-time reversal of interest accruals for
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the average monthly pmi was 57.6 for the year ended december 31 , 2017 compared to 51.5 for the year ended december 31 , 2016 indicating improvement in 2017 in the u.s. manufacturing economy compared to the prior year . our sales are also affected by the number and effectiveness of sales representatives and the amount of sales each representative can generate from providing services to our customers , which we measure as average sales per day per sales representative . we had an average of 987 sales representatives working for us in 2017 which was similar to the number we had in 2016. results of operations are examined in detail following a recap of our major activities in 2017 . 2017 activities acquisitions - we acquired bolt , a canadian mro distributer . bolt is expected to generate over cad $ 43 million ( usd $ 33 million ) of annual net sales through its network of 13 branch locations in alberta , saskatchewan and manitoba , canada . streamlined supply chain - in 2017 , primarily due to excess capacity within our supply chain , we completed the sale of our fairfield , new jersey distribution center resulting in proceeds of $ 6.2 million and a gain on the sale of $ 5.4 million . lean six sigma - over the past three years we have had well over 100 employees complete lean six sigma training , which is a systematic data driven approach to analyzing and improving business processes . improved operational performance - we continued to improve the fundamentals of our business , measured as improved customer service levels to our customers . we believe we have created a scalable infrastructure that will allow us to take advantage of future growth opportunities . we continue to strive to be our customers ' first choice for maintenance , repair and operational solutions . 16 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > 2015 , primarily due to an increase in sales by our kent automotive and government divisions , growing current strategic national account relationships and sales generated by acquisitions . this was partially offset by a general slow-down in the mro marketplace , a decrease in the canadian exchange rate and a decrease in sales of $ 2.6 million to oil and gas customers . average daily sales were $ 1.098 million in 2016 compared to $ 1.095 million in 2015 . gross profit decreased to $ 168.1 million or 60.8 % of net sales from $ 169.1 million or 61.3 % of net sales of net sales a year ago . product margin remained consistent versus 2015 , however , the gross margin percentage was lower due to increased net freight expense and additional labor expenses related to repackaging inventory from acquisitions and additional labor and freight costs incurred as a result of rebalancing and refining our inventory forecasting process . 20 selling , general and administrative expenses selling expenses increased $ 2.8 million to $ 92.9 million in 2016 from $ 90.1 million in 2015 primarily driven by expenses related to an increase in the number of sales representatives . this increase was partially offset by $ 1.9 million of expense related to the north american sales meeting incurred in 2015 which was not held in 2016. general and administrative expenses increased $ 0.6 million to $ 76.6 million in 2016 from $ 76.0 million in 2015 , driven by an increase of $ 1.1 million in severance expense , primarily related the closure of the fairfield , new jersey distribution center , and increases in compensation including an increase of $ 0.4 million in stock-based compensation of which a portion varies with our stock price . these increases were partially offset by decreases across many other expense categories as a result of cost reduction efficiencies . other operating expenses in 2015 we accrued $ 0.9 million related to estimated future remediation of an environmental matter involving land owned in decatur , alabama , that was part of a division that was previously sold in 2014. the estimated cost of remediation will most likely be adjusted in future years as more information becomes available . interest expense interest expense decreased $ 0.3 million compared to 2015 due primarily to a lower average balance on our revolving credit facility . other income ( expense ) , net other income ( expense ) , net improved $ 0.6 million over 2015 primarily due to foreign currency transaction gains and an increase in interest income . income tax expense due to historical cumulative losses , in 2012 , we determined it was more likely than not that we would not be able to utilize our deferred tax assets to offset future taxable income . therefore , substantially all of our deferred tax assets were subject to a tax valuation allowance . subsequently , in the fourth quarter of 2017 , based on available evidence , we reached a point of increased confidence in our ability to sustain profit levels and determined it was more likely than not that we will be able to utilize a substantial amount of our deferred tax assets to offset future taxable income . therefore , a large portion of our u.s. valuation allowances were released in 2017. although we were still in a full tax valuation allowance position , income tax expense of $ 0.1 million and $ 0.9 million was recorded in 2016 and 2015 , respectively , primarily due to state taxes and adjustments to reserves for uncertain tax positions . 21 liquidity and capital resources cash provided by operating activities was $ 7.1 million , $ 8.6 million and $ 9.5 story_separator_special_tag million in 2017 , 2016 and 2015 , respectively , primarily reflecting operating results , net of depreciation and amortization . in 2017 , we completed the acquisition of the bolt supply house ltd. for approximately $ 32.3 million which was paid for by using a combination of cash on hand and borrowings of $ 16.3 million from our existing revolving credit facility . in 2017 , we completed the sale of our distribution center located in fairfield , new jersey , receiving net cash proceeds of $ 6.2 million . capital expenditures of $ 1.3 million , $ 3.1 million and $ 2.3 million in 2017 , 2016 and 2015 , respectively , were primarily for improvements to our distribution centers and information technology . we invested $ 32.3 million and $ 6.0 million in 2017 and 2016 , respectively , in business acquisitions . lawson loan agreement in 2016 , we entered into an amendment to the loan agreement that extended the maturity date to august 8 , 2020. we also received an increase in the credit available under the loan agreement from 80 % to 85 % of our eligible accounts receivable , as defined in the amendment , and from 50 % to 60 % of our eligible inventory , as defined in the amendment , up to the facility limit of $ 40.0 million . we have the ability to borrow funds through the loan agreement which consists of a $ 40.0 million revolving credit facility which includes a $ 10.0 million sub-facility for letters of credit . the terms of the loan agreement as amended are more fully detailed in note 9 – loan agreement of the consolidated financial statements included in item 8 of this form 10-k. at december 31 , 2017 , we had $ 13.6 million of borrowings on our revolving line of credit under the loan agreement and had borrowing availability of $ 22.8 million . additionally , we had $ 0.9 million outstanding under an operating loan agreement ( `` bolt agreement '' ) for aggregate borrowings outstanding of $ 14.5 million . in addition to other customary representations , warranties and covenants , and if the excess capacity is below $ 10.0 million , we are required to meet a minimum trailing twelve month ebitda to fixed charges ratio , as defined in the amended loan agreement . on december 31 , 2017 , our borrowing capacity exceeded $ 10.0 million , therefore , we were not subject to these financial covenants , however , we have provided the results of the financial covenants below for informational purposes : quarterly financial covenants requirement actual ebitda to fixed charges ratio 1.10 : 1.00 3.62 : 1.00 although we have met the minimum financial covenant levels for all quarters since the loan agreement was put in place including the quarter ended december 31 , 2017 , failure to meet these covenant requirements in future quarters could lead to higher financing costs , increased restrictions , or reduce or eliminate our ability to borrow funds . no cash dividends were paid in the three years ended december , 31 2017 and dividends are currently restricted under our loan agreement to amounts not to exceed $ 7.0 million annually . commitment letter bolt has a commitment letter which allows bolt to access up to $ 5.5 million canadian dollars . the commitment letter carries an interest rate of the prime rate plus 0.25 % , is subject to certain covenants and is secured by substantially all of bolt 's assets . the commitment letter is subject to a working capital ratio , a maximum ratio of debt to tangible net worth of the bolt assets and a debt service coverage ratio as defined in the commitment letter . at december 31 , 2017 , bolt was in compliance with the financial covenants which are subject to periodic review , at least annually , with the next review due by august 31 , 2018 . we believe cash expected to be provided by operations and the funds available under our loan agreement are sufficient to fund our operating requirements , strategic initiatives and capital improvements throughout 2018 . 22 contractual obligations contractual obligations that require cash payments over future periods at december 31 , 2017 were as follows : replace_table_token_10_th ( 1 ) the revolving line of credit with cibc bank usa formerly known as the privatebank expires in august 2020. due to the lock box arrangement and a subjective acceleration clause contained in the borrowing agreement , the revolving line of credit is classified as a current contractual obligation . ( 2 ) operating lease obligations are partially offset by future proceeds of $ 0.5 million from a sub-lease expiring in march 2023 . ( 3 ) payments to participants in our security bonus plan are made on a lump sum basis at time of separation from the company . payouts for known separation dates have been included in the scheduled year of payout , while payouts for unknown separation dates are reflected in the thereafter column . off-balance sheet arrangements of the $ 13.9 million operating lease obligation , $ 6.4 million relates to a lease agreement for our headquarters which expires in march 2023 , and $ 3.2 million relates to a lease agreement for our reno , nevada , distribution center which expires in june 2024. the remainder of the operating leases relate to the lease of warehouse and office equipment .
| selling expenses increased $ 5.1 million to $ 98.0 million in 2017 from $ 92.9 million in 2016 due primarily to increased compensation costs on higher sales and the acquisition of bolt . as a percent of sales , selling expenses decreased to 32.0 % from 33.6 % as the selling expenses were leveraged over a higher sales base . general and administrative expenses consist of expenses to operate our distribution network and overhead expenses to manage the business , including the 13 branch locations of bolt . general and administrative expenses increased $ 3.9 million to $ 80.5 million in 2017 from $ 76.6 million in 2016 , due primarily to restoring incentive compensation accruals as a result of improved operating results , offset partially by lower depreciation of $ 1.3 million and lower severance expenses of $ 1.6 million . gain on sale of properties in 2017 , we received net cash proceeds of $ 6.2 million and recognized a gain of $ 5.4 million from the sale of our fairfield , new jersey distribution center . interest expense interest expenses increased $ 0.1 million in 2017 , over the prior year , due primarily to higher average borrowings outstanding . other income , net other income , net increased $ 0.4 million in 2017 , over the prior year , due primarily to the effect of favorable changes in the exchange rate on canadian transactions . income tax ( benefit ) expense in 2012 , due to historical cumulative losses , we had determined it was more likely than not that we would not be able to utilize our deferred tax assets to offset future taxable income . therefore , substantially all of our deferred tax assets were subject to a tax valuation allowance . we have continued to generate pre-tax profits and have utilized some of our net operating loss carryforwards over the last two years and are now in a three year cumulative income position in the u.s. based on available
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those funds were once again available giving congress time to decide how to re-appropriate anything left after august 8. loans covered by the ppp may be eligible for loan forgiveness for certain costs incurred related to payroll , group health care benefit costs and qualifying mortgage , rent and utility payments . on october 8 , 2020 , the sba released a simpler loan forgiveness application for ppp loans of $ 50,000 or less to streamline the ppp forgiveness process . the remaining loan balance after forgiveness of any amounts is still fully guaranteed by the sba . on december 27 , 2020 , president trump signed into law the 2021 consolidated appropriations act , an approximately $ 900 billion bill to provide additional covid-19 relief and among other measures , extended weekly unemployment benefits , provided another round of economic stimulus payments to individuals and families , lengthened temporary suspensions and modifications of several-bank related provisions and provided more aid to small businesses . most notably , the 2021 consolidated appropriations act reauthorized and appropriated up to $ 284.5 billion for the ppp for both first-time and second-time borrowers to receive loan disbursements for a period ending march 31 , 2021 , expanded the list of eligible ppp expenses and created a simplified loan forgiveness application for loans under $ 150 thousand . in return for processing and booking the loan , the sba will pay the lender a processing fee tiered by the size of the loan ( 5 % for loans of not more than $ 350 thousand ; 3 % for loans of more than $ 350 thousand and less than $ 2 million ; and 1 % for loans of at least $ 2 million ) . for the year of 2020 , united processed almost 9,000 loans totaling over $ 1.29 billion under the ppp and recognized $ 16.26 million of net fee income during the year of 2020 related to the ppp loans . impact on our operations . in the states where united operates , many jurisdictions have declared health emergencies . the resulting closures of non-essential businesses and related economic disruption has impacted our operations as well as the operations of our customers . financial services have been identified as a critical infrastructure sector by the department of homeland security . accordingly , our business remains open . to address the issues arising as a result of covid-19 , and in order to facilitate the continued delivery of essential services while maintaining a high level of safety for our customers as well as our employees , united has implemented the following policies : restricted all non-essential travel and large external gatherings and have instituted a mandatory quarantine period for anyone that has traveled to an impacted area . 37 temporarily closed all of our financial center lobbies and other corporate facilities to non-employees , except for certain limited cases by appointment only . united continues to serve our consumer and business customers through our drive-through facilities , atms , internet banking , mobile app and telephone customer service capabilities . expanded remote-access availability so that our work-force has the capability to work from home or other remote locations . all activities are performed in accordance with our compliance and information security policies designed to ensure customer data and other information is properly safeguarded . instituted mandatory social distancing policies for those employees not working remotely . members of certain operations teams have been split into separate buildings or locations to create redundancy for key functions across the organization . as of december 31 , 2020 , we do not anticipate significant challenges to our ability to maintain our systems and controls in light of the measures we have taken to prevent the spread of covid-19 . the company does not currently face any material resource constraint through the implementation of our business continuity plans . united is currently unable to fully assess or predict the extent of the effects of covid-19 on our operations as the ultimate impact will depend on factors that are currently unknown and or beyond our control . impact on our financial position and results of operations . significant uncertainties as to future economic conditions exist . while some industries have been impacted more severely than others , all businesses have been impacted to some degree . the economic pressures , existing and forecasted , as of end of each quarter during 2020 , coupled with the implementation of an expected loss methodology for determining united 's provision for credit losses as required by cecl contributed to an increased provision for credit losses for the year of 2020. also , in united 's mortgage banking segment , a market disruption caused by the covid-19 pandemic resulted in significant losses on mortgage banking derivatives in the first quarter of 2020. the company 's fee income has been reduced due to covid-19 . in keeping with guidance from regulators , the company actively worked with covid-19 affected customers during 2020 to waive fees from a variety of sources , such as , but not limited to , insufficient funds and overdraft fees , atm fees , account maintenance fees , etc . should the pandemic and the global response escalate further , it is possible that the company could reduce such fees in future periods ; however , at this time , the company is unable to project the materiality of such an impact on the results of operations in future periods . the company 's interest income could be reduced due to covid-19 . in keeping with guidance from regulators , the company continues to work with covid-19 affected borrowers to defer their payments , interest , and fees . while interest and fees continue to accrue to income , through normal gaap accounting , should eventual credit losses on these deferred payments emerge , the related loans would be placed on nonaccrual status and interest income and fees accrued would be reversed . in such a scenario , interest income in future periods could be negatively impacted . story_separator_special_tag at this time , the company is unable to project the materiality of such an impact on future deferrals to covid-19 affected borrowers , but recognizes the breadth of the economic impact may affect its borrowers ' ability to repay in future periods . capital and liquidity . as of december 31 , 2020 , all of our capital ratios , and our subsidiary bank 's capital ratios , were in excess of all regulatory requirements . while we believe that we have sufficient capital to withstand a second economic recession brought about by covid-19 , our reported and regulatory capital ratios could be adversely impacted by further credit loss expense . we rely on cash on hand as well as dividends from our subsidiary bank to service our debt . if our capital deteriorates such that our subsidiary bank is unable to pay dividends to us for an extended period of time , we may not be able to service our debt . we maintain access to multiple sources of liquidity . wholesale funding markets have remained open to us , but rates for short-term funding have been volatile throughout 2020. if funding costs become elevated for an extended period of time , it could have an adverse effect on our net interest margin . if an extended recession caused large numbers of our deposit customers to withdraw their funds , we might become more reliant on volatile or more expensive sources of funding . 38 for a discussion of the united 's liquidity and capital resources in light of the covid-19 pandemic please refer to the sections with the captions of “ liquidity ” and “ capital resources ” included in this management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) . lending operations and accommodations to borrowers . in keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the cares act , the company is executing a payment deferral program for its customers that are adversely affected by the pandemic . depending on the demonstrated need of the client and within the guidance of the cares act , the company is deferring either the full loan payment or the principal component of the loan payment for stated period of time . through december 31 , 2020 , united has made 5,967 eligible loan modifications on approximately $ 3.18 billion of loans outstanding under section 4013 , “ temporary relief from troubled debt restructurings , ” of the cares act . of those amounts made , 1,002 of eligible loan modifications remain on approximately $ 399.86 million of loans outstanding as of december 31 , 2020. in accordance with the cares act , these deferrals are not considered troubled debt restructurings . it is possible that these deferrals could be extended further under the cares act ; however , the volume of these future potential extensions is unknown . it is also possible that in spite of our best efforts to assist our borrowers and achieve full collection of our investment , these deferred loans could result in future charge-offs with additional credit loss expense charged to earnings ; however , the amount of any future charge-offs on deferred loans is unknown . with the passage of the ppp , administered by the small business administration ( “ sba ” ) , the company has actively participated in assisting its customers with applications for resources through the program . ppp loans generally have a two-year or five-year term and earn interest at 1 % . the company believes that the majority of these loans will ultimately be forgiven by the sba in accordance with the terms of the program . as of december 31 , 2020 , the company had 8,743 of ppp loans with a balance of approximately $ 1.18 billion . the company recognized approximately $ 16.26 million in net fees on ppp loans during the year ended december 31 , 2020. remaining fees due from the sba will be amortized and recognized over the life of the associated loans . it is the company 's understanding that loans funded through the ppp program are fully guaranteed by the u.s. government . should those circumstances change , the company could be required to establish an allowance for credit loss through additional credit loss expense charged to earnings . retail operations . the company is committed to assisting our customers and communities in this time of need . most branch locations have converted to drive-thru only in order to ensure the health and safety of our customers and team members . we have introduced temporary changes to help with the financial hardship caused by covid-19 for both our customers and non-customers . this included waiving select deposit account fees including overdraft fees , atm fees and excessive withdrawal fees for savings and money market accounts . we continue to serve our customers that need emergency branch access for account issues , safe deposit access and similar items by appointment . the company has been able to open and close accounts effectively , through its drive through facility , and our customer service center is successfully managing the volume of incoming calls . the company continues to monitor the safety of our staff . with reduced access to the lobby , our staffing is adequate to address the requests for time off by any of our employees who are impacted by health or childcare issues . for our retail staff being asked to work during this event , a temporary bonus was implemented in appreciation for their service . adoption of the current expected credit losses standard the company has adopted accounting standards update ( “ asu ” ) 2016-13 , “ financial instruments – credit losses ( topic 326 ) : measurement of credit losses on financial instruments , ” as amended , on january 1 , 2020 , as required by the financial accounting standards board ( “ fasb ” ) . asu no .
| noninterest income was $ 36.81 million for the first three months of 2020 , an increase of $ 5.58 million or 17.88 % from the first three months of 2019. noninterest expense for the first three months of 2020 increased $ 11.71 million or 13.09 % from the first three months of 2019. income taxes decreased $ 7.44 million or 42.93 % for the first three months of 2020 as compared to the first three months of 2019. the effective tax rate was 19.75 % and 21.40 % for the first quarter of 2020 and 2019 , respectively . net income for the second quarter of 2020 was $ 52.69 million or $ 0.44 per diluted share , as compared to $ 67.21 million or $ 0.66 per diluted share for the prior year second quarter . for the second quarter of 2020 , united 's annualized return on average assets was 0.87 % and return on average shareholders ' equity was 5.40 % as compared to 1.38 % and 8.12 % for the second quarter of 2019. net interest income for the second quarter of 2020 was $ 170.60 million which was an increase of $ 20.05 million or 13.32 % from the second quarter of 2019. the increase in net interest income occurred because total interest income decreased $ 528 thousand while total interest expense decreased $ 20.58 million from the second quarter of 2019. the provision for credit losses was $ 45.91 million for the second quarter of 2020 as compared to $ 5.42 million for the second quarter of 2019. the higher amount of provision expense for 2020 compared to 2019 was due mainly to a provision for loan losses of $ 28.95 million recorded on purchased non-pcd loans from carolina financial and 60 the reasonable and supportable forecasts for future macroeconomic scenarios used in the estimation of expected credit losses adversely impacted by the covid-19 pandemic under the new cecl accounting standard adopted by united on january 1 , 2020 . for the second quarter of 2020 , noninterest income was $ 88.39 million , which was an
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cms further revised the therapy regulations to clarify that in cases where the patient is receiving more than one type of therapy , qualified therapists could complete their reassessment visits during the 11th , 12th , or 13th visit for the required 13th visit reassessment and the 17th , 18th , or 19th visit for the required 19th visit reassessment . provided additional sanctions for enforcement of survey deficiencies that included the following , which are not mutually exclusive ( meaning that cms could impose any or all of them ) , each of which required 15 days notice prior to effect : ( a ) civil money penalties ; ( b ) suspension of payment for all new admissions and new payment episodes ; ( c ) temporary management of the home health agency ; ( d ) directed plan of correction ; and ( e ) directed in-service training . on november 22 , 2013 , cms issued a final rule ( effective january 1 , 2014 ) regarding payment rates for home health services in cy 2014. under the cy 2014 rule , cms is : decrease base payment rate by 1.05 % , which is made up of a market basket increase of 2.3 % , rebasing decrease of 2.75 % and hh pps grouper refinements decrease of 0.6 % . reduce the average case-mix weight for 2014 from 1.3464 to 1.0000. to offset the effect of resetting the case mix average to 1.000 , cms will upwardly-adjust the national , standardized 60-day episode payment rate by the same factor that it used to decrease the weights from $ 2,137.73 in 2013 to $ 2,869.27 in 2014. remove 170 diagnosis codes from assignment to diagnosis groups within hhpps grouper . begin using icd-10-cm codes within hh pps grouper , effective october 1 , 2014. reduce rebasing amounts for 2014 through 2017 by an aggregate of $ 80.95 , which is 3.5 % of 2010 rates or 2.75 % of 2013 rates . hospice . on july 24 , 2012 , cms issued its final rule for hospice for fiscal year ( fy ) 2013 , which increases medicare reimbursement payments by 0.9 % over fy 2012 rates . the 0.9 % increase consists of a 2.6 % inflationary market basket update offset by a 0.6 % reduction for the fourth year of cms ' seven-year phase-out of its wage index budget neutrality adjustment factor ( bnaf ) , a 0.7 % reduction for the productivity adjustment , a 0.3 % reduction to the market basket as defined by ppaca , and a 0.1 % reduction related to the wage index changes . the 0.9 % does not include the deficit reduction sequester approved earlier by congress . the final rule also provides clarification regarding diagnosis reporting on hospice claims . cms is concerned that hospices reporting a single diagnosis on claims were not providing an accurate description of the patients ' conditions , and that providers should instead code and report coexisting or additional diagnoses ( if applicable ) on claims in order to more fully describe the medicare patients they are treating . cms indicates that it is also moving forward with 51 hospice payment reform efforts and will continue to investigate medicare payment advisory commission , office of the inspector general , and government accountability office recommendations , as well as other payment options , as part of this comprehensive effort . cms does not , however , provide an anticipated timeline for public release of information about proposals to alter the current hospice payment system . the following table shows the hospice medicare payment rates for fy 2013 , which began on october 1 , 2012 and ended september 30 , 2013 ( the payment rates do not reflect the 2 % sequestration cut ) : description rate per patient day routine home care $ 153.45 continuous home care $ 895.56 full rate = 24 hours of care $ 37.32 = hourly rate inpatient respite care $ 158.72 general inpatient care $ 682.59 on august 2 , 2013 , cms released its final rule for hospice for fy 2014 , which increases medicare reimbursement payments by 1.0 % over fy 2013. the 1.0 % increase consists of a 2.5 % inflationary market basket update offset by a 0.7 % reduction related to the wage index changes and the fifth year of cms 's seven-year phase-out of its wage index bnaf , a 0.5 % reduction for the productivity adjustment , and a 0.3 % reduction to the market basket as defined by ppaca . the following table shows the hospice medicare payment rates for fy 2014 , which began on october 1 , 2013 and will end september 30 , 2014 ( the payment rates do not reflect the 2 % deficit reduction sequestration cut ) : description rate per patient day routine home care $ 156.06 continuous home care $ 910.78 full rate = 24 hours of care $ 37.95 = hourly rate inpatient respite care $ 161.42 general inpatient care $ 694.19 facility-based services ltachs . on august 1 , 2012 cms released its final rule for ltach medicare reimbursement for fy 2013 which began on october 1 , 2012 and ended on september 30 , 2013. in the aggregate , payments for fy 2013 increased by 1.8 % over fy 2012 rates . the 1.8 % increase consists of a 2.6 % inflationary market basket update offset by a 0.7 % reduction for the productivity adjustment , a 0.1 % reduction to the market basket as defined by ppaca . story_separator_special_tag ltach payment rates were reduced by approximately 1.3 % , to 0.5 % , for the one-time bnaf for discharges on or after december 29 , 2012. the 0.5 % does not include the 2 % reduction to medicare payments caused by sequestration as mandated by the congressional budget act for patients with service dates ending on or after april 1 , 2013. the fiscal year 2013 rule also includes : a one-year extension of the existing moratorium on the 25 percent threshold policy , pending results of an on-going research initiative to re-define the role of ltachs in the medicare program . a reduction to medicare payments for very short stay cases in ltachs to the inpatient prospective payment system ( ipps ) comparable per diem amount payment option for discharges occurring on or after december 29 , 2012 and an increase to the high cost outlier payment . on august 2 , 2013 , cms released its final rule for ltach medicare reimbursement for fiscal year 2014 , which began on october 1 , 2013 and ends on september 30 , 2014. in the aggregate , payments for fiscal year 52 2014 will increase by 1.3 % over fiscal year 2013 rates . the 1.3 % increase consists of a 2.5 % inflationary market basket update , offset by a 0.5 % reduction for the productivity adjustment , and a 0.3 % reduction to the market basket as defined by ppaca . ltach payment rates will also be reduced by approximately 1.3 % for the one-time bnaf and projected increases in estimated high cost outlier payments as compared to fiscal year 2013. the ltach fiscal year 2014 final rule also addresses the 25 percent rule . under the 25 percent patient threshold policy , if an ltach admits more than 25 % of its patients from a single acute care hospital , medicare will pay the ltach at a lower rate comparable to ipps hospitals for those patients above the 25 percent threshold . a statutory moratorium on application of the 25 percent rule was in place from december 2007 through december 2012. cms stated its intention to extend the moratorium for fiscal year 2013 , but allow the policy to go into effect in fiscal year 2014. the imposition of the 25 percent rule will apply to all ltachs beginning with their first cost reporting period beginning on or after october 1 , 2013. as described below , recent legislation has suspended the 25 percent rule for most ltachs for two years . the estimated changes to medicare payments for home health , hospice and ltachs for 2013 and 2014 do not include the deficit reduction sequester cuts to medicare that were to begin on april 1 , 2013 , which reduced medicare payments by 2 % for patients whose service dates ended on or after april 1 , 2013. on december 26 , 2013 , president obama signed into law the bipartisan budget act of 2013 ( public law 113-67 ) . this new law prevents a scheduled payment reduction for physicians and other practitioners who treat medicare patients from taking effect on january 1 , 2014. included in the legislation are the following changes to ltach reimbursement : medicare discharges from ltachs will continue to be paid at full ltach pps rates if : the patient spent at least 3 days in a short-term care hospital ( stch ) intensive care unit ( icu ) during a stch stay that immediately preceded the ltach stay , or the patient was on a ventilator for more than 96 hours in the ltach ( based on the ms-ltach drg assigned ) and had a stch stay immediately preceding the ltach stay . also , the ltach discharge can not have a principal diagnosis that is psychiatric or rehabilitation . all other medicare discharges from ltachs will be paid at a new site neutral rate , which is the lesser of : the ipps comparable per diem amount determined using the formula in the short-stay outlier regulation at 42 c.f.r . § 412.529 ( d ) ( 4 ) plus applicable outlier payments , or 100 % of the estimated cost of the services involved . the above new payment policy will not be effective until ltach cost reporting periods beginning on or after october 1 , 2015 , and the site neutral payment rate will be phased-in over three years . for cost reporting periods beginning on or after october 1 , 2015 , discharges paid at the site neutral payment rate or by a medicare advantage plan ( part c ) will be excluded from the ltach average length-of-stay ( alos ) calculation . for cost reporting periods beginning in fiscal year 2016 and later , cms will notify ltachs of their ltach discharge payment percentage ( i.e. , the number of discharges not paid at the site neutral payment rate divided by the total number of discharges ) . for cost reporting periods beginning in fiscal year 2020 and later , ltachs with less than 50 % of their discharges paid at the full ltach pps rates will be switched to payment under the ipps for all discharges in subsequent cost reporting periods . however , cms will set up a process for ltachs to seek reinstatement of ltach pps rates for applicable discharges . medpac will study the impact of the above changes on quality of care , use of hospice and other post-acute care settings , different types of ltachs and growth in medicare spending on ltachs . 53 medpac is to submit a report to congress with any recommendations by june 30 , 2019. the report is to also include medpac 's assessment of whether the 25 percent rule should continue to be applied . 25 percent rule relief for freestanding ltachs , hwhs and satellite facilities will be extended without interruption for cost reporting periods beginning on or after december 29 , 2007 through december 28 , 2016. grandfathered hwhs will be permanently exempt from the 25 percent rule .
| million , or 16.8 % . the increase was associated with growth in net service revenue combined with an increase in collection risks identified on a group of claims from certain commercial insurance payor contracts and self payor claims . general and administrative expenses consolidated general and administrative expenses for the year ended december 31 , 2013 were $ 214.1 million compared to $ 205.6 million for the same period in 2012 , an increase of approximately $ 8.5 million , or 4.1 % . the increase was associated with an increase in the number of locations we operated , an increase in poc device costs due to an increase in the number of locations we now have on poc platform , and an increase in certain acquisition costs such as legal and broker fees . the increase was partially offset by reductions of staff resulting from the benefits derived from poc initiatives implemented during the past year . consolidated general and administrative expenses consist primarily of principal executive office and field administrative salary and related salary costs , supplies , depreciation , advertising , employee recruitment , rent expense and property taxes . interest expense consolidated interest expense for the year ended december 31 , 2013 was $ 2.0 million compared to $ 1.6 million for the same period in 2012 , an increase of approximately $ 0.4 million , or 25 % . this increase relates directly to balances outstanding on our revolving credit facility in each year . 56 income tax expense consolidated income tax expense for the year ended december 31 , 2013 was $ 15.9 million compared to $ 17.5 million for the same period in 2012 , a decrease of approximately $ 1.6 million , or 9.1 % . the decrease resulted from a decrease in pretax income . net income attributable to noncontrolling interest consolidated net income attributable to noncontrolling interest represents the minority owners ' allocable share of income in the joint ventures that we do not
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in september 2014 , due to lack of revenue generated in our agricultural operations , management of our company decided to abandon our agricultural business plan through uan sheng in order to seek the acquisition of an operating business by merger , share exchange , asset acquisition or other business combination . we have a limited operating budget and must maintain tight expense controls . however , we will need to obtain additional financing to effectively implement our business plan . if we do not obtain additional financing , we will continue to operate on a reduced budget until such time as more capital can be raised or we may be forced to curtail or discontinue operations . in addition , we are actively pursuing a new business opportunity that would require additional funding over the next twelve months . there can be no assurance that we will be able to raise additional capital , on terms favorable to us or at all . we will require additional funds to fund our budgeted expenses over the next 12 months . these funds may be raised through equity financing , debt financing , or other sources , which may result in further dilution in the equity ownership of our shares . there is still no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock . further , we may continue to be unprofitable . we need to raise additional funds in the immediate future in order to proceed with our budgeted expenses . specifically , we estimate our operating expenses and working capital requirements for the next 12 months to be as follows : replace_table_token_5_th critical accounting policies basis of presentation our company has prepared the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the united states of america . the consolidated financial statements include the accounts of our company and our subsidiaries . significant inter-company transactions have been eliminated in consolidation . 13 use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . discontinued operations in november 2012 , our company ceased our taiwan 's business operations . the consolidated financial statements have been recast to present the taiwan 's business operation as discontinued operations as described in “ note 12 - discontinued operations. ” unless noted otherwise , discussion in the notes to consolidated financial statements pertain to continuing operations . reclassification certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation . these reclassifications had no effect on reported net income or losses . cash and cash equivalents cash and cash equivalents are all highly liquid instruments purchased with a maturity of three months or less to the extent the funds are not being held for investment purposes . concentrations of credit risk our company 's operations are carried out in china . accordingly , our company 's business , financial condition and results of operations may be influenced by the political , economic and legal environment in china , and by the general state of the china 's economy . our company 's operations in china are subject to specific considerations and significant risks not typically associated with companies in north america . our company 's results may be adversely affected by changes in governmental policies with respect to laws and regulations , anti-inflationary measures , currency conversion and remittance abroad , and rates and methods of taxation , among other things . financial instruments which potentially subject our company to concentrations of credit risk consist principally of cash . all of our company 's cash is maintained with state-owned banks within china of which no deposits are covered by insurance . our company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts . revenue recognition our company is a development stage company as such has realized no product and or directly related expenses . our company entered into a joint venture agreement to develop , own and operate an agricultural business in china , prc . our company does not expect to generate any significant revenues over the next twelve months . inventory our company recognizes all direct and indirect costs of growing crops in accordance to asc 905-330-25 `` agriculture inventory recognition '' . asc 905-330-25 requires all direct and indirect costs of growing crops to accumulate as inventory until the time of harvest . some crop costs such as soil preparation , which are incurred before planting are deferred and allocated until harvest . growing crops consist of crop land lease , crops for growing crops , seeds and seeding plants costs , and production fees paid to growers . inventories are stated at the lower of cost or market determined on a weighted average basis . 14 fixed assets fixed assets are recorded at cost and are depreciated or amortized using the straight-line method over the estimated useful lives of the assets : machinery and equipment 10 years electronic equipment 3 years office furniture and others 5 years land use rights land use rights are recorded at cost and amortized over the shorter of the estimated useful life or the expected useful life of the land use rights for thirty-four years and six months . story_separator_special_tag appropriation to statutory reserve pursuant to the laws applicable to the china , prc , entities must make appropriations from after-tax profit to the non-distributable “ statutory surplus reserve fund ” . subject to certain cumulative limits , the “ statutory surplus reserve fund ” requires annual appropriations of 10 % of after-tax profits until the aggregated appropriations reach 50 % of the registered capital ( as determined under accounting principles generally accepted in the prc ( “ prc gaap ” ) at each year-end ) . for foreign invested enterprises and joint ventures in china , prc , annual appropriations should be made to the “ reserve fund ” . for foreign invested enterprises , the annual appropriation for the “ reserve fund ” can not be less than 10 % of after-tax profits until the aggregated appropriations reach 50 % of the registered capital ( as determined under prc gaap at each year-end ) . our company did not make any appropriations to the reserve funds mentioned above due to lack of profits after tax in prc since commencement of operations . advertising costs our company 's policy regarding advertising is to expense advertising when incurred . income taxes our company provides for income taxes under asc 740 , “ accounting for income taxes. ” asc 740 requires the use of an asset and liability approach in accounting for income taxes . deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse . impairment of long-lived assets our company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable . when such events or changes in circumstances are present , our company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows . if the total of the future cash flows is less than the carrying amount of those assets , our company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell . stock-based compensation our company records stock-based compensation in accordance with asc 718 ( formerly sfas no . 123r , “ share based payments ” ) , using the fair value method . all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued , whichever is more reliably measurable . equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued . 15 fair value of financial instruments the standard for “ disclosures about fair value of financial instruments , ” defines financial instruments and requires fair value disclosures of those financial instruments . our company adopts the standard “ fair value measurements , ” which defines fair value , establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosures requirements for fair value measures . current assets and current liabilities qualified as financial instruments and management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable , their current interest rate is equivalent to interest rates currently available . the three levels are defined as follows : · level 1 ─ inputs to the valuation methodology are quoted prices ( unadjusted ) for identical assets or liabilities in active markets . · level 2 ─ inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets , and inputs that are observable for the assets or liability , either directly or indirectly , for substantially the full term of the financial instruments . · level 3 ─ inputs to the valuation methodology are unobservable and significant to the fair value . as of the balance sheet date , the estimated fair values of the financial instruments were not materially different from their carrying values as presented due to the short maturities of these instruments and that the interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profile at respective period-ends . determining which category an asset or liability falls within the hierarchy requires significant judgment . our company evaluates the hierarchy disclosures each quarter . segment reporting and geographic information our company reports operations under one business segments-agriculture . geographic information as of june 30 , 2014 and for the year ended june 30 , 2013 are as follows : replace_table_token_6_th foreign currency translation the functional currency of uan power operations in united states is u.s. dollar ( “ usd ” ) . the functional currency of uan power 's discontinued operations in taiwan is new taiwan dollar ( “ twd ” ) . the functional currency of uan lee 's operations in hong kong is hong kong dollar ( “ hkd ” ) . the functional currency of uan sheng 's operations in china , prc is chinese yuan renminbi ( “ rmb ” ) . transactions denominated in foreign currencies are translated into u.s. dollars at the exchange rate in effect on the date of the transactions . exchange gains or losses on transactions are included in earnings .
| we anticipate that we will incur operating losses in the foreseeable future and we believe we will need additional cash to support our daily operations while we are attempting to execute our business plan and produce revenues . if our related parties are unable or unwilling to provide additional capital , we would likely require financing from third parties . there can be no assurance that any additional financing will be available to us , on terms we believe to be favorable or at all . the inability to obtain additional capital would have a material adverse effect on our operations and financial condition and could force us to curtail or discontinue operations entirely and or file for protection under bankruptcy laws . on may 31 , 2012 , three of our shareholders and directors loaned us an aggregate of $ 350,000. these loans are represented by term promissory notes which are payable on may 31 , 2017 and bear interest at the rate of 4 % per annum . we advanced $ 319,896 of those loans as initial capital for the establishment of a new business venture . in july 2011 , we completed a private placement financing resulting in proceeds of $ 465,506 ( net of expenses ) . from time to time our officers and shareholders have advanced money to our company as working capital . for the years ended june 30 , 2014 and 2013 , net cash provided by financing activities was $ 675,687 and $ 804,048 , respectively . operating activities during the fiscal years ended june 30 , 2014 and 2013 , we used $ 467,630 and $ 841,385 in operating activities , respectively . the decrease in net cash used in operating activities resulted from decreases in loss from continuing operations , other assets and net cash provided by discontinued operations , offset by decreases in depreciation and amortization expense , accounts payable and accrued expenses . we have used a total of $ 1,752,540 in operating activities since inception on may 8 ,
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the saas model is the primary way we sell to our customers in our vertical markets . accordingly , we expect that subscription revenue for fiscal year 2020 will be higher as a percentage of total revenues than fiscal year 2019 as we continue to acquire new saas customers and expand our saas offerings within our existing customers . professional services professional services revenues primarily include fees generated from implementation , cloud configuration , on-site support , and other consulting services . also included in professional services revenues are revenues related to training and customer-reimbursed expenses , as well as services related to software licenses for our on-premise solutions . professional services revenues are generally recognized as the services are rendered for time and materials contracts or recognized using a proportional performance method as hours are incurred relative to total estimated hours for the engagement for fixed price contracts . the majority of our professional services contracts are on a time and materials basis . the revenue from training and customer-reimbursed expenses is recognized as we deliver these services . cost of revenues subscription cost of subscription revenues includes costs related to our cloud-based solutions , maintenance and support for our on-premise solutions and managed support services . cost of subscription revenues primarily consists of personnel-related costs including salary , bonus , and stock-based compensation as well as costs for royalties , facilities expense , amortization , depreciation , third-party contractors and cloud infrastructure costs . professional services cost of professional services revenues includes costs related to the set-up of our cloud-based solutions , services for on-premise solutions , training and customer-reimbursed expenses . cost of professional services revenues primarily consists of personnel-related costs including salary , bonus , and stock-based compensation as well as costs for third-party contractors and other expenses . cost of professional services revenues may vary from period to period depending on a number of factors , including the amount of implementation services required to deploy our solutions and the level of involvement of third-party contractors providing implementation services . operating expenses research and development our research and development expenses consist primarily of personnel-related costs including salary , bonus , stock-based compensation and third-party contractors and travel-related expenses . our software development costs are generally expensed as incurred . we capitalize certain development costs incurred in connection with the cloud-based software platform for internal use . as of september 30 , 2019 , the net book value of capitalized software development costs was $ 0.2 million . 33 sales and marketing our sales and marketing expenses consist primarily of personnel-related costs including salary , bonus , commissions , stock-based compensation , as well as amortization of intangibles , travel-related expenses , and marketing programs . general and administrative our general and administrative expenses consist primarily of personnel-related costs including salary , bonus , stock-based compensation , audit and legal fees , as well as third-party contractors , facilities , costs associated with corporate transactions , and travel-related expenses . story_separator_special_tag style= '' font-family : inherit ; font-size:8pt ; font-weight : bold ; '' > 2019 2018 change amount amount ( $ ) ( % ) ( in thousands , except percentages ) provision for ( benefit from ) income taxes $ 1,030 $ ( 27 ) $ 1,057 ( 3,915 ) % the provision for income taxes in fiscal year 2019 is primarily related to foreign taxes on our profitable foreign operations . the increase in the provision during fiscal year ended september 30 , 2019 , was primarily driven by the foreign withholding taxes 36 we paid in the first quarter of fiscal year 2019 due to the repatriation of certain foreign subsidiary earnings to the united states , as well as the fact that in the first six months of fiscal year 2018 , we recorded one-time benefits related to deferred tax liabilities caused by the reduced corporate tax rate and a valuation allowance release . comparison of the fiscal years ended september 30 , 2018 and 2017 revenues replace_table_token_9_th subscription subscription revenues increased by $ 12.2 million , or 14 % , to $ 98.3 million for the fiscal year ended september 30 , 2018 from $ 86.2 million for the fiscal year ended september 30 , 2017. the increase in our subscription was due to new customers added and the revenue attributable from the acquisition of revitas in the second quarter of fiscal year 2017. professional services professional services revenues increased by $ 11.3 million , or 25 % , to $ 56.3 million for the fiscal year ended september 30 , 2018 from $ 45.0 million for the fiscal year ended september 30 , 2017. the increase was primarily due to the revenue attributable from the acquisition of revitas in the second quarter of fiscal year 2017 and the addition of new customers . cost of revenues replace_table_token_10_th subscription cost of subscription revenues decreased $ 0.4 million , or 1 % , to $ 37.8 million during the fiscal year ended september 30 , 2018 from $ 38.2 million for the fiscal year ended september 30 , 2017. as a percentage of subscription revenues , cost of subscription revenues decreased from 44 % to 38 % in fiscal year 2018 as we continued to improve gross margins due to increased efficiencies in our business , full year effect of the synergies related to our acquisition of revitas in the second quarter of fiscal year 2017 , and as the optimization of our cloud platform . story_separator_special_tag professional services cost of professional services revenues increased $ 4.6 million , or 20 % , to $ 27.5 million during the fiscal year ended september 30 , 2018 from $ 22.9 million for the fiscal year ended september 30 , 2017. as a percentage of professional services revenues , cost of professional services revenues decreased to 49 % in fiscal year 2018 from 51 % in fiscal year 2017. the 37 decrease in these costs as a percentage of total revenues was primarily due to an increase of professional services with higher profit margins in the overall mix of sales associated with license and implementation . operating expenses replace_table_token_11_th research and development research and development expenses increased by $ 1.4 million , or 4 % , to $ 32.4 million during the fiscal year ended september 30 , 2018 from $ 31.1 million for the fiscal year ended september 30 , 2017. employee-related expenses increased $ 1.4 million . we also had a $ 0.5 million increase in consulting costs , offset by a $ 0.5 million decreased in travel and other costs . sales and marketing sales and marketing expenses decreased by $ 5.9 million , or 14 % , to $ 35.5 million during the fiscal year ended september 30 , 2018 from $ 41.3 million for the fiscal year ended september 30 , 2017. employee related expenses decreased $ 5.9 million in part due to headcount reduction and a $ 1.7 million decrease in marketing and travel costs , which were partially offset by an $ 0.8 million increase of intangible amortization expense related to the acquisition of revitas in the second quarter of fiscal year 2017 and a $ 1.0 million increase in consulting and other costs . general and administrative general and administrative expenses increased by $ 5.9 million , or 16 % , to $ 42.2 million during the fiscal year ended september 30 , 2018 from $ 36.3 million for the fiscal year ended september 30 , 2017. the increase was primarily due to a $ 7.9 million increase in employee-related costs , which primarily reflects the impact of the common stock issued in connection with our former chief executive officer 's departure , which was partially offset by a $ 2.0 million decrease in other costs such as facility , travel , third-party data center and other costs . interest and other income ( expense ) , net replace_table_token_12_th in may 2018 , we refinanced the term loan related to the revitas acquisition . the increase of $ 4.0 million during fiscal year 2018 was driven by approximately $ 3.1 million of loss on extinguishment in connection with the refinancing . change in other income ( expense ) , net , was primarily related to currency fluctuation . provision for ( benefit from ) income taxes fiscal years ended september 30 , 2018 2017 change amount amount ( $ ) ( % ) ( in thousands , except percentages ) provision for ( benefit from ) income taxes $ ( 27 ) $ ( 3,285 ) $ 3,258 ( 99 ) % the change in income tax provision is primarily due to a discrete tax benefit of $ 4.2 million recorded in the second quarter of fiscal 2017. the discrete item is a result of releasing a portion of our valuation allowance resulting from the acquisition of revitas . 38 benefit from income taxes was primarily related to the state minimum tax and foreign tax on our profitable foreign operations offset by discrete tax benefit recorded as a result of a reduction in deferred tax liabilities from the reduced corporate tax rate and valuation allowance release . this is in addition to a reversal of certain foreign unrecognized tax benefits . quarterly results of operations ( unaudited ) the following table sets forth our unaudited quarterly statements of operations data for the last eight fiscal quarters . the information for each of these quarters has been prepared on the same basis as the audited annual financial statements included elsewhere in this annual report and , in the opinion of management , includes all adjustments , which includes only normal recurring adjustments , necessary for the fair presentation of the results of operations for these periods . this data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this annual report . these quarterly operating results are not necessarily indicative of our operating results for any future period . replace_table_token_13_th liquidity and capital resources our principal sources of liquidity are our cash and cash equivalents . as of september 30 , 2019 , we had cash and cash equivalents of $ 60.8 million . based on our future expectations and historical usage , we believe our current cash and cash equivalents are sufficient to meet our operating needs including principal payments related to our debt for at least the next 12 months . our future capital requirements will depend on many factors , including our rate of revenue growth , the expansion of our sales and marketing activities , the timing and extent of spending to support research and development efforts , expansion of our business through investment in or acquisition of complementary businesses or technologies , and capital expenditures . to the extent that existing cash and cash equivalents and cash from operations are insufficient to fund our future activities , we may elect to raise additional capital through the sale of additional equity or debt securities , obtain a credit facility or sell certain assets . if additional funds are raised through the issuance of debt securities , these securities could have rights , preferences and privileges senior to holders of common stock and terms of any debt could impose restrictions on our operations . the sale of additional equity or convertible debt securities could result in additional dilution to our stockholders . additional funds may not be available on terms favorable to us or at all .
| the decrease in revenue in absolute dollars and as a percentage of total revenue was driven primarily by the fact that several large on-premise implementation projects related to the sale of our on-premise software concluded in fiscal year 2018 and were not replicated in fiscal year 2019 since we no longer sell on-premise software . further contributing to the decrease is the adoption of asc 606. see note 2 of the notes to consolidated financial statements in part ii , item 8 of this form 10-k for more information on the impact of the adoption of asc 606. cost of revenues replace_table_token_6_th subscription cost of subscription revenues decreased by $ 2.6 million , or 7 % , to $ 35.2 million during the fiscal year ended september 30 , 2019 , from $ 37.8 million for the fiscal year ended september 30 , 2018 . as a percentage of subscription revenues , cost of subscription revenues decreased from 38 % in fiscal year 2018 to 33 % in fiscal year 2019 as we continued to improve gross margins by more efficiently delivering our cloud platform . professional services cost of professional services revenues increased by $ 3.4 million , or 12 % , to $ 30.9 million during the fiscal year ended september 30 , 2019 , from $ 27.5 million for the fiscal year ended september 30 , 2018 . the increase in cost of professional services 35 in both absolute dollars and as a percentage of professional services revenues is due to the fact that professional services personnel were not utilized in other departments within the company in fiscal year 2019 , therefore reducing the allocations to other departments . operating expenses replace_table_token_7_th research and development research and development expenses decreased by $ 2.4 million , or 7 % , to $ 30.0 million during the fiscal year ended september 30 , 2019 , from $ 32.4 million for the fiscal year ended september 30 , 2018 . the decrease was primarily due to a $ 1.7 million decrease in employee-related costs and a $ 0.6 million decrease
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as a result of the merger and the change in our business and operations , a discussion of the past financial results of myos is not pertinent , and under applicable accounting principles , the historical financial results of mai , the accounting acquirer , prior to the merger are considered our historical financial results . on november 17 , 2020 in connection with the merger , we effected a reverse stock split at a ratio of one new share for every 12 shares of our common stock outstanding , or the reverse stock split . at the effective time of the merger , each share of mai 's capital stock ( on an as converted to mai common stock basis ) issued and outstanding immediately prior to the merger converted into the right to receive approximately 1.26 shares of our common stock . as a result , 30,665,560 shares of our common stock were issued to former holders of mai 's issued and outstanding capital stock after adjustments due to rounding for fractional shares . in addition , ( i ) options to purchase 2,038,040 shares of mai 's common stock issued and outstanding immediately prior to the closing of the merger under mai 's 2012 equity incentive plan and 2018 equity incentive plan were assumed and converted into options to purchase 2,568,281 shares of our common stock , and ( ii ) warrants to purchase 1,290,801 shares of mai 's common stock issued and outstanding immediately prior to the closing of the merger were assumed and converted into warrants to purchase 1,626,622 shares of our common stock . all per share and share amounts for the years ended december 31 , 2020 and 2019 have been retroactively adjusted to reflect the effect of the merger . outlook medicare insurance plans and healthcare providers are increasingly operating under an ‘ at-risk ' model , with reimbursement based on health outcomes and not based on a traditional fee-for-service model . the at-risk model is driving medicare to focus on providing an increasing number of services to their members which can positively impact the health outcomes of these members . such services include : free rides from patient 's home to doctor visits gymnasium memberships in-home visits onsite vision and dental onsite pharmacy services it is well documented that medication adherence has a leading impact on health outcomes . as a result , our strategy is to embed a pharmacy into clinics via our medcenter technology . an onsite presence can allow us to : provide first-fill and refill dispensing onsite for patients acquire new patients as customers integrate ourselves into the clinic processes and become part of the onsite care team offer free next day courier delivery of medication to medicare patients share real-time data with health care providers regarding patients that may be at risk of being non-adherent and therefore at-risk of lower health outcomes . the medicare market in the us is extremely large , is growing , and has the highest value patients in the industry . medavail 's addressable market size for its current initial target markets – six us states ( az , ca , fl , il , tx , and mi ) exceeds $ 16 billion and is forecast to continue to grow . medavail added texas and michigan to its target state markets in 2020 based on demand from medicare providers as well as due to changing pharmacy regulations with the states . medavail 's strategy for the medicare market is as follows : identify , screen and contract with the medicare clinic chains to deploy medcenters onsite deploy medcenters and onsite customer account managers “ cams ” 38 acquire and retain high value medicare patients as customers deploy a high touch customer service model with patients via our onsite presence , free home delivery , refill reminders and follow up calls while achieving high patient satisfaction ramp prescription volume and revenue to target levels at each clinic generate greater medication adherence metrics , which may drive higher reimbursement rates to clinics from insurers and improve health outcomes for patients medavail 's primary business model is to generate revenue on the sale of medication to high value medicare patients through the spotrx retail pharmacy business . currently , spotrx operates in arizona , california , and recently launched in michigan in the fourth quarter of 2020 , and plans to deploy operations in florida in the first half of 2021. medavail has 46 medcenters deployed in medicare-focused sites throughout its operating geographies , and 57 total cumulative deployments , including 11 legacy non-medicare focused sites . components of operating results medavail 's fiscal year ends on december 31 , and its fiscal quarters end on the last day of each third calendar month . the years ended december 31 , 2020 and december 31 , 2019 are referred to as 2020 and 2019 throughout the document where referencing medavail . medavail has never been profitable and has incurred operating losses in each year since inception . medavail 's net losses were $ 21.5 million and $ 26.8 million for the years ended december 31 , 2019 and 2020 , respectively . as of december 31 , 2020 , medavail had an accumulated deficit of $ 148.3 million . substantially all of medavail 's operating losses resulted from expenses incurred in connection with its research and development programs , build out of its retail pharmacy services operating footprint and from general and administrative costs associated with its operations . medavail expects to incur significant additional expenses and operating losses for at least the next two years as it initiates and continues the technology development , deployment of its medcenter technology and adds personnel necessary to operate as a public company with rapidly growing retail pharmacy operations in the united states . in addition , operating as a publicly traded company involves the hiring of additional financial and other personnel , upgrading its financial information systems and incurring costs associated with operating as a public company . story_separator_special_tag medavail expects that its operating losses will lessen and turn positive as medavail executes its growth strategies within each of its operating segments . if medavail management determines to accelerate deployment into new states , operating losses could increase in the near-term , as the company grows and scales its operations in the new states and medavail expects operating performance to turn positive once each state reaches sufficient scale in sales volume . as of december 31 , 2020 , medavail had cash and cash equivalents of $ 57.9 million . medavail will continue to require additional capital to continue its technology development and commercialization activities and build out of its pharmacy operations to serve its growing customer base . accordingly , medavail pursued a sale of additional equity through the private placement funding , where the company raised $ 83.9 million , with closing prior to the merger closing . although medavail believes the proceeds from the private placement represents sufficient funding to execute its current growth plan , due to market risks ( as outlined in the “ risk factors section of this annual report on form 10-k ) , medavail may need to raise additional capital to continue to fund its operations . the amount and timing of its future funding requirements will depend on many factors , including the pace and results of its growth strategy and capital market conditions . failure to raise capital as and when needed , on favorable terms or at all , would have a negative impact on its financial condition and its ability to develop its product candidates . medavail has two reportable segments : retail pharmacy services and pharmacy technology . these reportable segments are generally defined by how medavail executes its go-to-market strategy to sell products and services . overview of retail pharmacy services segment the retail pharmacy services operating segment operates as spotrx , or the pharmacy , a full-service retail pharmacy utilizing medavail 's automated pharmacy technology , primarily servicing medicare patients in the united states . in operating spotrx , medavail employs the pharmacy team , purchases the medications , and deploys its proprietary technology , the medcenter , directly into the medicare-focused clinics . this is an end-to-end turnkey solution overview of pharmacy technology segment medavail technologies develops and commercializes the medcenter for direct sale or lease to third-party customers , including some of the world 's largest healthcare providers and systems , as well as large retail chains that provide full retail-pharmacy services based on its technology . 39 story_separator_special_tag pharmacy operations costs consist of costs incurred to operate retail pharmacies including pharmacy labor costs , rent and utilities , and pharmacy license fees . wages and salaries consist of compensation costs incurred for all pharmacy operations related employees and contractors including bonuses , health plans , severance , and contractor costs . depreciation of property , plant and equipment includes depreciation on medcenters , it equipment , leasehold improvements , general plant and equipment , software , office furniture and equipment and vehicles . amortization of intangible assets consists of amortization of intellectual property , website and mobile applications and software . replace_table_token_7_th 42 during the year ended december 31 , 2020 , pharmacy operations operating expenses increased $ 1.7 million to $ 5.7 million compared to the same period in 2019. this increase was primarily due to the opening of four additional central pharmacy locations in 2020 , including three in california and one in michigan . additionally , as volume growth continued to ramp at existing pharmacy locations in arizona , additional pharmacy personnel and supplies were added throughout 2020 , resulting in increased operating costs . general and administrative general and administrative expenses consist of personnel costs , facility expenses and expenses for outside professional services , including legal , audit and accounting services . personnel costs consist of salaries , benefits and stock-based compensation . facility expenses consist of rent and other related costs . corporate insurance , office supplies and technology expenses are also captured within general and administrative expenses . medavail has incurred and expects to incur additional expenses as a result of becoming a public company , including expenses related to compliance with the rules and regulations of the sec and nasdaq , additional insurance , investor relations and other administrative expenses and professional services . medavail has a stock option plan whereby awards are granted to certain employees of medavail . the fair value of the stock options granted by medavail to employees of medavail is recognized as compensation expense on a straight-line basis over the applicable stock option vesting period . medavail measures the fair value of the options using the black-scholes option pricing model as of the grant date/measurement date . shares issued upon the exercise of options are new shares . medavail estimates forfeitures based on historical experience and expense related to awards is adjusted over the term of the awards to reflect their probability of vesting . all fully vested awards are fully expensed . replace_table_token_8_th during the year ended december 31 , 2020 , general and administrative costs increased approximately $ 3.3 million to $ 16.6 million compared to the same period in 2019. this increase was primarily due to hiring of additional administrative staff as well as other investments necessary for our growth and becoming a public company . additionally , increases other general expenses , such as director and officer insurance , auditor fees , and legal fees , not associated with the merger , have increased in 2020 , partly as a consequence of becoming a public company . selling and marketing selling and marketing expenses consist of marketing and advertising costs , personnel costs , marketing related expenses for outside professional services . wages and salaries consist of compensation costs incurred for all selling and marketing employees , including cams , and contractors including bonuses , health plans , severance , and contractor costs .
| medavail recognized $ 4.7 million of contract revenue related to this agreement . this revenue is non-recurring and recorded as $ 1.5 million of hardware sales revenue and $ 3.2 million of software integration revenue for contract obligations for software programming and hardware development that were in progress but not completed . the remaining increase was due to additional medcenter sales and rental revenue associated with growth in the number of companies evaluating our medcenter technology through pilot deployments . cost of sales – retail pharmacy services and pharmacy technology retail pharmacy services cost of sales cost of sales for medavail 's retail pharmacy services segment consists primarily of prescription medications , and other over-the-counter health products . cost of sales for pharmacy services are recognized at the point of sale , when price is fixed , and product is dispensed . 41 pharmacy technology cost of sales cost of sales for the pharmacy technology segment consists primarily of costs incurred to manufacture , ship and install medcenters at third-party customer locations that use our medcenters to enable their pharmacy operations and services . cost of sales are accrued and then recognized , in accordance with us gaap , when contractual terms are met , and delivery and payment are complete . costs of sales replace_table_token_6_th during the year ended december 31 , 2020 , retail pharmacy services cost of sales increased $ 5.1 million to $ 7.7 million compared to the same period in 2019. the increase was primarily due to costs associated with volume growth in prescription sales at existing sites and additional sites launched in 2020 in arizona , california and michigan . additionally , cost of sales for our retail pharmacy services segment increased as a result of higher demand for our home delivery services , in consequence of the covid-19 pandemic . included in our retail pharmacy services cost of sales is approximately $ 0.3 million of inventory adjustments related
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our chief executive officer and one other officer participated in the offering by selling a total of 550,000 shares of our common stock from the exercise of the underwriter 's option to purchase additional shares . the public offering was made pursuant to our automatic shelf registration statement on form s-3 filed with the sec on january 6 , 2021 and prospectus supplement dated january 7 , 2021. barclays capital inc. served as the lead book-running manager of the offering . november 2020 u-go charging acquisition and dcfc portfolio in november 2020 , we acquired the ev charging operator u- go stations , inc. ( “ u-go ” ) and its portfolio of 44 dcfc ( direct-current fast charger ) charging locations . the purchase also included multiple grants awarded to u-go for the deployment of up to an additional 45 new charging stations . the charging stations are located primarily at hotels , gas stations and auto dealerships , expanding our dcfc footprint across ten states including michigan , pennsylvania , new jersey and vermont . the consideration under the terms of the acquisition agreement to u- go 's stockholders consisted of the issuance of shares of our common stock at closing , a future cash payment based on the fulfillment of pending projects post-closing and the assumption of scheduled liabilities . september 2020 bluela carsharing acquisition in september 2020 , in order to expand our market presence in california , we acquired through our wholly-owned subsidiary blink mobility , llc all of the ownership interests of bluela carsharing , llc ( “ bluela ” ) , the city of los angeles ' contractor for its ev carsharing services program , from blue systems usa , inc. pursuant to the terms of an ownership interest purchase agreement , we assumed control of bluela 's existing infrastructure throughout los angeles of ev charging stations , which we have since upgraded to our own iq 200 charging stations . 2020 at-the-market offering program in april 2020 , we entered into a sales agreement to conduct a $ 20.0 million “ at-the-market ” ( atm ) equity offering program , pursuant to which we sold shares of our common stock at such times as we determined through transactions on the nasdaq capital market at prevailing market prices . as of december 31 , 2020 , we sold 3,587,833 shares of common stock under the atm program for aggregate gross proceeds of approximately $ 20 million . note on covid-19 the covid-19 pandemic has impacted global stock markets and economies . we continue to closely monitor the impact the impact of the outbreak of the coronavirus ( “ covid-19 ” ) . we have taken precautions to ensure the safety of our employees , customers and business partners , while assuring business continuity and reliable service and support to our customers . we continue to receive orders for our products , although some shipments of equipment have been temporarily delayed . we have experienced what we expect is a temporary reduction in the usage of our charging stations , which has resulted in a decrease in our charging service revenue . as federal , state and local economies begin to reopen and with a vaccine underway we expect demand for charging station usage to return , but we are unable to predict the ultimate impact that it may have on our business , future results of operations , financial position , or cash flows . the extent to which our operations may be impacted by the covid-19 pandemic will depend largely on future developments , which are highly uncertain and can not be accurately predicted , including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact . we intend to continue to monitor the impact of covid-19 pandemic on our business closely . story_separator_special_tag serif ; margin : 0pt 0 ; text-align : justify ; text-indent : 0.5in ; background-color : white '' > operating expenses compensation expense increased by $ 5,967,531 , or 88 % , from $ 6,750,753 ( consisting of approximately $ 6.0 million of cash compensation and approximately $ 0.7 million of non-cash compensation ) for the year ended december 31 , 2019 , to $ 12,718,284 ( consisting of approximately $ 11.7 million of cash compensation and approximately $ 1.0 million of non-cash compensation ) for the year ended december 31 , 2020. the increase in compensation expense for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 was primarily related to increases in personnel and compensation in executive , marketing , sales and operations departments as a result of the anticipated growth of the company . in addition , compensation expense during full year 2020 compared to full year 2019 increased due to additional personnel in conjunction with the acquisitions of bluela and u-go made during 2020. also contributing to the increase in compensation expense was $ 2.3 million related the gross-up cash payment to our non-employee directors pursuant to the 2017 board plan as a result of the vesting on november 23 , 2020 of the annual award to our non-employee directors granted on december 12 , 2019 and march 19 , 2020 ( see note 13 ) . general and administrative expenses increased by $ 2,130,308 , or 111 % , from $ 1,916,817 for the year ended december 31 , 2019 to $ 4,047,125 for the year ended december 31 , 2020. the increase was primarily attributable to increases in audit , legal , investor relations , marketing and consulting expenditures of $ 1,267,791. also contributing to the increase in general and administrative expenses were expenditures of $ 379,182 related to the 2020 acquisitionsof bluela and u-go . story_separator_special_tag other operating expenses increased by $ 368,741 , or 17 % , from $ 2,196,784 for the year ended december 31 , 2019 to $ 2,565,525 for the year ended december 31 , 2020. the increase was primarily attributable to increases in insurance , software licensing , rent , and use tax expenditures of $ 575,567. the increase was partially offset by reductions in travel expenses as a result of covid-19 . other income ( expense ) other income decreased by $ 855,286 from $ 823,443 for the year ended december 31 , 2019 to $ ( 31,843 ) for the year ended december 31 , 2020. during the year ended december 31 , 2019 , we settled accounts payable resulting in a gain of $ 273,667 and $ 383,158 of notes payable , inclusive of accrued interest to the former members of 350 green in exchange for the cancellation of the notes , the return of 8,066 of our common shares and the payment of $ 73,158 , in 2018 , to the former members of 350 green , resulting in a gain of $ 310,000. additionally , we realized net investment income from our cash and marketable securities portfolio of $ 240,000 , and an increase in market value of low carbon fuel standard credits of $ 21,000. net loss our net loss for the year ended december 31 , 2020 increased by $ 8,197,967 , or 85 % , to $ 17,846,467 as compared to $ 9,648,500 for the year ended december 31 , 2019. the increase was primarily attributable to an increase in compensation expense and general and administrative expenses . total comprehensive ( loss ) income our total comprehensive loss for the year ended december 31 , 2020 was $ 18,029,640 whereas our total comprehensive loss for the year ended december 31 , 2019 was $ 9,465,327 . 26 liquidity and capital resources we measure our liquidity in a number of ways , including the following : replace_table_token_0_th during the years ended december 31 , 2020 and 2019 , we financed our activities from proceeds derived from debt and equity financings occurring in prior periods . a significant portion of the funds raised from the sale of capital stock has been used to cover working capital needs and personnel , office expenses and various consulting and professional fees . for the years ended december 31 , 2020 and 2019 , we used cash of $ 18,069,954 and $ 10,764,813 , respectively , in operations . our cash used for the year ended december 31 , 2020 was primarily attributable to our net loss of $ 17,846,467 , reduced by net non-cash expenses in the aggregate amount of $ 1,589,655 , and by $ 1,813,142 of net cash used in changes in the levels of operating assets and liabilities . our cash used for the year ended december 31 , 2019 was primarily attributable to our net loss of $ 9,648,500 , reduced by net non-cash expenses in the aggregate amount of $ 1,290,308 , and by $ 2,406,621 of net cash used in changes in the levels of operating assets and liabilities . during the year ended december 31 , 2020 , net cash provided by investing activities was $ 260,240 , of which $ 2,773,816 was provided in connection with the sale of marketable securities and $ 2,547,220 was used to purchase charging stations and other fixed assets . $ 1 was used as purchase consideration in connection with the bluela acquisition and , in connection with the business combination , the company acquired $ 3,379 of cash . additionally , the company acquired $ 30,266 of cash in connection with the u-go stations , inc acquisition . during the year ended december 31 , 2019 , cash used in investing activities was $ 552,820 , which was used to purchase charging stations and other fixed assets . during the year ended december 31 , 2020 , net cash provided by financing activities was $ 36,058,709 , of which $ 855,666 was attributable to proceeds from our ppp loan , $ 19,175,546 was attributable to the net proceeds from the sale of common stock under our atm program and $ 16,264,687 was attributable to the net proceeds from warrant exercises , partially offset by $ 72,190 used to pay down our liability in connection with internal use software and $ 165,000 used to repay notes payable . during the years ended december 31 , 2019 cash used in financing activities was $ 52,379 which was used to pay down our liability in connection with internal use software . as of december 31 , 2020 , we had cash , working capital and an accumulated deficit of $ 22,341,433 , $ 19,579,775 and $ 187,351,448 , respectively . during the year ended december 31 , 2020 , we had a net loss of $ 17,846,467. in january 2021 , we completed an underwritten registered public offering of 5,660,000 shares of our common stock at a public offering price of $ 41.00 per share . we received approximately $ 232.1 million in gross proceeds from the public offering , and approximately $ 221.5 million in net proceeds after deducting the underwriting discount and offering expenses paid by us . the public offering was made pursuant to our automatic shelf registration statement on form s-3 filed with the sec on january 6 , 2021 and prospectus supplement dated january 7 , 2021. we are using the net proceeds from the public offering to supplement our operating cash flows to fund ev charging station deployment and finance the costs of acquiring competitive and complementary businesses , products and technologies as a part of our growth strategy , and for working capital and general corporate purposes .
| the increase was primarily attributable to a increase in warranty contracts sold for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. grant and rebate revenues were $ 21,558 for the year ended december 31 , 2020 , compared to $ 22,396 for the year ended december 31 , 2019 , a decrease of $ 838 , or 4 % . grant and rebates relating to equipment and the related installation are deferred and amortized in a manner consistent with the depreciation expense of the related assets over their useful lives . the ability to secure grant revenue is typically unpredictable and , therefore , uncertain . the 2020 revenue was related to the amortization of previous years ' grants . other revenue increased by $ 363,072 to $ 529,782 for the year ended december 31 , 2020 , compared to $ 166,710 for the year ended december 31 , 2019. the increase was primarily attributable to higher low carbon fuel standard ( lcfs ) credits generated during the year ended december 31 , 2020 compared to the year ended december 31 , 2019. we generate these credits from the electricity utilized by our electric car charging stations as a byproduct from our charging services in the states of california and oregon . the value of the credits is subject to market conditions and our current policy is to sell the credits generated during the current year . furthermore , included in other revenue for the year ended december 31 , 2020 was rideshare revenues of $ 168,824 related to the 2020 acquisition of bluela . cost of revenues cost of revenues primarily consists of electricity reimbursements , revenue share payments to our property partner hosts , the cost of charging stations sold ( including commissions ) , connectivity charges provided by telco and other networks , warranty , repairs and maintenance services , and depreciation of our installed charging stations . cost of revenues for the year ended december 31 , 2020 was $ 4,713,921 , compared to $ 2,366,779 for the year ended december 31 , 2019 , an increase of $ 2,347,142 or 99 % . there is a degree of variability in our costs in relation to our revenues from period to period , primarily due to : ● electricity reimbursements that are unique to those property partner host agreements which provide for such
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the company 's goodwill impairment test includes two steps that are preceded by a , “ step zero ” , 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 on 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 , 2012 were $ 1.4 billion , an increase of $ 53.4 million , or 3.9 % , from $ 1.4 billion at december 31 , 2011. the increase in total assets from 2011 to 2012 is from increased deposits and retained earnings that were invested into loans and securities . investment securities . the securities portfolio consisted principally of u.s. government agency securities , corporate debt securities and mutual funds or other equity securities . the securities portfolio provides us with a relatively stable source of income and provides a balance to credit risks as compared to other categories of assets . the securities portfolio totaled $ 661.2 million at december 31 , 2012 , representing an increase of $ 28.1 million from $ 633.2 million at december 31 , 2011. the primary changes in the portfolio consisted of $ 950.1 million in purchases which were partially offset by maturities , calls and sales totaling $ 927.3 million . the table below depicts changes in contractual maturity of our securities portfolio from 2011 to 2012. replace_table_token_2_th at december 31 , 2012 the contractual weighted average maturity of our securities portfolio was 7.0 years compared to 10.2 years at december 31 , 2011. 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 . at december 31 , 2012 , securities totaling $ 602.3 million were classified as available for sale and $ 58.9 million were classified as held to maturity as compared to $ 520.5 million and $ 112.7 million , respectively at december 31 , 2011. securities classified as available for sale are measured at fair market value . for these securities , the company 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 . the held to maturity portfolio is principally used to collateralize public funds deposits . the company believes that it has the ability to maintain the current level of securities in the portfolio . the company has maintained public funds in excess of $ 175.0 million since 2007. securities classified as available for sale had gross unrealized losses totaling $ 0.7 million at december 31 , 2012. the gross unrealized gains for our available for sale securities totaled $ 9.8 million at december 31 , 2012 compared to $ 8.3 million at december 31 , 2011. the company believes that it will collect all amounts contractually due and has the intent and the ability to hold these securities until the fair value is at least equal to the carrying value . at december 31 , 2011 , securities classified as available for sale had gross unrealized losses totaling $ 1.6 million . see note 5 to the consolidated financial statements for additional information . average securities as a percentage of average interest-earning assets were 50.1 % and 46.7 % at december 31 , 2012 and 2011 , respectively . at december 31 , 2012 and 2011 , $ 476.5 million and $ 428.6 million in securities were pledged to secure public fund deposits , respectively . 28 loans . the origination of loans is a primary use of our financial resources and represented 44.9 % and 48.9 % of average earning assets for 2012 and 2011. at december 31 , 2012 , the loan portfolio totaled $ 629.5 million , an increase of approximately $ 56.4 million , or 9.8 % , from the december 31 , 2011 loan portfolio totaling $ 573.1 million . story_separator_special_tag the increase in net loans primarily includes an increase of $ 49.4 million in commercial and industrial loans , and an increase of $ 44.1 million in non-farm non-residential loans . loans represented 50.3 % of deposits at december 31 , 2012 , compared to 47.5 % of deposits at december 31 , 2011. loans secured by real estate increased $ 6.2 million to $ 471.1 million at december 31 , 2012. non-real estate loans increased $ 50.8 million to $ 159.7 million at december 31 , 2012. real estate and related loans comprised 74.7 % of the portfolio in 2012 as compared to 81.0 % in 2011. non-real estate loans comprised 25.3 % of the portfolio in 2012 as compared to 19.0 % in 2011. loan charge-offs taken during 2012 totaled $ 3.5 million , compared to charge-offs of $ 10.4 million in 2011. of the loan charge-offs in 2012 , approximately $ 2.1 million were loans secured by real estate , $ 0.8 million were commercial and industrial loans and $ 0.5 million were consumer and other loans . in 2012 , recoveries of $ 0.8 million were recognized on loans previously charged off as compared to $ 0.7 million in 2011. nonperforming assets . nonperforming assets were $ 23.5 million , or 1.7 % of total assets at december 31 , 2012 , compared to $ 28.9 million , or 2.1 % of total assets at december 31 , 2011. the decrease resulted from a $ 2.0 million decrease in nonperforming loans and a $ 3.3 million decrease in other real estate . the decrease in nonperforming loans was primarily in construction and land development which decreased $ 0.7 million , 1-4 family residential decreased $ 1.0 million , and non-farm non-residential decreased $ 0.8 million . these decreases were partially offset by an increase in nonperforming commercial and industrial loans of $ 0.8 million . deposits . total deposits increased by $ 45.3 million or 3.8 % , to $ 1.3 billion at december 31 , 2012 from $ 1.2 billion at december 31 , 2011. in 2012 , noninterest-bearing demand deposits increased $ 24.3 million , interest-bearing demand deposits increased $ 59.5 million and savings deposits increased $ 5.6 million . time deposits decreased $ 44.1 million , or 6.4 % . the increase in deposits was principally due to an increase of $ 38.6 million in public funds deposits . public fund deposits totaled $ 470.5 million or 37.6 % of total deposits at december 31 , 2012. five public entities comprised $ 395.3 million or 84.0 % of the total public funds as of december 31 , 2012. at december 31 , 2011 , public fund deposits represented 35.8 % of total deposits with a balance of $ 431.9 million . as a result of the change in the composition of our deposits to lower cost core deposits from time deposits , our cost of funds has decreased . borrowings . short-term borrowings increased $ 2.5 million in 2012 to $ 14.7 million at december 31 , 2012 from $ 12.2 million at december 31 , 2011. short-term borrowings are used to manage liquidity on a daily or otherwise short-term basis . the short-term borrowings at december 31 , 2012 were mainly comprised of repurchase agreements and a line of credit with a balance of $ 1.8 million . in 2011 short-term borrowings were solely comprised of repurchase agreements . overnight repurchase agreement balances are monitored daily for sufficient collateralization . long-term borrowings decreased to $ 1.1 million in 2012 from $ 3.2 million in 2011. long-term borrowings consisted of a term loan to the company originally obtained for the purpose of the acquisition of greensburg bancshares . see note 12 of the consolidated financial statements for additional information . stockholders ' equity . total stockholders ' equity increased $ 7.6 million or 6.0 % to $ 134.2 million at december 31 , 2012 from $ 126.6 million at december 31 , 2011. the increase in stockholders ' equity is attributable to the $ 12.1 million in consolidated earnings and $ 1.6 million increase in accumulated other comprehensive income . the increases were partially offset by $ 4.0 million in dividends on common stock , $ 2.0 million in dividends on preferred stock and $ 0.1 million of purchases of the company 's common stock into treasury . 29 loan portfolio composition . the following table sets forth the composition of our loan portfolio , excluding loans held for sale , by type of loan at the dates indicated . replace_table_token_3_th replace_table_token_4_th 30 the four most significant categories of our loan portfolio are construction and land development real estate loans , 1-4 family residential loans , non-farm non-residential real estate loans and commercial and industrial loans . the company 's credit policy has specific loan-to-value and debt service coverage requirements . generally , we require a loan-to-value of 85.0 % or less and a debt service coverage ratio of 1.25x to 1.0x or higher for non-farm non-residential real estate loans . in addition , personal guarantees of borrowers are required as well as applicable insurance . additional real estate or non-real estate collateral may be taken when deemed appropriate to secure a loan . we generally require all 1-4 family residential loans to be underwritten based on the fannie mae guidelines . these guidelines include the evaluation of risk and eligibility , verification and approval of conditions , credit and liabilities , employment and income , assets , property and appraisal information . it is required that all borrowers have proper hazard , flood and title insurance prior to a loan closing . appraisals and approvals are valid for six months . generally , we require a loan-to-value of 80.0 % or less and a debt service coverage ratio of 1.25x to 1.0x or higher for construction and land development loans . in addition , detailed construction cost breakdowns , personal guarantees of borrowers and applicable insurance are required .
| ● investment securities totaled $ 661.2 million at december 31 , 2012 , an increase of $ 28.1 million when compared to $ 633.2 million at december 31 , 2011. at december 31 , 2012 , available for sale securities , at fair value , totaled $ 602.3 million , an increase of $ 81.8 million when compared to $ 520.5 million at december 31 , 2011. at december 31 , 2012 , held to maturity securities , at amortized cost , totaled $ 58.9 million , a decrease of $ 53.7 million when compared to $ 112.7 million at december 31 , 2011. the decrease in held to maturity securities was due to called bonds . ● the net loan portfolio at december 31 , 2012 totaled $ 619.2 million , a net increase of $ 54.9 million from the december 31 , 2011 net loan portfolio of $ 564.2 million . net loans are reduced by the allowance for loan losses which totaled $ 10.3 million at december 31 , 2012 and $ 8.9 million at december 31 , 2011. total loans net of unearned income were $ 629.5 million for december 31 , 2012 compared to $ 573.1 million for december 31 , 2011 . ● nonperforming loans decreased $ 2.0 million to $ 21.1 million at december 31 , 2012 from $ 23.2 million at december 31 , 2011 . ● other real estate decreased $ 3.3 million to $ 2.4 million at december 31 , 2012 from $ 5.7 million at december 31 , 2011 . ● total nonperforming assets decreased $ 5.4 million in 2012 to $ 23.5 million at december 31 , 2012 from $ 28.9 million at december 31 , 2011. nonperforming assets to total loans decreased from 5.04 % at december 31 , 2011 to 3.74 % at december 31 , 2012. nonperforming assets to total assets decreased from 2.13 % at december 31 , 2011 to 1.67 % at december 31 , 2012 . ● total deposits were $ 1.3 billion at december 31 , 2012 , an increase of $ 45.3 million or 3.7 % from the year end december 31 , 2011 total deposits of $ 1.2 billion . ● total interest expense decreased $ 2.0 million to $ 13.1 million for the year ended december 31 , 2012 from $ 15.1 million for the same period in 2011 . ● return on average assets for the year end december 31 , 2012 and december 31 , 2011 was 0.89 % and
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cel-sci also owns and is developing a pre-clinical technology called leaps . all of cel-sci 's projects are under development . as a result , cel-sci can not predict when it will be able to generate any revenue from the sale of any of its products . since inception , cel-sci has financed its operations through the issuance of equity securities , convertible notes , loans and certain research grants . cel-sci 's expenses will likely exceed its revenues as it continues the development of multikine and brings other drug candidates into clinical trials . until such time as cel-sci becomes profitable , any or all of these financing vehicles or others may be utilized to assist cel-sci 's capital requirements . 47 story_separator_special_tag december 2020 , the company sold 1,000,000 shares of common stock at a public offering price of $ 14.65 per share and received aggregate net proceeds of approximately $ 13.6 million . under the terms of the underwriting agreement the company granted the underwriters a 30-day option to purchase up to an additional 150,000 shares of common stock at the public offering price to cover over-allotments . in august 2007 , cel-sci leased a building near baltimore , maryland . the building , which consists of approximately 73,000 square feet , has been remodeled in accordance with cel-sci 's specifications so that it can be used by cel-sci to manufacture multikine for cel-sci 's phase iii clinical trials and sales of the drug if approved by the fda . the lease expires on october 31 , 2028 , and required annual base rent payments of approximately $ 1.9 million during the twelve months ended september 30 , 2020. see item 2 of this report for more information concerning the terms of this lease . 49 in march 2020 , the company sold 630,500 shares of common stock at a public offering price of $ 12.22 per share and received aggregate net proceeds of approximately $ 7.1 million . under the terms of the underwriting agreement the company granted the underwriters a 45-day option to purchase up to an additional 94,575 shares of common stock solely to cover over-allotments . the underwriter fully exercised this option in may 2020 resulting in additional net proceeds to the company of approximately $ 1.1 million . in december 2019 , the company sold 606,395 shares of common stock at a public offering price of $ 9.07 per share and received aggregate net proceeds of approximately $ 5.0 million . in january 2020 , the underwriters of that offering fully exercised an option to purchase 90,959 additional shares of common stock at the public offering price of $ 9.07 per share for aggregate net proceeds to the company of approximately $ 0.8 million . the following charts list the warrants that were exercised and the proceeds received during the years ended september 30 , 2020 and 2019. fiscal year 2020 replace_table_token_2_th 50 fiscal year 2019 replace_table_token_3_th cel-sci entered into securities purchase agreements ( spas ) with ergomed plc , one of cel-sci 's clinical research organizations responsible for managing the phase 3 clinical trial , to facilitate payment of amounts due ergomed . under the agreements , cel-sci issued ergomed shares of common stock and the net proceeds from the sales of those shares reduces outstanding amounts due ergomed . upon issuance , cel-sci expenses the full value of the shares as other non-operating gain/loss and subsequently offsets the expense as amounts are realized through the sale by ergomed and reduces accounts payable to ergomed . during the year ended september 30 , 2020 and 2019 , cel-sci issued ergomed 150,000 and 750,000 shares , respectively . the following table summarizes the other non-operating gains for the years ended september 30 relating to these agreements : replace_table_token_4_th as of september 30 , 2020 , ergomed held 102,521 shares for resale . as of september 30 , 2019 , ergomed held 198,000 shares . during the year ended september 30 , 2020 , cel-sci 's cash increased by approximately $ 7.1 million . significant components of this increase include : net proceeds received of approximately $ 25.8 million from the sale of common stock and the exercise of warrants and stock options , offset by net cash used in operating activities of approximately $ 15.2 million , purchases of capitalizable property , equipment and patents of approximately $ 2.7 million , and approximately $ 0.8 million in lease payments . primarily as a result of cel-sci 's losses incurred to date , its expected continued future losses , and limited cash balances , cel-sci has included a disclosure in its financial statements expressing substantial doubt about its ability to continue as a going concern . cel-sci has included such an explanatory paragraph on numerous occasions in the preceding years . future capital requirements cel-sci 's material capital commitments include funding operating losses , funding its research and development program and making required lease payments . additionally , the company is currently upgrading the manufacturing facility to prepare for the potential commercial production of multikine . estimated costs to complete the upgrade are $ 7.4 million , $ 2.4 million of which the landlord of the property has contingently agreed to finance . 51 for information on employment contracts , see item 11 of this report . further , cel-sci has contingent obligations with vendors for work that will be completed in relation to the phase 3 trial . the timing of these obligations can not be determined at this time . cel-sci estimates it will incur additional expenses of approximately $ 5.9 million for the remainder of the phase 3 clinical trial and the filing of the clinical study report to the fda . story_separator_special_tag it should be noted that this estimate is based only on the information currently available from the cros responsible for managing the phase 3 clinical trial and does not include other related costs , e.g. , the manufacturing of the drug . on may 4 , 2020 , cel-sci announced that the pivotal phase 3 head and neck cancer study of multikine immunotherapy had reached the targeted threshold of 298 events ( deaths ) required to conduct the data evaluation . cel-sci is now in the phase that involves final analysis of the trial results . cel-sci may or may not need to raise additional funds to reach the final read-out of the phase 3 trial depending on the length of time it takes . however , cel-sci will need to raise additional funds , either through the exercise of outstanding warrants/options , through a debt or equity financing or a partnering arrangement , to bring multikine to market . the ability of cel-sci to complete the necessary clinical trials and obtain fda approval for the sale of products to be developed on a commercial basis is uncertain . however , it is possible that cel-sci will not be able to generate enough cash to continue operations at its current level . cel-sci 's registered independent public accounting firm has issued an audit opinion that includes an explanatory paragraph that expresses substantial doubt about cel-sci 's ability to continue as a going concern mainly due to continued losses from operations and future liquidity needs of cel-sci . cel-sci 's management has engaged in fundraising for over 25 years and believes that the manner in which it is proceeding will produce the best possible outcome for the shareholders . there can be no assurances that cel-sci will be successful in raising additional funds . clinical and other studies necessary to obtain regulatory approval of a new drug involve significant costs and require several years to complete . the extent of cel-sci 's clinical trials and research programs are primarily based upon the amount of capital available to cel-sci and the extent to which cel-sci has received regulatory approvals for clinical trials . the inability of cel-sci to conduct clinical trials or research , whether due to a lack of capital or regulatory approval , will prevent cel-sci from completing the studies and research required to obtain regulatory approval for any products which cel-sci is developing . without regulatory approval , cel-sci will be unable to sell any of its products . in the absence of revenues , cel-sci will be required to raise additional funds through the sale of securities , debt financing or other arrangements in order to continue with its research efforts . however , there can be no assurance that such financing will be available or be available on favorable terms . ultimately , cel-sci must complete the development of its products , obtain appropriate regulatory approvals and obtain sufficient revenues to support its cost structure . since all of cel-sci 's projects are under development , cel-sci can not predict with any certainty the funds required for future research and clinical trials , the timing of future research and development projects , or when it will be able to generate any revenue from the sale of any of its products . cel-sci 's cash flow and earnings are subject to fluctuations due to changes in interest rates on its bank accounts , and , to an immaterial extent , foreign currency exchange rates . critical accounting policies cel-sci 's significant accounting policies are more fully described in note 3 to the financial statements included as part of this report . however , certain accounting policies are particularly important to the portrayal of cel-sci 's financial position and results of operations and require the application of significant judgments by management . as a result , the financial statements are subject to an inherent degree of uncertainty . in applying those policies , management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates . these estimates are based on cel-sci 's historical experience , terms of existing contracts , observance of trends in the industry and information available from outside sources , as appropriate . 52 management believes that the following critical accounting policies require the most significant judgments and estimates with respect in the preparation of cel-sci 's financial statements . share-based compensation – share-based compensation cost to employees is measured at fair value as of the grant date in accordance with the provisions of asc 718. the fair value of the stock options is calculated using the black-scholes option pricing model . the black-scholes model requires various judgmental assumptions including volatility and expected option life . the compensation cost is recognized as expense over the requisite service or vesting period . performance-based options are valued using a monte-carlo simulation model , which requires inputs based on estimates , including the likelihood of the occurrence of performance and market conditions , volatility and expected option life . in october 2019 , the company adopted asu 2018-07 , compensation — stock compensation ( topic 718 ) , which expands the scope of topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees , and thus , the accounting for share-based payments to non-employees will be substantially aligned . adoption of the new guidance had no impact on the financial statements and related disclosures . derivative instruments— cel-sci enters into financing arrangements that consist of freestanding derivative instruments or hybrid instruments that contain embedded derivative features . cel-sci accounts for these arrangements in accordance with asc 815 , accounting for derivative instruments and hedging activities , as well as related interpretations of these standards . in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) , derivative instruments and hybrid instruments are recognized as either assets or liabilities in the statement of
| during the year ended september 30 , 2020 , general and administrative expenses increased by approximately $ 3.7 million , or 46 % , compared to the year ended september 30 , 2019. a major component of the increase is an approximate $ 3.0 million increase in employee stock compensation costs , of which approximately $ 1.4 million was incurred under the 2020 non-qualified stock option plan . additionally , depreciation on leased assets increased by approximately $ 0.3 million as a result of the adoption of the new leasing standard effective october 1 , 2019 , and an approximately $ 0.4 million net increase in other general and administrative costs . during the years ended september 30 , 2020 and 2019 , cel-sci recorded derivative losses of approximately $ 0.3 million and $ 0.8 million , respectively . this variation was the result of the change in fair value of the derivative liabilities during the period which was caused by fluctuations in the share price of cel-sci 's common stock . other non-operating gain increased by approximately $ 0.3 million for the year ended september 30 , 2020 as compared to the year ended september 30 , 2019. this gain relates to the securities purchase agreement described in item 8 in note 12 to the financial statements included as part of this report . the amount of the gain or loss is a result of the timing of shares issued to ergomed and the subsequent re-sale of those shares . during the years ended september 30 , 2020 and 2019 , the company issued 150,000 and 750,000 shares , respectively , to ergomed and recorded a non-operating loss equal to the fair value of those shares of approximately $ 1.8 million and $ 3.4 million , respectively . during the year ended september 30 , 2020 and 2019 , ergomed received approximately $ 2.7 million and $ 3.9 million , respectively , from the resale of these shares . during the year ended september 30 , 2020 , the company issued series xx and series yy warrants to induce holders of series v warrants to exercise their warrants . upon acceptance of the warrant inducement offer , the aggregate value of the inducement warrants of approximately $ 0.8 million was recorded as an expense . all unexercised series v warrants
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each class is assessed an inherent credit loss factor that determines an amount of allowance for loan losses provided for that group of loans . this allowance is then adjusted for qualitative factors , by segment and class . qualitative factors are based on management 's assessment of current trends that may cause losses inherent in the current loan portfolio to differ significantly from historical losses . some factors that management considers in determining the qualitative adjustment to the general reserve include loan quality trends in our own portfolio , the degree of concentrations of large borrowers in our loan portfolio , national and local economic trends , business conditions , underwriting policies and standards , trends in local real estate markets , effects of various political activities , peer group data , and internal factors such as underwriting policies and expertise of the company 's employees . regular credit reviews of the portfolio also identify loans that are considered potentially impaired . a loan is considered impaired when based on current information and events , we determine that we will probably not be able to collect all amounts due according to the loan contract , including scheduled interest payments . when we identify a loan as impaired , we measure the impairment using discounted cash flows , except when the sole remaining source of the repayment for the loan is the liquidation of the collateral . in these cases , we use the current fair value of the collateral , less selling costs , instead of discounted cash flows . the analysis of collateral dependent loans includes appraisals on loans secured by real property , management 's assessment of the current market , recent payment history and an evaluation of other sources of repayment . the company obtains appraisals on real and personal property that secure its loans during the loan origination process in accordance with regulatory guidance and its loan policy . the company obtains updated appraisals on loans secured by real or personal property based upon its assessment of changes in the current market or particular projects or properties , information from other current appraisals and other sources of information . the company uses the information provided in these updated appraisals along with its evaluation of all other information available on a particular property as it assesses the collateral coverage on its performing and nonperforming loans and the impact that may have on the adequacy of its allowance . if we determine that the value of the impaired loan is less than the recorded investment in the loan , we either recognize an impairment reserve as a specific component to be provided for in the allowance or charge-off the impaired balance on collateral dependent loans if it is determined that such amount represents a confirmed loss . the combination of the risk rating-based allowance component and the impairment reserve allowance component lead to an allocated allowance for loan losses . finally , the company assesses the overall adequacy of the allowance based on several factors including the level of the allowance as compared to total loans and nonperforming loans in light of current economic conditions . this portion of the allowance is deemed “ unallocated ” because it is not allocated to any segment or class of the loan portfolio . this portion of the allowance provides for coverage of credit losses inherent in the loan portfolio but not captured in the credit loss factors that are utilized in the risk rating-based component or in the specific impairment component of the allowance and acknowledges the inherent imprecision of all loss prediction models . the unallocated portion of the allowance is based upon management 's evaluation of various factors that are not directly measured in the determination of the allocated portions of the allowance . such factors include uncertainties in identifying triggering events that directly correlate to subsequent loss rates , uncertainties in economic conditions , risk factors that have not yet manifested themselves in loss allocation factors , and historical loss experience data that may not precisely correspond to the current portfolio . in addition , the unallocated reserve may fluctuate based upon the direction of various risk indicators . examples of such factors include the risk as to current and prospective economic conditions , the level and trend of charge offs or recoveries , and the risk of heightened imprecision or inconsistency of appraisals used in estimating real estate values . although this allocation process may not accurately predict credit losses by loan type or in aggregate , the total allowance for credit losses is available to absorb losses that may arise from any loan type or category . due to the subjectivity involved in the determination of the unallocated portion of the allowance , the relationship of the unallocated component to the total allowance may fluctuate from period to period . based on our methodology and its components , management believes the resulting allowance is adequate and appropriate for the risk identified in the company 's loan portfolio . given current processes employed by the company , management believes the segments , classes , and estimated loss rates currently assigned are appropriate . it is possible that others , given the same information , may at any point in time reach different reasonable conclusions that could be material to the company 's financial statements . in addition , current loan classes and fair value estimates of collateral are subject to change as we continue to review loans within our portfolio and as our borrowers are impacted by economic trends within their market areas . although we have established an allowance that we consider adequate , there can be no assurance that the established allowance will be sufficient to offset losses on loans in the future . in addition , a substantial percentage of our loan portfolio is secured by real estate ; as a result , a significant decline in real estate market values may require an increase in the allowance . story_separator_special_tag 31 valuation of goodwill and other intangibles : goodwill and other intangible assets with indefinite lives are not amortized but instead are periodically tested for impairment . management performs an impairment analysis for the intangible assets with indefinite lives on an annual basis as of december 31. additionally , goodwill and other intangible assets with indefinite lives are evaluated on an interim basis when events or circumstances indicate impairment potentially exists . the impairment analysis requires management to make subjective judgments . events and factors that may significantly affect the estimates include , among others , competitive forces , customer behaviors and attrition , changes in revenue growth trends , cost structures , technology , changes in discount rates and specific industry and market conditions . there can be no assurance that changes in circumstances , estimates or assumptions may result in additional impairment of all , or some portion of , goodwill or other intangible assets . the company performed its annual goodwill impairment testing at december 31 , 2018 and 2017 in accordance with the policy described in note 1 to the financial statements included with this report . at december 31 , 2018 , the company performed its annual impairment test by performing a qualitative assessment . significant positive inputs to the qualitative assessment included the company 's increasing net income as compared to historical trends , the company 's stable budget-to-actual results of operations ; results of regulatory examinations ; peer comparisons of the company 's net interest margin ; trends in the company 's cash flows ; and improvements in the alaskan economy in 2018. significant negative inputs to the qualitative assessment included the recent decline in oil prices and in the company 's stock price , as well as the decline in the volume of mortgage originations in alaska and the decrease in net income in the company 's home mortgage lending segment . for the community banking segment , we believe that the positive inputs to the qualitative assessment noted above outweigh the negative inputs , and we therefore concluded that it is more likely than not that the fair value of the company exceeds its carrying value at december 31 , 2018 and that no potential impairment existed at that time . after review of these qualitative inputs , the company determined that performing a quantitative goodwill impairment test for the home mortgage lending segment as of december 31 , 2018 was appropriate . the company estimated the fair value of the home mortgage lending segment using a discounted cash flow approach . we then compared the estimated fair value of the home mortgage lending segment to the carrying value as of december 31 , 2018 and concluded that no potential impairment existed at that time . valuation of oreo : oreo represents properties acquired through foreclosure or its equivalent . prior to foreclosure , the carrying value is adjusted to the fair value , less cost to sell , of the real estate to be acquired by an adjustment to the allowance for loan loss . the amount by which the fair value less cost to sell is greater than the carrying amount of the loan plus amounts previously charged off is recognized in earnings . any subsequent reduction in the carrying value is charged against earnings . management 's evaluation of fair value is based on appraisals or discounted cash flows of anticipated sales . the amounts ultimately recovered from the sale of oreo may differ from the carrying value of the assets because of market factors beyond the company 's control or due to changes in the company 's strategies for recovering the investment . servicing rights : the company measures mortgage servicing rights ( `` msrs '' ) and commercial servicing rights ( `` csrs '' ) at fair value on a recurring basis with changes in fair value going through earnings in the period in which the change occurs . changes in the fair value of msrs are recorded in mortgage banking income , and changes in the fair value of csrs are recorded in commercial servicing revenue . fair value adjustments encompass market-driven valuation changes and the decrease in value that occurs from the passage of time , which are separately reported . retained servicing rights are measured at fair value as of the date of sale . initial and subsequent fair value measurements are determined using a discounted cash flow model . in order to determine the fair value of servicing rights , the present value of expected net future cash flows is estimated . assumptions used include market discount rates , anticipated prepayment speeds , escrow calculations , delinquency rates and ancillary fee income net of servicing costs . the model assumptions for msrs are also compared to publicly filed information from several large msr holders , as available . fair value : a hierarchical disclosure framework associated with the level of pricing observability is utilized in measuring financial instruments at fair value . the degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability . financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value . conversely , financial instruments rarely traded or not quoted will generally have little or no pricing observability and a higher degree of judgment utilized in measuring fair value . pricing observability is impacted by a number of factors , including the type of financial instrument , whether the financial instrument is new to the market and not yet established and the characteristics specific to the transaction . 32 story_separator_special_tag 2018 , 2017 and 2016 , respectively . 3 consists of investment securities available for sale , investment securities held to maturity , marketable equity securities , and investment in federal home loan bank stock .
| the decrease in net income in 2017 compared to 2016 was primarily due to an increase of $ 4.3 million in provision for income taxes and an increase of $ 902,000 in the provision for loan losses , as well as a decrease of $ 2.8 million in other operating income , which was primarily driven by a reduction in mortgage banking income . these changes were only partially offset by a $ 1.3 million increase in net interest income and a $ 4.6 million decrease in compensation expense - rml acquisition payments in 2017 compared to 2016. net interest income / net interest margin net interest income is the difference between interest income from loan and investment securities portfolios and interest expense on customer deposits and borrowings . changes in net interest income result from changes in volume and spread , which in turn affect our margin . for this purpose , volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities , spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities , and margin refers to net interest income divided by average interest-earning assets . changes in net interest income are influenced by yields and the level and relative mix of interest-earning assets and interest-bearing liabilities . net interest income in 2018 was $ 61.2 million , compared to $ 57.7 million in 2017 , and $ 56.4 million in 2016 . the increase in 2018 as compared to 2017 and 2017 as compared to 2016 was mainly due to increased interest income earned on long- and short-term investments and loans primarily due to higher yields resulting from increases in interest rates in both 2018 and 2017 compared to the prior year . during 2018 , 2017 , and 2016 , net interest margins were 4.55 % , 4.22 % , and 4.14 % , respectively . the increase in net interest margin in both 2017 and 2018 compared to the prior year is the result of increases in the spread between the average
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in 2013 , 2012 and 2011 , cash provided by operations was $ 235.7 million , $ 237.4 million and $ 248.6 million , respectively . in comparison to 2012 , cash provided by operations in 2013 resulted from higher operating results offset by higher cash outflows for working capital . the major components of the higher cash outflows were as follows : a negative change in accounts receivable of $ 126.7 million as the number of days to collect cash increased slightly and sales increased , a negative change in customer deposits due to the completion of certain large contracts , and a $ 15.8 million payment in the prior year for a court ruling . these cash outflows were partially offset by the following cash inflows : a favorable change in accounts payable of $ 60.9 million due to payment timing , and a favorable change or decrease of $ 58.6 million in inventory as our days ' supply in inventory ( dsi ) decreased to 63 days from 72 days at the end of 2012 due to the completion of certain original equipment contracts . in comparison to 2011 , the decrease in cash provided by operations in 2012 resulted from higher working capital , offset by higher net income and higher non-cash items . in 2012 the following working capital items used cash : accounts receivable increased by $ 23.0 million , primarily due to higher sales ; inventory increased by $ 32.5 million to support the higher sales and due to certain long term contracts ; accounts payable and accrued income taxes decreased $ 34.6 million due to the timing of payments . all other operating assets and liabilities , net , provided cash of $ 13.4 million due to the payment timing of certain accrued liabilities . investing activities . in 201 3 , 2012 and 2011 , cash used in investing activities was $ 258.7 million , $ 184.9 million and $ 146.2 million , respectively . the major components of the cash outflow are as follows : planned additions to property , plant , and equipment of $ 41.2 million for continued investments in our facilities and manufacturing processes and acquisitions of $ 223.5 million . this compares to $ 36.0 million in property , plant , and equipment and $ 149.9 million in net cash paid for acquisitions in 2012. refer to note 3 of the “ notes to condensed consolidated financial statements ” for additional information on acquisitions . financing activities . in 2013 , cash provided by financing activities was $ 93.0 million , which included $ 711.6 million in proceeds from the revolving credit facility debt , proceeds of $ 247.4 million from the issuance of 4.375 % senior notes , net of issuance 28 costs , $ 679.6 million of repayments of debt on the revolving credit facility , $ 150.0 million payment for the maturity of the 2003 senior notes , $ 12.6 million of dividend payments and $ 33.0 million of wabtec stock repurchases . in 2012 , cash used in financing activities was $ 124.7 million , which included $ 233.4 million in proceeds from debt and $ 311.4 million of repayments of debt on the revolving credit facility , $ 7.7 million of dividend payments and $ 46.6 million of wabtec stock repurchases . in 2011 , cash used in financing activities was $ 46.8 million , which included $ 257.0 million in proceeds from debt and $ 243.5 million of repayments of debt on the revolving credit facility , $ 39.7 million of debt repayments on the term loan and other debt , $ 3.8 million of dividend payments and $ 26.0 million of wabtec stock repurchases . the following table shows outstanding indebtedness at december 31 , 2013 and 2012. replace_table_token_14_th cash balances at december 31 , 2013 and 2012 were $ 285.8 million and $ 215.8 million , respectively . 2013 refinancing credit agreement on december 19 , 2013 , the company amended its existing revolving credit facility with a consortium of commercial banks . this “ 2013 refinancing credit agreement ” provides the company with a $ 800 million , five-year revolving credit facility . the company incurred approximately $ 1.0 million of deferred financing cost related to the 2013 refinancing credit agreement . the facility expires on december 19 , 2018. the 2013 refinancing credit agreement borrowings bear variable interest rates indexed as described below . at december 31 , 2013 , the company had available bank borrowing capacity , net of $ 59.8 million of letters of credit , of approximately $ 540.2 million , subject to certain financial covenant restrictions under the 2013 refinancing credit agreement , the company may elect a base rate of interest for u.s. dollar denominated loans or , for certain currencies , an interest rate based on the london interbank offered rate ( “ libor ” ) of interest , or other rates appropriate for such currencies ( in any case , “ the alternate rate ” ) . the base rate adjusts on a daily basis and is the greater of the federal fun ds effective rate plus 0.5 % per annum , the pnc , n.a . prime rate or the daily libor rate plus 100 basis points , plus a margin that ranges from 0 to 75 basis points . the alternate rate is based on the quoted rates specific to the applicable currency , plus a margin that ranges from 75 to 175 basis points . both the base rate and alternate rate margins are dependent on the company 's consolidated total indebtedness to cash flow ratios . the initial base rate margin is 0 basis points and the alternate rate margin is 100 basis points . at december 31 , 2013 the weighted average interest rate on the company 's variable rate debt was 1.17 % . on january 12 , 2012 , the company entered story_separator_special_tag in 2013 , 2012 and 2011 , cash provided by operations was $ 235.7 million , $ 237.4 million and $ 248.6 million , respectively . in comparison to 2012 , cash provided by operations in 2013 resulted from higher operating results offset by higher cash outflows for working capital . the major components of the higher cash outflows were as follows : a negative change in accounts receivable of $ 126.7 million as the number of days to collect cash increased slightly and sales increased , a negative change in customer deposits due to the completion of certain large contracts , and a $ 15.8 million payment in the prior year for a court ruling . these cash outflows were partially offset by the following cash inflows : a favorable change in accounts payable of $ 60.9 million due to payment timing , and a favorable change or decrease of $ 58.6 million in inventory as our days ' supply in inventory ( dsi ) decreased to 63 days from 72 days at the end of 2012 due to the completion of certain original equipment contracts . in comparison to 2011 , the decrease in cash provided by operations in 2012 resulted from higher working capital , offset by higher net income and higher non-cash items . in 2012 the following working capital items used cash : accounts receivable increased by $ 23.0 million , primarily due to higher sales ; inventory increased by $ 32.5 million to support the higher sales and due to certain long term contracts ; accounts payable and accrued income taxes decreased $ 34.6 million due to the timing of payments . all other operating assets and liabilities , net , provided cash of $ 13.4 million due to the payment timing of certain accrued liabilities . investing activities . in 201 3 , 2012 and 2011 , cash used in investing activities was $ 258.7 million , $ 184.9 million and $ 146.2 million , respectively . the major components of the cash outflow are as follows : planned additions to property , plant , and equipment of $ 41.2 million for continued investments in our facilities and manufacturing processes and acquisitions of $ 223.5 million . this compares to $ 36.0 million in property , plant , and equipment and $ 149.9 million in net cash paid for acquisitions in 2012. refer to note 3 of the “ notes to condensed consolidated financial statements ” for additional information on acquisitions . financing activities . in 2013 , cash provided by financing activities was $ 93.0 million , which included $ 711.6 million in proceeds from the revolving credit facility debt , proceeds of $ 247.4 million from the issuance of 4.375 % senior notes , net of issuance 28 costs , $ 679.6 million of repayments of debt on the revolving credit facility , $ 150.0 million payment for the maturity of the 2003 senior notes , $ 12.6 million of dividend payments and $ 33.0 million of wabtec stock repurchases . in 2012 , cash used in financing activities was $ 124.7 million , which included $ 233.4 million in proceeds from debt and $ 311.4 million of repayments of debt on the revolving credit facility , $ 7.7 million of dividend payments and $ 46.6 million of wabtec stock repurchases . in 2011 , cash used in financing activities was $ 46.8 million , which included $ 257.0 million in proceeds from debt and $ 243.5 million of repayments of debt on the revolving credit facility , $ 39.7 million of debt repayments on the term loan and other debt , $ 3.8 million of dividend payments and $ 26.0 million of wabtec stock repurchases . the following table shows outstanding indebtedness at december 31 , 2013 and 2012. replace_table_token_14_th cash balances at december 31 , 2013 and 2012 were $ 285.8 million and $ 215.8 million , respectively . 2013 refinancing credit agreement on december 19 , 2013 , the company amended its existing revolving credit facility with a consortium of commercial banks . this “ 2013 refinancing credit agreement ” provides the company with a $ 800 million , five-year revolving credit facility . the company incurred approximately $ 1.0 million of deferred financing cost related to the 2013 refinancing credit agreement . the facility expires on december 19 , 2018. the 2013 refinancing credit agreement borrowings bear variable interest rates indexed as described below . at december 31 , 2013 , the company had available bank borrowing capacity , net of $ 59.8 million of letters of credit , of approximately $ 540.2 million , subject to certain financial covenant restrictions under the 2013 refinancing credit agreement , the company may elect a base rate of interest for u.s. dollar denominated loans or , for certain currencies , an interest rate based on the london interbank offered rate ( “ libor ” ) of interest , or other rates appropriate for such currencies ( in any case , “ the alternate rate ” ) . the base rate adjusts on a daily basis and is the greater of the federal fun ds effective rate plus 0.5 % per annum , the pnc , n.a . prime rate or the daily libor rate plus 100 basis points , plus a margin that ranges from 0 to 75 basis points . the alternate rate is based on the quoted rates specific to the applicable currency , plus a margin that ranges from 75 to 175 basis points . both the base rate and alternate rate margins are dependent on the company 's consolidated total indebtedness to cash flow ratios . the initial base rate margin is 0 basis points and the alternate rate margin is 100 basis points . at december 31 , 2013 the weighted average interest rate on the company 's variable rate debt was 1.17 % . on january 12 , 2012 , the company entered
| for the freight segment , net sales decreased by $ 20.2 million due to unfavorable effects of foreign exchange . transit segment sales increased by $ 279.1 million , or 31.4 % , due to higher sales of $ 102.5 million for original equipment transit locomotives as contract mix shifted from freight locomotives ; $ 85.5 million from acquisitions ; $ 51.6 million from increased demand for original equipment brakes ; $ 26.8 million primarily from increased demand for positive train control electronics ; and an increase of $ 5.9 million from certain transit car build contracts . for the transit segment , net sales increased by $ 4.6 million due to favorable effects of foreign exchange . cost of sales and gross profit cost of sales increased by $ 105.9 million to $ 1,802.4 million in 2013 from $ 1,696.5 million in 2012. cost of sales , as a percentage of sales was 70.2 % in 2013 and 71.0 % in 2012. raw material costs were approximately 43 % as a percentage of sales in 2013 and 2012. labor costs were approximately 12 % as a percentage of sales in 2013 and 2012. overhead costs as a percentage of sales were approximately 15 % in 2013 and 16 % in 2012. freight segment raw material costs decreased as a percentage of sales to approximately 40 % in 2013 from 43 % in 2012. freight segment labor costs were approximately 11 % as a percentage of sales in 2013 and 2012 , and overhead costs as a percentage of sales were approximately 15 % in 2013 and 2012. transit segment raw material costs increased as a percentage of sales to approximately 46 % in 2013 from 43 % in 2012. transit segment labor costs decreased as a percentage of sales to approximately 12 % in 2013 from 13 % in 2012 , and overhead costs as a percentage of sales were 17 % in 2013 and 19 % in 2012. freight segment material
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we also provided increased mezzanine financing to cade and vickers historic roswell by approximately $ 1.0 million . as part of our effort to simplify our structure , during 2018 we invested approximately $ 12.0 million to increase our ownership stake to 100 % in each of our arium at palmer ranch , arium gulfshore , and arium palms properties . during the year ended december 31 , 2018 , we issued 123,592 shares of series b preferred stock under a continuous registered offering with net proceeds of approximately $ 111.2 million after commissions and dealer manager fees . in february 2018 , the company authorized the repurchase of up to $ 25 million of the company 's outstanding shares of class a common stock for a period of one year pursuant to a stock repurchase plan . in december 2018 , we renewed our stock repurchase plan for a period of one year and announced a new plan for the repurchase of up to $ 5.0 million of our outstanding shares of class a common stock in accordance with the guidelines specified under rule 10b5-1 of the exchange act , which shares will be applied against the $ 25 million under our original repurchase plan . the repurchase plan may be discontinued at any time . the extent to which the company repurchases shares of its class a common stock , and the timing of any such purchases , depends on a variety of factors including general business and market conditions and other corporate considerations . the company purchased 1,055,057 shares of class a common stock during the year ended december 31 , 2018 for a total purchase price of approximately $ 9.0 million . 49 industry outlook we believe that a significant amount of institutional capital and public reits are primarily focused on investing in the big six gateway markets of boston , new york , washington , d.c. , seattle , san francisco , and los angeles , and that many other primary markets are underinvested by institutional/public capital . we believe that the continued transition of the united states from an industrial economy to a knowledge economy is leading to the development of certain next generation markets which will disproportionally benefit from such transition by generating knowledge economy jobs of the future over the next several decades , and by attracting and retaining the highly-educated high income knowledge economy worker . we seek to target such next generation knowledge economy markets which we believe provide the opportunity to source investments at cap rates that are more attractive than the gateway markets currently , and that have the potential to provide significant current income , along with the potential for significant capital appreciation over time . we additionally believe that a number of our target knowledge economy growth markets are underserved by highly amenitized institutional quality apartment properties , especially as the wave of millennials continues to move into its prime rental years through the upcoming decade . as such , we believe there is opportunity in certain of our target markets for development and or redevelopment to deliver highly amenitized institutional quality product and capture premium rental rates and value growth . as the economy continues its recovery and enters an environment of more traditional ( i.e. , higher ) interest rate levels , we believe private purchasers with greater capital constraints who have needed significant leverage to fund acquisitions will become less competitive , which should provide the opportunity to acquire apartment communities from owners who do not have sufficient capital resources to execute their business plans . we further believe that demographic forces indicate strong growth for apartment demand in the foreseeable future due to a variety of factors , including demand from the growing millennial population which has a high propensity to rent , the large pent-up demand from young adults that have been living at home or with roommates , increasing share of the rental sector vs. homeownership , the declining homeownership rate due to affordability issues , and negative sentiments toward home ownership following the housing crisis experienced during the great recession . story_separator_special_tag and administrative expenses were $ 12.6 million , or 6.8 % of revenues for the year ended december 31 , 2018 as compared to $ 5.2 million , or 4.2 % of revenues , for the same prior year end period . this increase can be primarily attributed to the impact of the internalization as we are now incurring expenses that were previously covered by the management fees payable to our former manager , described below . combined general and administrative expenses and management fees decreased $ 0.7 million to $ 19.6 million for the year ended december 31 , 2018 as compared to $ 20.3 million for the year ended december 31 , 2017. management fees were eliminated in conjunction with the internalization . base management fees of $ 8.7 million were expensed in the year ended december 31 , 2017. incentive management fees of $ 4.0 million were expensed in the year ended december 31 , 2017. all base management and incentive management fees in 2017 were paid in ltip units in lieu of cash . acquisition and pursuit costs amounted to $ 0.1 million for the year ended december 31 , 2018 as compared to $ 3.2 million for the same prior year period . substantially all the expenses for the year ended december 31 , 2017 were due to the company 's decision to abandon the proposed east san marco property development and write off the pre-acquisition costs that had been incurred . abandoned pursuit costs can vary greatly , and the costs incurred in any given period may be significantly different in future periods . management internalization expenses of $ 43.6 million for the year ended december 31 , 2017 related to the transaction expenses for the internalization , including the issuance of class c common stock and op units . story_separator_special_tag there were no such costs in 2018. weather-related losses , net were $ 0.3 million for the year ended december 31 , 2018 as compared to $ 1.0 million for the same prior year period . weather-related losses incurred in the year ended december 31 , 2018 primarily related to freeze damages at three properties in north carolina and one property in texas for $ 0.2 million , along with hail damages at one property in texas for $ 0.1 million . weather-related losses incurred in the year ended december 31 , 2017 were related to damages sustained from hurricane irma at six properties in florida and three properties in georgia . depreciation and amortization expenses increased to $ 62.7 million for the year ended december 31 , 2018 as compared to $ 48.6 million for the same prior year period . depreciation and amortization expense increased $ 18.4 million from the acquisition of five properties in 2018 and the full year impact of twelve properties acquired in 2017 , offset by a $ 2.0 million decrease in depreciation and amortization driven by the sales of four properties in 2017 and a $ 2.4 million decrease from same store properties . other income and expenses other income and expenses amounted to net expense of $ 45.0 million for the year ended december 31 , 2018 as compared to net other income of $ 37.6 million for the same prior year period . interest expense increased $ 21.5 million , or 68 % , to $ 53.0 million for the year ended december 31 , 2018 as compared to $ 31.5 million for the same prior year period due to the increased amount of properties and an increase in debt to fund the property acquisitions . the balance of the difference was primarily due to $ 60.4 million of gains on the sales of properties during the year ended december 31 , 2017. year ended december 31 , 2017 as compared to the year ended december 31 , 2016 revenue net rental income increased $ 29.5 million , or 40 % , to $ 102.8 million for the year ended december 31 , 2017 as compared to $ 73.3 million for the same prior year period . net rental income increased $ 47.4 million from the acquisition of twelve properties in 2017 and the full year impact of nine properties acquired in 2016 , offset by a $ 1.5 million decrease from same store properties and a $ 16.4 million decrease in net rental income driven by the sales of five properties in 2017 and 2016. see item 1. business “ summary of investments and dispositions ” . other property revenues increased $ 4.8 million , or 59 % , to $ 12.8 million for the year ended december 31 , 2017 as compared to $ 8.1 million for the same prior year period . other property revenues increased $ 6.3 million from the acquisition of twelve properties in 2017 and the full year impact of nine properties acquired in 2016 , offset by a $ 1.5 million decrease in other property revenues driven by the sales of five properties in 2017 and 2016 . 52 interest income from related parties increased to $ 7.9 million due to the entering into various mezzanine loans during 2017. expenses property operating expenses increased $ 16.5 million , or 52 % , to $ 48.3 million for the year ended december 31 , 2017 as compared to $ 31.8 million for the same prior year period . property operating expenses increased $ 23.7 million primarily from the acquisition of twelve properties in 2017 and the full year impact of nine properties acquired in 2016 , offset by a $ 0.5 million decrease from same store properties and a $ 6.8 million decrease in property operating expenses driven by the sales of five properties in 2017 and 2016. property noi margins decreased to 58.2 % of total revenues for the year ended december 31 , 2017 , from 60.9 % in the prior year period . property margins have been impacted by the sales of properties owned for longer time periods which were efficiently operated with assets purchased more recently that had not yet achieved the same level of operational efficiency . property noi margins are computed as total property revenues less property operating expenses , divided by total property revenues . property management fees expense increased $ 0.9 million , or 39 % , to $ 3.2 million for the year ended december 31 , 2017 as compared to $ 2.3 million in the same prior year period . property management fees increased $ 1.5 million from the acquisition of twelve properties in 2017 and the full year impact of nine properties acquired in 2016 , offset by a $ 0.6 million decrease in property management fees driven by the sales of five properties in 2017 and 2016. general and administrative expenses amounted to $ 7.5 million for the year ended december 31 , 2017 as compared to $ 5.9 million for the same prior year period . excluding non-cash amortization of ltips and restricted stock expense of $ 2.3 million and $ 3.0 million , for the years ended december 31 , 2017 and 2016 , respectively , general and administrative expenses increased to $ 5.2 million , or 4.2 % of revenues for the year ended december 31 , 2017 as compared to $ 2.8 million , or 3.5 % of revenues , for the same prior year end period . this increase can be partially attributed to the impact of the internalization as we are now incurring expenses that were previously covered by the management fees . management fees amounted to $ 12.7 million for the year ended december 31 , 2017 as compared to $ 6.5 million for the same prior year period . base management fees were $ 8.7 million and $ 6.4 million for the years ended december 31 , 2017 and 2016 , respectively .
| other property revenues increased $ 5.8 million from the acquisition of five properties in 2018 and the full year impact of twelve properties acquired in 2017 , and a $ 0.4 million increase from same store properties , offset by a $ 0.9 million decrease in other property revenues driven by the sales of four properties in 2017. interest income from related parties increased $ 14.4 million , or 182 % , to $ 22.3 million for the year ended december 31 , 2018 as compared to $ 7.9 million for the same prior year period due to increases in the average balance of mezzanine loans outstanding . 51 expenses property operating expenses increased $ 19.7 million , or 41 % , to $ 68.0 million for the year ended december 31 , 218 as compared to $ 48.3 million for the same prior year period . property operating expenses increased $ 21.8 million primarily from the acquisition of five properties in 2018 and the full year impact of twelve properties acquired in 2017 , and a $ 1.4 million increase from same store properties , offset by a $ 3.4 million decrease in property operating expenses driven by the sales of four properties in 2017. property noi margins decreased to 58.1 % of total revenues for the year ended december 31 , 2018 , from 58.2 % in the prior year period . property margins have been impacted by the sales of stabilized properties owned for longer time periods and the recent purchase of assets that have not yet achieved the same level of operational efficiency . property noi margins are computed as total property revenues less property operating expenses , divided by total property revenues . property management fees expense increased $ 1.2 million , or 38 % , to $ 4.4 million for the year ended december 31 , 2018 as compared to $ 3.2 million in the same prior year period . property management fees increased $ 1.4 million from the acquisition of five properties in 2018 and the full year impact of twelve properties acquired in 2017 , offset by a $ 0.2 million decrease in property management fees
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as a result , we will need to generate significant revenue if we are to achieve profitability , and we may never be able to do so . we believe that our cash and cash equivalents and available-for-sale investments at december 31 , 2016 will be sufficient to fund our operating expenses and capital expenditure requirements into the third quarter of 2018 , thus allowing us to complete enrollment of patients in our second phase 3 trial of vonapanitase in radiocephalic fistulas and to fund our chemistry , manufacturing and controls , or cmc , activities . we do not expect our existing capital resources to be sufficient to enable us to obtain results from our second phase 3 trial . we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for vonapanitase , which we expect will take a number of years and is subject to significant uncertainty . we have no manufacturing facilities and all of our manufacturing activities are contracted out to third parties . additionally , we currently use third-party clinical research organizations , or cros , to carry out our clinical development activities and we do not yet have a sales organization . if we obtain regulatory approval for vonapanitase , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . accordingly , we may seek to further 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 additional 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 vonapanitase or any additional product candidates , if developed . financial overview revenue to date , our revenue has been derived from revenue related to the expiration of any rights and obligations under a 2009 agreement with a major pharmaceutical entity and from government grants . in the third quarter of 2014 we recognized $ 2.9 million of revenue related to the expiration in august 2014 of any rights and obligations related to the 2009 agreement . research and development expenses research and development expenses consist primarily of costs incurred for the development of vonapanitase , which include : employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; expenses incurred under agreements with cros and investigative sites that will conduct our clinical trials ; the cost of acquiring , developing and manufacturing clinical trial materials ; 93 costs associated with regulatory operations ; and facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies . we expense research and development costs to operations 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 patient enrollment , clinical site activations or information provided to us by our vendors . we can not determine with certainty the duration and completion costs of the current or future clinical trials or if , when , or to what extent we will generate revenues from the commercialization and sale of vonapanitase . we may never succeed in achieving regulatory approval for vonapanitase . the duration , costs and timing of clinical trials and development of vonapanitase will depend on a variety of factors , which include : the scope , rate of progress and expense of our ongoing as well as any additional clinical trials and other research and development activities ; uncertainties in clinical trial enrollment rate ; future clinical trial results ; significant and changing government regulation ; and the timing and receipt of any regulatory approvals . a change in any of these factors could mean a significant change in the costs and timing associated with the development of vonapanitase . 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 or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . we expect our research and development expenses to increase for the foreseeable future as we continue the development of vonapanitase . our current development activities and future plans include the following : we are currently enrolling patients in our second phase 3 trial , patency-2 , and expect to complete enrollment in the fourth quarter of 2017 and to report top-line data in the fourth quarter of 2018. we may , based on additional data including the data from our ongoing phase 3 clinical trial and if sufficient funds become available , choose to conduct a clinical trial of vonapanitase in europe ; we may , based on additional data including the data from our ongoing phase 3 clinical trial and if sufficient funds become available , study the effects of vonapanitase versus placebo on brachiocephalic fistulas and in patients undergoing placement of an arteriovenous graft , or graft ; we initiated two phase 1 clinical trials of vonapanitase in patients with peripheral artery disease ( pad ) in the fourth quarter of 2016. these multicenter , dose-escalation trials are designed to evaluate the safety and technical feasibility of a single administration of vonapanitase as a monotherapy and as an adjunct to angioplasty for patients with pad above the knee and below the knee , respectively . in 2017 , we expect to enroll at least 24 patients in the phase 1 trial evaluating vonapanitase as an adjunct to angioplasty below the knee . story_separator_special_tag based on our current operating plan , we have decided not to begin patient enrollment in the phase 1 trial evaluating vonapanitase as a monotherapy for pad . however , based on additional data and if sufficient funds become available , we may increase enrollment in the phase 1 trial evaluating vonapanitase below the knee and begin patient enrollment in the phase 1 trial evaluating vonapanitase as a monotherapy above the knee ; we may , based on additional data including the data from our phase 3 clinical trials and if sufficient funds become available , choose to conduct a clinical trial of vonapanitase in an additional pad indication ; and 94 we expect to continue to manufacture clinical trial materials in support of our clinical trials and to also perform process validation activities in anticipation of a potential bla submission . general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel , including stock-based compensation and travel expenses , in executive and other administrative functions . other general and administrative expenses also include professional fees for legal , patent review , consulting and accounting services as well as facility related costs . we anticipate increased expenses related to audit , legal , regulatory and tax-related services associated with maintaining compliance with our nasdaq listing and sec requirements , director and officer liability insurance premiums and investor relations costs associated with being a public company . additionally , if and when we believe a regulatory approval of vonapanitase appears likely , we anticipate that we will increase our salary and personnel costs and other expenses as a result of our preparation for commercial operations . investment income investment income consists of interest income earned on our cash , cash equivalents and marketable securities . other income ( expense ) , net other income ( expense ) , net consists of the gain realized from non-cash gains and losses from currency exchange rate fluctuations on transactions or balances denominated in a foreign currency and realized and unrealized gains and losses on the forward foreign currency contracts we entered into in the second quarter of 2015 to purchase swiss francs to reduce our foreign currency exposure through 2016. this foreign currency exposure is the result of a contract with the manufacturer of active pharmaceutical ingredient ( “ api ” ) for our lead product candidate , vonapanitase , which requires us to make payments in swiss francs . the last outstanding forward foreign currency contract was executed during december 2016. derivative financial instruments we purchase swiss francs or have entered into forward foreign currency contracts to reduce our foreign currency exposure in making contractual payments under our lonza agreement . we record these derivative financial instruments on the consolidated balance sheet at fair value . although these derivative contracts are intended to economically hedge foreign exchange risk , we have not elected to apply hedge accounting . as such , changes in the fair value of the swiss francs we hold or in these derivative instruments are recorded directly in earnings as a component of other income ( expense ) as they occur . we execute derivative instruments with financial institutions that we judge to be credit-worthy , defined as institutions that hold an investment-grade credit rating . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial position and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america , or gaap . the preparation of financial statements in conformity with gaap requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . on an ongoing basis , we evaluate estimates , which include estimates related to clinical trial accruals , stock-based compensation expense , embedded derivatives and reported amounts of revenues and expenses during the reported period . we base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances . actual results may differ materially from those estimates or assumptions . 95 while our significant accounting policies are described in more detail in the notes to our consolidated financial statements and related notes 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 . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time . we routinely confirm the accuracy of our estimates with the service providers and make adjustments if necessary . examples of estimated accrued research and development expenses include fees paid to cros in connection with clinical trials and vendors related to manufacturing , development and distribution of clinical supplies . we base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple cros that conduct and manage clinical trials on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows .
| during the year ended december 31 , 2016 , other expense , net changed by $ 0.6 million as compared to the year ended december 31 , 2015 due to the change in the fair value associated with the forward foreign currency contracts we entered into in the second quarter of 2015 and the swiss francs denominated currency we held as of the period end . comparison of the years ended december 31 , 2015 and 2014 the following table summarizes our results of operations for the years ended december 31 , 2015 and 2014 ( in thousands ) : replace_table_token_9_th revenue . during the years ended december 31 , 2015 , our revenue was $ 2.9 million lower as compared to the year ended december 31 , 2014 due to the recognition of $ 2.9 million of deferred revenue related to the expiration in august 2014 of any rights and obligations under the aforementioned 2009 agreement . research and development expenses . the following table identifies research and development expenses on both an external and internal basis for the years ended december 31 , 2015 and 2014 ( in thousands ) : replace_table_token_10_th 99 during the year ended december 31 , 2015 , our total research and development expenses increased by $ 5.9 million compared to the year ended december 31 , 2014 primarily due to $ 4.5 million in increased external expenses . the increase of $ 4.5 million in external expenses was primarily driven by $ 3.4 million in increased expenses for our ongoing radiocephalic fistula phase 3 clinical trials and $ 1.0 million in increased expenses for our manufacturing pre-validation and other efforts . our internal research and development expenses increased by $ 1.4 million in the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 due primarily to increased personnel costs . general and administrative expenses . during the year ended december 31 , 2015 , our total general and administrative expenses were $ 4.4 million higher as compared to the year ended december 31 , 2014 primarily due to $ 2.6 million of additional overhead and personnel costs to support our ongoing corporate
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we have a disciplined and thoughtful acquisition process where we routinely survey the industry landscape across a wide range of companies . as a result of our aggressive growth plans and integration of our previously acquired businesses , we have incurred significant expenses from equity awards and amortization of purchased intangibles , which have reduced our operating income . we remain focused on improving operating margins . our typical subscription contract term is 12 to 36 months , although terms range from one to 60 months , so during any fiscal reporting period only a subset of active subscription contracts is eligible for renewal . we calculate our attrition rate as of the end of each month . our attrition rate , including the marketing cloud service offering but excluding our commerce cloud service offering and integration service offering , was less than ten percent as of january 31 , 2019 . while it is difficult to predict , we expect our attrition rate to remain consistent as we continue to expand our enterprise business and invest in customer success and related programs . we expect marketing and sales costs , which were 46 percent , 44 percent and 45 percent of total revenues for fiscal 2019 , 2018 and 2017 , respectively , to continue to represent a substantial portion of total revenues in the future as we seek to grow our customer base , sell more products to existing customers , and continue to build greater brand awareness . during the year , we acquired mulesoft , an industry-leading integration platform , to provide our customers the ability to integrate data across platforms . the financial results of mulesoft are included in our consolidated financial statements from the date of acquisition . the total purchase price for mulesoft was approximately $ 6.4 billion . also in fiscal 2019 , we acquired datorama , which provides a platform for enterprises , agencies and publishers to integrate data across marketing channels and data sources . the financial results of datorama are included in our consolidated financial statements from the date of acquisition . the total purchase price for datorama was approximately $ 766 million . fiscal year our fiscal year ends on january 31. references to fiscal 2019 , for example , refer to the fiscal year ending january 31 , 2019 . adoption of new accounting standards we have adjusted our consolidated financial statements from amounts previously reported due to the adoption of accounting standards update ( `` asu '' ) 2014-09 , `` revenue from contracts with customers ( `` topic 606 '' ) '' , which relates to revenue recognition and the capitalization of costs to acquire a revenue contract . the information presented reflects the adjusted amounts as compared to those previously reported . in addition , we have prospectively adopted accounting standards update no . 2016-01 , `` financial instrument-overall ( subtopic 825-10 ) '' ( `` asu 2016-01 '' ) and accounting standards update no . 2016-16 , `` income taxes ( topic 740 ) : intra-entity transfers of assets other than inventory '' ( `` asu 2016-16 '' ) . see note 1 , “ summary of business and significant accounting policies ” of the notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k , which is incorporated herein by reference . operating segments we operate as one operating segment . operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by our chief operating decision makers , marc benioff , who is the co-chief executive officer and the chairman of the board , and keith block , who is the co-chief executive officer , in deciding how to allocate resources and assess performance . over the past few years , we have completed a number of acquisitions , including the acquisitions of mulesoft and datorama in fiscal 2019. these acquisitions have allowed us to expand our offerings , presence and reach in various market segments of the enterprise cloud computing market . while we have offerings in multiple enterprise cloud computing market segments , including as a result of our acquisitions , our business operates in one operating segment because most of our offerings operate on a single customer success platform and are deployed in an identical way , and our chief operating decision makers evaluate our financial information and resources and assess the performance of these resources on a 36 consolidated basis . since we operate as one operating segment , all required financial segment information can be found in the consolidated financial statements . in august 2018 , we moved to a co-chief executive officer model with the promotion of our vice chairman and chief operating officer , keith block . we determined that both co-chief executive officers also serve as chief operating decision makers for the purposes of segment reporting . despite the change in the chief operating decision maker , we determined no change to segment reporting was necessary as there was no change in the components for which separate financial information is regularly evaluated . sources of revenues we derive our revenues from two sources : ( 1 ) subscription revenues , which are comprised of subscription fees from customers accessing our enterprise cloud computing services ( collectively , `` cloud services '' ) , software licenses , and from customers paying for additional support beyond the standard support that is included in the basic subscription fees ; and ( 2 ) related professional services such as process mapping , project management , implementation services and other revenue . “ other revenue ” consists primarily of training fees . subscription and support revenues accounted for approximately 93 percent of our total revenues for fiscal 2019 . subscription revenues are driven primarily by the number of paying subscribers , varying service types , and the price of our service and renewals . we define a “ customer ” as a separate and distinct buying entity ( e.g. story_separator_special_tag , a company , a distinct business unit of a large corporation , a partnership , etc . ) that has entered into a contract to access our enterprise cloud computing services . subscription and support revenues for cloud services are recognized ratably over the contract terms beginning on the commencement dates of each contract . subscription revenues for software licenses are generally recognized upfront when the software is made available to the customer . the typical subscription and support term is 12 to 36 months , although terms range from one to 60 months . our subscription and support contracts are non-cancelable , though customers typically have the right to terminate their contracts for cause if we materially fail to perform . we generally invoice our customers in advance , in annual installments , and typical payment terms provide that our customers pay us within 30 days of invoice . amounts that have been invoiced are recorded in accounts receivable and in unearned revenue , or in revenue depending on whether transfer of control to customers has occurred . in general , we collect our billings in advance of the subscription service period . professional services and other revenues consist of fees associated with consulting and implementation services and training . our consulting and implementation engagements are billed on a time and materials , fixed fee or subscription basis . we also offer a number of training classes on implementing , using and administering our service that are billed on a per person , per class basis . our typical professional services payment terms provide that our customers pay us within 30 days of invoice . in determining whether professional services can be accounted for separately from subscription and support revenues , we consider a number of factors , which are described in note 1 `` summary of business and significant accounting policies '' of the notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k , which is incorporated herein by reference . revenue by cloud service offering the information below is provided on a supplemental basis to give additional insight into the revenue performance of our individual core service offerings . all of the cloud offerings that we offer to customers are grouped into four major cloud service offerings . subscription and support revenues consisted of the following ( in millions ) : replace_table_token_5_th subscription and support revenues from the community cloud , quip and our industry offerings were not significant in fiscal 2019 . quip revenue is included with salesforce platform and other in the table above . our industry offerings and community cloud revenue are included in either sales cloud , service cloud or salesforce platform and other depending on the primary service offering purchased . revenue from our acquisition of mulesoft in may 2018 is included in salesforce platform and other . 37 as required under u.s. gaap , we recorded unearned revenue related to acquired contracts from mulesoft at fair value on the date of acquisition . as a result , we did not recognize certain revenues related to these acquired contracts that mulesoft would have otherwise recorded as an independent entity . of the $ 2.9 billion subscription and support revenue for salesforce platform and other for fiscal 2019 , approximately $ 360 million was attributed to mulesoft . in situations where a customer purchases multiple cloud offerings , such as through an enterprise license agreement , we allocate the contract value to each core service offering based on the customer 's estimated product demand plan , the service that was provided at the inception of the contract , and standalone selling price ( `` ssp '' ) of those products . we do not update these allocations based on actual product usage during the term of the contract . we have allocated approximately 17 percent , 15 percent , 13 percent of our total subscription and support revenues for fiscal 2019 , 2018 and 2017 , respectively , based on customers ' estimated product demand plans and these allocated amounts are included in the table above . additionally , some of our service offerings have similar features and functions . for example , customers may use the sales cloud , the service cloud or the salesforce platform to record account and contact information , which are similar features across these core service offerings . depending on a customer 's actual and projected business requirements , more than one core service offering may satisfy the customer 's current and future needs . we record revenue based on the individual products ordered by a customer , not according to the customer 's business requirements and usage . in addition , as we introduce new features and functions within each offering and refine our allocation methodology for changes in our business , we do not expect it to be practical to adjust historical revenue results by service offering for comparability . accordingly , comparisons of revenue performance by core service offering over time may not be meaningful . our sales cloud service offering is our most widely distributed service offering and has historically been the largest contributor of subscription and support revenues . as a result , sales cloud has the most international exposure and foreign exchange rate exposure relative to the other cloud service offerings . conversely , revenue for marketing and commerce cloud is primarily derived from the americas with little impact from foreign exchange rate movement . the revenue growth rates of each of our core service offerings fluctuate from quarter to quarter and over time . while we are a market leader in each core offering , we manage the total balanced product portfolio to deliver solutions to our customers . accordingly , the revenue result for each cloud service offering is not necessarily indicative of the results to be expected for any subsequent quarter . seasonal nature of unearned revenue , accounts receivable and operating cash flow unearned revenue primarily consists of billings to customers for our subscription service .
| consistent attrition rates play a role in our ability to maintain growth in our subscription and support revenues . changes in the net price per user per month have not been a significant driver of revenue growth for the periods presented . the increase in professional services and other revenues was due primarily to the higher demand for services from an increased number of customers . revenues by geography were as follows : replace_table_token_14_th revenues by geography are determined based on the region of the salesforce contracting entity , which may be different than the region of the customer . americas revenue attributed to the united states was approximately 96 percent during fiscal year 2019 and 2018 . revenues in europe and asia pacific accounted for $ 3.8 billion , or 29 percent of total revenues , for fiscal 2019 , compared to $ 2.9 billion , or 28 percent of total revenues , during the same period a year ago , an increase of $ 0.9 billion , or 31 percent . the increase in revenues outside of the americas was the result of the increasing acceptance of our services , our focus on marketing our services internationally and investment in additional international resources . revenues outside of the americas increased on a total dollar basis by $ 39 million in fiscal 2019 compared to fiscal 2018 due to foreign currency fluctuations primarily as a result of the strengthening british pound sterling . 44 cost of revenues . replace_table_token_15_th the increase in cost of revenues was primarily due to an increase of $ 156 million in employee-related costs , an increase of $ 31 million in stock-based expenses , an increase of $ 326 million in service delivery costs , primarily due to our efforts to increase data center capacity , an increase of amortization of purchased intangible assets of $ 49 million and an increase of $ 26 million in allocated overhead . we have increased our headcount by
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recent developments on february 3 , 2015 , we entered into a definitive agreement and plan of merger and reorganization with entropic communications , inc. , or entropic , under which we agreed to acquire all of the outstanding capital stock of entropic in a cash and stock transaction . if the merger is consummated , each outstanding share of entropic 's common stock will be converted into the right to receive $ 1.20 in cash and 0.2200 of a share of our class a common stock ; existing holders of our class a and class b common stock are expected to hold approximately 65 % of the outstanding capital stock of the combined company , and current holders of entropic 's common stock are expected to hold approximately 35 % of the outstanding capital stock of the combined company ( ignoring for this purpose the special voting rights that holders of our class b common stock will continue to hold after the merger ) . consummation of the merger is subject to separate approvals by our stockholders and the stockholders of entropic , regulatory approvals , and other customary closing conditions . for a more complete description of the terms and conditions of the merger , please refer to our current report on form 8-k filed with the securities and exchange commission on february 4 , 2015. a copy of the definitive merger agreement is filed as exhibit 2.1 to the form 8-k. headquartered in san diego , entropic is recognized for having pioneered the moca® ( multimedia over coax alliance ) home networking standard and inventing direct broadcast satellite ( “ dbs ” ) outdoor unit single-wire technology . entropic has a rich history of innovation and deep expertise in rf , analog/mixed signal and digital signal processing technologies . entropic 's silicon solutions have been broadly deployed across major cable , satellite , and fiber service providers . we believe our acquisition of entropic will add significant scale to our analog/mixed-signal business , expanding our addressable market and enhancing the strategic value of our offerings to our broadband and access partners , oem customers , and service providers . for a discussion of specific risks and uncertainties that could affect our ability to achieve these and other strategic objectives of the acquisition , please refer to part i , item 1a , “ risk factors ” under the subsection captioned “ risks relating to the proposed acquisition of entropic. ” critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations is based upon our financial statements which are prepared in accordance with accounting principles that are 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 and liabilities , related disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . we continually evaluate our estimates and judgments , the most critical of which are those related to revenue recognition , allowance for doubtful accounts , inventory valuation , income taxes and stock-based compensation . we base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances . materially different results can occur as circumstances change and additional information becomes known . we believe that the following accounting policies involve a greater degree of judgment and complexity than our other accounting policies . accordingly , these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations . revenue recognition revenue is generated from sales of our integrated circuits . we recognize revenue when all of the following criteria are met : 1 ) there is persuasive evidence that an arrangement exists , 2 ) delivery of goods has occurred , 3 ) the sales price is fixed or determinable and 4 ) collectibility is reasonably assured . title to product transfers to customers either when it is shipped to or received by the customer , based on the terms of the specific agreement with the customer . revenue is recorded based on the facts at the time of sale . transactions for which we can not reliably estimate the amount that will ultimately be collected at the time the product has shipped and title has transferred to the customer are deferred until the amount that is probable of collection can be determined . items that are considered when determining the amounts that will be ultimately collected are : a customer 's overall creditworthiness and payment history , customer rights to return unsold product , customer rights to price protection , customer payment terms conditioned on sale or use of product by the customer , or extended payment terms granted to a customer . a portion of our revenues are generated from sales made through distributors under agreements allowing for pricing credits and or stock rotation rights of return . revenues from sales through our distributors accounted for 28 % and 29 % of net 41 revenue in the years ended december 31 , 2014 , and december 31 , 2013 , respectively . pricing credits to our distributors may result from our price protection and unit rebate provisions , among other factors . these pricing credits and or stock rotation rights prevent us from being able to reliably estimate the final sales price of the inventory sold and the amount of inventory that could be returned pursuant to these agreements . as a result , for sales through distributors , we have determined that it does not meet all of the required revenue recognition criteria at the time we deliver our products to distributors as the final sales price is not fixed or determinable . story_separator_special_tag for these distributor transactions , revenue is not recognized until product is shipped to the end customer and the amount that will ultimately be collected is fixed or determinable . upon shipment of product to these distributors , title to the inventory transfers to the distributor and the distributor is invoiced , generally with 30 day terms . on shipments to our distributors where revenue is not recognized , we record a trade receivable for the selling price as there is a legally enforceable right to payment , relieving the inventory for the carrying value of goods shipped since legal title has passed to the distributor , and record the corresponding gross profit in our consolidated balance sheet as a component of deferred revenue and deferred profit , representing the difference between the receivable recorded and the cost of inventory shipped . future pricing credits and or stock rotation rights from our distributors may result in the realization of a different amount of profit included in our future consolidated statements of operations than the amount recorded as deferred profit in our consolidated balance sheets . we record reductions in revenue for estimated pricing adjustments related to price protection agreements with our end customers in the same period that the related revenue is recorded . price protection pricing adjustments are recorded at the time of sale as a reduction to revenue and an increase in our accrued liabilities . the amount of these reductions is based on specific criteria included in the agreements and other factors known at the time . we accrue 100 % of potential price protection adjustments at the time of sale and do not apply a breakage factor . we reverse the accrual for unclaimed price protection amounts as specific programs contractually end or when we believe unclaimed amounts are no longer subject to payment and will not be paid . see note 4 for a summary of our price protection activity . allowance for doubtful accounts we perform ongoing credit evaluations of our customers and adjust credit limits based on each customers ' credit worthiness , as determined by our review of current credit information . we monitor collections and payments from our customers and maintain an allowance for doubtful accounts based upon our historical experience , our anticipation of uncollectible accounts receivable and any specific customer collection issues that we have identified . while our credit losses have historically been insignificant , we may experience higher credit loss rates in the future than we have in the past . our receivables are concentrated in relatively few customers . therefore , a significant change in the liquidity or financial position of any one significant customer could make collection of our accounts receivable more difficult , require us to increase our allowance for doubtful accounts and negatively affect our working capital . inventory valuation we assess the recoverability of our inventory based on assumptions about demand and market conditions . forecasted demand is determined based on historical sales and expected future sales . inventory is stated at the lower of cost or market . cost approximates actual cost on a first-in , first-out basis and market reflects current replacement cost ( e.g . net replacement value ) which can not exceed net realizable value or fall below net realizable value less an allowance for an approximately normal profit margin . we reduce our inventory to its lower of cost or market on a part-by-part basis to account for its obsolescence or lack of marketability . reductions are calculated as the difference between the cost of inventory and its market value based upon assumptions about future demand and market conditions . once established , these adjustments are considered permanent and are not revised until the related inventory is sold or disposed of . if actual market conditions are less favorable than those projected by management , additional inventory write-downs may be required that may adversely affect our operating results . if actual market conditions are more favorable , we may have higher gross profits when products are sold . production masks production masks with alternative future uses or discernible future benefits are capitalized and amortized over their estimated useful life of two years . to determine if the production mask has alternative future uses or benefits , we evaluate risks associated with developing new technologies and capabilities , and the related risks associated with entering new markets . production masks that do not meet the criteria for capitalization are expensed as research and development costs . goodwill and intangible assets goodwill is recorded as the difference , if any , between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets . intangible assets represent purchased intangible assets including developed technology and in-process research and development , or ipr & d , and technologies acquired or licensed from other 42 companies . purchased intangible assets with definitive lives are capitalized and amortized over their estimated useful life . technologies acquired or licensed from other companies are capitalized and amortized over the greater of the terms of the agreement , or estimated useful life , not to exceed three years . we capitalize ipr & d projects acquired as part of a business combination . on completion of each project , ipr & d assets are reclassified to developed technology and amortized over their estimated useful lives . impairment of goodwill and long-lived assets goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the purchase method . goodwill is not amortized but is tested for impairment using a two-step method . step one is the identification of potential impairment . this involves comparing the fair value of each reporting unit , which we have determined to be the entity itself , with its carrying amount , including goodwill .
| interest expense consists primarily of imputed interest on i ) the purchase of licensed technology and ii ) property and equipment capital leases . other income ( expense ) . other income ( expense ) generally consists of income ( expense ) generated from non-operating transactions . provision ( benefit ) for income taxes . we make certain estimates and judgments in determining income tax expense for financial statement purposes . these estimates and judgments occur in the calculation of certain tax assets and liabilities , which arise from differences in the timing of recognition of revenue and expenses for tax and financial statement purposes and the realizability of assets in future years . benefit for income taxes for the year ended december 31 , 2014 primarily relates to a valuation allowance release resulting in a tax benefit of $ 2.3 million due to the purchase accounting adjustment for the net deferred tax liability acquired from physpeed and income tax in foreign jurisdictions . income tax expense for the year ended december 31 , 2013 and 2012 , primarily relates to income tax in foreign jurisdictions . income tax expense for the year ended december 31 , 2011 is primarily due to the establishment of a valuation allowance on the net federal deferred tax asset in the third quarter of 2011. the following table sets forth our consolidated statement of operations data as a percentage of net revenue for the 44 periods indicated . replace_table_token_5_th comparison of the years ended december 31 , 2014 , 2013 and 2012 net revenue replace_table_token_6_th the increase in net revenue for the year ended december 31 , 2014 , as compared to the year ended december 31 , 2013 , was primarily due to an increase in revenue from cable and terrestrial products of $ 4.9 million and $ 8.6 million , respectively . growth in terrestrial applications for the year ended december 31 , 2014 was primarily driven by growth in terrestrial set-top box applications and , to a lesser extent , growth in hybrid tv and satellite applications . cable product growth of
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our tsn network continues to grow and currently the total number of tsn company providers to date is one-hundred and three ( 103 ) expanding our network membership across 35 u.s. states and two ( 2 ) canadian provinces . our service providers , with approximately 160 steramist ® with bit technology units in the field , allows for rapid deployment for use in the control of a biological outbreak and border security nationally and internationally upon short notice . food safety food safety is one of our newest and potentially largest targeted markets , as we believe it presents an opportunity for substantial growth . this is in light of the implementation and enforcement of new and existing rules in the united states under the fda food safety modernization act and in canada under the safe food for canadians act and the safe food for canadians regulations , the latter two of which became effective in january 2019. this is in part due to the increased focus on concerns within the food safety industry in north america and abroad . our consultants have submitted to the regulatory bodies a request to expand our current labels from the treatment of food processing machinery , restaurants and food contact areas , to include direct food and crop applications using a 1 % acceptable concentration of hydrogen peroxide that is already approved for direct food use by the usda and epa . we intend to target the following segments , with an initial emphasis on the profitable organic market : ● growing crops ● seeds ● packaging facilities ● food storage ( produce , meats , fish ) ● food transportation vehicles ● food processing plants ● grocery stores ● cannabis labs , grow-houses , extraction facilities and retail shops in each area , our main objective is to prevent and or minimize food decay without utilizing harsh chemicals that leave toxic residues . this could create an opportunity to supplement , or replace , current pesticides and fungicides currently being used by these industry leaders . 20 business highlights and recent events customers : globally , we have added fifty-four ( 54 ) new customers across all our divisions for the year ended december 31 , 2019. this represents a thirteen ( 13 % ) percent increase over the calendar year 2018. our hospital-healthcare division added sixteen ( 16 ) new facilities for the year ended december 31 , 2019 which represents 167 % increase compared to the prior year . our life sciences customer base showed continued growth with the addition of twenty-six ( 26 ) new customers for the year ended december 31 , 2019. this represents a 13 % increase compared to the prior year . our food safety division added three ( 3 ) new food safety customers for the year ended december 31 , 2019 , an increase of 100 % compared to the prior year . revenues : for the year ended december 31 , 2019 , we had record annual revenue since our inception . our total revenues for the years ended december 31 , 2019 and 2018 was approximately $ 6,347,000 and $ 5,585,000 , respectively , representing an increase of $ 762,000 , or 14 % compared to the prior year . steramist product-based revenues for the years ended december 31 , 2019 and 2018 , were approximately $ 4,999,000 and $ 4,652,000 , representing an increase of $ 347,000 or 7 % when compared to the prior year . the growth is attributable to an increase in our mobile equipment orders and higher solution sales in 2019. our service-based revenue achieved a record level representing another milestone for the year ended december 31 , 2019. our service-based revenue for the years ended december 31 , 2019 and 2018 were $ 1,348,000 and $ 933,000 , respectively , representing an increase of $ 415,000 or 44 % when compared to the prior year . the increase in our service-based revenue was due to increased service engagements for the year ended december 31 , 2019 when compared to the prior year . in 2019 , our domestic revenue for the years ended december 31 , 2019 and 2018 was $ 5,002,000 and $ 4,197,000 , respectively , an increase of $ 805,000 , or 19 % when compared to the prior year . the increase was due to increased demand for our equipment , solution and services . our hospital-healthcare revenues grew by 120 % for the year ended december 31 , 2019 when compared to the prior year . the growth was attributable to the increase in the number of facilities added during the year . we anticipate continued growth moving into 2020. our life sciences revenue experienced continued growth 4 % for the year ended december 31 , 2019 when compared to the prior year . the 4 % growth reflects a non-recurring custom built-in unit of approximately $ 600,000 in the third quarter of 2018. year over year , we experienced increased solution and mobile equipment orders . significant contracts : in january 2019 , tomi and arkema inc. a global leader in the hydrogen peroxide industry entered into an exclusive global co-marketing and supply agreement . the agreement provides that the parties will develop the market for tomi 's technology using our steramist brand of products for food safety applications , improving the speed and effectiveness of disinfection solutions to the industry . in april 2019 , we entered into an exclusive distribution agreement with an israeli company , cleancor technologies ltd. ( “ cleancor ” ) , an advanced solution company for the industrial cleaning and repair of water and fire damages . cleancor has already diversified and started a subsidiary named clean-bit environmental solutions and has begun implementing marketing strategies resulting in a robust pipeline in the health care , food industry , defense , and medical cannabis verticals . in may 2019 , we received a order for mobile equipment of over $ 400,000 for the kansas department of health in the united states . story_separator_special_tag in july 2019 , we announced the implementation of steramist® ihp plasma decontamination chamber at the university of houston and a partnership with lynx product group . in december 2019 , we shipped our seventh ( 7th ) steramist ® custom engineered system . this is the second permanent room system for installation into our united kingdom based customer 's facility . 21 service projects : in september 2019 , we were engaged by los angeles county – usc ( lac + usc ) medical center to remediate aspergillus mold that had appeared within a critical sterilization area of the facility . in august 2019 , we were awarded a service project with a niche pharmaceutical company that develops , manufactures and markets generic and branded prescription pharmaceuticals as well as animal and consumer health products with a focus on injectables . the ihp service team treated the 170,000 cubic foot space , including classified and non-classified areas . we were engaged again in the fourth quarter by the same niche pharmaceutical company to perform a similar treatment . events : we exhibited at the annual conference of the association of professionals in infection control ( apic ) with our new booth creating the largest presence we have had at a tradeshow . the steramist ® hospital cart was on display as well as multiple educational presentations to infection preventionists . the show provided many valuable leads and our new exhibit received considerable praise . this presence added two new hospital clients in the third quarter and four in the fourth quarter . we exhibited at our first veterinary conference , bringing on our first animal hospital customer in the third quarter , demonstrating the versatility and ever-expanding verticals steramist ® disinfection technology may be implemented in . we exhibited at the 70th annual american association for laboratory animal science ( aalas ) national meeting in denver colorado . to increase our presence in the food safety industry , we exhibited at the fruit attraction 2019 , an international trade show that focuses on the fruit and vegetable industry . in november 2019 , we exhibited at international sanitary supply association ( issa ) north america expo in las vegas nevada . subsequent events : sars cov-2 coronavirus . on march 11 , 2020 the world health organization declared the sars cov-2 coronavirus a global pandemic and recommended containment and mitigation measures worldwide . we have been identified as a disinfectant and decontamination vendor by various agencies and countries . the outbreak has increased the demand for tomi products and services . we have been working relentlessly with organizations to address the concerns and provide solutions for disinfecting and decontamination of the sars cov-2 coronavirus . the financial statements included in this annual report do not reflect any of the company 's sars cov-2 coronavirus related sales and services revenue that occurred since the pandemic outbreak in 2020 and which will be reported in the ensuing quarterly report . following are the significant events during the first quarter 2020 : ● january 29 , 2020 – tomi steramist ® prepared to deploy to fight sars cov-2 coronavirus . ● february 4 , 2020 - tomi receives china cdc registration making steramist ® the disinfection industry standard in china ● february 27 , 2020 - steramist ® takes the fight to the sars cov-2 coronavirus . worldwide - china , hong kong , thailand , singapore , israel and the united kingdom ● march 2 , 2020 - steramist ® declared official decontamination technology of seoul city metropolitan transit systems ● march 10 , 2020 - steramist ® is mobilized to aid in the control sars-cov-2 coronavirus in daegu-kyungbuk province , south korea ● march 11 , 2020 - steramist ® is prepared to fight sars-cov-2 coronavirus in thailand ● march 16 , 2020 - steramist ® deployed to fight sars-cov-2 coronavirus in united states ● march 18 , 2020 – steramist ® has qualified to meet the epa emerging viral pathogen guidance for antimicrobial pesticides with the steramist ® environment system for room fogging/misting against sars-cov-2 coronavirus , the novel coronavirus that causes covid-19 . 22 during the first quarter of 2020 , we have experienced the following : ● sold substantially all of our inventory , with a backlog and demand for 91 additional units , ● new equipment orders require a 50 % deposit , ● increased demand on solution re-orders as disinfecting and decontamination procedures have increased exponentially across the world , ● service revenue exploded as the outbreak spread and demand for disinfecting and decontamination services increased , ● exclusivity in tsn was revoked as demand surged and new providers requested equipment , solution and training to provide disinfecting and decontamination services , ● new channels were opened as decontamination and disinfecting processes are updated and implemented , including but not limited to , fire departments , morgues , faa , police departments , county and state health departments , cruise ships , infectious disease research facilities , military and ambulances , ● c onvertible notes with a principal balance of $ 4,500,000 were converted into 8,333,333 shares of our common stock at a conversion price of $ 0.54 per share , the remaining outstanding balance of $ 500,000 was repaid . ● staffing – increased demand has severely taxed our existing team and resources to meet the current demands resulting in hiring and onboarding additional employees . certifications : during 2019 , we added compounding pharmacy customers , which are fda 503b outsourcing facilities that meets all rigorous national standards with quality sterile products . the fda created this new designation of compounding pharmacy to establish a new level of patient care and safety , and these facilities must comply with strict cgmp ( current good manufacturing practices ) guidelines , which is the same standards that pharmaceutical manufacturers follow . we have continued to add new pharmacy customers in the third quarter of 2019. with the addition of the two new pharmacy customers in the third quarter of 2019 we now have four compounding pharmacy customers .
| the primary reasons for the decreased net loss can be attributed to the changes in the items when comparing 2019 to 2018 : ● higher revenue and gross profit of approximately $ 763,000 and $ 796,000 , respectively ; ● lower operating expenses of approximately $ 191,000 , offset by ● higher other expense of approximately $ 54,000 liquidity and capital resources as of december 31 , 2019 , we had cash and cash equivalents of approximately $ 897,000. our working capital before consideration of the convertible notes payable of $ 5,000,000 was $ 3,734,000. working capital after consideration of the convertible notes payable was ( $ 1,266,000 ) . our principal capital requirements are to fund operations , invest in research and development and capital equipment , and the continued costs of public company filing requirements . we have historically funded our operations through debt and equity financings . in march and may 2017 , we raised gross proceeds of $ 6,000,000 through a private placement of the notes . we issued the notes in two tranches of $ 5,300,000 and $ 700,000 , respectively , which originally were scheduled to mature on august 31 , 2018 and november 8 , 2018 , respectively , unless earlier redeemed , repurchased or converted . in 2018 , a portion of the notes aggregating $ 1,000,000 principal were either converted to equity or paid . on march 30 , 2019 , the remaining holders of the notes agreed to extend the maturity dates of their notes with an aggregate principal amount of $ 5,000,000 to april 3 , 2020. as of march 30 , 2020 , convertible notes with a principal balance of $ 4,500,000 were converted into 8,333,333 shares of our common stock at a conversion price of $ 0.54 per share and the remaining outstanding balance of $ 500,000 was repaid . the conversion and repayment of the notes mitigates any going concern uncertainties . for the years ended december 31 , 2019 and 2018 , we incurred losses from operations of approximately $ 2,083,000 and $ 3,070,000 , respectively . the cash used in operations was approximately $ 814,000
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summary of critical accounting policies the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the united states ( gaap ) requires the company to make estimates and judgments that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates , including those related to revenue recognition and the allowance for doubtful accounts receivable , real estate investments and purchase accounting allocations related thereto , asset impairment , and derivatives used to hedge interest-rate risks . management 's estimates are based both on information that is currently available and on various other assumptions management believes to be reasonable under the circumstances . actual results could differ from those estimates and those estimates could be different under varying assumptions or conditions . the company has identified the following critical accounting policies , the application of which requires significant judgments and estimates : revenue recognition rental income with scheduled rent increases is recognized using the straight-line method over the respective terms of the leases . the aggregate excess of rental revenue recognized on a straight-line basis over base rents under applicable lease provisions is included in straight-line rents receivable on the consolidated balance sheet . leases also generally contain provisions under which the tenants reimburse the company for a portion of property operating expenses and real estate taxes incurred ; such income is recognized in the periods earned . in addition , certain operating leases contain contingent rent provisions under which tenants are required to pay a percentage of their sales in excess of a specified amount as additional rent . the company defers recognition of contingent rental income until those specified targets are met . the company must make estimates as to the collectability of its accounts receivable related to base rent , straight-line rent , expense reimbursements and other revenues . management analyzes accounts receivable by considering tenant creditworthiness , current economic conditions , and changes in tenants ' payment patterns when evaluating the adequacy of the allowance for doubtful accounts receivable . these estimates have a direct impact on net income , because a higher bad debt allowance would result in lower net income , whereas a lower bad debt allowance would result in higher net income . 30 real estate investments real estate investments are carried at cost less accumulated depreciation . the provision for depreciation is calculated using the straight-line method based on estimated useful lives . expenditures for maintenance , repairs and betterments that do not materially prolong the normal useful life of an asset are charged to operations as incurred . expenditures for betterments that substantially extend the useful lives of real estate assets are capitalized . real estate investments include costs of development and redevelopment activities , and construction in progress . capitalized costs , including interest and other carrying costs during the construction and or renovation periods , are included in the cost of the related asset and charged to operations through depreciation over the asset 's estimated useful life . the company is required to make subjective estimates as to the useful lives of its real estate assets for purposes of determining the amount of depreciation to reflect on an annual basis . these assessments have a direct impact on net income . a shorter estimate of the useful life of an asset would have the effect of increasing depreciation expense and lowering net income , whereas a longer estimate of the useful life of an asset would have the effect of reducing depreciation expense and increasing net income . a variety of costs are incurred in the acquisition , development and leasing of a property , such as 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 . after a determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . the company ceases capitalization on the portions substantially completed and occupied , or held available for occupancy , and capitalizes only those costs associated with the portions under construction . the company considers a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements , but not later than one year from cessation of major development activity . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . the effect of a longer capitalization period would be to increase capitalized costs and would result in higher net income , whereas the effect of a shorter capitalization period would be to reduce capitalized costs and would result in lower net income . the company allocates the fair value of real estate acquired to land , buildings and improvements . in addition , the fair value of in-place leases is allocated to intangible lease assets and liabilities . the fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant , which value is then allocated to land , buildings and improvements based on management 's determination of the relative fair values of such assets . in valuing an acquired property 's intangibles , factors considered by management include an estimate of carrying costs during the expected lease-up periods , such as real estate taxes , insurance , other operating expenses , and estimates of lost rental revenue during the expected lease-up periods based on its evaluation of current market demand . management also estimates costs to execute similar leases , including leasing commissions , tenant improvements , legal and other related costs . story_separator_special_tag 31 the values of acquired above-market and below-market leases are recorded based on the present values ( using discount rates which reflect the risks associated with the leases acquired ) of the differences between the contractual amounts to be received and management 's estimate of market lease rates , measured over the terms of the respective leases that management deemed appropriate at the time of the acquisitions . such valuations include a consideration of the non-cancellable terms of the respective leases as well as any applicable renewal period ( s ) . the fair values associated with below-market rental renewal options are determined based on the company 's experience and the relevant facts and circumstances that existed at the time of the acquisitions . the values of above-market leases are amortized to rental income over the terms of the respective non-cancelable lease periods . the portion of the values of below-market leases associated with the original non-cancelable lease terms are amortized to rental income over the terms of the respective non-cancelable lease periods . the portion of the values of the leases associated with below-market renewal options that are likely of exercise are amortized to rental income over the respective renewal periods . the value of other intangible assets ( including leasing commissions , tenant improvements , etc . ) is amortized to expense over the applicable terms of the respective leases . if a lease were to be terminated prior to its stated expiration or not renewed , all unamortized amounts relating to that lease would be recognized in operations at that time . management is required to make subjective assessments in connection with its valuation of real estate acquisitions . these assessments have a direct impact on net income , because ( 1 ) above-market and below-market lease intangibles are amortized to rental income , and ( 2 ) the value of other intangibles is amortized to expense . accordingly , higher allocations to below-market lease liability and other intangibles would result in higher rental income and amortization expense , whereas lower allocations to below-market lease liability and other intangibles would result in lower rental income and amortization expense . management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable . the review of recoverability is based on an estimate of the future cash flows that are expected to result from the real estate investment 's use and eventual disposition . these estimates of cash flows consider factors such as expected future operating income , trends and prospects , as well as the effects of leasing demand , competition and other factors . if an impairment event exists due to the projected inability to recover the carrying value of a real estate investment , an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value . a real estate investment held for sale is carried at the lower of its carrying amount or estimated fair value , less the cost of a potential sale . depreciation and amortization are suspended during the period the property is held for sale . management is required to make subjective assessments as to whether there are impairments in the value of its real estate properties . these assessments have a direct impact on net income , because an impairment loss is recognized in the period that the assessment is made . new accounting pronouncements see note 2 of notes to consolidated financial statements included in item 8 below for information relating to new accounting pronouncements . 32 story_separator_special_tag severance payments ( including the cost of related payroll taxes and benefits ) , ( 2 ) the write off of all amounts related to the vesting of restricted share-based compensation grants ( an aggregate of approximately $ 2.0 million ) , and ( 3 ) approximately $ 1.2 million of other non-recurring costs , primarily professional fees and expenses related to the hiring of a new president/chief executive officer and chief financial officer . impairment charges , net in 2012 relate to ( 1 ) the write-off of the a loan receivable ( $ 4.4 million ) , and ( 2 ) certain land parcels treated as held for sale/conveyance ( $ 1.3 million ) . impairment charges in 2011 relate to certain land parcels treated as held for sale/conveyance . acquisition transaction costs and terminated projects in 2012 include costs incurred related to property acquisitions . acquisition transaction costs and terminated projects in 2011 include ( 1 ) costs incurred related to a property acquisition , and ( 2 ) the termination of several redevelopment projects that the company determined would not go forward . depreciation and amortization expenses were higher primarily as a result of ( 1 ) the acquisition of a property in october 2012 ( $ 0.7 million ) , ( 2 ) improvements being placed in service at ground-up development and redevelopment properties ( $ 0.7 million ) , and ( 3 ) the write-off of tenant improvements for a tenant who vacated during 2012 ( $ 0.3 million ) , offset by the completion of scheduled depreciation and amortization . ( $ 0.2 million ) . interest expense decreased primarily as a result of ( 1 ) lower amortization of deferred financing costs related to the new credit facility entered into during the first quarter of 2012 ( $ 2.0 million ) , ( 2 ) a decrease in the overall outstanding principal balance of debt ( $ 1.4 million ) , and ( 3 ) a decrease in the overall weighted average interest rate ( $ 0.7 million ) , offset by a decrease in capitalized interest ( $ 1.3 million ) . early extinguishment of debt costs in 2012 relates to the write-off of unamortized fees associated with the company 's terminated stabilized property and development property credit facilities .
| impairment ( reversals ) /charges , net in 2013 relate to the partial cash recovery on a loan receivable previously written off , as more fully discussed elsewhere in this report ( $ 1.1 million ) . impairment ( reversals ) /charges , net in 2012 relate to ( 1 ) the write-off of the aforementioned loan receivable ( $ 4.4 million ) , and ( 2 ) certain land parcels treated as held for sale/conveyance ( $ 1.3 million ) . acquisition transaction costs and terminated projects in 2013 and 2012 include costs incurred related to property acquisitions . depreciation and amortization expenses were higher primarily as a result of ( 1 ) the acquisition of properties in 2013 and 2012 ( $ 2.3 million ) , ( 2 ) the redevelopment and lease up of vacant spaces which required the demolition of certain existing buildings resulting in accelerated depreciation expense ( 2013 $ 6.7 million and 2012 $ 6.2 million ) , offset by the completion of scheduled depreciation and amortization . ( $ 1.8 million ) . interest expense decreased primarily as a result of a decrease in ( 1 ) the overall weighted average interest rate ( $ 4.0 million ) , and ( 2 ) amortization expense of deferred financing costs ( $ 0.3 million ) , offset by a decrease in capitalized interest ( $ 0.4 million ) . early extinguishment of debt costs in 2013 relate to the write-off of unamortized fees associated with prepaid mortgage loans payable . early extinguishment of debt costs in 2012 relates to the write-off of unamortized fees associated with the company 's terminated stabilized property and development property credit facilities . equity in income of unconsolidated joint venture in 2012 relates to the cedar/riocan joint venture , which the company exited in october 2012. gain on exit from unconsolidated joint venture in 2012 relates to the exit from the cedar/riocan joint venture , as more fully discussed elsewhere in this report . gain on sales in 2013 and 2012 relate principally to sales of land parcels treated as held for sale/conveyance as part of the company 's 2011 business plan , as more fully discussed elsewhere in this report . discontinued operations for 2013 and 2012 include the results of operations , net impairment charges , gain on
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the decrease in revenue in latin america was a result of the weakening of all currencies in the region and negative performance in chile and brazil , which offset strong growth in mexico . in brazil , the decline resulted from a difficult comparison to the prior year period , which included additional client spending related to the world cup primarily in the second quarter of 2014 and a recent decline in economic conditions . in asia pacific , strong growth in the major economies in the region was offset by the weakening of the currencies in the region . the change in revenue in 2015 compared to 2014 , including the negative impact of currency changes , in our four fundamental disciplines was : advertising increased 1.8 % , crm decreased 5.6 % , public relations decreased 2.3 % and specialty communications increased 0.8 % . we measure operating expenses in two distinct cost categories : salary and service costs and office and general expenses . salary and service costs consist of employee compensation , including freelance labor , and related costs and direct service costs . office and general expenses consist of rent and occupancy costs , technology costs , depreciation and amortization and other overhead expenses . each of our agencies requires professionals with the skill sets that are common across our disciplines . at the core of the skill sets is the ability to understand a client 's brand or product and its selling proposition and the ability to develop a unique message to communicate the value of the brand or product to the client 's target audience . the facility requirements of our agencies are similar across geographic regions and disciplines , and their technology requirements are generally limited to personal computers , servers and off-the-shelf software . similar to revenue , operating expenses decreased in 2015 compared to 2014 as a result of the weakening of substantially all foreign currencies against the u.s. dollar . salary and service costs , which normally tend to fluctuate with changes in revenue , increased $ 11.9 million , or 0.1 % , in 2015 compared to 2014 , primarily reflecting increases related to changes in the mix of our business during the period . office and general expenses , which are less directly linked to changes in revenue than salary and service costs , decreased $ 171.3 million , or 8.5 % , in 2015 compared to 2014 . operating margins and earnings before interest , taxes and amortization of intangible assets , or ebita , margins were unchanged year-over-year at 12.7 % and 13.4 % , respectively . net interest expense for 2015 increased $ 7.4 million to $ 141.5 million from $ 134.1 million in 2014 . interest expense increased $ 3.9 million to $ 181.1 million in 2015 , primarily resulting from the interest expense on the $ 750 million principal amount of the 3.65 % senior notes due 2024 , or 2024 notes , issued in october 2014 , partially offset by the benefit of the interest rate swaps on the 3.625 % senior notes due 2022 , or 2022 notes , and the 4.45 % senior notes due 2020 , or 2020 notes . interest income decreased $ 3.5 million to $ 39.6 million in 2015 resulting from lower interest earned on cash balances in our international treasury centers and the negative impact of changes in foreign exchange rates . our effective tax rate was unchanged at 32.8 % . income tax expense for 2014 reflects the recognition of an income tax benefit of approximately $ 11 million , related to expenses incurred in prior periods in connection with the proposed merger with publicis , which was terminated on may 8 , 2014. prior to the termination of the merger , the majority of the merger costs , which were incurred in 2013 , were capitalized for income tax purposes and the related tax benefits were not recorded . because the proposed merger was terminated , the merger costs were no longer required to be capitalized for income tax purposes . excluding the income tax effect of the merger expenses , income tax expense for 2014 would have been $ 604.5 million .the decrease in the effective tax rate in 2015 from the effective tax rate in 2014 , excluding the income tax benefit related to the proposed merger , is primarily due to a legal entity restructuring of our european operations . as a result of the reorganization , a certain portion of the foreign earnings in the affected countries is subject to lower effective tax rates . 10 net income - omnicom group inc. for 2015 decreased $ 10.1 million , or 0.9 % , to $ 1,093.9 million from $ 1,104.0 million in 2014 . the year-over-year decrease is due to the factors described above . diluted net income per common share - omnicom group inc. increased 4.0 % to $ 4.41 in 2015 , compared to $ 4.24 in 2014 due to the factors described above , as well as the impact of the reduction in our weighted average common shares outstanding resulting from repurchases of our common stock , net of shares issued for stock option exercises and shares issued under our employee stock purchase plan . critical accounting policies the following summary of our critical accounting policies provides a better understanding of our financial statements and the related discussion in this md & a . we believe that the following policies may involve a higher degree of judgment and complexity in their application than most of our accounting policies and represent the critical accounting policies used in the preparation of our financial statements . readers are encouraged to consider this summary together with our financial statements and the related notes , including note 2 , significant accounting policies , for a more complete understanding of the critical accounting policies discussed below . story_separator_special_tag estimates our financial statements are prepared in conformity with u.s. gaap and require us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses in the consolidated financial statements and accompanying notes . we use a fair value approach in testing goodwill for impairment and when evaluating our equity method and cost method investments to determine if an other-than-temporary impairment has occurred . actual results could differ from those estimates and assumptions . acquisitions and goodwill we have made and expect to continue to make selective acquisitions . the valuation of potential acquisitions is based on various factors , including specialized know-how , reputation , geographic coverage , competitive position and service offerings of the target businesses , as well as our experience and judgment . business combinations are accounted for using the acquisition method . the assets acquired , including identified intangible assets , liabilities assumed and any noncontrolling interest in the acquired business are recorded at their acquisition date fair values . in circumstances where control is obtained and less than 100 % of a business is acquired , goodwill is recorded as if 100 % were acquired . acquisition-related costs , including advisory , legal , accounting , valuation and other costs are expensed as incurred . certain acquisitions include an initial payment at closing and provide for future additional contingent purchase price payments ( earn-outs ) , which are recorded as a liability at the acquisition date fair value . subsequent changes in the fair value of the liability are recorded in results of operations . the results of operations of acquired businesses are included in results of operations from the acquisition date . in 2015 , we completed 8 acquisitions of new subsidiaries . our acquisition strategy is focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of our various strategic business platforms and agency brands through the expansion of their geographic reach or their service capabilities to better serve our clients . additional key factors we consider include the competitive position and specialized know-how of the acquisition targets . accordingly , as is typical in most service businesses , a substantial portion of the intangible asset value we acquire is the know-how of the people , which is treated as part of goodwill and is not valued separately . for each acquisition , we undertake a detailed review to identify other intangible assets and a valuation is performed for all such identified assets . a significant portion of the identifiable intangible assets acquired is derived from customer relationships , including the related customer contracts , as well as trade names . in valuing these identified intangible assets , we typically use an income approach and consider comparable market participant measurements . 11 we evaluate goodwill for impairment at least annually at the end of the second quarter of the year and whenever events or circumstances indicate the carrying value may not be recoverable . we identified our regional reporting units as components of our operating segments , which are our five agency networks . the regional reporting units of each agency network are responsible for the agencies in their region . they report to the segment managers and facilitate the administrative and logistical requirements of our client-centric strategy for delivering services to clients in their regions . we have concluded that for each of our operating segments , their regional reporting units have similar economic characteristics and should be aggregated for purposes of testing goodwill for impairment at the operating segment level . our conclusion was based on a detailed analysis of the aggregation criteria set forth in fasb asc topic 280 , segment reporting , and the guidance set forth in fasb asc topic 350 , intangibles - goodwill and other . consistent with our fundamental business strategy , the agencies within our regional reporting units serve similar clients in similar industries , and in many cases the same clients . in addition , the agencies within our regional reporting units have similar economic characteristics . the main economic components of each agency are employee compensation and related costs and direct service costs and office and general costs , which include rent and occupancy costs , technology costs that are generally limited to personal computers , servers and off-the-shelf software and other overhead expenses . finally , the expected benefits of our acquisitions are typically shared by multiple agencies in various regions as they work together to integrate the acquired agency into our client service strategy . goodwill impairment review - estimates and assumptions we use the following valuation methodologies to determine the fair value of our reporting units : ( 1 ) the income approach , which utilizes discounted expected future cash flows , ( 2 ) comparative market participant multiples for ebitda ( earnings before interest , taxes , depreciation and amortization ) and ( 3 ) when available , consideration of recent and similar acquisition transactions . in applying the income approach , we use estimates to derive the discounted expected cash flows ( “ dcf ” ) for each reporting unit that serves as the basis of our valuation . these estimates and assumptions include revenue growth and operating margin , ebitda , tax rates , capital expenditures , weighted average cost of capital and related discount rates and expected long-term cash flow growth rates . all of these estimates and assumptions are affected by conditions specific to our businesses , economic conditions related to the industry we operate in , as well as conditions in the global economy . the assumptions that have the most significant effect on our valuations derived using a dcf methodology are : ( 1 ) the expected long-term growth rate of our reporting units ' cash flows and ( 2 ) the weighted average cost of capital ( “ wacc ” ) .
| million , or 5.0 % , to $ 15,317.8 million from $ 14,584.5 million in 2013 . changes in foreign exchange rates reduced revenue $ 112.6 million , acquisitions net of dispositions increased revenue by $ 19.0 million and organic growth increased revenue $ 826.9 million . 19 the components of 2014 revenue change in the united states ( “ domestic ” ) and the remainder of the world ( “ international ” ) were ( in millions ) : replace_table_token_12_th the components and percentages are calculated as follows : the foreign exchange impact is calculated by translating the current period 's local currency revenue using the prior period average exchange rates to derive current period constant currency revenue ( in this case $ 15,430.4 million for the total column ) . the foreign exchange impact is the difference between the current period revenue in u.s. dollars and the current period constant currency revenue ( $ 15,317.8 million less $ 15,430.4 million for the total column ) . acquisitions , net of dispositions is calculated by aggregating the prior period revenue of the acquired businesses , less the prior period revenue of any business that was disposed of in the current period . organic growth is calculated by subtracting both the foreign exchange and acquisition components from total revenue growth . the percentage change is calculated by dividing the individual component amount by the prior period revenue base of that component ( $ 14,584.5 million for the total column ) . for the year ended december 31 , 2014 , changes in foreign exchange rates reduced revenue by 0.8 % , or $ 112.6 million , compared to 2013 . the most significant impacts resulted from the weakening of several currencies , including the australian dollar , brazilian real , canadian dollar , japanese yen , russian ruble and south african rand , against the u.s. dollar . this was partially offset by the strengthening of the british pound against the
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our customers reside in over 190 countries and over 60 % of new customers came from outside the u.s. customers continued to take advantage of our low margin lending rates , which are tied to benchmark rates , such as the federal funds rate in the u.s. in 2014 , our customers paid 0.5 % to 1.6 % for their margin loans with us . this drove growth of our margin balances to a record high of $ 16.9 billion , an increase of 25 % over the prior year . brokerage net interest income grew 39 % in 2014. market making segment results declined in 2014 due to the continuation of a difficult operating environment for market makers with strong competition from high frequency traders ( hft 's ) and historically low volatility levels , which depressed our trading gains . the following is a summary of the key profit drivers that affect our business and how they compared to the prior year : global trading volumes . according to data received from exchanges worldwide , volumes in exchange-listed equity-based options increased by approximately 3 % globally and 4 % in the u.s. for the year ended december 31 , 2014 , as compared to 2013. during 2014 ( 2013 ) we accounted for approximately 8.5 % ( 9.1 % ) of the exchange-listed equity-based options ( including options on etfs and stock index products ) volume traded worldwide and approximately 11.2 % ( 11.8 % ) of exchange-listed equity-based options volume traded in the u.s. it is important to note that this metric is not directly correlated with our profits . a discussion of our approach for managing foreign currency exposure is contained in part ii , item 7a of this annual report on form 10-k entitled `` quantitative and qualitative disclosures about market risk . '' 46 see the tables on pages 60-61 of this annual report on form 10-k for additional details regarding our trade volumes , contract and share volumes and brokerage statistics . volatility . our market making profits are generally correlated with market volatility since we typically maintain an overall long volatility position , which protects us against a severe market dislocation in either direction . based on the chicago board options exchange volatility index ( `` vix® '' ) , the average volatility remained at historically low levels , averaging 14.2 in 2014 , unchanged from the average in 2013. the ratio of actual to implied volatility is also meaningful to our results . because the cost of hedging our positions is based on implied volatility , while our trading profits are , in part , based on actual market volatility , a higher ratio is generally favorable and a lower ratio generally has a negative effect on our trading gains . this ratio averaged approximately 79 % during 2014 , slightly higher than the average of 77 % in 2013. currency fluctuations . as a global electronic broker and market maker trading on exchanges around the world in multiple currencies , we are exposed to foreign currency risk . we actively manage this exposure by keeping our net worth in proportion to a defined basket of 16 currencies we call the `` global '' in order to diversify our risk and to align our hedging strategy with the currencies that we use in our business . because we report our financial results in u.s. dollars , the change in the value of the global to the u.s. dollar affects our earnings . the value of the global , as measured in u.s. dollars , at december 31 , 2014 declined 6 % compared to its value at december 31 , 2013. this had a negative impact on our comprehensive earnings in 2014. presentation of foreign currency effects in this reporting period , we have taken several steps to improve the transparency of our currency diversification strategy . 1. we transferred nearly all of the currency spot positions held as part of our global basket of currencies from the primary market making company to the parent holding company , ibg llc . 2. we reclassified all currency translation gains and losses related to the global as other income instead of trading gains . 3. we elected to report gains and losses from currency hedging in the corporate segment instead of the market making segment . these actions place the income statement effects of our currency diversification in the corporate segment , thereby providing a clearer picture of the core operating results in the market making segment . for comparative purposes , certain reclassifications have been made to previously reported amounts to conform with the current presentation . these changes had no effect on total consolidated net revenues or on net income . financial overview diluted earnings per share were $ 0.77 for the year ended december 31 , 2014. the calculation of diluted earnings per share is detailed in note 4 to the audited consolidated financial statements , in part ii , item 8 of this annual report on form 10-k. diluted earnings per share were $ 0.73 for the year ended december 31 , 2013 . 47 on a comprehensive basis , which includes the effect of changes in the u.s. dollar value of the company 's non-u.s. subsidiaries , diluted earnings per share were $ 0.51 for the year ended december 31 , 2014 , compared to diluted earnings per share of $ 0.67 for the same period in 2013. for the year ended december 31 , 2014 , our net revenues were $ 1,043.3 million and income before income taxes was $ 506.1 million , compared to net revenues of $ 1,076.2 million and income before income taxes of $ 451.3 million for 2013. compared to 2013 , trading gains decreased 21 % in 2014 , commissions and execution fees increased 9 % and net interest income increased 37 % . story_separator_special_tag our pretax margin for the year ended december 31 , 2014 was 49 % , compared to 42 % for 2013. our net revenues were negatively impacted by currency translation effects from the strengthening of the u.s. dollar against other currencies . currency translation effects are largely a result of our currency diversification strategy . we have determined to base our net worth in globals , a self-defined basket of currencies in which we maintain our equity . as a result , approximately 59 % of our equity is denominated in currencies other than u.s. dollar . the effects of our currency diversification strategy appear in two places in the financial statements : ( 1 ) as a component of other income in the consolidated statement of comprehensive income and ( 2 ) as other comprehensive income ( `` oci '' ) in the consolidated statement of financial condition and the consolidated statement of comprehensive income . the full effect of the global is captured in comprehensive income . for the year ended december 31 , 2014 the value of the global as measured in u.s. dollars decreased approximately 6 % as compared to the same period last year . during the year ended december 31 , 2014 , income before income taxes in our electronic brokerage segment increased by 49 % compared to 2013. commissions and execution fees increased by 9 % on higher customer trade volumes and net interest income grew by 39 % from the prior year , driven by higher customer balances and higher customer borrowings . pretax margin increased to 62 % from 48 % in the same time periods . customer accounts grew 18 % from the prior year and customer equity increased 24 % during 2014. total daily average revenue trades ( `` darts '' ) for cleared and execution-only customers increased 16 % to 566 thousand during the year ended december 31 , 2014 , compared to 486 thousand during the year ended december 31 , 2013. in october 2013 , a small number of the company 's brokerage customers had taken relatively large positions in four securities listed on the singapore exchange . in early october , within a very short timeframe , these securities lost over 90 % of their value . the customer accounts were margined and fell into deficits totaling $ 64 million prior to the time the company took possession of their securities positions . at december 31 , 2014 , the company has recognized an aggregate loss of approximately $ 82 million . the maximum aggregate loss , which would occur if the securities ' prices all fell to zero and none of the debts were collected , would be approximately $ 84 million . the company is currently pursuing the collection of the debts . the ultimate effect of this incident on the company 's results will depend upon market conditions and the outcome of the company 's debt collection efforts . during the year ended december 31 , 2014 , income before income taxes in our market making segment decreased 28 % , compared with 2013. trading gains were negatively impacted by low volatility levels , as measured by the vix® ; and low ratio of actual to implied volatility . pretax margin decreased to 40 % in 2014 , as compared to 44 % in 2013. market making , by its nature , does not produce predictable earnings . our results in any given period may be materially affected by volumes in the global financial markets , the level of competition and other factors . electronic brokerage is more predictable , but it is dependent on customer activity , growth in customer accounts and assets , interest rates and other factors . for a further discussion of the factors , that may affect our future operating results , please see the description of risk factors in part i , item 1a of this annual report on form 10-k. 48 the following two tables present net revenues and income before income taxes for each of our business segments for the periods indicated . net revenues of each of our segments and our total net revenues are summarized below : replace_table_token_8_th ( 1 ) certain reclassifications have been made to previously reported amounts to conform with the current presentation of the impact our currency diversification strategy . ( 2 ) the corporate segment includes corporate related activities , inter-segment eliminations gains and losses on positions held as part of our overall currency diversification strategy . income before income taxes of each of our segments and our total income before income taxes are summarized below : replace_table_token_9_th ( 1 ) certain reclassifications have been made to previously reported amounts to conform with the current presentation of the impact our currency diversification strategy . ( 2 ) the corporate segment includes corporate related activities , inter-segment eliminations and gains and losses on positions held as part of our overall currency diversification strategy . revenue trading gains trading gains are generated in the normal course of market making . trading revenues are , in general , proportional to the trading activity in the markets . our revenue base is highly diversified and comprised of millions of relatively small individual trades of various financial products traded on electronic exchanges , primarily in stocks , options and futures . trading gains accounted for approximately 23 % , 29 % and 39 % of our total revenues for the years ended december 31 , 2014 , 2013 and 2012 , respectively . trading gains also include revenues from net dividends . market making activities require us to hold a substantial inventory of equity securities . we derive significant revenues in the form of dividend income from these equity securities . this dividend income is largely offset by dividend expense incurred when we make significant payments in lieu of dividends on short positions in securities in our portfolio . dividend income and expense arise from holding market making positions over dates on which 49 dividends are paid to shareholders of record .
| during the year ended december 31 , 2014 , our market making operations executed 64.5 million trades , a decrease of 1 % as compared to the number of trades executed in the year ended december 31 , 2013. market making options and futures contract and stock share volumes decreased 15 % , 14 % and 6 % , respectively , as compared to the year-ago period . trading gains were negatively impacted by a market making environment with intense competition and low volatility . the vix® , which measures perceived u.s. equity market volatility , was unchanged at 14.2 average for the year ended december 31 , 2014 as compared to the year-ago period . the ratio of actual to implied volatility was up slightly at 79 % for 2014 as compared to 77 % for 2013. an 54 approximate $ 16 million loss due to a trading error in the third quarter also negatively impacted trading gains . included in trading gains are net dividends . dividend income and expense arise from holding market making positions over dates on which dividends are paid to shareholders of record . when a stock pays a dividend , its market price is generally adjusted downward to reflect the value paid , which will not be received by those who purchase stock after the ex-dividend date . hence , the apparent gains and losses due to these price changes , reflecting the value of dividends paid to shareholders , must be taken together with the dividends paid and received , respectively , to accurately reflect the results of our market making operations . commissions and execution fees . commissions and execution fees for the year ended december 31 , 2014 increased $ 46.7 million , or 9 % , to $ 548.8 million , as compared to the year ended december 31 , 2013 , driven by continued customer account growth and increased customer activity , but moderated by lower commissions per customer order . cleared customer options and futures contract volumes and stock share volumes increased 25 % , 4 % and 74 % , respectively , from the same period last year . total darts for cleared and execution-only customers for the year ended december 31 , 2014 increased 16 % to 566 , as compared to 486 thousand during the year ended december 31 , 2013. darts
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, marketing and distribution capabilities for our drug candidates for which we obtain marketing approval , if any ; and expand our operational , financial and management systems and increase personnel , including to support our clinical development and commercialization efforts and our operations as a public company . we will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our drug candidates . if we obtain regulatory approval for any of our drug candidates and do not enter into a commercialization partnership , we expect to incur significant expenses related to developing our internal commercialization capability to support product sales , marketing and distribution . further , we expect to incur additional costs associated with operating as a public company . as a result , we will need substantial additional funding to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of equity offerings , debt financings , collaborations , strategic alliances and marketing , distribution or licensing arrangements . we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms , or at all . if we fail to raise capital or enter into such agreements as , and when , needed , we may have to significantly delay , scale back or discontinue the development and commercialization of one or more of our drug candidates . because of the numerous risks and uncertainties associated with pharmaceutical product development , we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . as of december 31 , 2018 , we had cash and cash equivalents of $ 293.8 million . we believe that our existing cash and cash equivalents will enable us to fund our operating expenses , capital expenditure requirements and debt service payments into the second half of 2020. see liquidity and capital resources. on march 4 , 2019 , dr. michael taylor notified our board of his resignation from his position as president and chief executive officer , and our board of directors has appointed steven hoerter as incoming president and chief executive officer . this transition will be effective march 18 , 2019 . 107 the conversion on october 2 , 2017 , immediately prior to the completion of our ipo , we engaged in a series of transactions whereby deciphera pharmaceuticals , llc became a wholly owned subsidiary of deciphera pharmaceuticals , inc. , a delaware corporation . as part of the transactions , shareholders of deciphera pharmaceuticals , llc exchanged their shares of deciphera pharmaceuticals , llc for shares of deciphera pharmaceuticals , inc. on a one-for-5.65 basis and exchanged their outstanding equity incentive awards of deciphera pharmaceuticals , llc for options to purchase the same number of shares of common stock of deciphera pharmaceuticals , inc. multiplied by 5.65 , with a corresponding adjustment to divide the exercise price by 5.65. we refer to these transactions as the conversion . components of our results of operations revenue 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 foreseeable future . if our development efforts for our drug candidates are successful and result in regulatory approval , we may generate revenue in the future from product sales . if we enter into license or collaboration agreements for any of our drug candidates or intellectual property , we may generate revenue in the future from payments as a result of such license or collaboration agreements . we can not predict if , when , or to what extent we will generate revenue from the commercialization and sale of our drug candidates . we may never succeed in obtaining regulatory approval for any of our drug candidates . operating expenses 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 drug candidates , which include : employee-related expenses , including salaries , related benefits , travel and stock-based compensation expense for employees engaged in research and development functions ; expenses incurred in connection with the preclinical and clinical development of our drug candidates , including under agreements with contract research organizations , or cros ; the cost of consultants and contract manufacturing organizations , or cmos , that manufacture drug products for use in our preclinical studies and clinical trials ; and facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and supplies . we expense research and development costs to operations as incurred . advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses . the prepaid amounts are expensed as the related goods are delivered or the services are performed . our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs , such as fees paid to consultants , central laboratories , contractors , cmos and cros in connection with our preclinical and clinical development activities . story_separator_special_tag we do not allocate employee costs , costs associated with our proprietary kinase switch control inhibitor platform technology or facility expenses , including depreciation or other indirect costs , to specific product development programs because these costs are deployed across multiple product development programs and , as such , are not separately classified . 108 the table below summarizes our research and development expenses incurred by development program : replace_table_token_6_th the successful development and commercialization of our drug candidates is highly uncertain . this is due to the numerous risks and uncertainties , including the following : successful completion of preclinical studies and clinical trials ; receipt and related terms of marketing approvals from applicable regulatory authorities ; raising additional funds necessary to complete clinical development of and commercialize our drug candidates ; obtaining and maintaining patent , trade secret and other intellectual property protection and regulatory exclusivity for our drug candidates ; making arrangements with third-party manufacturers , or establishing manufacturing capabilities , for both clinical and commercial supplies of our drug candidates ; developing and implementing marketing and reimbursement strategies ; establishing sales , marketing and distribution capabilities and launching commercial sales of our products , if and when approved , whether alone or in collaboration with others ; acceptance of our products , if and when approved , by patients , the medical community and third-party payors ; effectively competing with other therapies ; the ability to obtain clearance or approval of companion diagnostic tests , if required , on a timely basis , or at all ; obtaining and maintaining third-party coverage and adequate reimbursement ; protecting and enforcing our rights in our intellectual property portfolio ; and maintaining a continued acceptable safety profile of the products following approval . a change in the outcome of any of these variables with respect to the development of any of our drug candidates would significantly change the costs and timing associated with the development of that drug candidate . we may never succeed in obtaining regulatory approval for any of our drug candidates . research and development activities are central to our business model . drug 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 expect research and development costs to increase significantly for the foreseeable future as our drug candidate development programs progress . 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 drug candidates , including future trial design and various regulatory 109 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 . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs , including stock-based compensation , for personnel in executive , finance and administrative functions . general and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal , patent , consulting , accounting and audit services . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our drug candidates . we also anticipate that we will continue to incur increased accounting , audit , legal , regulatory , compliance and investor and public relations expenses associated with operating as a public company . other income ( expense ) interest expense interest expense consists of interest expense associated with an outstanding construction loan from a related party . see liquidity and capital resourcesconstruction loan. interest and other income , net interest income consists of interest earned on our cash and cash equivalent balances . other income , net , consists of insignificant amounts of miscellaneous income and expenses unrelated to our core operations . income taxes prior to the conversion , we were treated as a partnership for tax purposes and had not been subject to u.s. federal or state income taxation and as a result , had not recorded any u.s. federal or state income tax benefits for the net losses we had incurred in each year or for our earned research and orphan drug credits . upon the conversion , we became subject to typical corporate u.s. federal and state income taxation ; however , we do not have net operating loss carryforwards from periods prior to october 2 , 2017 available to offset taxable income earned in future periods in which we will be treated as a corporation . since the conversion in october 2017 , we have not recorded any u.s. federal or state income tax benefits for either the net losses we have incurred or our earned research and orphan drug credits , due to the uncertainty of realizing a benefit from those items in the future . as of december 31 , 2018 , we had net operating loss carryforwards for federal income tax purposes of $ 107.1 million , of which $ 14.5 million begin to expire in 2037 and $ 92.6 million may be carried forward indefinitely . as of december 31 , 2018 , we had net operating loss carryforwards for state income tax purposes of $ 107.7 million , which begin to expire in 2027. we also had federal and state research and orphan drug credits of $ 12.8 million and $ 0.9 million , respectively , as of december 31 , 2018 , which begin to expire in 2037 and 2032 , respectively . critical accounting policies and significant judgments and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states , or gaap .
| the increase in stock-based compensation expense was primarily related to additional employee stock options and a higher value of our common stock . the increase in facility-related and other costs included in unallocated expenses was primarily due to increased costs of $ 2.5 million incurred in connection with our early-stage drug discovery programs and increased consultant fees of $ 1.1 million . general and administrative expenses replace_table_token_9_th the increase in personnel-related costs was primarily a result of an increase in stock-based compensation expense and an increase in headcount . personnel-related costs for the years ended december 31 , 2018 and 2017 included stock-based compensation expense of $ 5.7 million and $ 3.5 million , respectively . the increase in stock-based compensation expense was primarily related to additional employee stock options and a higher value of our common stock . the increase in professional and consultant fees was primarily due to an increase in various advisory fees , including those related to legal and accounting associated with operating as a public company as well as recruitment costs and costs incurred for pre-commercialization activities . facility-related and other costs increased primarily due to higher facility , insurance and other costs related to our growth and operating as a public company . interest and other income , net the increase in interest and other income , net , was primarily due to an increase in interest income resulting from investing the net proceeds from our ipo in october 2017 and follow-on public offering in june 2018 . 114 comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 : replace_table_token_10_th research and development expenses replace_table_token_11_th expenses related to our ripretinib program increased primarily as a result of increases in clinical trial costs of $ 10.1 million and manufacturing costs of $ 4.7 million . the increase
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of the estimated $ 28 million remaining costs to be recognized through the end of fiscal 2014 , we estimate that approximately $ 3 million will be employee-related costs ; $ 11 million will be facility exit and other costs ; and $ 14 million will be an expected loss on disposal of the property in waukegan , illinois described above . we have evaluated this property and have determined that at june 30 , 2013 it does not meet the criteria for classification as held for sale . the costs recognized during 2013 are classified as restructuring and employee severance and impairments and loss on disposal of assets in the consolidated statements of earnings . we 13 cardinal health , inc. and subsidiaries financial review ( continued ) expect to start realizing cost savings and other benefits from the plan in fiscal 2014. acquisitions on march 18 , 2013 , we completed the acquisition of assuramed for $ 2.07 billion , net of cash acquired , in an all-cash transaction . we funded the acquisition through the issuance of $ 1.3 billion in fixed rate notes and cash on hand . the acquisition of assuramed , a provider of medical supplies to homecare providers and patients in the home , expands our ability to serve this patient base . we expect the amortization of acquisition-related intangible assets to be a significant expense in future periods . excluding the impact of amortization of acquisition-related intangible assets , this acquisition had a positive impact on operating earnings in fiscal 2013 and we expect it to have a positive impact on operating earnings in future periods . see note 2 of the “ notes to consolidated financial statements ” for additional information on the assuramed acquisition . other trends within our pharmaceutical segment , we expect continued strength in our generic pharmaceutical programs as well as continued price appreciation from branded pharmaceutical products in fiscal 2014. within our medical segment , variability in the cost of commodities such as oil-based resins , cotton , latex , diesel fuel and other commodities can have a significant impact on cost of products sold . although commodity prices fluctuate , we do not expect changes in commodity prices to have a significant impact on our year-over-year results of operations in fiscal 2014. we also expect a continuation of relatively flat procedural-based utilization in fiscal 2014. story_separator_special_tag style= '' line-height:120 % ; padding-bottom:8px ; text-align : justify ; font-size:10pt ; '' > segment profit from bulk sales decreased $ 36 million in fiscal 2013 compared to fiscal 2012 and was 7 percent and 10 percent of pharmaceutical segment profit in fiscal 2013 and 2012 , respectively . segment profit from non-bulk sales increased $ 212 million in fiscal 2013 over fiscal 2012 and was 93 percent and 90 percent of pharmaceutical segment profit in fiscal 2013 and 2012 , respectively . the generic pharmaceutical programs discussed above primarily impacted segment profit from non-bulk sales . medical segment profit the principal drivers for the increase in fiscal 2013 over fiscal 2012 were the positive impact of acquisitions and decreased cost of commodities used in our self-manufactured products , partially offset by the unfavorable impact of pricing changes , driven in part by customer and product mix . segment profit was also moderated by softness in procedural-based utilization . the 2.3 percent excise tax on certain manufactured or imported medical devices that became effective january 1 , 2013 had a slightly unfavorable impact on segment profit . the principal drivers for the decrease in fiscal 2012 over fiscal 2011 were the increased cost of commodities used in our self-manufactured products and an increase in sg & a expenses , including the impact of business system investments . these items were partially offset by the favorable impact of product sales mix and increased net sales volume . corporate as discussed further below , the principal driver for the decrease in corporate in fiscal 2013 was an $ 829 million non-cash goodwill impairment charge related to our nuclear pharmacy services division , in addition to other costs not allocated to our segments . consolidated operating earnings in addition to revenue , gross margin and sg & a expenses discussed above , operating earnings were impacted by the following : replace_table_token_11_th 15 cardinal health , inc. and subsidiaries financial review ( continued ) restructuring and employee severance in addition to other restructuring activities during fiscal 2013 , we recognized $ 30 million of employee-related costs and $ 10 million of facility exit and other costs related to the restructuring within our medical segment . we also recognized $ 11 million of employee-related costs as part of a restructuring plan within our nuclear pharmacy services division during the fourth quarter of fiscal 2013 . acquisition-related costs acquisition-related costs for fiscal 2013 included transaction costs associated with the purchase of assuramed ( $ 20 million ) . additionally , amortization of acquisition-related intangible assets was $ 118 million , $ 78 million and $ 67 million for fiscal 2013 , 2012 and 2011 , respectively . the increase in amortization during fiscal 2013 was primarily due to intangible assets from the acquisition of assuramed . acquisition-related costs for fiscal 2012 included income recognized upon adjustment of the contingent consideration obligation incurred in connection with the p4 healthcare acquisition ( $ 71 million ) . in early fiscal 2013 , we terminated and settled the remaining contingent consideration obligation for $ 4 million . impairments and loss on disposal of assets during the fourth quarter of fiscal 2013 , we recognized an $ 829 million ( $ 799 million , net of tax ) non-cash goodwill impairment charge related to our nuclear pharmacy services division , as discussed further in the overview section and in note 5 of the `` notes to consolidated financial statements . '' story_separator_special_tag in connection with our medical segment restructuring plan discussed in note 3 , during fiscal 2013 , we recognized an $ 11 million loss to write down our gamma sterilization assets in el paso , texas to the estimated fair value , less costs to sell . also during fiscal 2013 , we recorded an $ 8 million write-off of commercial software under development within our pharmaceutical segment in connection with our decision to discontinue this project . during fiscal 2012 , we recorded a charge of $ 16 million to write off an indefinite-life intangible asset related to the p4 healthcare trade name . litigation ( recoveries ) /charges , net during fiscal 2013 , we recognized $ 38 million of income resulting from settlements of class action antitrust claims in which we were a class member . earnings before income taxes and discontinued operations in addition to the items discussed above , earnings before income taxes and discontinued operations were impacted by the following : replace_table_token_12_th interest expense , net the increase in interest expense , net for fiscal 2013 over fiscal 2012 was primarily due to $ 1.3 billion of notes issued in connection with the assuramed acquisition . gain on sale of investment in carefusion we recognized $ 75 million of income during fiscal 2011 related to the sale of our investment in carefusion common stock . provision for income taxes generally , fluctuations in the effective tax rate are due to changes within international and united states state effective tax rates resulting from our business mix and discrete items . a reconciliation of the provision based on the federal statutory income tax rate to our effective income tax rate from continuing operations is as follows ( see note 7 of the `` notes to consolidated financial statements '' for a detailed disclosure of the effective tax rate reconciliation ) : replace_table_token_13_th fiscal 2013 compared to fiscal 2012 the fiscal 2013 effective tax rate was unfavorably impacted by 33.2 percentage points ( $ 295 million ) due to the nondeductibility of substantially all of the goodwill impairment which was partially offset by the favorable impact of the revaluation of our deferred tax liability and related interest on unrepatriated foreign earnings as a result of an agreement with tax authorities ( $ 64 million or 7.2 percentage points ) . fiscal 2012 compared to fiscal 2011 the fiscal 2012 effective tax rate was favorably impacted by a settlement of the fiscal 2001 and 2002 irs audits ( $ 40 million or 2.4 percentage points ) . the year-over-year comparison of the effective tax rate was unfavorably impacted by the release in fiscal 2011 of a previously established deferred tax valuation allowance . ongoing audits the irs is currently conducting audits of fiscal years 2003 through 2010. we have received proposed adjustments from the irs for fiscal years 2003 through 2007 related to our transfer pricing arrangements between foreign and domestic subsidiaries . the irs has proposed additional taxes of $ 399 million , excluding penalties and interest . if this tax ultimately must be paid , carefusion is liable under the tax matters agreement entered into in connection with the carefusion spin-off for $ 142 million of the total amount . we disagree with these proposed adjustments , which we are contesting , and have accounted for the unrecognized tax benefits related to them . the irs had also proposed additional taxes of $ 450 million , excluding penalties and interest , related to the transfer of intellectual property among subsidiaries of an acquired entity prior to its acquisition by us , for which carefusion would be liable under the tax matters agreement . during the fourth quarter of fiscal 2013 , carefusion settled 16 cardinal health , inc. and subsidiaries financial review ( continued ) this matter with the irs . we have adjusted the indemnification receivable that we had recorded for this matter . the settlement has no net impact on our provision for income taxes . liquidity and capital resources we currently believe that , based upon available capital resources ( cash on hand and access to committed credit facilities ) and projected operating cash flow , we have adequate capital resources to fund working capital needs ; currently anticipated capital expenditures , business growth and expansion ; contractual obligations ; payments for tax settlements ; and current and projected debt service requirements , dividends and share repurchases . during fiscal 2013 , we completed the acquisition of assuramed , which we funded through the issuance of $ 1.3 billion in fixed rate notes and cash on hand , in addition to several other small acquisitions , which we funded with cash on hand . if we decide to engage in one or more additional acquisitions , depending on the size and timing of such transactions , we may need to access capital in addition to cash on hand . cash and equivalents our cash and equivalents balance was $ 1.9 billion at june 30 , 2013 , compared to $ 2.3 billion at june 30 , 2012 . at june 30 , 2013 , our cash and equivalents were held in cash depository accounts with major banks or invested in high quality , short-term liquid investments . the decrease in cash and equivalents during fiscal 2013 was driven by acquisitions of $ 2.2 billion , share repurchases of $ 450 million and dividends of $ 353 million , offset by strong net cash provided by operating activities of $ 1.7 billion and net proceeds from long-term obligations of $ 981 million . net cash provided by operating activities of $ 1.7 billion was driven primarily by increased gross margin , product mix and working capital changes . as expected , this increase was partially offset by the adverse impact of cash tax payments and the expiration of our pharmaceutical distribution contract with express scripts .
| fiscal 2012 compared to fiscal 2011 pharmaceutical segment revenue was positively impacted during fiscal 2012 compared to the prior year by acquisitions ( $ 2.3 billion ) and increased sales to existing customers ( $ 2.0 billion ) . medical segment revenue was positively impacted during fiscal 2012 compared to the prior year by increased volume from existing customers ( $ 335 million ) , including the positive impact from sales of self-manufactured and private brand products and the transition during the fourth quarter of fiscal 2011 of our relationship with carefusion from a fee-for-service arrangement to a traditional distribution model ( $ 131 million ) . cost of products sold consistent with the change in revenue , cost of products sold decreased $ 6.8 billion ( 7 percent ) during fiscal 2013 , and increased by $ 4.5 billion ( 5 percent ) during fiscal 2012 . see the gross margin discussion below for additional drivers impacting cost of products sold . gross margin replace_table_token_8_th fiscal 2013 compared to fiscal 2012 gross margin increased in fiscal 2013 compared to the prior year driven by strong performance in our generic pharmaceutical programs ( $ 350 million ) and acquisitions ( $ 131 million ) . increased margin from branded pharmaceutical distribution agreements ( exclusive of the related volume impact ) also had a positive impact on gross margin ( $ 81 million ) . pricing changes , including rebates ( exclusive of the related volume impact ) , adversely impacted gross margin ( $ 211 million ) , driven in part by customer and product mix . the adverse impact of these pricing changes is offset by sourcing programs and other sources of margin . as a result of significant market softness , gross margin from our nuclear pharmacy services division decreased by $ 71 million in fiscal 2013 . the cost of oil-based resins , cotton , latex and other commodities used in our medical segment self-manufactured products had a slightly favorable impact on
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revenue from lease type contracts includes a reduction of services revenue - lease type contracts due to the adoption of topic 853 , which requires rental expense for the periods after january 1 , 2018 be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . services revenue—management type contracts . management type contract revenue consists of management fees , including fixed , variable and or performance-based fees , and amounts attributable to ancillary services such as accounting , equipment leasing , baggage services , payments received for exercising termination rights , consulting , developmental fees , gains on sales of contracts , insurance and other value-added services with respect to managed type contracts . we believe we generally purchase required insurance at lower rates than our clients can obtain on their own because we effectively self-insure for all liability and worker 's compensation and health care claims by maintaining a large per-claim deductible . as a result , we have generated operating income on the insurance provided under our management type contracts by focusing on our risk management efforts and controlling losses . management type contract revenues do not include gross customer collections at managed type contracts as these revenues belong to the client rather than to us . management type contracts generally provide us with a management fee regardless of the operating performance of the underlying management type contract . reimbursed management type contract revenue reimbursed management type contract revenue consists of the direct reimbursement from the client for operating expenses incurred under a management type contract , which are reflected in our revenue . cost of services our cost of services consists of the following : cost of services—lease type contracts . the cost of services under a lease type arrangement consists of contractual rents or fees paid to the client and all operating expenses incurred in connection with operating the leased facility . contractual rents or fees paid to the client are generally based on either a fixed contractual amount or a percentage of gross revenue or a combination thereof . generally , under a lease type arrangement we are not responsible for major capital expenditures or real estate taxes . cost of services from lease type contracts includes a reduction of cost of services revenue - lease type contracts due to the adoption of topic 853 , which requires rental expense for the periods after january 1 , 2018 be presented as a reduction of services revenue - lease type contracts ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . cost of services—management type contracts . the cost of services under a management type contract is generally the responsibility of the client . as a result , these costs are not included in our results of operations . however , our reverse management type contracts , which typically provide for larger management fees , do require us to pay for certain costs and these costs are included in results of operations . reimbursed management type contract expense reimbursed management type contract expense consists of direct reimbursed costs incurred on behalf of a client under a management type contract , which are reflected in our cost of services . gross profit gross profit equals our revenue less the cost of generating such revenue . this is the key metric we use to examine our performance because it captures the underlying economic benefit to us of both lease and management type contracts . general and administrative expenses general and administrative expenses include salaries , wages , payroll taxes , insurance , travel and office related expenses for our headquarters , field offices , supervisory employees , and board of directors . depreciation and amortization depreciation is determined using a straight-line method over the estimated useful lives of the various asset classes , or in the case of leasehold improvements , over the initial term of the operating lease or its useful life , whichever is shorter . intangible assets determined to have finite lives are amortized over their remaining estimated useful life . 24 segments an operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses , and about which separate financial information is regularly evaluated by our chief operating decision maker ( “ codm ” ) , in deciding how to allocate resources . our codm is our chief executive officer . in the fourth quarter 2018 , we changed our internal reporting segment information reported to our codm as a result of the bags acquisition . the operating segments are internally reported as segment one ( commercial and institutional ) and segment two ( aviation ) . all prior periods presented have been restated to reflect the new internal reporting to the codm . segment one ( commercial and institutional ) encompasses our services in healthcare facilities , municipalities , including meter revenue collection and enforcement services , government facilities , hotels , commercial real estate , residential communities , retail , colleges and universities , as well as ancillary services such as ground transportation services , valet services , taxi and livery dispatch services and event planning , including shuttle and transportation services . segment two ( aviation ) encompasses our services in aviation ( e.g. , airports , airline and certain hospitality clients with baggage and parking services ) as well as ancillary services , which includes ground transportation services , valet services , baggage handling , baggage repair and replacement , remote air check-in services and other services . `` other '' consists of ancillary revenue that is not specifically identifiable to segments one or two and certain unallocated items , such as and including prior year insurance reserve adjustments/costs and other corporate items . story_separator_special_tag 25 fiscal 2018 compared to fiscal 2017 the following tables are a summary of service revenues ( excluding reimbursed management type contract revenue ) , cost of services ( excluding reimbursed management type contract expense ) and gross profit by segment for the comparable years ended december 31 , 2018 and 2017 . services revenue by segment is summarized as follows : replace_table_token_3_th ( a ) the year ended december 31 , 2018 new/acquired business in segment one includes a $ 8.9 million reduction of services revenue - lease type contracts due to the adoption of topic 853 , which requires rental expense for the current period be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . ( b ) the year ended december 31 , 2018 new/acquired business in segment two includes a $ 2.3 million reduction of services revenue - lease type contracts due to the adoption of topic 853 , which requires rental expense for the current period be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . ( c ) the year ended december 31 , 2018 expired business in segment one includes a $ 0.3 million reduction of services revenue - lease type contracts due to the adoption of topic 853 , which requires rental expense for the current period be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . ( d ) the year ended december 31 , 2018 existing business in segment one includes a $ 14.9 million reduction of services revenue - lease type contracts due to the adoption of topic 853 , which requires rental expense for the current period be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . ( e ) the year ended december 31 , 2018 existing business in segment two includes a $ 107.1 million reduction of services revenue - lease type contracts due to the adoption of topic 853 , which requires rental expense for the current period be presented as a reduction of services revenue - lease type contracts for that business ( and corresponding contracts ) that meet the criteria and definition of a service concession arrangement . ( f ) on november 30 , 2018 , we completed our acquisition of bags . the year ended december 31 , 2018 new/acquired business in segment two includes bags services revenue - management type contracts , for the period of november 30 , 2018 through december 31 , 2018. see note 2. acquisition , which is included in part iv , item 15 . `` exhibits and financial statement schedules '' for further discussion of the bags acquisition . revenue associated with existing business represents business that has been operating for at least one year and operating for the entire period in the comparative period being presented . revenue associated with expired business relates to contracts that have expired , however , we were operating the business in the comparative period presented . services revenue—lease type contracts lease type contract revenue decreased $ 149.2 million , or 26.5 % , to $ 413.9 million for the year ended december 31 , 2018 , compared to $ 563.1 million for the year-ago period . the decrease in lease type contract revenue resulted primarily from deceases of $ 108.3 million from existing business , $ 45.7 million from expired business , and $ 2.0 million from business that converted from management type contracts during the year , partially offset by an increase of $ 6.8 million from new/acquired business . the decrease in expired business includes earnings of $ 8.5 million from our proportionate share of the net gain on the equity method investee 's sale of assets recognized during the year ended december 31 , 2017. existing business revenue decreased $ 108.3 million , or 24.8 % , primarily due to the adoption of asu no . 2017-10 , service concession arrangements ( topic 853 ) , which requires rental expense to be presented as a reduction of services revenue - lease type contracts versus the comparative period presentation of recording rent expense as an increase to cost of services - lease type contracts for that business ( and corresponding contracts ) meeting the criteria and definition of a service concession arrangement , as discussed in note 1. significant account policies and practices and note 4. revenue to the consolidated financial statements included in item 15 . `` exhibits and financial statement schedules '' , partially offset by net increases in short-term parking revenue , monthly parking revenue and transient parking revenue . from a reporting segment perspective , lease type contract revenue decreased primarily due to expired business in segment one , existing business in segments one and two , conversions in segment one , and new/acquired business in segment two , partially offset by increases from new/acquired business in segment one and existing business in other . the other segment amounts in existing business represent revenue not specifically identifiable to segments one or two . 26 services revenue—management type contracts management type contract revenue increased $ 13.3 million , or 3.8 % , to $ 361.5 million for the year ended december 31 , 2018 , compared to $ 348.2 million for the year-ago period . the increase in management type contract revenue resulted primarily from increases of $ 32.1 million from new/acquired business , and $ 4.4 million from existing business , partially offset by a decrease of $ 22.9 million from expired business and $ 0.3 million from business that converted from lease type contracts during the periods presented .
| the net decrease in operating assets and liabilities resulted primarily from : ( i ) a net decrease in accounts payable and accrued liabilities of $ 10.5 million , which primarily resulted from the timing of payments to our clients , as described under `` daily cash collection '' and vendors and decreases in the amount of book overdrafts included in accounts payable ; ( ii ) a net increase in prepaid expenses and other of $ 4.1 million ; and ( iii ) a net increase in notes and accounts receivable of $ 2.6 million due to the timing of collections . investing activities net cash used in investing activities totaled for $ 268.4 million for 2018 , compared to net cash provided of $ 2.3 million in 2017 . cash used in investing activities in 2018 included ( i ) $ 277.9 million for the acquisition of bags , net of cash acquired ; ( ii ) $ 8.9 million for capital investments needed to secure and or extend leased and managed facilities and investments in information system enhancements and infrastructure ; ( iii ) $ 1.1 million for cost of contract purchases ; offset by ( iv ) $ 19.3 million in proceeds received from the sale of an equity method investee 's sale of assets ; and ( v ) $ 0.2 million of proceeds from the sale of assets and contract terminations . net cash provided by investing activities totaled for $ 2.3 million for 2017 , compared to a use of $ 13.8 million in 2016 . cash provided by investing activities in 2017 included ( i ) $ 8.4 million in proceeds received from the sale of an equity method investee 's sale of assets ; ( ii ) $ 0.8 million of proceeds from the sale of assets and contract terminations ; and ( iii ) $ 0.6 million of proceeds received and relating to the final earn-out payment from buyer for the security business sold in 2015 ; offset by ( iv ) $ 6.8 million for capital investments needed to secure and or extend leased facilities and investments in information system enhancements and infrastructure ; and ( v ) $ 0.7 million for cost of contract purchases . 38 financing activities net cash provided by financing activities totaled $ 215.2 million in 2018 , compared to a use of $ 47.2 million in 2017 . cash provided
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the concession agreement for the casino on the wind spirit of windstar cruises ended in january 2019. we will not renew the concession agreements for the remaining four ships with windstar cruises that expire in march , april and may 2019 because the cruise line intends to use the casino space for other purposes . as a result , our revenue and associated expenses from ship-based casinos will decrease in 2019 . in march 2015 , in connection with an agreement with norwegian to terminate our concession agreements with oceania and regent , we entered into a two-year consulting agreement with norwegian that became effective june 1 , 2015. under the consulting agreement , we provided limited consulting services for the ship-based casinos of oceania and regent in exchange for receiving a consulting fee of $ 2.0 million payable $ 250,000 per quarter through may 2017 . · through our subsidiary crm , we have a 7.5 % ownership interest in mce and we report our ownership interest using the cost method of accounting . mce has an exclusive concession agreement with ipjc to lease slot machines and provide related services to casino de mendoza , a casino located in mendoza , argentina , and owned by the province of mendoza . mce may also pursue other gaming opportunities . crm has appointed one director to mce 's board of directors and had a three-year option through october 2017 to purchase up to 50 % of the shares of mce , which we did not exercise . in addition , crm and mce have entered into a consulting service agreement pursuant to which crm provides advice on casino matters and receives a service fee consisting of a fixed fee plus a percentage of mce 's ebitda . · on april 25 , 2018 , our subsidiary , crm , purchased a 51 % ownership interest in ghl . we consolidate ghl as a majority-owned subsidiary for which we have a controlling financial interest . the remaining 49 % of ghl is owned by unaffiliated shareholders and is reported as a non-controlling financial interest . ghl entered into an agreement with mcl and its owners , pursuant to which ghl purchased an initial 6.36 % ownership interest in mcl for a total consideration of $ 0.4 million and agreed to purchase an additional ownership interest in mcl up to a total of 51 % of mcl over a three-year period for approximately $ 3.6 million . ghl purchased an additional 2.85 % ownership interest in mcl on october 4 , 2018 for $ 0.2 million , resulting in a total ownership interest in mcl of 9.21 % . ghl has the option to purchase an additional 19 % ownership interest in mcl for a total of 70 % of mcl under certain conditions . mcl is the owner of a small hotel and entertainment and gaming club in the cao bang province of vietnam that is 300 feet from the vietnamese – chinese border station . the hotel offers 3 2 rooms , and the entertainment and gaming club currently offers nine electronic table games for non-vietnamese passport holders under a provincial investment certificate that allows for up to 26 electronic games . under the agreement , the parties agreed to use certain funds for the renovation and expansion of the facility . ghl and mcl also entered into a management agreement , under which ghl is managing the operations at the hotel and entertainment and gaming club in exchange for receiving a portion of mcl 's net profit . the company accounts for ghl 's interest in mcl as an equity investment . ghl is included in the corporate and other reportable segment . see notes 1 and 4 to the consolidated financial statements included in item 8 . “ financial statements and supplementary data ” of this report for additional information related to ghl and mcl . additional projects under development in september 2016 , we were selected by hra as the successful applicant to own , build and operate a horse racing facility in the edmonton market area , which we will operate as century mile racetrack and casino . in march 2017 , we received approval for the century mile project from the aglc . century mile will be a one-mile horse racetrack and a multi-level rec . the project is located on edmonton international airport land close to the city of leduc , south of edmonton . we began construction on the century mile project in july 2017. we estimate this project will cost approximately cad 61.5 million ( $ 45.1 million based on the exchange rate in effect as of december 31 , 2018 ) and the rec will open o n april 1 , 2019. we are financing the project with $ 25.0 million of the $ 34.4 million received from the common stock offering we completed in november 2017 , of which $ 24.2 million has been used as of december 31 , 2018. the balance of the century mile construction is being financed through increased borrowing capacity under the bmo credit agreement and with available cash . 36 in august 2017 , we announced that , together with the owner of the hamilton princess hotel & beach club in hamilton , bermuda , we had submitted a license application to the bermudan government for a casino at the hamilton princess hotel & beach club . the casino will feature approximately 200 slot machines , 17 live table games , one or more electronic table games and a high limit area and salon privé . in september 2017 , the bermuda casino gaming commission granted a provisional casino gaming license , which is subject to certain conditions and approvals including the adoption of certain rules and regulations by the parliament of bermuda . crm entered into a long-term management agreement with the owner of the hotel to manage the operations of the casino and receive a management fee if the license is awarded . story_separator_special_tag crm will also provide a $ 5.0 million loan for the purchase of casino equipment if the license is awarded . we are exploring an expansion at century casino & hotel cripple creek to provide additional hotel rooms for our existing casino and hotel . presentation of foreign currency amounts - the average exchange rates to the us dollar used to translate balances during each reported period are as follows : replace_table_token_12_th we recognize in our statement of earnings , foreign currency transaction gains or losses resulting from the translation of casino operations and other transactions that are denominated in a currency other than us dollars . our casinos in canada and poland represent a significant portion of our business , and the revenue generated and expenses incurred by these operations are generally denominated in canadian dollars and polish zloty . a decrease in the value of these currencies in relation to the value of the us dollar would decrease the earnings from our foreign operations when translated into us dollars . an increase in the value of these currencies in relation to the value of the us dollar would increase the earnings from our foreign operations when translated into us dollars . see note 2 , “ significant accounting policies - foreign currency ” to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this report . 37 discussion of results years ended december 31 , 2018 , 2017 and 2016 century casinos , inc. and subsidiaries replace_table_token_13_th ( 1 ) see note 2 , “ significant accounting policies , ” to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this report for a discussion of the impact of the adoption of asu 2014-09 on the presentation of promotional allowances . ( 2 ) for a discussion of adjusted ebitda and reconciliation of adjusted ebitda to net earnings ( loss ) attributable to century casinos , inc. shareholders , see item 6 , “ selected financial data ” of this report . factors impacting year-over-year comparability of the results include the following : · we began operating csa in october 2016. csa contributed a total of $ 9.1 million in net operating revenue and $ 1.1 million in net earnings for the year ended december 31 , 2018 ; $ 8.8 million in net operating revenue and $ 1.2 million in net earnings for the year ended december 31 , 2017 and $ 2.0 million in net operating revenue and $ 0.3 million in net earnings for the year ended december 31 , 2016 . · we released the $ 2.2 million canadian valuation allowance on cdr 's deferred tax assets , resulting in a tax benefit for the year ended december 31 , 2016 . · we released the $ 5.7 million us valuation allowance on our us deferred tax assets , resulting in a tax benefit for the year ended december 31 , 2017. the tax benefit from the release of the us valuation allowance was offset by increased tax expense of $ 5.4 million resulting from the tax law changes made in the tax act that became effective in the 2017 tax year . the increased income tax expense decreased net earnings attributable to century casinos , inc. shareholders for the year ended december 31 , 2017. see note 11 , “ income taxes ” to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this report for a discussion of the impact of the tax act . · the impact from casino closures due to license expirations and delays in license tender awards in poland impacted comparability of results for cpl beginning in 2017. see the poland discussion below for additional information . 38 · in november 2017 , we closed a public offering of 4,887,500 shares of our common stock . the additional shares of common stock decreased earnings per share attributable to century casinos inc. shareholders by $ 0.01 for the year ended december 31 , 2017 . · we began operating ccb in may 2018. ccb contributed a total of $ 2.7 million in net operating revenue and ( $ 2.1 ) million in net losses for the year ended december 31 , 2018 and ( $ 0.3 ) million in net losses for the year ended december 31 , 2017 before the casino began operating . net operating revenue increased by $ 14.9 million , or 9.7 % , and by $ 14.8 million , or 10.7 % , for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 and for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , respectively . following is a breakout of net operating revenue by segment for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 and for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 . · canada increased by $ 3.6 million , or 6.3 % , and by $ 7.5 million , or 14.9 % . · united states increased by $ 1.3 million , or 4.1 % , and by $ 2.0 million , or 6.7 % . · poland increased by $ 8.4 million , or 14.1 % , and by $ 4.9 million , or 8.9 % . · corporate other increased by $ 1.5 million , or 34.1 % , and by $ 0.4 million , or 10.4 % .
| at csa , operating expenses increased by cad 0.3 million , or 3.9 % , due primarily to increased payroll expense as a result of an increased minimum wage . at csa , operating expenses increased by $ 0.3 million , or 4.0 % . at cal , operating expenses increased by cad 0.4 million , or 3.5 % , primarily due to increased payroll costs as a result of an increased minimum wage and increased operating expenses related to operating century sports . at cal , operating expenses increased by $ 0.3 million , or 3.6 % . at cdr , operating expenses increased by cad 1.8 million , or 11.7 % , due to increased payroll costs as a result of an increased minimum wage and increased operating expenses primarily related to horse racing . at cdr , operating expenses increased by $ 1.4 million , or 11.4 % . 41 operating expenses and losses from operations related to the century mile project increased by $ 1.7 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 primarily due to expense related to the land lease . we also operate the southern alberta pari-mutuel off-track betting network through cbs . earnings from operations at cbs remained constant , for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 . a reconciliation of net earnings attributable to century casinos , inc. shareholders to adjusted ebitda can be found in the “ non-gaap measures – adjusted ebitda ” discussion in item 6 , “ selected financial data ” of this report . years ended december 31 , 2017 and 2016 the following discussion highlights results for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 . results in us dollars were impacted by a 2.1 % exchange rate increase in the average rate between the us dollar and canadian dollar for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 . revenue highlights in cad in us dollars at cra , net operating revenue
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49 the company has already experienced certain disruptions to its business and disruptions for the company 's customers and merchants that may materially affect the number of transactions processed by the company . similarly , the response to the covid-19 pandemic could have a long-term impact on the company 's customers and or merchants during and after 2020 which could reduce their demand for company products . the extent to which covid-19 or any other health epidemic may impact the company 's results for 2020 and beyond will depend on future developments , which are highly uncertain and can not be predicted , including new information which may emerge concerning the severity of the economic impact of the response to the covid-19 pandemic . accordingly , covid-19 could have a material adverse effect on the company 's business , results of operations , financial condition and prospects during 2020 and beyond . liquidity and capital resources changes in cash flows for the year ended december 31 , 2019 , $ 244,868 in cash was provided by operating activities , which included our net loss offset by $ 842,149 for amortization and depreciation expense , $ 265,050 for stock-based compensation , an increase to accounts receivable of $ 73,294 and an increase to related party accruals of $ 372,014. during the period from april 9 , 2018 through december 31 , 2018 , $ 131,092 in cash was used by operating activities , which included our net loss offset by $ 582,559 for amortization and depreciation expense , $ 185,963 for stock-based compensation , a decrease to accounts receivable of $ 63,869 and an increase to related party accruals of $ 239,310. for the year ended december 31 , 2019 , no cash was used for investing activities . during the period from april 9 , 2018 through december 31 , 2018 , $ 217,678 in cash was provided by investing activities , $ 174,967 of which was proceeds from a note receivable and $ 42,711 of cash received from the asset acquisition . for the year ended december 31 , 2019 , $ 151,616 in cash was provided by financing activities . we received $ 361,467 from related party loans which was offset by $ 210,305 of deferred offering costs . during the period from april 9 , 2018 through december 31 , 2018 , $ 25,000 in cash was provided by financing activities . we received $ 3,055,000 from related parties , $ 30,000 of which was repaid , and we repaid $ 3,000,000 of a note payable . there were no financing activities for the period from january 1 , 2018 through april 7 , 2018. liquidity and capital resources at december 31 , 2019 , the company had cash of $ 507,616 and a working capital deficit of $ 1,382,325. for the year ended december 31 , 2019 , the company 's net loss was $ 1,343,412. as a result of the company 's operating cash flows and working capital needs , which required it to obtain loans from a related party , at december 31 , 2019 the company was not in compliance with certain financial covenants required by the credit agreement . further , in connection with the response to the covid-19 pandemic in the united states , the company has experienced certain disruptions to its business and has observed disruptions for the company 's customers and merchants which has resulted in a decline in transaction volume . while the volume of processing transactions by merchants in march was relatively in-line with the company 's expectations , it is expected that the number of transactions and resulting revenue could be as much as 40 % lower than march during the month of april . we estimate that the number of transactions will continue to decline , along with revenues , until the response to the covid-19 pandemic allows customers to make more point of purchase transactions for merchants and more merchants provide for additional contactless and online purchase options . based on this , the company expects an overall decrease in revenue and cash flows from operations during the remainder of 2020 as compared to 2019. as a result of these factors , the company determined it was necessary to take certain corporate actions in connection with its overall analysis to determine whether or not his has sufficient liquidity to continue as a going concern for a period of at least twelve months from the date its financial statements were issued . on april 24 , 2020 , the company entered into amendment no . 4 to loan and security agreement ( “ amendment no . 4 ” ) amending the credit agreement . the purpose of amendment no . 4 was to extend the maturity date of the indebtedness to april 9 , 2022 and to waive any outstanding events of default . in consideration for the foregoing , the credit agreement was amended to include a new principal repayment schedule under the note whereby the company paid an amount equal to $ 125,000 upon execution of amendment no . 4 and the company agreed to make a monthly payment of $ 25,000 per month , commencing may 1 , 2020 , and on the first business day of each calendar month thereafter until the required balloon payment on april 9 , 2022. in the event that the company does not make a monthly payment , messrs. yakov and herzog will have the ability to make an equity contribution to the company for the sole purpose of paying the monthly payment obligation of the company under the credit agreement . story_separator_special_tag in addition , included in the working capital deficit described above as of december 31 , 2019 was accrued payroll , a note payable and other expenses due to the company 's chief executive officer , mr. ronny yakov , in the amount of $ 993,458 , which he has agreed to defer receiving payment until december 31 , 2022. the company also believes that it has reduced operating expenses sufficiently during 2019 allowing it to maintain its ongoing operations despite the anticipated decrease in revenues during 2020. as such , the company believes it will be able fund future liquidity and capital requirements through cash flows generated from its operating activities for a period of at least twelve months from the date its financial statements are issued . 50 as mentioned above , in the event that the response to the pandemic results in a greater than anticipated reduction in processing transaction volume or revenue or expenses are otherwise do not meet our expectations , the company can further reduce or defer expenses . more specifically , the company could ( a ) implement certain discretionary cost reduction initiatives relating to our spend on employee travel and entertainment , consulting costs and marketing expenses , ( b ) negotiate additional deferred salary arrangements with mr. yakov or other employees , ( c ) furlough employees or reduce headcount , ( d ) negotiate extensions of payments of rent and utilities , or ( e ) enter in or to additional short term loans with mr. yakov whereby certain of our expenses as they come due continue to be paid by him and not immediately reimbursed as a normal business expense . in addition , on december 10 , 2019 , mr. john herzog , a related party and significant stockholder , provided a letter to the company whereby he addressed his prior commitments to provide financial assistance to the company and agreed to assist with our ongoing working capital needs , upon request through the earlier of ( a ) the closing of a potential public offering of the company 's common stock and warrants or ( b ) november 2020 ( other than our obligations to pay principal or interest with respect to the credit agreement ) . other than with respect to our long-term debt , there are no other limitations or restrictions to the amount of working capital funding that may be provided by mr. herzog . in the event that we deem it necessary to request an advance from mr. herzog , we expect to negotiate the terms of such advance at that time . mr. herzog has committed to not terminate this commitment during its term , but we do not believe that we have recourse in the event that such commitment is terminated . finally , the company has applied for a paycheck protection program loan for approximately $ 225,000 under the cares act and it is planning a public offering of its common stock during 2020. although proceeds from either not assured , additional working capital would be available from both initiatives if the company were successful in obtaining capital from either source . additional information regarding our credit agreement although , following the execution of amendment no . 4 , we are in compliance , we have not complied with these obligations at certain times since the credit agreement was entered into and were obligated to obtain certain waivers and modifications of these provisions to avoid an acceleration event under the credit agreement . if we are not able to remain in compliance with these obligations , the creditor may accelerate the maturity of the loan or may require us to adhere to stricter financial covenants in exchange for a waiver . while we expect to comply with these financial covenants , we can not guarantee our ability to do so . although it has entered into amendment no . 4 which extended the maturity date , the company is exploring refinancing solutions for more advantageous terms for its long-term debt either with new debtholders . if the company is unable to refinance its debt or is unable to satisfy its obligations as they become due , the company may be required to sell assets to repay all or part of the debt or replace the debt with less favorable terms . with respect to its senior debt , the company is required to maintain the following financial covenants in order to avoid an event of default : ( 1 ) a fixed charge coverage ratio not be less than 1.20:1.00 , measured in each case on a trailing twelve month basis and ( 2 ) net revenue of the company shall not be less than ( x ) until june 30 , 2021 $ 9,000,000 and ( y ) from and after july 1 , 2021 , $ 10,000,000. on a trailing twelve-month basis . the fixed charge coverage ratio is defined as the ratio of ( a ) ebitda for each fiscal month minus unfinanced capital expenditures ( but not less than zero ) for such fiscal month to ( b ) the sum of ( i ) all principal payments scheduled to be made during or with respect to such period , plus ( ii ) all interest expense for such period paid or required to be paid in cash during such period , plus ( iii ) all federal , state , and local income taxes paid or required to be paid for such period , plus ( iv ) all cash distributions , dividends , redemptions and other cash payments made or required to be made during such period with respect to equity issued by the company .
| in addition , the increase in processing and servicing costs during the period is the result of the recognition of the costs related to the asset acquisition for the full year in 2019. during the period from january 1 , 2018 through april 8 , 2018 , excel had processing and servicing costs of $ 1,748,141. on a pro forma basis , inclusive of the asset acquisition , our processing and servicing costs for the year ended december 31 , 2018 were $ 7,740,760. the decrease in processing and servicing costs from the year ended december 31 , 2018 on a pro forma basis compared to the year ended december 31 , 2019 is due to our lack of a sales team resulting in lower sales and the fact that we did not have a customer retention program in place to replace lost merchants and regain new merchants . for the year ended december 31 , 2019 , we had amortization expense of $ 812,857 compared to $ 541,904 amortization expense for the same period in 2018 , an increase of $ 270,953 or 50 % . the increase in amortization expense for the year ended december 31 , 2019 is the result of the recognition of amortization expense associated with the asset acquisition for the full year in 2019 as compared to only from april 9 , 2018 through december 31 , 2018 for year ended december 31 , 2018. during the period from january 1 , 2018 through april 8 , 2018 , excel had amortization expense of $ 90,739. on a pro forma basis inclusive of the asset acquisition , we had amortization expense $ 812,857 for the year ended december 31 , 2018. for the year ended december 31 , 2019 , we had salary and wage expense of $ 1,490,762 compared to $ 1,401,192 for the same period in 2018 , an increase of $ 89,570 or 6 % . the increase of salary and wage expense during the period is the result of recognition of expenses following the asset acquisition for the full year in 2019 compared to only april 9 , 2018 through december 31 , 2018 in 2018 .. during the period from january 1 , 2018 through april 8 , 2018 , excel had salary and wage expense of $ 374,345. on a pro forma basis , inclusive of the asset acquisition , our salary and wage expense was
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39 reorganization and initial public offering medley management inc. was incorporated on june 13 , 2014 and commenced operations on september 29 , 2014 upon the completion of its initial public offering ( “ ipo ” ) of its class a common stock . medley management inc. raised $ 100.4 million , net of underwriting discount , through the issuance of 600,000 shares of class a common stock . medley management inc. used the offering proceeds to purchase 600,000 newly issued llc units ( as defined below ) from medley llc . prior to the ipo , medley management inc. had not engaged in any business or other activities except in connection with its formation and ipo . in connection with the ipo , medley llc amended and restated its limited liability agreement to modify its capital structure by reclassifying the 2,333,333 interests held by the pre-ipo members into a single new class of units ( “ llc units ” ) . the pre-ipo members also entered into an exchange agreement under which they ( or certain permitted transferees thereof ) have the right , subject to the terms of an exchange agreement , to exchange their llc units for shares of medley management inc. 's class a common stock on a one-for-one basis , subject to customary conversion rate adjustments for stock splits , stock dividends and reclassifications . in addition , pursuant to the amended and restated limited liability agreement , medley management inc. became the sole managing member of medley llc . on january 19 , 2021 , pursuant to the terms of the exchange agreement , medley management inc. issued to the pre-ipo members an aggregate of 2,343,686 shares of class a common stock in exchange for an equivalent number of llc units , representing approximately 98 % of the vested llc units . our structure medley management inc. is a holding company and its sole material asset is a controlling equity interest in medley llc . medley management inc. operates and controls all of the business and affairs and consolidates the financial results of medley llc and its subsidiaries . we and our pre-ipo owners have also entered into an exchange agreement under which they ( or certain permitted transferees ) have the right ( subject to the terms of the exchange agreement ) , to exchange their llc units for shares of our class a common stock on a one-for-one basis , subject to customary conversion rate adjustments for stock splits , stock dividends and reclassifications . medley group llc , an entity wholly-owned by our pre-ipo owners , holds all 10 issued and outstanding shares of our class b common stock . for so long as our pre-ipo owners and then-current medley personnel hold at least 10 % of the aggregate number of shares of class a common stock and llc units ( excluding those llc units held by medley management inc. ) , which we refer to as the “ substantial ownership requirement , ” the class b common stock entitles medley group llc , without regard to the number of shares of class b common stock held by it , to a number of votes that is equal to 10 times the aggregate number of llc units held by all non-managing members of medley llc that do not themselves hold shares of class b common stock and entitle each other holder of class b common stock , without regard to the number of shares of class b common stock held by such other holder , to a number of votes that is equal to 10 times the number of llc units held by such holder . for purposes of calculating the substantial ownership requirement , shares of class a common stock deliverable to our pre-ipo owners and then-current medley personnel pursuant to outstanding equity awards will be deemed then outstanding and shares of class a common stock and llc units held by any estate , trust , partnership or limited liability company or other similar entity of which any pre-ipo owner or then-current medley personnel , or any immediate family member thereof , is a trustee , partner , member or similar party will be considered held by such pre-ipo owner or other then-current medley personnel . from and after the time that the substantial ownership requirement is no longer satisfied , the class b common stock will entitle medley group llc , without regard to the number of shares of class b common stock held by it , to a number of votes that is equal to the aggregate number of llc units held by all non-managing members of medley llc that do not themselves hold shares of class b common stock and entitle each other holder of class b common stock , without regard to the number of shares of class b common stock held by such other holder , to a number of votes that is equal to the number of llc units held by such holder . at the completion of our ipo , our pre-ipo owners were comprised of all of the non-managing members of medley llc . however , medley llc may in the future admit additional non-managing members that would not constitute pre-ipo owners . if at any time the ratio at which llc units are exchangeable for shares of our class a common stock changes from one-for-one as set forth in the exchange agreement , the number of votes to which class b common stockholders are entitled will be adjusted accordingly . holders of shares of our class b common stock will vote together with holders of our class a common stock as a single class on all matters on which stockholders are entitled to vote generally , except as otherwise required by law . story_separator_special_tag 40 other than medley management inc. , holders of llc units , including our pre-ipo owners , were , subject to limited exceptions , prohibited from transferring any llc units held by them upon consummation of our ipo , or any shares of class a common stock received upon exchange of such llc units , until the third anniversary of our ipo without our consent . thereafter and prior to the fourth and fifth anniversaries of our ipo , such holders were not able to transfer more than 33 1/3 % and 66 2/3 % , respectively , of the number of llc units held by them upon consummation of our ipo , together with the number of any shares of class a common stock received by them upon exchange therefor , without our consent . while this agreement could have been amended or waived by us , our pre-ipo owners did not seek any waivers of these restrictions . on january 19 , 2021 , the pre-ipo members of medley llc exchanged an aggregate of approximately 98 % of their vested llc units for shares of class a common stock ( collectively , the “ unit exchange ” ) . in total , mdly issued to the pre-ipo members an aggregate of 2,343,686 shares of class a common stock in exchange for an equivalent number of vested llc units held by the pre-ipo members . on january 15 , 2021 , all of the 293,163 restricted llc units held by the pre-ipo members were cancelled and substituted with restricted stock units covering class a common stock of mdly on substantially equivalent terms as the restricted llc units so cancelled ( including vesting schedule ) . the remaining 49,999 llc units , excluding the llc units held by medley management inc. , are held by freedom 2021 llc , an entity controlled by one of the pre-ipo owners . as a result of the unit exchange , mdly 's total membership interest medley llc increased to approximately 98 % . the unit exchange increased the number of outstanding shares of class a common stock although the number of as-converted fully-diluted shares of the company remained the same . the unit exchange did not result in a change in control of the company , including for purposes of the investment advisers act of 1940 , as amended . the diagram below depicts our organizational structure ( excluding those operating subsidiaries with no material operations or assets ) as of march 26 , 2021 : ( 1 ) our pre-ipo owners control 66.9 % of the voting power of medley management inc. through class a common stock held by entities controlled by the pre-ipo owners . the class b common stock provides medley group llc with a number of votes that is equal to 10 times the aggregate number of llc units held freedom 2021 , llc , an entity controlled by one of the pre-ipo owners of medley llc . from and after the time that the substantial ownership requirement is no longer satisfied , the class b common stock will provide medley group llc with a number of votes that is equal to the aggregate number of llc units held by freedom 2021 , llc that does not itself hold shares of class b common stock . ( 2 ) if freedom 2021 llc exchanged all of its llc units for shares of class a common stock , it would hold 1.6 % of the outstanding shares of class a common stock , entitling it to an equivalent percentage of economic interests and voting power in medley management inc. , medley group llc would hold no voting power or economic interests in medley management inc. and medley management inc. would hold 100 % of outstanding llc units and 100 % of the voting power in medley llc . ( 3 ) medley llc holds 95.5 % of the class b economic interests in mcof management llc . 41 ( 4 ) medley llc holds 96.5 % of the class b economic interests in medley ( aspect ) management llc . ( 5 ) certain employees , former employees and former members of medley llc hold approximately 40.3 % of the limited liability company interests in mof ii gp llc , the entity that serves as general partner of mof ii , entitling the holders to share the carried interest earned from mof ii . ( 6 ) medley gp holdings llc holds 95.5 % of the class b economic interests in mcof gp llc . ( 7 ) medley gp holdings llc holds 96.5 % of the class b economic interests in medley ( aspect ) gp llc . ( 8 ) certain employees of medley llc hold approximately 70.1 % of the limited liability company interests in medley caddo investors llc , entitling the holders to share the carried earned from caddo investors holdings i llc . ( 9 ) certain employees of medley llc hold approximately 70.2 % of the limited liability company interests in medley avantor investors llc , entitling the holders to share the carried earned from medley tactical opportunities llc . ( 10 ) certain employees of medley llc hold approximately 69.9 % of the limited liability company interests in medley real d investors llc , entitling the holders to share the carried earned from medley real d ( annuity ) llc .
| other revenues and fees decreased by $ 1.8 million , or 19 % , to $ 7.9 million during the year ended december 30 , 2020 as compared to the same period in 2019. the decrease was due primarily to lower administration fees for services provided to our permanent capital vehicles as well a decline in loan closing fees . investment income ( loss ) . investment loss , net increased by approximately $ 0.4 million to a net investment loss of $ 0.8 million during the year ended december 31 , 2020 compared to the same period in 2019. the increase in investment loss was due primarily to a decrease in carried interest earned during 2020 as compared to 2019. expenses compensation and benefits . compensation and benefits expenses decreased by $ 7.4 million , or 26 % , to $ 21.5 million for the year ended december 31 , 2020 as compared to the same period in 2019. the decrease was due primarily to a decrease in average employee headcount , stock compensation and a reduction in discretionary bonuses , offset in part , by an increase in severance expense . general , administrative and other expenses . general , administrative and other expenses decreased by $ 0.7 million , or 4 % , to $ 16.4 million during the year ended december 31 , 2020 compared to the same period in 2019. the decrease was due primarily to lower travel , office expense and expenses associated with our previously consolidated fund in 2019 of $ 0.4 million . this decrease was offset in part by an increase in professional fees , primarily driven by costs associated with our terminated merger with sierra , costs associated with our debt restructuring and regulatory matter . other income ( expense ) dividend income . dividend income decreased by $ 1.0 million to $ 0.2 million during the year ended december 31 , 2020 compared to the same period in 2019. the decrease was due to us no longer holding any shares of mcc in 2020 and sic temporary suspending its
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the company generally bears all costs , risk of loss or damage and retains title to the goods up to the point of transfer of control of promised products to customer . revenue related to the sale of consignment inventories at customer vendor managed locations is not recognized until the products are pulled from consignment inventories by customers . in instances where acceptance of the product or solutions is specified by the customer , revenue is deferred until such required acceptance criteria have been met . shipping and handling costs are included in the cost of goods sold . the company presents revenue net of sales taxes and any similar assessments . stock-based compensation expense we grant stock options , stock appreciation units and restricted stock units to employees , directors and consultants . stock purchase rights are granted to our employees . stock-based awards are accounted for at fair value as of the measurement date using the black-scholes-merton option-pricing model , the lattice-binominal option-pricing model or stock prices . for stock options and restricted stock units , the measurement date is the grant date and for employee 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 . 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 , or the market price of our common shares , used in the option-pricing models change , our stock-based compensation expense could materially change our consolidated financial statements . business combinations we allocate the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values . the excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill . when determining the fair values of assets acquired and liabilities assumed , management makes significant estimates and assumptions , especially with respect to intangible assets . critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships and acquired patents and developed technology ; and discount rates . fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability . such assumptions are believed to be reasonable but are inherently uncertain and unpredictable and , as a result , actual results may differ from estimates . amounts recorded in a business combination may change during the measurement period , which is a period not to exceed one year from the date of acquisition , as additional information about conditions existing at the acquisition date becomes available . 40 goodwill and long-lived assets our methodology for allocating the purchase price relating to purchase acquisitions is determined through established valuation techniques . goodwill represents a residual value as of the acquisition date , which generally results in measuring goodwill as an excess of the purchase consideration transferred plus the fair value of any noncontrolling interest in the acquired company over the fair value of net assets acquired , including any contingent consideration . we perform annual goodwill impairment test in the fourth fiscal quarter by reporting unit . we could be subject to additional goodwill impairment tests in the event of changes in industry and market conditions , our business and reporting structure . during the fourth quarter of fiscal 2018 , we performed the first step of the two-step goodwill impairment test and a sensitivity analysis for goodwill impairment and determined that the estimated fair value substantially exceeded the carrying value of the underlying goodwill and a hypothetical 10 % decline in the fair value of the reporting unit would not result in an impairment of goodwill . 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 . valuation of inventories we record inventories at the lower of cost ( using the first-in , first-out method ) or net realizable value , 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 . write-downs of excess and obsolete inventory are charged to cost of goods sold . story_separator_special_tag 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 . in 2018 , 2017 and 2016 , inventory write-down charges were approximately $ 6.1 million , $ 8.3 million and $ 3.0 million , respectively . warranty liabilities we provide warranties to cover defects in workmanship , materials and manufacturing of our products to meet stated functionality specifications . 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 . we recorded warranty expense of $ 0.4 million , $ 1.3 million and $ 0.1 million for each of the years ended december 31 , 2018 , 2017 and 2016 , respectively . 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 . 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 . 41 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 . any adjustment to the deferred tax asset valuation allowance would be recorded in the consolidated statement of operations in the period that the adjustment is determined to be required . story_separator_special_tag style= '' line-height:120 % ; padding-bottom:12px ; text-indent:30px ; font-size:10pt ; '' > in 2017 , gross profit decreased $ 55.7 million , or 48 % , to $ 61.5 million in 2017 , compared to $ 117.1 million in 2016. our gross margin percent decreased by approximately eight percentage points to 21 % in 2017 as compared to 2016. approximately 6 percentage points of the decline in gross margin was driven by under-utilization attributable to lower volumes in our manufacturing plants , approximately 1.6 percentage points of the decline was due to inventory write-downs and reserves for non-cancelable purchase orders associated with excess inventory related to the demand reductions from china based customers and higher warranty reserves related to a quality rework requirement . these production volume declines were driven by : ( a ) lower end customer demand and therefore the need to decrease production and reduce inventory ; and ( b ) lower output volumes at our wafer fabrication facility in japan due to lower yields where we had end customer demand but could not support the demand with production output . approximately 1 percentage point of the decline was driven by restructuring costs and discontinued product inventory write-downs related to our decisions to end-of life certain products . these gross margin reductions were offset by lower intangible amortization and stock-based compensation charges in 2017 which contributed 1.4 percentage points of improvement . we expect that our gross profit and gross margin are likely to increase in 2019 due to a variety of factors , including favorable product mix , vertical integration , reduced amortization expense for purchased intangible assets and introduction of new products . other factors that can affect our gross margin include production volume , inventory changes , changes in the average selling prices of our products , changes in the cost and volumes of materials purchased from our suppliers , changes in labor costs , changes in overhead costs or requirements , revaluation of stock appreciation unit awards that are impacted by our stock price , write-downs of excess and obsolete inventories and warranty costs . in addition , we periodically negotiate pricing with certain customers which can cause our gross margins to fluctuate , particularly in the quarters subsequent to the periods in which the negotiations occurred . operating expenses replace_table_token_11_th research and development we focus our research and development effort primarily on the high speed market .
| revenue from hisilicon represented approximately 40 % , 37 % and 36 % of total revenue , respectively , in 2018 , 2017 and 2016. for the years ended december 31 , 2018 , 2017 and 2016 , our percentage of sales from our china-based subsidiaries , the majority of which were denominated in rmb , were 1 % , 1 % and 4 % , respectively . the following tables present share of revenue by product group and geographical region : replace_table_token_7_th replace_table_token_8_th total revenue increased by $ 29.6 million , or 10 % , in 2018 compared to 2017. the increase was the result of a normalization of demand in china and increased demand for high speed products for dci and metro applications in north america and europe as described further in the section entitled `` business overview '' above . changes in our geographic split are largely driven by changes in the location of our customer 's contract manufacturing locations . total revenue decreased by $ 118.5 million , or 29 % , in 2017 compared to 2016. the decrease was approximately equally attributable to a reduction in demand from china telecom carrier tender awards with an inventory overhang at our chinese customers as described further in the section entitled `` business overview '' above and lower revenue that resulted from the sale of assets related to our low speed transceiver products in january 2017. revenue generated by low speed transceiver products before the asset sale was $ 1.5 million in 2017 , compared to $ 63.6 million in 2016. in 2019 , we expect to continue growth in revenue from our high speed products . we also expect that a significant portion of our revenue will continue to be derived from a limited number of customers . cost of goods sold and gross margin replace_table_token_9_th replace_table_token_10_th our cost of goods sold consists primarily of the cost to produce wafers , modules and to manufacture and test our products . additionally , our cost of goods sold includes stock-based compensation , write-downs of excess and obsolete inventory , royalty payments , amortization of certain purchased intangible assets , depreciation , acquisition-related fair value adjustments ,
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total net product sales for the fourth quarter of 2015 were $ 42.6 million , compared to total net product sales of $ 30.5 million for the same quarter last year , an increase of 39.6 % . operating income for the year ended december 31 , 2015 totaled $ 17.7 million . excluding the $ 30 million royalty revenue recognized in 2014 , operating loss for 2014 was $ 5.6 million . operating income increased by $ 23.3 million from year ended december 31 , 2014 to year ended december 31 , 2015 . 64 we have received several paragraph iv notice letters concerning oxtellar xr and trokendi xr from various third-parties . in response to these paragraph iv notice letters , we have initiated litigation against these third parties alleging infringement of our intellectual property rights . we intend to vigorously defend our intellectual property rights in each of these cases . we anticipate continuing to incur increasing amounts of legal fees and related expenses for these cases as they progress . ( see part i , item 3legal proceedings for additional information . ) we initiated two phase iii clinical trials for spn-810 during the third quarter of 2015 and a phase iib clinical trial for spn-812 in the fourth quarter of 2015. on february 8 , 2016 , the company announced a ruling that three patents covering oxtellar xr were valid and that actavis infringed on two of these three patents by submitting an anda to the fda . we expect to incur significant research and development expenses related to the continued development of each of our product candidates , with total cost of approximately $ 100 million for each of the two programs through fda approval . critical accounting policies and the use of estimates the significant accounting policies and bases of presentation for our consolidated financial statements are described in note 2 `` summary of significant accounting policies . '' the preparation of our financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and the disclosure of contingent assets and liabilities . actual results could differ from those estimates . we believe the following accounting policies and estimates to be critical : revenue recognition and net sales deductions revenue from product sales is recognized when persuasive evidence of an arrangement exists ; delivery has occurred and title to the product and associated risk of loss has passed to the customer ; the price is fixed or determinable ; collection from the customer has been reasonably assured ; all performance obligations have been met ; and returns and allowances can be reasonably estimated . product sales are recorded net of estimated rebates , chargebacks , discounts , co-pay assistance and other deductions as well as estimated product returns ( collectively , `` sales deductions '' ) . we derive our estimated sales deductions from an analysis of historical levels of deductions specific to each product . in addition , we also consider the impact of anticipated changes in product price , sales trends and changes in managed care coverage and co-pay assistance . for a complete description of trokendi xr and oxtellar xr gross revenues and gross to net adjustments , see part ii , item 8 , financial statements and supplemental data , note 2 , revenue recognition . in the third quarter of 2014 , the company recognized $ 30.0 million in revenue from a royalty agreement related to healthcare royalty 's ( hc royalty ) purchase of certain of the company 's rights under the license agreement with united therapeutics corporation related to the commercialization of orenitram . the company recognized this revenue immediately because ( 1 ) the executed contract constituted persuasive evidence of an arrangement , ( 2 ) the delivery of the license had occurred and the company has no current or future performance obligations , ( 3 ) the total consideration for the license amendment was fixed and known at the time of its execution and there were no rights of return , and ( 4 ) the cash was received and is non-refundable . 65 deferred legal fees deferred legal fees are comprised of costs incurred in connection with defense of patents for oxtellar xr and trokendi xr ( see part i , item 3legal proceedings ) . deferred legal fees have been incurred in connection with legal proceedings related to patents for oxtellar xr and trokendi xr ( see part ii , item 8financial statements and supplementary data , note 6 ) . amortization of the deferred legal fees will begin upon successful outcome of the on-going litigation . deferred legal fees will be charged to expense in the event of an unsuccessful outcome of the on-going litigation . research and development expenses research and development expenditures are expensed as incurred . research and development costs primarily consist of employee-related expenses , including salaries and benefits ; share-based compensation expense ; expenses incurred under agreements with clinical research organizations ( cros ) , investigative sites , consultants and other vendors that conduct the company 's clinical trials ; the cost of acquiring and manufacturing clinical trial materials ; the cost of manufacturing materials used in process validation , to the extent that those materials are manufactured prior to receiving regulatory approval for those products and are not expected to be sold commercially ; facilities costs that do not have an alternative future use ; related depreciation and other allocated expenses ; license fees for and milestone payments related to in-licensed products and technologies ; and costs associated with animal testing activities and regulatory approvals . story_separator_special_tag royalty , resulting in payment of $ 30 million for certain rights related to orenitram . licensing revenue . story_separator_special_tag the licensing revenue for the year ended december 31 , 2014 consisted primarily of the united therapeutics corporation milestone payment of $ 2.0 million under their license agreement with the company . there was no revenue generated from the achievement of milestones in the year ended december 31 , 2013. research and development expense . research and development expenses during the year ended december 31 , 2014 were $ 19.6 million as compared to $ 17.2 million for the year ended december 31 , 2013 , an increase of $ 2.4 million or 13.5 % . this increase is due to preclinical trials , clinical trials and manufacturing scale up for both of our product candidates , spn-810 and spn-812 . selling , general and administrative expenses . our selling , general and administrative expenses were $ 72.5 million during the year ended december 31 , 2014 as compared to $ 55.6 million for the year ended december 31 , 2013 , an increase of $ 16.9 million or 30.4 % . this increase was mainly due to increased compensation and travel expense due to the expansion of our sales force during the year ended december 31 , 2014 , coupled with increased marketing expenses such as sample distribution to support the growth of oxtellar xr and trokendi xr . interest expense . interest expense decreased from $ 7.8 million for the year ended december 31 , 2013 to $ 5.0 million during the year ended december 31 , 2014. the decrease of $ 2.8 million was primarily due to a decrease in the principal amount of our outstanding notes , from $ 49.5 million at january 1 , 2014 to $ 36.1 million at december 31 , 2014. changes in fair value of derivative liability . during the year ended december 31 , 2014 , we recognized a non-cash gain of $ 2.8 million related to a change in estimated fair value of the interest make-whole derivative liability related to our notes . this gain is primarily due to the passage of time and because our stock price remains above the $ 5.30 conversion price . we recognized a non-cash expense of $ 13.4 million associated with the interest make-whole derivative during the year ended december 31 , 2013 , due primarily to the effect of the increase in our stock price on the valuation of the derivative liability . loss on extinguishment of debt . during the year ended december 31 , 2014 , we recognized a non-cash loss on extinguishment of debt of $ 2.6 million related to the conversion of $ 13.4 million of our notes . during the year ended december 31 , 2013 , we recognized a non-cash charge of $ 8.4 million related to the conversion of $ 40.5 million of our notes and $ 1.2 million on extinguishment of our secured credit facility . net income/ ( loss ) . we realized net income of $ 19.9 million during the year ended december 31 , 2014 as compared to a net loss of $ 92.3 million during the year ended december 31 , 2013 , a change of $ 112.2 million . excluding the one-time payment of $ 30 million received from healthcare royalty during 2014 , there would have been a net loss of $ 10.1 million at year ended december 31 , 2014. this increase in net income was primarily due to revenue generated from our two commercial products , oxtellar xr and trokendi xr , partially offset by increased expenses incurred associated with the expansion of our sales force , higher marketing expenses , and increased research and development expenses . liquidity and capital resources we believe our increasing levels of net product sales will be sufficient to finance our operations in 2016 and subsequent years , including the increased research and development expenses for our clinical trials . we expect to incur significantly increased r & d expenses in 2016 and in subsequent years to support 69 the development of spn-810 and spn-812 including the phase iii trials for spn-810 , the phase iib trial for spn-812 , and follow on phase iii trials for spn-812 . our working capital at december 31 , 2015 was $ 49.9 million , a decrease of $ 31.5 million compared to our working capital of $ 81.4 million at december 31 , 2014. our long term marketable securities at december 31 , 2015 were $ 55.0 million , an increase of $ 35.2 million compared to our long term marketable securities of $ 19.8 million at december 31 , 2014. our stockholders ' equity increased by $ 47.5 million during the year ended december 31 , 2015 primarily as a result of the issuance of shares related to the conversion of our notes , coupled with net income of $ 14.0 million . in july 2014 , we entered into a royalty interest acquisition agreement with hc royalty . pursuant to this interest acquisition agreement , hc royalty paid us $ 30.0 million in consideration for acquiring certain royalty and milestone rights related to the commercialization of orenitram ( treprostinil ) extended-release tablets by united therapeutics corporation . full ownership of the royalty rights will revert back to us after a certain threshold has been reached per the terms of the agreement . in addition to income from operations , we have historically financed our business through the sale of our debt and equity securities . our most recent financing occurred may 3 , 2013 , when we issued $ 90.0 million aggregate principal amount of notes to qualified institutional buyers , the initial purchasers of the notes ( initial purchasers ) . as of december 31 , 2015 , holders of the notes have converted a total of approximately $ 81.5 million of the notes .
| during 2015 , we initiated two phase iii trials for spn-810 and a phase iib trial for spn-812 . we expect r & d costs to increase significantly in 2016 and beyond , as we continue to advance these trials and the related development activities for both of these programs . selling , general and administrative expenses . our selling , general and administrative expenses were $ 89.2 million during the year ended december 31 , 2015 as compared to $ 72.5 million for the year ended december 31 , 2014 , an increase of $ 16.7 million or 23.1 % . the increase in sg & a expenses is primarily due the continued expansion of our sales and marketing efforts for both trokendi xr and oxtellar xr , including promotional material and grants . in addition , we expended effort to prepare for the launch of the migraine indication for trokendi xr in 2016. interest expense . interest expense was $ 1.2 million during the year ended december 31 , 2015 as compared to $ 5.0 million for the year ended december 31 , 2014. the decrease of $ 3.8 million was primarily due to a decrease in the principal amount of our outstanding 7.5 % convertible senior secured notes due in 2019 ( the notes ) from $ 36.1 million at december 31 , 2014 to $ 8.5 million at december 31 , 2015. during the year ended december 31 , 2015 , the $ 27.5 million of notes and related accrued interest converted into 5.7 million common stock . changes in fair value of derivative liability . during the year ended december 31 , 2015 , we recognized a non-cash gain of $ 0.2 million related to a change in estimated fair value of the interest make-whole derivative liability related to our notes . this gain is primarily due to the passage of time and because our stock price remains above the $ 5.30 conversion price . during the year ended december 31 , 2014 , we recognized a non-cash gain of $ 2.8 million related to a
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annualized subscription revenue is calculated by multiplying the daily subscription revenue recognized on the last day of the fiscal year by 365. this calculation includes the impact on our revenues from customer non-renewals , deployments of additional users or decreases in users , deployments of additional solutions or discontinued use of solutions by our customers , and price changes for our solutions . historically , the impact of price changes on our subscription services revenue retention rate has been minimal . for our fiscal years ended january 31 , 2015 , 2014 and 2013 , our subscription services revenue retention rate was 138 % , 166 % and 187 % , respectively . mix of subscription and professional services revenues . we believe our investments in professional services have driven customer success and facilitated the further adoption of our solutions by our customers . during the initial period of deployment by a customer , we generally provide a greater amount of configuration , implementation and training than later in the deployment . at the same time , many of our customers have historically purchased subscriptions for only a limited set of their total potential users during their initial deployments . as a result of these factors , the proportion of total revenues for a customer associated with professional services is relatively high during the initial deployment period . over time , as the need for professional services associated with user deployments decreases and the number of users often increases , we have observed and continue to expect the mix of total revenues to shift more toward subscription services revenues . as a result , we expect the proportion of our total revenues from subscription services to increase over time . components of results of operations revenues we derive our revenues primarily from subscription services fees and professional services fees . subscription services revenues consist of fees from customers accessing our cloud-based software solutions . professional services revenues consist primarily of fees from implementation services , configuration , data services , training and managed services related to our solutions . for our fiscal year ended january 31 , 2015 , subscription services revenues constituted 74 % of total revenues and professional services and other revenues constituted 26 % of total revenues . in our fiscal year ended january 31 , 2015 , we derived approximately 89 % of our subscription services revenues from our multichannel veeva crm solution family . we enter into master subscription agreements with our customers and count each distinct master subscription agreement that has not terminated or expired as a distinct customer for purposes of determining our total number of current customers . as of january 31 , 2015 , 2014 and 2013 , we served 276 , 198 and 134 life sciences customers , respectively . we generally enter into a single master subscription agreement with each customer , although in some instances , affiliated legal entities within the same corporate family may enter into a separate master subscription agreement . divisions , subsidiaries and operating units of our customers often place distinct orders for our subscription services under the same master subscription agreement , and we do not count such distinct orders as new customers for purposes of determining our total customer count . with respect to data services customers that have not purchased one of our software solutions , we count as a distinct customer the party to each agreement that has a known and recurring payment obligation . new subscription orders typically have a one-year term and automatically renew unless notice of cancellation is provided in advance . if a customer adds users or solutions to an existing order , such additional orders will generally be coterminous with the initial order , and as a result , orders for additional users or solutions will commonly have an initial term of less than one year . subscription orders are generally billed at the subscription commencement date in annual or quarterly increments . because the term of orders for additional users or solutions is commonly less than one year and payment terms may be quarterly , the annualized value of the orders we enter into with our customers will not be completely reflected in deferred revenue at any single point in time . accordingly , we do not believe that change in deferred revenue or calculated billings , a metric commonly cited by financial analysts that is the sum of the change in deferred revenue plus revenue , are accurate indicators of future revenues for any given period of time . subscription services revenues are recognized ratably over the order term beginning when the solution has been provisioned to the customer . our subscription services agreements are generally non-cancelable during the term , although customers typically have the right to terminate their agreements for cause in the event of material breach . subscription services revenues are affected primarily by the number of customers , the number of users ( or other subscription usage metric ) at each customer that uses our solutions and the number of solutions subscribed to by each customer . we utilize our own professional services personnel and , in certain cases , third-party subcontractors to perform our professional services engagements with customers . our professional services engagements are primarily billed on a time and materials basis and revenues are typically recognized as the services are rendered . certain professional services revenues are based on fixed fee 37 arrangements and revenues are recognized based on progress against input measures , such as hours incurred . in some cases , the terms of our time and materials and fixed fee arrangements may require that we defer the recognition of revenue until contractual conditions are met . in those circumstances , revenue recognition may be sporadic , based upon the achievement of such contractual conditions . professional services revenues are affected primarily by our customers ' demands for implementation services , configuration , data services , training and managed services in connection with our solutions . story_separator_special_tag cost of revenues cost of subscription services revenues for all of our solutions consists of third-party expenses related to data centers , personnel related costs associated with hosting our subscription services and providing support , including our data stewards , operating lease expense associated with computer equipment and software and allocated overhead , amortization expense associated with capitalized internal-use software related to our subscription services and amortization expense associated with purchased intangibles related to our subscription services . cost of subscription services revenues for veeva crm and certain of our related multichannel crm solutions also include fees paid to salesforce.com , inc. for our use of the salesforce1 platform and the associated hosting infrastructure and data center operations that are provided by salesforce.com . we intend to continue to invest additional resources in our subscription services to broaden our product offerings and increase our delivery capacity . for example , we may open additional data centers , expand our current data centers in the future and continue to make investments in the availability and security of our solutions . the timing of when we incur these additional expenses will affect our cost of revenues in absolute dollars in the affected periods . cost of professional services and other revenues consists primarily of employee-related expenses associated with providing these services , including salaries , benefits and stock-based compensation expense , the cost of third-party subcontractors , travel costs and allocated overhead . the cost of providing professional services is significantly higher as a percentage of the related revenues than for our subscription services due to the direct labor costs and costs of third-party subcontractors . operating expenses we accumulate certain costs such as office rent , utilities and other facilities costs and allocate them across the various departments based on headcount . we refer to these costs as “ allocated overhead. ” research and development . research and development expenses consist primarily of employee-related expenses , third-party consulting fees and allocated overhead , offset by capitalized internal-use software development costs . we continue to focus our research and development efforts on adding new features and applications , increasing the functionality and enhancing the ease of use of our cloud-based applications . sales and marketing . sales and marketing expenses consist primarily of employee-related expenses , sales commissions , marketing program costs , travel-related expenses and allocated overhead . sales commissions and other program spend costs are expensed as incurred . general and administrative . general and administrative expenses consist of employee-related expenses for our executive , finance and accounting , legal , employee success , management information systems personnel and other administrative employees . in addition , general and administrative expenses include third-party professional services costs , including legal costs and professional fees , other corporate expenses and allocated overhead . other expense , net other expense , net consists primarily of transaction gains or losses on foreign currency , net of interest income and amortization of investments . provision for income taxes provision for income taxes consists of federal and state income taxes in the united states and income taxes in certain foreign jurisdictions . see note 10 of the notes to our consolidated financial statements . 38 story_separator_special_tag 70 % of total revenues for fiscal 2014 , compared to 57 % of total revenues for fiscal 2013 , reflecting the growth in our subscription services revenues as our customers expanded their use of our solutions across new divisions , new geographies , and new products . costs and expenses replace_table_token_10_th fiscal 2015 compared to fiscal 2014. cost of revenues increased $ 33.1 million , of which $ 18.8 million was related to cost of subscription services . the increase in cost of subscription services was primarily due to an increase in the number of users of our subscription services , which drove an increase of $ 14.3 million in fees paid to salesforce.com , a $ 1.3 million increase in employee compensation-related costs , a $ 0.9 million increase in third-party server costs , and a $ 0.6 million increase in amortization of purchased intangibles . we expect cost of subscription services revenues to increase in absolute dollars in the near term , as we expect our subscription services revenues to increase from the renewal of existing orders and the execution of new orders . cost of professional services and other revenues increased $ 14.2 million , primarily due to a $ 9.8 million increase in employee compensation-related costs ( which includes the impact of an increase of $ 1.4 million in stock-based compensation and a 13 % increase 41 in the headcount of our professional services team ) and an increase of $ 3.5 million in third-party subcontractor costs . we expect cost of professional services and other revenues to increase as we add personnel to our professional services organization worldwide . fiscal 2014 compared to fiscal 2013. cost of revenues increased $ 25.6 million , of which $ 17.3 million was related to cost of subscription services . the increase in cost of subscription services was primarily due to an increase in the number of users of our subscription services , which drove an increase of $ 13.9 million in fees paid to salesforce.com , a $ 0.9 million increase in amortization of purchased intangibles , a $ 0.8 million increase in employee compensation-related costs , a $ 0.6 million increase in third-party server costs and a $ 0.5 million increase of amortization of internal-use software costs . cost of professional services and other revenues increased $ 8.2 million , primarily due to a $ 8.7 million increase in employee compensation-related costs ( which includes the impact of an increase of $ 0.8 million in stock-based compensation and a 46 % increase in the headcount of our professional services team ) , a $ 1.5 million increase in allocated overhead and other expenses and a $ 0.8 million increase in travel-related costs . these increases were partially offset by a decrease of $ 2.7 million in third-party subcontractor costs .
| professional 40 services revenues from north america , as measured by the estimated location of the user for which the services were performed , made up 59 % of professional services revenues in fiscal 2015 and 56 % of professional services revenues in fiscal 2014. subscription services revenues were 74 % of total revenues for fiscal 2015 , compared to 70 % of total revenues for fiscal 2014 , reflecting the growth in our subscription services revenues as our customers expanded their use of our solutions across new divisions , new geographies , and new products . fiscal 2014 compared to fiscal 2013. total revenues increased $ 80.6 million , of which $ 73.3 million was from subscription services revenues . twenty-seven percent of the increase in subscription services revenues was attributable to orders from existing customers that were placed on or prior to january 31 , 2013 and the renewal of such orders through january 31 , 2014. seventy-three percent of the increase in subscription services revenues was attributable to new orders placed after january 31 , 2013 to deploy our solutions to additional users within our existing customer base and to new users at new customers . new orders from existing customers consisted of expanded use of our solutions within a given customer and the addition of solutions not previously utilized by a given customer . subscription services revenues from north america , as measured by the estimated location of the end users for subscription services , made up 61 % of subscription services revenues in fiscal 2014 and 72 % of subscription services revenues in fiscal 2013. this shift in geographic revenue mix was primarily due to the more rapid rate of revenue growth from deployments in both europe and asia as compared to north america . professional services and other revenues increased $ 7.3 million . the increase in professional services revenues was due primarily to new customers requesting implementation and deployment related professional services , and existing customers requesting professional services related to expanding deployments or the deployment of newly purchased solutions . professional
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the following tables present our key operating data for the years ended december 31 , 2016 , 2017 , and 2018 : replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th ( 1 ) as noted above , amounts include our proportionate share of the gges sold as cng by our joint venture mcep . gges sold by this joint venture were 0.5 million , 0.5 million and 0.5 million for the years ended december 31 , 2016 , 2017 and 2018 , respectively . ( 2 ) represents rng sold as non-vehicle fuel . rng sold as vehicle fuel , is sold under the brand name redeem and is included in this table in the cng or lng amounts as applicable based on the form in which it was sold . we sold 58.6 million , 78.5 million and 110.1 million gges of redeem for the years ended december 31 , 2016 , 2017 and 2018 , respectively . ( 3 ) represents gasoline gallon equivalents at stations where we provide both fuel and o & m services . ( 4 ) includes the following amounts of aftc revenue : $ 26.6 million , $ 0.0 million and $ 26.7 million for the years ended december 31 , 2016 , 2017 and 2018 , respectively . ( 5 ) for the year ended december 31 , 2017 , gross margin includes an inventory valuation provision of $ 13.2 million . see note 3 for more information regarding the inventory valuation provision . ( 6 ) for the year ended december 31 , 2018 , gross margin includes an unrealized gain from the change in fair value of commodity swap contracts of $ 10.3 million . see note 8 for more information regarding the commodity swap contracts . 2018 -2019 developments zero now truck financing program . we have launched the zero now truck financing program , which is intended to facilitate and increase the deployment of commercially available ultra-low nox natural gas heavy-duty trucks in the united states and encourage these operators to fuel their trucks at our stations . the zero now program is unique and complex , and has involved 27 our entry into various arrangements in order to launch the program , including a term credit agreement for delayed draw loans of up to $ 100.0 million ; a credit support agreement with thusa , a wholly owned subsidiary of total , under which thusa has guaranteed our obligations under the term credit agreement in exchange for a quarterly fee ; and commodity swap arrangements with an affiliate of thusa and total covering five million diesel gallons of natural gas fuel volume annually from april 2019 through june 2024 , which are intended to manage diesel price fluctuation risks related to the natural gas fuel supply commitments we expect to make in our anticipated fueling agreements with fleet operators that participate in the zero now program . see the disclosure under “ customer markets-trucking ” in item 1. business and the disclosure in item 9b of this report for information about these agreements and the structure of the program . debt repurchase . in december 2018 , we purchased from the holders thereof all outstanding 7.5 % convertible notes due july 2019 , having an aggregate outstanding principal amount of $ 50.0 million , for a cash purchase price of $ 50.5 million . upon such purchase , all such notes were surrendered and canceled in full and we have no further obligations under these notes . as a result of the early retirement of these notes we expect to save $ 1.7 million in interest expense in 2019. see note 13 for more information about our outstanding debt . expanded bp rng supply agreement . in october 2018 , our supply agreement with bp was amended to extend the term and add additional rng supply . we share with bp in the rins and lcfs credits generated from the increased rng supply sold through our vehicle fueling infrastructure and to other customers . full cash repayment of 5.25 % notes . on october 1 , 2018 , we paid to the holders of our 5.25 % convertible senior notes due october 2018 , in cash , all amounts then owed under the notes , totaling an aggregate of $ 110.5 million in principal amount plus $ 2.9 million in accrued and unpaid interest . upon such payment , all such notes were surrendered and canceled in full and we have no further obligations under these notes . see note 13 for more information about this debt repayment . total private placement . on may 9 , 2018 , we entered into a stock purchase agreement with total marketing services , s.a. ( “ total ” ) , a wholly owned subsidiary of total , for the sale and issuance to total of up to 50,856,296 shares of our common stock for a per share purchase price of $ 1.64 and an aggregate purchase price of $ 83.4 million , all in a private placement ( the “ total private placement ” ) . the total private placement closed on june 13 , 2018 , upon the satisfaction of all conditions to closing . we have used , and expect to continue to use , the net proceeds from the total private placement for working capital and general corporate purposes , which may include executing our business plans , pursuing opportunities for further growth , and retiring a portion of our outstanding indebtedness . story_separator_special_tag the agreements related to the total private placement also contain representations , warranties and covenants made by us and total regarding , among other matters , certain director designation rights we have granted to total ( along with undertakings by certain of our stockholders , including all of our directors and executive officers , to vote their shares in favor of such director designees in future elections of directors ) , certain registration rights we have granted to total for the shares that were issued and sold , certain limitations on total 's purchase of additional securities of our company without the approval of our board of directors , and various other matters that are customary for transactions of this nature . aftc . the aftc , which had previously expired on december 31 , 2016 , was reinstated on february 9 , 2018 to apply to vehicle fuel sales made from january 1 , 2017 through december 31 , 2017. as a result , all aftc revenue for vehicle fuel we sold in the 2017 calendar year , which totaled $ 25.2 million , was recognized and collected during the year ended december 31 , 2018. the aftc credit for 2017 was equal to $ 0.50 per gasoline gallon equivalent of cng that we sold as vehicle fuel , and $ 0.50 per diesel gallon of lng that we sold as vehicle fuel . in addition , during the year ended december 31 , 2018 , the internal revenue service approved , and we recognized as revenue , $ 1.5 million of aftc credit claims related to prior years . aftc is not currently available , and may not be reinstated , for vehicle fuel sales made after december 31 , 2017. debt level and debt compliance as of december 31 , 2018 , we had total indebtedness of $ 84.4 million in principal amount , of which approximately $ 5.5 million is expected to become due in 2019 . certain of the agreements governing our outstanding debt , which are discussed in note 13 , have certain non-financial covenants with which we must comply . as of december 31 , 2018 , we were in compliance with all of these covenants . business risks and uncertainties our business and prospects are exposed to numerous risks and uncertainties . see “ item 1a . risk factors ” of this report for more information . 28 key trends market for natural gas as a vehicle fuel cng and lng are generally less expensive than gasoline and diesel on an energy equivalent basis . additionally , according to studies conducted by carb and the argonne national laboratory , cng and lng are cleaner than gasoline and diesel fuel based on the greenhouse gas emissions produced by vehicles operated by these fuels . according to the u.s. energy information administration , demand for natural gas fuels in the united states has increased in recent years and is expected to continue to increase . we believe this historical and expected future growth in demand is attributable primarily to the higher prices of gasoline and diesel relative to cng and lng , the increasingly stringent environmental regulations affecting vehicle fleets and the plentiful and domestic supply of natural gas . the market for natural gas as a vehicle fuel , however , is a relatively new and developing market . as a result , it is challenging to accurately predict natural gas vehicle fuel demand , in general and in any specific geographic and customer markets , and consequently our timing and level of investment in particular markets may not be consistent with any growth in demand in these markets . further , the new and developing nature of the natural gas vehicles fuel market has led to slow , volatile or unpredictable growth in many sectors . for example , to date , adoption and deployment of natural gas vehicles , in general and in certain of our key customer markets , including heavy-duty trucking , have been slower and more limited than we anticipated . also , other important markets , including airports , refuse and public transit , have experienced fluctuations in their natural gas adoption , including slower volume and customer growth in 2018 that could continue in future periods . moreover , adoption of and demand for the different types of natural gas vehicle fuel , including rng , cng and lng , are subject to significant fluctuations , including decreased lng volumes in some markets in recent periods that may continue in the future and may not be sufficiently offset by any increase in demand for rng or cng . we believe these market conditions have contributed to our lower revenue levels in recent periods . we believe the slow growth and unpredictability of the market for natural gas vehicle fuels has been caused by a number of factors , including the following : since approximately mid-2014 , the prices of oil , gasoline , diesel and natural gas have been lower and more volatile , and these trends may continue . we believe these conditions have contributed to slower and more limited growth in the demand for natural gas as a vehicle fuel because the price advantage of natural gas compared to diesel and gasoline has decreased , and we expect adoption of natural gas as a vehicle fuel and growth in our customer base and revenue will continue to be negatively affected while oil and diesel prices remain low . in addition , these pricing conditions have led us to reduce the prices we charge some of our customers for cng and lng , which has reduced our profit margins . in recent years , there has been increased focus by some parties , including lawmakers , regulators , policymakers , environmental and advocacy organizations and other powerful groups , on electric or other alternative vehicles or vehicle fuels .
| 35 our effective price per gallon charged was $ 0.76 for 2018 and 2017 , excluding the $ 10.3 million change in fair value of derivative instruments discussed above . our effective price per gallon is defined as revenue generated from selling rng , cng , lng , and any related rins and lcfs credits and providing o & m services to our vehicle fleet customers at stations we do not own and for which we receive a per-gallon or fixed fee , all divided by the total gges delivered less gges delivered by non-consolidated entities , such as entities that are accounted for under the equity method . station construction sales decreased by $ 26.4 million between periods , principally due to fewer full station and station upgrade projects in process . compressor revenue decreased by $ 23.5 million between periods due to completion of the cec combination in december 2017 ( see note 4 ) . aftc revenue increased by $ 26.7 million between periods due to the absence of aftc in 2017 and our recognition in 2018 of aftc revenue for all of the vehicle fuel we sold in 2017. cost of sales . cost of sales decreased by $ 42.9 million to $ 212.9 million for 2018 , from $ 255.8 million for 2017 . this decrease was primarily due to a $ 27.2 million decrease in compressor manufacturing costs due to completion of the cec combination in december 2017 ( see note 4 ) , a $ 21.9 million decrease in station construction costs due to lower station construction sales , and a $ 13.2 million inventory valuation provision recorded in 2017 ( see note 3 for more information ) . this decrease was partially offset by an $ 8.0 million increase in gas commodity costs due to the increase in gallons delivered and a $ 7.0 million increase in costs to purchase used heavy
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on august 1 , 201 8 , we acq uired fee simple interests in six convenience store and gasoline station properties from a u.s. subsidiary of applegreen plc ( “ applegreen ” ) , the largest convenience store and gasoline station operator in the republic of ireland . these properties were simul taneously leased to a u.s. subsidiary of applegreen under a long-term triple-net unitary lease . the properties are located within the metropolitan market of columbia , sc . the total purchase price for the transaction was $ 17.4 million , which was funded with funds available under our revolving facility . in addition to the gpm and a pplegreen transactions , in 201 8 , we acquired fee simple interests in five convenience store and gasoline station , and other automotive related properties in various transactions for an aggregate purchase price of $ 8.0 million . during the year ended december 31 , 2017 , we acquired fee simple interests in 103 convenience store and gasoline station , and other automotive related properties for an aggregate purchase price of $ 214.0 million . included in these acquisitions was our september 6 , 2017 , acquisition of fee simple interests in 49 convenience store and gasoline station properties from empire petroleum partners llc ( “ empire ” ) . these properties were simultaneously leased to empire , a leading regional convenience store and gasoline station operator , under a long-term triple-net unitary lease . the properties are located primarily within metropolitan markets in the states of arizona , colorado , florida , georgia , louisiana , new mexico and texas . the total purchase price for the transaction was $ 123.1 million , which was funded with a combination of funds from our equity offering and funds available under our revolving facility . on october 3 , 2017 , we acquired fee simple interests in 33 convenience store and gasoline station properties and five stand-alone burger king quick service restaurants from a u.s. subsidiary of applegreen . these properties were simultaneously leased to a u.s. subsidiary of applegreen under a long-term triple-net unitary lease . the properties are located within the metropolitan market of columbia , sc . the total purchase price for the transaction was $ 68.7 million , which was funded with a combination of funds from our equity offering and funds available under our revolving facility . in addition to the empire and applegreen transactions , in 2017 , we acquired fee simple interests in 16 convenience store and gasoline station , and other automotive properties in various transactions for an aggregate purchase price of $ 22.2 million . redevelopment strategy and activity we believe that certain of our properties are located in geographic areas which , together with other factors , may make them well-suited for a new convenience and gasoline use or for alternative single-tenant net lease retail uses , such as quick service restaurants , automotive parts and service stores , specialty retail stores and bank branch locations . we believe that the redeveloped properties can be leased or sold at higher values than their current use . for the year ended december 31 , 2018 , rent commenced on six completed redevelopment projects that were placed back into service in our net lease portfolio . since the inception of our redevelopment program in 2015 , we have completed nine redevelopment projects . for the year ended december 31 , 2018 , we spent $ 2.7 million of construction-in-progress costs related to our redevelopment activities . during the year ended december 31 , 2018 , we transferred $ 2.2 million of construction-in-progress to buildings and improvements on our consolidated balance sheet . in addition , during the year ended december 31 , 2018 , we spent $ 4.4 million to reimburse tenants for capital expenditures related to our redevelopment activities . as of december 31 , 2018 , we were actively redeveloping six of our properties either as a new convenience and gasoline use or for alternative single-tenant net lease retail uses . in addition , to the six properties currently classified as redevelopment , we are in various stages of feasibility and planning for the recapture of select properties from our net lease portfolio that are suitable for redevelopment to either a new convenience and gasoline use or for alternative single-tenant net lease retail uses . as of december 31 , 2018 , we have signed leases on seven properties , that are currently part of our net lease portfolio , which will be recaptured and transferred to redevelopment when the appropriate entitlements , permits and approvals have been secured . asset impairment we perform an impairment analysis for the carrying amounts of our properties in accordance with gaap when indicators of impairment exist . we reduced the carrying amounts to fair value , and recorded in continuing and discontinued operations , impairment charges aggregating $ 6.2 million and $ 9.3 million for the years ended december 31 , 2018 and 2017 , respectively , where the carrying amounts of the properties exceed the estimated undiscounted cash flows expected to be received during the assumed holding period which includes the estimated sales value expected to be received at disposition . the impairment charges were attributable to the effect of adding asset retirement costs due to changes in estimates associated with our environmental liabilities , which increased the carrying values of certain properties in excess of their fair values , reductions in estimated undiscounted cash flows expected to be received during the assumed holding period for certain of our properties , and reductions in estimated sales prices from third-party offers based on signed contracts , letters of intent or indicative bids for certain of our properties . the evaluation of and estimates of anticipated cash flows used to conduct our impairment analysis are highly subjective and actual results could vary significantly from our estimates . story_separator_special_tag 31 supplemental non-gaap measures we manage our business to enhance the value of our real estate portfolio and , as a reit , place particular emphasis on minimizing risk , to the extent feasible , and generating cash sufficient to make required distributions to stockholders of at least 90 % of our ordinary taxable income each year . in addition to measurements defined by gaap , we also focus on funds from operations ( “ ffo ” ) and adjusted funds from operations ( “ affo ” ) to measure our performance . ffo and affo are generally considered by analysts and investors to be appropriate supplemental non-gaap measures of the performance of reits . ffo and affo are not in accordance with , or a substitute for , measures prepared in accordance with gaap . in addition , ffo and affo are not based on any comprehensive set of accounting rules or principles . neither ffo nor affo represent cash generated from operating activities calculated in accordance with gaap and therefore these measures should not be considered an alternative for gaap net earnings or as a measure of liquidity . these measures should only be used to evaluate our performance in conjunction with corresponding gaap measures . ffo is defined by the national association of real estate investment trusts as gaap net earnings before depreciation and amortization of real estate assets , gains or losses on dispositions of real estate , impairment charges and cumulative effect of accounting changes . our definition of affo is defined as ffo less ( i ) revenue recognition adjustments ( net of allowances ) , ( ii ) changes in environmental estimates , ( iii ) accretion expense , ( iv ) environmental litigation accruals , ( v ) insurance reimbursements , ( vi ) legal settlements and judgments , ( vii ) acquisition costs expensed and ( viii ) other unusual items that are not reflective of our core operating performance . other reits may use definitions of ffo and or affo that are different from ours and , accordingly , may not be comparable . beginning in the fourth quarter of 2017 , we revised our definition of affo to exclude three additional items – environmental litigation accruals , insurance reimbursements , and legal settlements and judgments – because we believe that these items are not indicative of our core operating performance . while we do not label excluded items as non-recurring , management believes that excluding items from our definition of affo that are either non-cash or not reflective of our core operating performance provides analysts and investors the ability to compare our core operating performance between periods . affo for the years ended december 31 , 2016 and 2015 , has been restated to conform to our revised definition . we believe that ffo and affo are helpful to analysts and investors in measuring our performance because both ffo and affo exclude various items included in gaap net earnings that do not relate to , or are not indicative of , our core operating performance . ffo excludes various items such as depreciation and amortization of real estate assets , gains or losses on dispositions of real estate and impairment charges . in our case , however , gaap net earnings and ffo typically include the impact of revenue recognition adjustments comprised of deferred rental revenue ( straight-line rental revenue ) , the net amortization of above-market and below-market leases , adjustments recorded for recognition of rental income recognized from direct financing leases on revenues from rental properties and the amortization of deferred lease incentives , as offset by the impact of related collection reserves . deferred rental revenue results primarily from fixed rental increases scheduled under certain leases with our tenants . in accordance with gaap , the aggregate minimum rent due over the current term of these leases is recognized on a straight-line basis rather than when payment is contractually due . the present value of the difference between the fair market rent and the contractual rent for in-place leases at the time properties are acquired is amortized into revenues from rental properties over the remaining lives of the in-place leases . income from direct financing leases is recognized over the lease terms using the effective interest method which produces a constant periodic rate of return on the net investments in the leased properties . the amortization of deferred lease incentives represents our funding commitment in certain leases , which deferred expense is recognized on a straight-line basis as a reduction of rental revenue . gaap net earnings and ffo include non-cash changes in environmental estimates and environmental accretion expense , which do not impact our recurring cash flow . gaap net earnings and ffo also include environmental litigation accruals , insurance reimbursements , and legal settlements and judgments , which items are not indicative of our core operating performance . gaap net earnings and ffo from time to time may also include property acquisition costs expensed and other unusual items that are not reflective of our core operating performance . acquisition costs are expensed , generally in the period when properties are acquired and are not reflective of our core operating performance . we pay particular attention to affo , as we believe it best represents our core operating performance . in our view , affo provides a more accurate depiction than ffo of our core operating performance . by providing affo , we believe that we are presenting useful information that assists analysts and investors to better assess our core operating performance . further , we believe that affo is useful in comparing the sustainability of our core operating performance with the sustainability of the core operating performance of other real estate companies . for a reconciliation of ffo and affo to gaap net earnings , see “ item 6. selected financial data ” . story_separator_special_tag million received from insurance reimbursements . other income for the year ended december 31 , 2017 , was primarily attributable to $ 1.8 million received from insurance reimbursements and $ 6.4
| as a result , revenues from rental properties include revenue recognition adjustments comprised of non-cash adjustments recorded for deferred rental revenue due to the recognition of rental income on a straight-line basis over the current lease term , the net amortization of above-market and below-market leases , recognition of rental income under direct financing leases using the effective interest rate method which produces a constant periodic rate of return on the net investments in the leased properties and the amortization of deferred lease incentives . revenues from rental properties includes revenue recognition adjustments which increased rental revenue by $ 2.2 million for the year ended december 31 , 2018 , and $ 2.0 million for the year ended december 31 , 2017. property costs , which are primarily comprised of rent expense , real estate taxes , state and local taxes , municipal charges , professional fees , maintenance expense and reimbursable tenant expenses , were $ 23.6 million for the year ended december 31 , 2018 , as compared to $ 22.3 million for the year ended december 31 , 2017. the increase in property costs for the year ended december 31 , 2018 , was principally due to an increase in real estate taxes and property related professional fees . impairment charges included in continuing operations were $ 4.9 million for the year ended december 31 , 2018 , as compared to $ 8.3 million for the year ended december 31 , 2017. impairment charges are recorded when the carrying value of a property is reduced to fair value . impairment charges in continuing operations for the years ended december 31 , 2018 and 2017 , were attributable to the effect of adding asset retirement costs due to changes in estimates associated with our environmental liabilities , which increased the carrying values of certain properties in excess of their fair values , reductions in estimated undiscounted cash flows expected to be received during the assumed holding period for certain of our properties , and reductions in estimated sales prices from third-party offers based on signed contracts , letters of intent or indicative bids for certain of our properties . environmental expenses included in continuing operations were $ 4.7 million for the year ended december 31 , 2018 , as compared to $ 3.1 million for the year ended december 31 , 2017. the increase in environmental expenses for the year ended december 31 , 2018 , was principally due to
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in september 2016 , dte electric received an order from the mpsc in its amended renewable energy plan approving two 150 megawatt wind projects expected to be constructed and in service between 2018 and 2020 , and 25 megawatts of company-owned solar projects which will be constructed and in service between 2019 and 2020. dte electric constructed and placed in service 50 megawatts of solar generation in 2017. dte electric plans to build a natural gas fueled combined cycle generation facility to provide approximately 1,100 megawatts of energy beginning in 2022. in the third quarter of 2017 , dte electric filed a con with the mpsc seeking approval for the planned build of this natural gas plant . on january 31 , 2018 , dte electric filed its five-year distribution operations investment and maintenance plan to improve system reliability with the mpsc . dte electric plans to seek regulatory approval for capital expenditures consistent with prior ratemaking treatment . dte gas ' capital investments over the 2018-2022 period are estimated at $ 2.1 billion comprised of $ 950 million for base infrastructure , $ 1.1 billion for gas main renewal , meter move out , and pipeline integrity programs , and $ 10 million for expenditures related to the nexus pipeline . dte gas plans to seek regulatory approval in general rate case filings for base infrastructure capital expenditures consistent with prior ratemaking treatment . dte energy 's non-utility businesses ' capital investments are primarily for expansion , growth , and ongoing maintenance . gas storage and pipelines ' capital investments over the 2018-2022 period are estimated at $ 2.8 billion to $ 3.4 billion for gathering and pipeline investments and expansions , including the nexus pipeline . power and industrial projects ' capital investments over the 2018-2022 period are estimated at $ 800 million to $ 1.2 billion for investments in cogeneration and on-site energy projects . environmental matters the registrants are subject to extensive environmental regulation . additional costs may result as the effects of various substances on the environment are studied and governmental regulations are developed and implemented . actual costs to comply could vary substantially . the registrants expect to continue recovering environmental costs related to utility operations through rates charged to customers , as authorized by the mpsc . dte electric is subject to the epa ozone and fine particulate transport and acid rain regulations that limit power plant emissions of so 2 and no x . the epa and the state of michigan have also issued emission reduction regulations relating to ozone , fine particulate , regional haze , mercury , and other air pollution . these rules have led to controls on fossil-fueled power plants to reduce no x , so 2 , mercury and other emissions . additional rulemakings are expected over the next few years which could require additional controls for so 2 , no x , and other hazardous air pollutants . to comply with existing requirements , dte electric spent approximately $ 2.4 billion through 2017 . dte electric does not anticipate additional capital expenditures through 2024 . the epa has implemented regulatory actions under the clean air act to address emissions of ghgs from the utility sector and other sectors of the economy . among these actions , the epa finalized performance standards for emissions of carbon dioxide from new and existing egus . the carbon standards for new sources are not expected to have a material impact on dte electric since dte electric has no plans to build new coal-fired generation , and any potential new gas generation will be able to comply with the applicable standards . in february 2016 , the u.s. supreme court granted petitioners ' requests for a stay of the carbon rules for existing egus ( also known as the epa clean power plan ) pending final review by the courts . the clean power plan has no legal effect while the stay is in place . on march 28 , 2017 , a presidential executive order was issued on `` promoting energy independence and economic growth . '' the order instructs the epa to review , and if appropriate , suspend , revise or rescind the clean power plan rule . additionally , federal agencies have been directed to conduct a review of all existing regulations that potentially burden the development and use of domestically produced energy resources . following the issuance of this order , the federal government requested the u.s. court of appeals for the d.c. circuit to hold all legal challenges in abeyance until the review of these regulations is completed . on october 10 , 2017 , the epa proposed to rescind the clean power plan and announced its intent to issue an anpr seeking input as to whether it should replace the rule and , if so , what form it should take . it is not possible to determine the potential impact of the epa 's repeal and possible replacement of the clean power plan on existing sources at this time . 31 pending or future legislation or other regulatory actions could have a material impact on dte electric 's operations and financial position and the rates charged to its customers . impacts include expenditures for environmental equipment beyond what is currently planned , financing costs related to additional capital expenditures , the purchase of emission credits from market sources , higher costs of purchased power , and the retirement of facilities where control equipment is not economical . dte electric would seek to recover these incremental costs through increased rates charged to its utility customers , as authorized by the mpsc . story_separator_special_tag increased costs for energy produced from traditional coal-based sources due to recent , pending , and future regulatory initiatives , could also increase the economic viability of energy produced from renewable , natural gas fueled generation , and or nuclear sources , energy efficiency initiatives , and the potential development of market-based trading of carbon instruments which could provide new business opportunities for dte energy 's utility and non-utility segments . at the present time , it is not possible to quantify the financial impacts of these climate related regulatory initiatives on the registrants or their customers . see items 1. and 2. business and properties and note 18 to the consolidated financial statements in item 8 of this report , `` commitments and contingencies , '' for further discussion of environmental matters . outlook the next few years will be a period of rapid change for dte energy and for the energy industry . dte energy 's strong utility base , combined with its integrated non-utility operations , position it well for long-term growth . looking forward , dte energy will focus on several areas that are expected to improve future performance : electric and gas customer satisfaction ; electric distribution system reliability ; new electric generation ; gas distribution system renewal ; rate competitiveness and affordability ; regulatory stability and investment recovery for the electric and gas utilities ; employee safety and engagement ; cost structure optimization across all business segments ; cash , capital , and liquidity to maintain or improve financial strength ; and investments that integrate assets and leverage skills and expertise . dte energy will continue to pursue opportunities to grow its businesses in a disciplined manner if it can secure opportunities that meet its strategic , financial , and risk criteria . story_separator_special_tag $ 27 million in 2017 and increased $ 111 million in 2016 . the decrease in 2017 was primarily due to decreased power plant generation expenses of $ 66 million , partially offset by increased storm restoration expenses of $ 27 million , and increased line clearance expenses of $ 10 million . the decrease in power plant generation expenses includes an increase of $ 6 million of costs related to the 2016 fire at a generation facility , offset by $ 21 million of insurance proceeds received in 2017. the increase in 2016 was primarily due to increased power plant generation expenses of $ 55 million related to outages , increased distribution operations expenses of $ 13 million , and $ 47 million of expenses related to the deferral of negative other postretirement costs pursuant to the order in dte electric 's base rate case , received in december 2015. the increase in the power plant generation expenses included $ 19 million of costs related to a fire at a generation facility which were partially reimbursed by insurance proceeds in 2017. depreciation and amortization expense increased $ 3 million in 2017 and increased $ 113 million in 2016 . in 2017 , the increase was due to $ 45 million of increased expense from an increased depreciable base , partially offset by a decrease of $ 29 million associated with the trm , and a decrease of $ 13 million in amortization of regulatory assets . in 2016 , $ 38 million of the increase was due to a higher depreciable base , $ 42 million was primarily due to the end of securitization amortization in 2015 , and an additional $ 42 million was associated with the trm , offset by a $ 9 million decrease in nuclear decommissioning amortization . 34 other ( income ) and deductions increased $ 9 million in 2017 and decreased $ 9 million in 2016 . the increase in 2017 was primarily due to higher interest expense of $ 10 million , lower interest income of $ 8 million related to a sales and use tax settlement received in 2016 , and a $ 7 million contribution to the dte energy foundation , partially offset by $ 12 million of higher investment earnings and a $ 3 million decrease in low income self-sufficiency plan ( lsp ) contributions to not-for-profit organizations in 2016. the decrease in 2016 was primarily due to $ 13 million of higher investment earnings , $ 8 million of interest income related to a sales and use tax settlement , offset by $ 3 million of lsp contributions to not-for-profit organizations , $ 2 million afudc equity , and $ 6 million higher interest expense . outlook — dte electric will continue to move forward in its efforts to achieve operational excellence , sustain strong cash flows , and earn its authorized return on equity . dte electric expects that planned significant capital investments will result in earnings growth . dte electric expects to continue its efforts to improve productivity and decrease costs while improving customer satisfaction with consideration of customer rate affordability . looking forward , additional factors may impact earnings such as weather , the outcome of regulatory proceedings , benefit plan design changes , investment returns and changes in discount rate assumptions in benefit plans and health care costs , impact of 2016 michigan energy legislation , uncertainty of legislative or regulatory actions regarding climate change , and effects of energy efficiency programs . dte electric filed a rate case with the mpsc on april 19 , 2017 requesting an increase in base rates of $ 231 million based on a projected twelve-month period ending october 31 , 2018. the requested increase in base rates is primarily due to an increase in net plant resulting from infrastructure investments , environmental compliance , and reliability improvement projects . the rate filing also includes projected changes in sales , operation and maintenance expenses , and working capital . the rate filing also requests an increase in return on equity from 10.1 % to 10.5 % . on september 8 , 2017 , dte electric filed an application with the mpsc for a $ 125 million self-implemented base rate increase effective november 1 , 2017.
| for the energy trading segment , non-utility margin includes revenue and realized and unrealized gains and losses from physical and financial power and gas marketing , optimization , and trading activities , net of purchased power and gas related to these activities . dte energy evaluates its operating performance of these non-utility businesses using the measure of operating revenues net of fuel , purchased power , and gas expenses . utility margin and non-utility margin are not measures calculated in accordance with gaap and should be viewed as a supplement to and not a substitute for the results of operations presented in accordance with gaap . utility margin and non-utility margin do not intend to represent operating income , the most comparable gaap measure , as an indicator of operating performance and are not necessarily comparable to similarly titled measures reported by other companies . the following sections provide a detailed discussion of the operating performance and future outlook of dte energy 's segments . segment information , described below , includes intercompany revenues and expenses , and other income and deductions that are eliminated in the consolidated financial statements . replace_table_token_15_th electric the results of operations discussion for dte electric is presented in a reduced disclosure format in accordance with general instruction i ( 2 ) ( a ) of form 10-k for wholly-owned subsidiaries . the electric segment consists principally of dte electric . electric results are discussed below : replace_table_token_16_th see dte electric 's consolidated statements of operations in item 8 of this report for a complete view of its results . 33 utility margin decreased $ 45 million in 2017 and increased $ 365 million in 2016 . revenues associated with certain mechanisms and surcharges are offset by related expenses elsewhere in the registrants ' consolidated statements of operations . the following table details changes in various utility margin components relative to the comparable prior period : replace_table_token_17_th replace_table_token_18_th ( a ) represents power that is not distributed by dte electric . ( b ) represents deliveries for self generators that have purchased power from alternative energy suppliers to supplement their power requirements . dte electric sales decreased for residential , commercial , and industrial primarily due to favorable weather in 2016. operation and maintenance expense
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we generally rely upon sales contracts or agreements , and customer purchase orders to determine the existence of an arrangement . delivery has occurred . we use shipping terms and related documents , or written evidence of customer acceptance , when applicable , to verify delivery or performance . sales price is fixed or determinable . we assess whether the sales price is fixed or determinable based on the payment terms and whether the sales price is subject to refund or adjustment . collectability is reasonably assured . we assess collectability based on creditworthiness of customers as determined by our credit checks and their payment histories . we record accounts receivable net of allowance for doubtful accounts , estimated customer returns , and pricing credits . in 2011 , we adopted the fasb issued accounting standards update ( asu ) no . 2009-13 , revenue recognition ( topic 605 ) multiple-deliverable revenue arrangements ( asu 2009-13 ) . asu 2009-13 changes the requirements for establishing separate units of accounting in a multiple element arrangement and eliminates the residual method of allocation and requires the allocation of arrangement consideration to each deliverable to be based on the relative selling price . the relative selling price method allocates any discount in the arrangement proportionately to each deliverable on the basis of the deliverable 's estimated fair value . concurrently with issuing asu 2009-13 , the fasb also issued asu no . 2009-14 , software ( topic 985 ) certain revenue arrangements that include software elements ( asu 2009-14 ) which amends the scope of software revenue guidance in accounting standards codification ( asc ) subtopic 985-605 , software-revenue recognition ( asc 985-605 ) , to exclude tangible products containing software and non-software components that function together to deliver the product 's essential functionality . asu 2009-14 provides that tangible products containing software components and non-software components , that function together to deliver the tangible product 's essential functionality , are no longer within the scope of the software revenue guidance in asc 985-605 and should follow the guidance in asu 2009-13 for multiple-element arrangements . all non-essential and standalone software components will continue to be accounted for under the guidance of asc 985-605 . 36 asu 2009-13 and asu 2009-14 are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after june 15 , 2010. we prospectively adopted the provisions of asu 2009-13 and asu 2009-14 effective january 1 , 2011. we have assessed the effects of asu 2009-13 and asu 2009-14 and have concluded that the adoption of these standards had no material impact on our condensed consolidated results of operations and financial position for the year ended december 31 , 2011. this was because the company 's determination of separate units of accounting in a multiple element arrangement under the previous standard ( asc 605-25is not impacted by asu 2009-13. asu 2009-13 generally does not change the determination of units of accounting for our revenue arrangements . our revenue is derived primarily from sales of hardware products , and to a lesser extent , from the license of proprietary software products and software components in revenue arrangements that are considered standalone . as a result , asu 2009-14 did not have any impact during the year ended december 31 , 2011 and revenues from such software products will continue to be recognized under the guidance of asc 985-605. we can not reasonably estimate the effect of adopting these standards on future financial periods as the impact will vary depending on the nature and volume of new or materially modified deals in any given period . asu 2009-13 establishes a selling price hierarchy for determining the selling price of a deliverable in revenue arrangements . the revenue is generated from sales to direct end-users and to distributors . when a sales arrangement contains multiple elements and software and non-software components function together to deliver the tangible products ' essential functionality , we allocate revenue to each element based on a selling price hierarchy . the selling price for a deliverable is based on its vendor-specific objective evidence ( vsoe ) if available , third-party evidence ( tpe ) if vsoe is not available , or estimated selling price ( esp ) if neither vsoe nor tpe is available . we then recognize revenue on each deliverable in accordance with our policies for product and service revenue recognition . vsoe of selling price is based on the price charged when the element is sold separately . tpe of selling price is established by evaluating largely interchangeable competitor products or services in stand-alone sales to similarly situated customers . the best estimate of selling price is established considering multiple factors , including , but not limited to , pricing practices in different geographies and through different sales channels , gross margin objectives , internal costs , competitor pricing strategies and industry technology lifecycles . some of our products contain a significant element of proprietary technology and our solutions offer substantially different features and functionality ; as a result , the comparable pricing of products with similar functionality typically can not be obtained . additionally , as we are unable to reliably determine what competitors products ' selling prices are on a stand-alone basis , typically we are not able to determine tpe for such products . therefore esp is used for such products in the selling price hierarchy for allocating the total arrangement consideration . we evaluate each deliverable in an arrangement to determine whether it represents a separate unit of accounting in accordance with the provisions of asu 2009-13. certain sales arrangements of our hardware products are bundled with our professional services and maintenance contracts , and in some cases with our software products . professional services include security system integration , system migration , and database conversion services , among others . story_separator_special_tag in such multiple element arrangements , revenue is allocated to each separate unit of accounting for each of the non-software deliverables and to the software deliverables using the relative selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy . allocation of the consideration is determined at arrangement inception on the basis of each unit 's relative selling price . we account for software sales in accordance with asc 985-605 and hardware sales in accordance with asu 2009-13 , when all the revenue recognition criteria noted above have been met . the revenue from professional services contracts is recognized upon completion of such services and the revenue from maintenance contracts is deferred and amortized ratably over the period of the maintenance contracts . if the professional services project includes independent milestones , revenue is recognized as milestones are met and upon acceptance from the customer . 37 we typically plan our production and inventory levels based on internal forecasts of customer demand , which are highly unpredictable and can fluctuate substantially . we regularly review inventory quantities on hand and record an estimated provision for excess inventory , technical obsolescence and inability to sell based primarily on our historical sales and expectations for future use . actual demand and market conditions may be different from those projected by our management . this could have a material effect on our operating results and financial position . if we were to make different judgments or utilize different estimates , the amount and timing of our write-down of inventories could be materially different . once we have written down inventory below cost , we do not subsequently write it up . in accordance with asc topic 740 , income taxes ( asc 740 ) , we are required to make certain judgments and estimates in determining income tax expense for financial statement purposes . significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period . the calculation of our tax liabilities requires dealing with uncertainties in the application of complex tax regulations . asc 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . it is inherently difficult and subjective to estimate such amounts . we reevaluate such uncertain tax positions on a quarterly basis based on factors such as , but not limited to , changes in tax laws , issues settled under audit and changes in facts or circumstances . such changes in recognition or measurement might result in the recognition of a tax benefit or an additional charge to the tax provision in the period . the carrying value of our net deferred tax assets reflects that we have been unable to generate sufficient taxable income in certain tax jurisdictions . a valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before we are able to realize their benefit , or that future deductibility is uncertain . management evaluates the realizability of the deferred tax assets quarterly . the deferred tax assets are still available for us to use in the future to offset taxable income , which would result in the recognition of a tax benefit and a reduction in our effective tax rate . actual operating results and the underlying amount and category of income in future years could render our current assumptions , judgments and estimates of the realizability of deferred tax assets inaccurate , which could have a material impact on our financial position or results of operations . goodwill goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination . goodwill is not subject to amortization but is subject to annual assessment , at a minimum , for impairment in accordance with asc topic 350 , intangibles goodwill and other ( asc 350 ) . we evaluate goodwill , at a minimum , on an annual basis and whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . impairment of goodwill is tested at the reporting unit level by comparing the reporting unit 's carrying value , including goodwill , to the fair value of the reporting unit . if the carrying value of the reporting unit exceeds the fair value , goodwill may be impaired and a second step is performed to measure the amount of the impairment loss , if any . under this second step , the implied goodwill value is determined , in the same manner as the amount of goodwill recognized in a business combination , to assess level of goodwill impairment , if any . the reporting units are identified in accordance with asc 350-20-35-33 through 35-46. prior to january 1 , 2011 , our reporting units were the hirsch and multicard businesses in the identity management reporting segment , and the scm ( subsequently renamed id infrastructure ) , tagstar ( including smartag ) , acig and syscan businesses in the id products reporting segment . following its acquisition , we began to reallocate smartag 's internal resources to our existing reporting units . during the first quarter of 2011 , we implemented a new management structure to unify our sourcing , production and sales activities for our rfid components business . as a result , we combined the tagstar ( including smartag ) , acig and syscan reporting units into a new reporting unit called transponder and , in accordance with asc 350-20-35-45 , the goodwill assigned to the tagstar ( including smartag ) , acig , and syscan reporting units was reassigned to the transponder reporting 38 unit .
| our identity management segment includes the operations of our hirsch identive , idondemand and multicard business units , which specialize in the design and manufacturing of highly secured and integrated systems that can enhance security and better meet compliance and regulatory requirements while providing users the benefits and convenience of simple and secure solutions . the majority of sales in our identity management segment are made to customers in the government , education , enterprise and commercial markets and encompass vertical market segments including healthcare , banking , industrial , retail and critical infrastructure . currently , pricing pressure is not prevalent in our identity management segment . revenue in the identity management segment was $ 56.5 million in 2011 , an increase of 19 % from $ 47.5 million in 2010. the increase primarily was the result of $ 6.2 million of incremental revenue from our acquisitions , more than half of which came from nearly two quarters of sales recognized for polyright ( now part of multicard ) . the remaining incremental revenue included four months of sales from rockwest ( now doing business as multicard u.s. ) and seven months of sales from idondemand . we also recorded organic growth of 6 % in the identity management segment in 2011 , which resulted from higher sales from multicard , partially offset by a significant reduction in sales of hirsch identive security systems to the u.s. government sector . higher multicard revenues in 2011 primarily resulted from significant orders for secure card readers and software for the german electronic id program , strong sales in australia related to a government credential management program and a cashless payment card solution for a large fuel retailer , and the inclusion of four months of incremental revenue from the acquisition of rockwest ( now doing business as multicard u.s. ) . organic growth of our non-u.s. government-related sales in the identity management segment was 17 % in 2011. in our id products segment we design and manufacture rfid products and components that are used for a number of identity-based and related applications in the government , enterprise , transportation and financial markets . our id products segment includes the results of our id infrastructure business
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total backlog includes funded backlog , which is the amount for which money has been directly authorized by the u.s. congress and for which a purchase order has been received by a commercial customer , and unfunded backlog , representing firm orders for which funding has not yet been appropriated . indefinite delivery and quantity contracts and unexercised options are not reported in total backlog . the approximate value of our technology development segment backlog was $ 20.4 million at december 31 , 2011 , compared to $ 26.3 million at december 31 , 2010. revenues from product sales currently represent a smaller portion of our total revenues , and , historically , we have derived most of these revenues from the sales of our sensing systems and products that make use of light-transmitting optical fibers , or fiber optics . we continue to invest in product development and commercialization , which we anticipate will lead to increased product sales growth . although we have been successful in licensing certain technology in past years , we do not expect license revenues to represent a significant portion of future revenues . over time , however , we do intend to gradually increase such revenues . in the near term , we expect revenues from product sales and product development to be primarily in areas associated with our fiber optic instrumentation , test and measurement and sensing platforms . in the long term , we expect that revenues from product sales will represent a larger portion of our total revenues and that as we develop and commercialize new products , these revenues will reflect a broader and more diversified mix of products . we incurred net losses attributable to common stockholders of approximately $ 20.4 million , $ 3.0 million and $ 1.5 million for the years ended december 31 , 2009 , 2010 and 2011 , respectively . the significant net loss for 2009 was primarily attributable to the costs incurred with respect to our litigation with hansen medical , inc. , or hansen , and subsequent chapter 11 reorganization , as discussed below . we settled our litigation and emerged from bankruptcy in january 2010 and , accordingly , we did not incur significant reorganization or related litigation costs in 2010 or 2011. we expect to continue to incur increasing expenses as we expand our business , including expenses for research and development , sales and marketing and manufacturing capabilities . we may also grow our business in part through acquisitions of additional companies and complementary technologies , which could cause us to incur transaction expenses , amortization or write-offs of intangible assets and other acquisition-related expenses . as a result , we expect to incur net losses for the foreseeable future , and these losses could be substantial . economic conditions have experienced a significant prolonged downturn and remain uncertain . this slowing of the economy has reduced the financial capacities of our customers and possibly our potential customers , thereby slowing spending on the products and services we provide . the outlook for the economy for 2012 remains uncertain . 37 chapter 11 reorganization and settlement with hansen on july 17 , 2009 , we filed for reorganization under chapter 11 of the united states bankruptcy code . during the period from the filing date until january 12 , 2010 , the date we emerged from bankruptcy , we operated as a debtor in possession . as a result of these chapter 11 filings , actions to collect pre-petition indebtedness and the pending hansen litigation were stayed . in addition , under the bankruptcy code we had the right to assume or reject executory contracts , including real estate leases , employment contracts , personal property leases , service contracts and other unexpired executory pre-petition contracts , subject to court approval . we did not reject any such contracts in our chapter 11 plan as confirmed by the court . our plan of reorganization was confirmed by the bankruptcy court on january 12 , 2010 , and we emerged from bankruptcy on that date . in december 2009 , we entered into a settlement agreement with hansen which reduced our liability with respect to our outstanding litigation to $ 9.7 million . as part of the settlement , in january 2010 we issued to hansen a $ 5.0 million secured promissory note , referred to in this report as the hansen note , approximately 1.3 million shares of our common stock and a warrant entitling hansen to purchase , until january 12 , 2013 , a number of shares of our common stock as necessary for hansen to maintain a 9.9 % ownership interest in our common stock , at an exercise price of $ 0.01 per share , referred to in this report as the hansen warrant . we also entered into several related agreements described in this report . we repaid the hansen note in may 2011 , as described further below . the hansen litigation , including settlement efforts , resulted in significant legal expenses and related costs that are included in operating expenses for the year ended december 31 , 2009. the chapter 11 reorganization also resulted in significant legal expenses and related costs that are included in reorganization expenses for the year ended december 31 , 2009. while we incurred certain expenses for both our chapter 11 reorganization and the hansen litigation during the year ended december 31 , 2010 , these amounts were not material and we incurred no such costs during the year ended december 31 , 2011. description of our revenues , costs and expenses revenues we generate revenues from technology development , product sales and commercial product development and licensing activities . we derive technology development revenues from providing research and development services to third parties , including government entities , academic institutions and corporations , and from achieving milestones established by some of these contracts and in collaboration agreements . story_separator_special_tag in general , we complete contracted research over periods ranging from six months to three years , and recognize these revenues over the life of the contract as costs are incurred or upon the achievement of certain milestones built into the contracts . our technology development revenues represented approximately 65 % and 63 % of our total revenues for the years ended december 31 , 2010 and 2011 , respectively . our product and license revenues reflect amounts that we receive from sales of our products or development of products for third parties , as well as fees paid to us in connection with licenses or sublicenses of certain patents and other intellectual property , and represented approximately 35 % and 37 % of our total revenues for the years ended december 31 , 2010 and 2011 , respectively . cost of revenues cost of revenues associated with technology development revenues consists of costs associated with performing the related research activities including direct labor , amounts paid to subcontractors and overhead allocated to technology development activities . 38 cost of revenues associated with product sales and license revenues consists of license fees for use of certain technologies ; product manufacturing costs including all direct material and direct labor costs ; amounts paid to our contract manufacturers ; manufacturing , shipping and handling ; provisions for product warranties ; and inventory obsolescence , as well as overhead allocated to each of these activities . operating expense operating expense consists of selling , general and administrative expenses , as well as expenses related to research , development and engineering , depreciation of fixed assets and amortization of intangible assets . these expenses also include compensation for employees in executive and operational functions including certain non-cash charges related to expenses from option grants , facilities costs , professional fees , salaries , commissions , travel expense and related benefits of personnel engaged in sales , product management and marketing activities ; costs of marketing programs and promotional materials ; salaries , bonuses and related benefits of personnel engaged in our own research and development beyond the scope and activities of our technology development segment ; product development activities not provided under contracts with third parties ; and overhead costs related to these activities . interest income/expense in february 2010 , we entered into a new line of credit facility with silicon valley bank , or svb , with a borrowing capacity of $ 5.0 million . as of december 31 , 2010 , we had borrowed $ 2.5 million under the line of credit . in may 2011 , we entered into a loan modification agreement with svb under which we repaid the outstanding balance under the prior line of credit and obtained a term loan in the amount of $ 6.0 million , along with a new $ 1.0 million line of credit . at december 31 , 2011 , we had $ 5.3 million outstanding on the term loan and no amounts outstanding on the line of credit . during 2010 and 2011 , interest expense included interest accrued on our outstanding bank credit facilities , interest incurred with respect to the hansen note until it was paid in full in may 2011 , and interest incurred with respect to our capital lease obligations . interest income includes amounts earned on our cash deposits with financial institutions . critical accounting policies and estimates technology development revenues we perform research and development for u.s. federal government agencies , educational institutions and commercial organizations . we recognize revenue under research contracts when a contract has been executed , the contract price is fixed and determinable , delivery of services or products has occurred , and collectability of the contract price is considered reasonably assured and can be reasonably estimated . revenue is earned under cost reimbursable , time and materials and fixed price contracts . direct contract costs are expensed as incurred . under cost reimbursable contracts , we are reimbursed for costs that are determined to be reasonable , allowable and allocable to the contract and paid a fixed fee representing the profit negotiated between us and the contracting agency . revenue from cost reimbursable contracts is recognized as costs are incurred plus an estimate of applicable fees earned . we consider fixed fees under cost reimbursable contracts to be earned in proportion to the allowable costs incurred in performance of the contract . revenue from time and materials contracts is recognized based on direct labor hours expended at contract billing rates plus other billable direct costs . fixed price contracts may include either a product delivery or specific service performance throughout a period . for fixed price contracts that are based on the proportional performance method and involve a specified number of deliverables , we recognize revenue based on the proportion of the cost of the deliverables compared to 39 the cost of all deliverables included in the contract as this method more accurately measures performance under these arrangements . for fixed price contracts that provide for the development and delivery of a specific prototype or product , revenue is recognized based upon the percentage of completion method . our contracts with agencies of the u.s. government are subject to periodic funding by the respective contracting agency . funding for a contract may be provided in full at inception of the contract or ratably throughout the contract as the services are provided . in evaluating the probability of funding for purposes of assessing collectability of the contract price , we consider our previous experience with our customers , communication with our customers regarding funding status and our knowledge of available funding for the contract or program . if funding is not assessed as probable , revenue recognition is deferred until realization is reasonably assured . contract revenue recognition inherently involves estimation , including the contemplated level of effort to accomplish the tasks under the contract , the cost of the effort and an ongoing assessment of progress toward completing the contract .
| our products and licensing segment revenue increased from $ 12.1 million to $ 13.2 million , an increase of 8.8 % , for 2011 as compared to 2010. within our products and licensing segment , product sales revenue increased by 5.6 % to $ 9.4 million during the year ended december 31 , 2011 as compared to $ 8.9 million for 42 2010. product sales increased primarily due to higher sales of our ova and obr products , principally in the first two quarters of the year . our product development revenue also increased to $ 3.6 million for the year ended december 31 , 2011 as compared to $ 3.2 million for 2010 , an increase of $ 0.4 million . this increase was due to the increased level of work performed under the hansen supply and development agreement . there can be no assurances , however , that this increased level of work performed under this agreement will continue through 2012. cost of revenues replace_table_token_5_th our technology development segment costs were substantially unchanged at $ 15.8 million for each of the years ended december 31 , 2011 and 2010. within the technology development segment , scc 's cost of revenues decreased from $ 5.4 million for 2010 to $ 4.3 million for 2011 , a decrease of $ 1.1 million , due primarily to a decrease in costs , primarily for subcontracts required to support the group 's new contract awarded in 2011 compared to its previous primary government contract . our materials groups also saw a decline in their cost of revenues from $ 5.8 million for 2010 to $ 5.5 million for 2011 , a decline of $ 0.3 million , due to a decrease in direct labor and subcontracts in our nanotechnology area . cost of revenues in our sensing groups increased from $ 3.6 million for 2010 to $ 4.6 million for 2011 , an increase of $ 1.0 million , with all areas of direct costs in our sensing groups showing increases , commensurate with their increases in revenue . our products and licensing segment costs increased from $ 5.8 million for 2010 to $ 6.6 million for 2011 , an increase of 13.9 % . within our products and licensing segment , product sales costs for 2011 increased to $ 3.3 million from $ 3.2 million for 2010. this increase of $ 0.1 million of costs related
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determining the fair value often involves estimates based on third-party valuations , such as appraisals , or internal valuations based on discounted cash flow analyses or other valuation techniques . goodwill is not amortized , instead , the company assess the potential for impairment on an annual basis or more frequently if events and circumstances indicate that goodwill might be impaired . income taxes . the company estimates income tax expense based on amounts expected to be owed to federal and state tax jurisdictions . estimated income tax expense is reported in the consolidated statements of income . accrued and deferred taxes , as reported in other assets or other liabilities in the consolidated balance sheets , represent the net estimated amount due to or to be received from taxing jurisdictions either currently or in the future . management judgment is involved in estimating accrued and deferred taxes , as it may be necessary to evaluate the risks and merits of the tax treatment of transactions , filing positions , and taxable income calculations after considering tax-related statutes , regulations and other relevant factors . because of the complexity of tax laws and interpretations , interpretation is subject to judgment . allowance for loan losses . first busey has established an allowance for loan losses which represents its estimate of the probable losses inherent in the loan portfolio as of the date of the consolidated financial statements and reduces the total loans outstanding by an estimate of uncollectible loans . loans deemed uncollectible are charged against and reduce the allowance . a provision for loan losses is charged to current expense and acts to replenish the allowance for loan losses in order to maintain the allowance at a level that management deems adequate . acquired loans from business combinations with uncollected principal balances are carried net of a fair value adjustment for credit and interest rates . these loans are only included in the allowance calculation to the extent that the reserve requirement exceeds the fair value adjustment . however , as the acquired loans renew , it is generally necessary to establish an allowance which represents an amount that , in management 's opinion , will be adequate to absorb probable credit losses in such loans . to determine the adequacy of the allowance for loan losses , a formal analysis is completed quarterly to assess the risk within the loan portfolio . this assessment is reviewed by the company 's senior management . the analysis includes a review of historical performance , dollar amount and trends of past due loans , dollar amount and trends in non-performing loans , certain impaired loans , and loans identified as sensitive assets . sensitive assets include non-accrual loans , past-due loans , loans on first busey 's watch loan reports and other loans identified as having probable potential for loss . the allowance consists of specific and general components . the specific component considers loans that are classified as impaired . for such loans that are classified as impaired , an allowance is established when either the discounted cash flows or collateral value or observable market price of the impaired loan is lower than the carrying amount of that loan . the general component covers non-classified loans and classified loans not considered impaired and is based on historical loss experience adjusted for qualitative factors . other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss experience . a loan is considered to be impaired when , based on current information and events , it is probable first busey will not be able to collect all principal and interest amounts due according to the contractual terms of the loan agreement . when a loan becomes impaired , management generally calculates the impairment based on the fair value of the collateral , if the loan is collateral-dependent or based on the discounted cash flows of the loan at the loan 's effective interest rate . the amount of impairment and any subsequent changes are recorded through a charge to the provision for loan losses . for collateral dependent loans , the allowance is based upon the estimated fair value , net of selling costs , of the applicable collateral . the required allowance or actual loss on an impaired loan could differ significantly if the ultimate fair value of the collateral is significantly different from the fair value estimate . 41 story_separator_special_tag performed by adding the tax savings to the earnings on tax favorable assets . after factoring in the tax favorable effects of these assets , the yields may be more appropriately evaluated against alternative earning assets . in addition to yield , various other risks are factored into the evaluation process . the following tables ( dollars in thousands ) show our consolidated average balance sheets , detailing the major categories of assets and liabilities , the interest income earned on interest-earning assets , the interest expense paid for the interest-bearing liabilities , and the related interest rates for the periods shown . the tables also show , for the periods indicated , a summary of the changes in interest earned and interest expense resulting from changes in volume and rates for the major components of interest-earning assets and interest-bearing liabilities . for purposes of this table , changes attributable to both rate and volume , which can not be segregated , have been allocated proportionately , based on changes due to rate and changes due to volume . all average information is provided on a daily average basis . 43 average balance sheets and interest rates replace_table_token_10_th ( 1 ) on a tax-equivalent basis , assuming a federal income tax rate of 21 % in 2019 and 2018 and 35 % in 2017 . ( 2 ) non-accrual loans have been included in average portfolio loans . ( 3 ) interest income includes a tax-equivalent adjustment of $ 3.0 million , $ 2.3 story_separator_special_tag million and $ 3.7 million for 2019 , 2018 and 2017 , respectively . ( 4 ) includes short-term and long-term borrowings . interest expense includes a non-usage fee on revolving loan . 44 average balance sheets and interest rates ( continued ) changes in net interest income : replace_table_token_11_th earning assets , sources of funds , and net interest margin the consolidated average balance sheets and interest rates were impacted by the 2019 acquisitions of banc ed , along with organic growth . total average interest-earning assets increased $ 1.5 billion , or 21.5 % , to $ 8.6 billion in 2019 , as compared to $ 7.1 billion in 2018. average loans increased and generally have notably higher yields compared to interest-bearing bank deposits and investment securities , so the loan growth contributed to a positive effect on net interest margin . total average interest-bearing liability balances increased $ 1.2 billion , or 22.3 % , to $ 6.4 billion in 2019 as compared to $ 5.2 billion in 2018. average noninterest-bearing deposits increased $ 254.7 million , or 17.1 % , to $ 1.7 billion in 2019 , as compared to $ 1.5 billion in 2018. average non-interest bearing deposits represented 22.8 % of total average deposits in 2019. the company remains strongly core deposit funded with total average deposits in 2019 representing 92.9 % of total average liabilities , with solid liquidity and significant market share in the communities we serve . interest income , on a tax-equivalent basis , increased $ 71.0 million , or 24.6 % , to $ 359.2 million in 2019 , from $ 288.3 million in 2018. the interest income increase related primarily to increases in loan volumes . interest expense increased during 2019 by $ 24.4 million to $ 69.0 million from $ 44.6 million in 2018. the increase in 2019 was primarily the result of higher funding costs combined with an increase in deposits and borrowings balances . net interest income , on a tax-equivalent basis , increased $ 46.6 million , or 19.1 % , in 2019 as compared to 2018. the federal open market committee lowered federal funds target rates for the first time in 11 years on july 31 , 2019 and then again on september 18 , 2019 and october 30 , 2019 , for a combined decrease of 75 basis points during 2019. this contributed to the decline in net interest margin during the second half of 2019 as assets , in particular commercial loans , repriced more quickly and to a greater extent than liabilities . 45 net interest margin , our net interest income expressed as a percentage of average earning assets stated on a tax-equivalent basis , decreased to 3.38 % in 2019 , which included a tax-equivalent adjustment of $ 3.0 million , compared to 3.45 % in 2018 , which included a tax-equivalent adjustment of $ 2.3 million . the net interest spread , which represents the difference between the average rate earned on earning assets and the average rate paid on interest-bearing liabilities , was 3.10 % in 2019 compared to 3.23 % in 2018 , each on a tax-equivalent basis . the quarterly net interest margins were as follows : replace_table_token_12_th management attempts to mitigate the effects of an unpredictable interest-rate environment through effective portfolio management , prudent loan underwriting and operational efficiencies . non-interest income ( dollars in thousands ) replace_table_token_13_th total non-interest income of $ 116.4 million increased $ 26.4 million from $ 90.0 million in 2018. the 2019 increases reflect organic growth as well as the 2019 acquisitions of banc ed and ist . wealth management fees increased to $ 38.6 million , or 24.5 % , in 2019 compared to $ 31.0 million in 2018. as of december 31 , 2019 , assets under care were approximately $ 9.7 billion compared to $ 7.1 billion at december 31 , 2018. at the time of acquisition , banc ed added $ 1.5 billion in assets under care and ist added $ 0.5 million in assets under care , with the balance of year over year growth being organic . fees for customer services were impacted by acquisition activity and increased to $ 36.7 million in 2019 as compared to $ 28.9 million in 2018. evolving regulation , product changes and changing behaviors by our client base may impact the revenue derived from charges on deposit accounts in the future . remittance processing revenue relates to our payment processing company , firstech . remittance processing revenue of $ 15.0 million in 2019 increased compared to $ 14.3 million in 2018. remittance processing adds important diversity to our revenue stream while widening our array of service offerings to larger commercial clients within our footprint and nationally . mortgage revenue of $ 11.7 million in 2019 increased $ 6.2 million compared to $ 5.5 million in 2018 , following a long period of restructuring and as a result of additional revenue from thebank . a decline in prevailing market rates for mortgages also contributed to increased production in recent periods . income on bank owned life insurance increased $ 2.1 million , or 55.5 % , in 2019 compared to 2018 as a result of the banc ed acquisition and life insurance proceeds . 46 other income of $ 8.6 million in 2019 increased as compared to $ 6.2 million in 2018 across multiple revenue sources , including swap origination fee income . non-interest expense ( dollars in thousands ) replace_table_token_14_th total non-interest expense of $ 258.8 million in 2019 increased by $ 65.8 million as compared to $ 193.0 million in 2018. total non-interest expenses have been influenced by acquisition expenses and other restructuring costs . the company remains focused on expense discipline and expects additional expense savings from the integration of prior acquisitions and recent core operating system conversion efforts to be realized over the next year .
| on august 31 , 2019 , the company completed its acquisition of ist , a fort myers , florida wealth management firm . through this transaction , busey bank and ist broaden the expertise and raise the level of service available to their clients—from individuals and families to institutions and foundations—and remain committed to their founding principles of being active community stewards and providing the highest level of personal service to clients delivered by experienced , local professionals . on october 4 , 2019 , in addition to the merger of thebank into busey bank , the company partnered with a new core operating system provider . the core conversion positions the combined organization for future growth and will allow the company to serve customers more efficiently and effectively for years to come . revenues from trust fees , commissions and brokers ' fees , and remittance processing activities represented 46.0 % of the company 's non-interest income in 2019 , providing a balance to spread-based revenue from traditional banking activities . further , non-interest income , excluding net security losses , represented 28.8 % of total revenue for the year ended december 31 , 2019 . ( 1 ) for a reconciliation of adjusted net income , a non-gaap financial measure , see non-gaap financial information . 42 asset quality as of december 31 , 2019 , the company reported non-performing loans of $ 29.5 million compared to $ 36.6 million as of december 31 , 2018. non-performing loans were 0.44 % of total portfolio loans as of december 31 , 2019 compared to 0.66 % as of december 31 , 2018. while these results are encouraging , asset quality metrics can be generally influenced by market-specific economic conditions , and specific measures may fluctuate from period to period . the key metrics are as follows ( dollars in thousands ) : replace_table_token_9_th results of operation — three years ended december 31 , 2019 net interest income net interest income is the difference between interest income and fees
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the most significant estimates relate to the reserves of our insurance subsidiaries for property and casualty insurance unpaid losses and loss expenses . while we believe our estimates and the estimates of our insurance subsidiaries are appropriate , the ultimate amounts may differ from the estimates we provided . we regularly review our methods for making these estimates , and we reflect any adjustment we consider necessary in our results of operations for the period in which we make an adjustment . -38- liability for losses and loss expenses liabilities for losses and loss expenses are estimates at a given point in time of the amounts an insurer expects to pay with respect to incurred policyholder claims based on facts and circumstances the insurer knows at that point in time . at the time of establishing its estimates , an insurer recognizes that its ultimate liability for losses and loss expenses will exceed or be less than such estimates . our insurance subsidiaries base their estimates of liabilities for losses and loss expenses on assumptions as to future loss trends , expected claims severity , judicial theories of liability and other factors . however , during the loss adjustment period , our insurance subsidiaries may learn additional facts regarding individual claims , and , consequently , it often becomes necessary for our insurance subsidiaries to refine and adjust their estimates for these liabilities . we reflect any adjustments to the liabilities for losses and loss expenses of our insurance subsidiaries in our consolidated results of operations in the period in which our insurance subsidiaries make adjustments to their estimates . our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported and unreported claims . our insurance subsidiaries establish these liabilities for the purpose of covering the ultimate costs of settling all losses , including investigation and litigation costs . our insurance subsidiaries base the amount of their liability for reported losses primarily upon a case-by-case evaluation of the type of risk involved , knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred . our insurance subsidiaries determine the amount of their liability for unreported claims and loss expenses on the basis of historical information by line of insurance . our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results . our insurance subsidiaries monitor their liabilities closely and recompute them periodically using new information on reported claims and a variety of statistical techniques . our insurance subsidiaries do not discount their liabilities for losses and loss expenses . reserve estimates can change over time because of unexpected changes in assumptions related to our insurance subsidiaries ' external environment and , to a lesser extent , assumptions related to our insurance subsidiaries ' internal operations . for example , our insurance subsidiaries have experienced an increase in claims severity and a lengthening of the claim settlement periods on bodily injury claims during the past several years . these trend changes give rise to greater uncertainty as to the pattern of future loss settlements on bodily injury claims . related uncertainties regarding future trends include the rate of plaintiff attorney involvement in claims and the cost of medical technologies and procedures . assumptions related to our insurance subsidiaries ' external environment include the absence of significant changes in tort law and the legal environment that increase liability exposure , consistency in judicial interpretations of insurance coverage and policy provisions and the rate of loss cost inflation . internal assumptions include consistency in the recording of premium and loss statistics , consistency in the recording of claims , payment and case reserving methodology , accurate measurement of the impact of rate changes and changes in policy provisions , consistency in the quality and characteristics of business written within a given line of business and consistency in reinsurance coverage and collectability of reinsured losses , among other items . to the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have changed , our insurance subsidiaries make adjustments in their reserves that they consider appropriate for such changes . accordingly , our insurance subsidiaries ' ultimate liability for unpaid losses and loss expenses will likely differ from the amount recorded at december 31 , 2019. for every 1 % change in our insurance subsidiaries ' loss and loss expense reserves , net of reinsurance recoverable , the effect on our pre-tax results of operations would be approximately $ 5.1 million . the establishment of appropriate liabilities is an inherently uncertain process and we can provide no assurance that our insurance subsidiaries ' ultimate liability will not exceed our insurance subsidiaries ' loss and loss expense reserves and have an adverse effect on our results of operations and financial condition . furthermore , we can not predict the timing , frequency and extent of adjustments to our insurance subsidiaries ' estimated future liabilities , because the historical conditions and events that serve as a basis for our insurance subsidiaries ' estimates of ultimate claim costs may change . as is the case for substantially all property and casualty insurance companies , our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods and , in other periods , their estimated future liabilities for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses . changes in our insurance subsidiaries ' estimates of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior reporting period . our insurance subsidiaries recognized a ( decrease ) increase in their liability for losses and loss expenses of prior years of ( $ 12.9 million ) , $ 35.6 million and $ 6.6 million in 2019 , 2018 and 2017 , respectively . story_separator_special_tag our insurance subsidiaries made no significant changes in their reserving philosophy or claims management personnel , and they have made no significant offsetting changes in estimates that increased or decreased their loss and loss expense reserves in those years . the 2019 development -39- represented 2.7 % of the december 31 , 2018 net carried reserves and resulted primarily from lower-than-expected severity in the workers ' compensation line of business , partially offset by higher-than-expected severity in the commercial automobile and commercial multi-peril lines of business , for accident years prior to 2019. the majority of the 2019 development related to decreases in the liability for losses and loss expenses of prior years for atlantic states and michigan . the 2018 development represented 9.3 % of the december 31 , 2017 net carried reserves and resulted primarily from higher-than-expected severity in the commercial multi-peril , personal automobile and commercial automobile lines of business , offset by lower-than-expected severity in the workers ' compensation line of business , for accident years prior to 2018. the majority of the 2018 development related to increases in the liability for losses and loss expenses of prior years for atlantic states and southern . during 2018 , our insurance subsidiaries received new information on previously-reported commercial automobile and personal automobile claims that led our insurance subsidiaries to conclude that their prior actuarial assumptions did not fully anticipate recent changes in severity and reporting trends . our insurance subsidiaries have encountered increasing difficulties in projecting the ultimate severity of automobile losses over recent accident years , which our insurance subsidiaries attribute to worsening litigation trends and an increased delay in the reporting to our insurance subsidiaries of information with respect to the severity of claims . as a result , our insurance subsidiaries ' actuaries increased their projections of the ultimate cost of our insurance subsidiaries ' prior-year personal automobile and commercial automobile losses , and our insurance subsidiaries added $ 17.7 million to their reserves for personal automobile and $ 20.8 million to their reserves for commercial automobile for accident years prior to 2018. the 2017 development represented 1.9 % of the december 31 , 2016 net carried reserves and resulted primarily from higher-than-expected severity in the commercial multi-peril , personal automobile and commercial automobile lines of business , offset by lower-than-expected severity in the workers ' compensation line of business , for accident years prior to 2017. the majority of the 2017 development related to increases in the liability for losses and loss expenses of prior years for atlantic states and peninsula . excluding the impact of severe weather events , our insurance subsidiaries have noted stable amounts in the number of claims incurred and the number of claims outstanding at period ends relative to their premium base in recent years across most of their lines of business . however , the amount of the average claim outstanding has increased gradually over the past several years due to various factors such as rising medical loss costs and increased litigation trends . we have also experienced a general slowing of settlement rates in litigated claims . our insurance subsidiaries could have to make further adjustments to their estimates in the future . however , on the basis of our insurance subsidiaries ' internal procedures , which analyze , among other things , their prior assumptions , their experience with similar cases and historical trends such as reserving patterns , loss payments , pending levels of unpaid claims and product mix , as well as court decisions , economic conditions and public attitudes , we believe that our insurance subsidiaries have made adequate provision for their liability for losses and loss expenses . atlantic states ' participation in the pool with donegal mutual exposes atlantic states to adverse loss development on the business of donegal mutual that the pool includes . however , pooled business represents the predominant percentage of the net underwriting activity of both companies , and donegal mutual and atlantic states share proportionately any adverse risk development relating to the pooled business . the business in the pool is homogeneous and each company has a pro-rata share of the entire pool . since the predominant percentage of the business of atlantic states and donegal mutual is pooled and the results shared by each company according to its participation level under the terms of the pooling agreement , the intent of the underwriting pool is to produce a more uniform and stable underwriting result from year to year for each company than either would experience individually and to spread the risk of loss between the companies . donegal mutual and our insurance subsidiaries operate together as the donegal insurance group and share a combined business plan designed to achieve market penetration and underwriting profitability objectives . the products our insurance subsidiaries and donegal mutual offer are generally complementary , thereby allowing donegal insurance group to offer a broader range of products to a given market and to expand donegal insurance group 's ability to service an entire personal lines or commercial lines account . distinctions within the products of donegal mutual and our insurance subsidiaries generally relate to specific risk profiles targeted within similar classes of business , such as preferred tier products compared to standard tier products , but we do not allocate all of the standard risk gradients to one company . therefore , the underwriting profitability of the business the individual companies write directly will vary . however , because the pool homogenizes the risk characteristics of the predominant percentage of the business donegal mutual and atlantic states write directly and each company shares the underwriting results according to each company 's participation percentage , each company realizes its percentage share of the underwriting results of the pool .
| net investment gains ( losses ) our net investment gains ( losses ) in 2019 and 2018 were $ 22.0 million and ( $ 4.8 million ) , respectively . the net investment gains for 2019 included $ 12.7 million from the sale of dfsc and $ 8.9 million related to unrealized gains within our equity securities portfolio . the net investment losses for 2018 were primarily related to a decrease in the market value of the equity securities we held at december 31 , 2018. we did not recognize any impairment losses during 2019 or 2018. losses and loss expenses our insurance subsidiaries ' loss ratio , which is the ratio of incurred losses and loss expenses to premiums earned , was 67.0 % in 2019 , compared to 77.8 % in 2018. our insurance subsidiaries ' commercial lines loss ratio decreased to 63.0 % in 2019 , compared to 72.9 % in 2018. this decrease resulted primarily from the commercial automobile loss ratio decreasing to 86.2 % in 2019 , compared to 101.9 % in 2018 , and the commercial multi-peril loss ratio decreasing to 63.1 % in 2019 , compared to 67.0 % in 2018. the personal lines loss ratio was 71.1 % in 2019 , compared to 81.8 % in 2018. our insurance subsidiaries experienced favorable loss reserve development of approximately $ 12.9 million , or 1.7 percentage points of the loss ratio , during 2019 in their reserves for prior accident years , compared to unfavorable loss reserve development of approximately $ 35.6 million , or 4.8 percentage points of the loss ratio , during 2018. the favorable loss reserve development in 2019 resulted primarily from lower-than-expected severity in the workers ' compensation line of business , partially offset by higher-than-expected severity in the commercial automobile and commercial multi-peril lines of business , for accident years prior to 2019. weather-related losses of $ 46.1 million , or 6.1 percentage points of the loss ratio , for 2019 decreased from $ 65.0 million , or 8.8 percentage points of
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in july 2008 , we entered into an exclusive global collaboration with genzyme to develop and commercialize ataluren for the treatment of genetic disorders due to nonsense mutations . under the terms of this agreement , we granted genzyme rights to commercialize ataluren in all countries except the united states and canada , which rights we retained . genzyme made a nonrefundable , upfront payment to us of $ 100.0 million in july 2008 , which we then began recognizing over the estimated period of performance under the arrangement . in august 2011 , we announced a restructuring of the agreement with genzyme . under the terms of the restructuring , we regained worldwide rights to ataluren and genzyme made an additional payment of $ 7.5 million to us in exchange for an option to commercialize ataluren in indications other than nmdmd outside the united states and canada . in march 2012 , genzyme declined to exercise the option , the option expired and the collaboration terminated . we evaluated the august 2011 restructuring of the agreement and determined it to be a material modification to the original agreement for financial reporting purposes pursuant to the revised multiple 105 element revenue recognition guidance . we reevaluated the collaboration arrangement under this revised guidance and recorded a one-time adjustment to our deferred revenue balance to reflect the value of the remaining performance obligations under the restructured agreement as represented by the best estimate of selling price . as a result of this reevaluation , we recognized approximately $ 79.0 million of existing deferred revenue as of the modification date . roche and the sma foundation . in november 2011 , we entered into a license and collaboration agreement with roche and the sma foundation pursuant to which we are collaborating with roche and the sma foundation to further develop and commercialize compounds identified under our spinal muscular atrophy sponsored research program with the sma foundation , as described below , and to research , develop and commercialize other small molecule compounds with potential for therapeutic use in patients with spinal muscular atrophy . pursuant to the license and collaboration agreement , roche paid us an upfront non-refundable payment of $ 30.0 million . in august 2013 , we announced the selection of a development candidate . the achievement of this milestone triggered a $ 10.0 million payment to us from roche , which we recorded as collaboration revenue for the year ended december 31 , 2013. in january 2014 , we initiated a phase 1 clinical program , which triggered a $ 7.5 million milestone payment to us from roche . roche is responsible for pursuing clinical development of compounds from the program , consistent with a governance structure that includes representation from us and the sma foundation , and then commercialization of these compounds . grant revenue . we receive grant funding from various institutions and governmental bodies . the grants are typically for early discovery research , and generally the grant program lasts from two to five years . research and development expenses research and development expenses consist of the costs associated with our research activities , as well as the costs associated with our drug discovery efforts , conducting preclinical studies and clinical trials , manufacturing development efforts and activities related to regulatory filings . our research and development expenses consist of : external research and development expenses incurred under agreements with third party contract research organizations and investigative sites , third party manufacturing organizations and consultants ; employee related expenses , which include salaries and benefits , including stock based compensation , for the personnel involved in our drug discovery and development activities ; and facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation of leasehold improvements and equipment , and laboratory and other supplies . we use our employee and infrastructure resources across multiple research projects , including our drug development programs . we track expenses related to our clinical programs and certain preclinical programs on a per project basis . we expect our research and development expenses to increase in connection with our ongoing activities , particularly as we initiate and continue confirmatory phase 3 clinical trials of ataluren for the treatment of nmdmd and nmcf , continue our research activities in our preclinical programs and initiate clinical development of other product candidates . the timing and amount of these expenses will depend upon the outcome of our ongoing clinical trials and the costs associated with our planned clinical trials . the timing and amount of these expenses will also depend on the costs associated with potential future clinical trials of our product candidates and the related expansion of our research and 106 development organization , regulatory requirements , advancement of our preclinical programs and product candidate manufacturing costs . the following table provides research and development expense for our most advanced principal product development programs . replace_table_token_11_th the successful development of our product candidates is highly uncertain . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : the scope , rate of progress and expense of our clinical trials and other research and development activities ; the potential benefits of our product candidate over other therapies ; our ability to market , commercialize and achieve market acceptance for any of our product candidates that we are developing or may develop in the future ; clinical trial results ; the terms and timing of regulatory approvals ; and the expense of filing , prosecuting , defending and enforcing patent claims and other intellectual property rights . a change in the outcome of any of these variables with respect to the development of ataluren or any other product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . story_separator_special_tag for example , if the ema or 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 ataluren or any other product candidate or if we experience significant delays in enrollment in any our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . general and administrative expense general and administrative expense consists primarily of salaries and other related costs for personnel , including stock based compensation expenses , in our executive , legal , business development , finance , accounting , information technology and human resource functions . other general and administrative expenses include facility related costs not otherwise included in research and development expense ; advertising and promotional expenses ; costs associated with industry and trade shows ; and professional fees for legal services , including patent related expenses , and accounting services . we expect that general and administrative expense will increase in future periods as a result of increased payroll , expanded infrastructure , commercial operations , increased consulting , legal , accounting and investor relations expenses associated with being a public company and costs incurred to seek collaborations with respect to any of our product candidates , among other factors . 107 interest expense , net interest expense , net consists of interest related to our secured debt facility and interest income earned on investments . in july 2013 , we paid in full the outstanding principal and interest related to our secured debt facility . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in the notes to our financial statements appearing at the end of this prospectus , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations . as an emerging growth company under the jumpstart our business startups act of 2012 , we have elected to delay the adoption of new or revised accounting standards until those standards would otherwise apply to private companies . as a result of this election , our financial statements may not be comparable to the financial statements of other public companies . revenue recognition we recognize revenue when amounts are realized or realizable and earned . revenue is considered realizable and earned when the following criteria are met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the price is fixed or determinable ; and ( 4 ) collection of the amounts due are reasonably assured . our revenue is generated primarily through collaborative research and development and licensing agreements and grants . the terms of these agreements typically include payments of one or more of the following : nonrefundable , upfront license fees ; milestone payments ; research funding ; and royalties on future product sales . in addition , we generate service revenue through agreements that generally provide for fees for research and development services and may include additional payments upon achievement of specified events . for existing collaborations entered into prior to the adoption in 2011 of the revised multiple element revenue recognition guidance described below , we recognize revenue consistent with the approach established at the inception of each arrangement . for these existing collaborations , where we have continued involvement , we recorded nonrefundable , upfront fees as deferred revenue and recognize revenue on a straight line basis as collaboration revenue over the expected performance period . for new collaborations or for material modifications made to existing collaborations , in 2011 , we adopted the updated multiple element revenue recognition guidance . under this new guidance , all non-contingent arrangement consideration is allocated to the identified units of accounting based on their relative selling price at inception of the collaboration arrangement . we derive the selling price using a combination of internal subjective and available external objective information , such as comparable transactions . we recognize revenue commensurate with delivery , such as in the case with 108 delivery of a license , or ratably over the course of a service period , as appropriate , such as in the case of ongoing research and development activities . we evaluate all contingent consideration earned , such as a milestone payment , using the criteria as provided by the financial accounting standards board , or fasb , guidance on the milestone method of revenue recognition . at the inception of a collaboration arrangement , we evaluate if milestone payments are substantive . the criteria requires that ( 1 ) we determine if the milestone is commensurate with either its performance to achieve the milestone or the enhancement of value resulting from our activities to achieve the milestone ; ( 2 ) the milestone be related to past performance ; and ( 3 ) the milestone be reasonable relative to all deliverable and payment terms of the collaboration arrangement . if these criteria are met then the contingent milestones can be considered as substantive milestones and will be recognized as revenue in the period that the milestone is achieved . we recognize royalties as earned in accordance with the terms of various research and collaboration agreements .
| general and administrative expense was $ 25.2 million for the year ended december 31 , 2013 , an increase of $ 10.6 million , or 72.6 % , from $ 14.6 million for the year ended december 31 , 2012. the increase resulted primarily from an increase in share-based compensation of $ 4.9 million and increases in public company related expenses and pre-commercial activities . interest expense , net . interest expense was $ 6.1 million for the year ended december 31 , 2013 , an increase of $ 4.9 million from $ 1.2 million for the year ended december 31 , 2012. the increase was due to interest expense related to the amortization of the debt discount associated with the convertible debt that we issued in 2013 partially offset by interest income related to investments . loss on extinguishment of debt . in july 2013 , we paid in full the outstanding principal and interest of $ 2.6 million due under promissory notes issued related to a $ 25 million secured debt facility with a syndicate of two lenders . in connection with the repayment , we incurred a loss on extinguishment of debt of $ 0.1 million , primarily related to the write off of deferred financing costs , the acceleration of recognition of debt extinguishment fees and the prepayment premium payable . the notes were secured by substantially all our assets except for intellectual property and carried a fixed interest rate of 13.65 % . 112 other income , net . other income , net was $ 38 for the year ended december 31 , 2013 , a decrease of $ 1.8 million as compared to the year ended december 31 , 2012. the decrease was due to the change in fair value related to our warrant liability . year ended december 31 , 2012 compared to year ended december 31 , 2011 replace_table_token_14_th revenues . revenues were $ 33.9 million for the year ended december 31 , 2012 , a decrease of $ 71.5 million from revenues of $ 105.4 million for the year ended december 31 , 2011. collaboration revenue was $ 28.8
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as a result of these efforts , front yard 's mortgage loan portfolio was reduced to 111 mortgage loans with a carrying value of $ 11.5 million and an aggregate unpaid principal balance of only $ 29.4 million at december 31 , 2017. in addition , front yard has continued to make significant progress on the sale of its non-rental reo properties with an additional 1,710 of such properties sold during the year ended december 31 , 2017. we expect front yard to continue to sell its remaining reo properties that do not meet its rental profile as soon as reasonably practicable based on market conditions . optimization of front yard 's financing in 2017 we have continued our efforts to optimize front yard 's financing structure . during 2017 , we facilitated front yard 's entry into the following financing arrangements that we believe better match the long-term nature of front yard 's assets than the shorter-term repurchase and loan agreements historically used to finance its portfolios while providing front yard with protection against rising interest rates . on march 30 , 2017 , in connection with the first closing under the home flow transaction , front yard obtained approximately $ 79.9 million of proceeds from a seller financing arrangement ( the “ home ii loan agreement ” ) , representing 75 % of the aggregate purchase price . initially , the home ii loan agreement had an interest rate based on one-month libor plus a fixed component spread of 2.75 % and an initial maturity date of october 9 , 2019 , which front yard has the option to extend for three successive one-year periods , provided , among other things , that there is no event of default under the home ii loan agreement on each maturity date . on november 13 , 2017 , the home ii loan agreement was amended and restated to ( i ) increase the principal amount to $ 83.3 million , ( ii ) reduce the fixed component spread of the interest rate to 2.10 % and ( iii ) change the initial maturity date to november 9 , 2019. on april 6 , 2017 , front yard entered into a fixed rate , five-year credit and security agreement with an aggregate principal balance of $ 100.0 million ( the “ term loan agreement ” ) with american money management corporation , as agent , on behalf of great american life insurance company and great american insurance company as initial lenders , and each other lender added from time to time as a party to the term loan agreement . on june 29 , 2017 , in connection with the second closing under the home flow transaction , front yard obtained approximately $ 87.8 million of proceeds from a seller financing arrangement ( the “ home iii loan agreement ” ) , representing 75 % of the aggregate purchase price . initially , the home iii loan agreement had an interest rate based on one-month libor plus a fixed component spread of 2.30 % and an initial maturity date of october 9 , 2019 , which front yard has the option to extend for three successive one-year periods , provided , among other things , that there is no event of default under the home iii loan agreement on each maturity date . on november 13 , 2017 , the home iii loan agreement was amended and restated to ( i ) increase the principal amount to $ 89.2 million , ( ii ) reduce the fixed component spread of the interest rate to 2.10 % and ( iii ) change the initial maturity date to november 9 , 2019. on november 29 , 2017 , in connection with the third and final closing under the home flow transaction , front yard obtained an aggregate of approximately $ 228.8 million of proceeds from two separate seller financing arrangements ( collectively , the “ home iv loan agreements ” ) , representing 75 % of the aggregate purchase price . the home iv loan agreements have a fixed interest rate of 4.00 % and a maturity date of december 9 , 2022. in addition to these long-term facilities , on april 6 , 2017 , we managed front yard 's amendment and restatement of its loan and security agreement with nomura corporate funding americas , llc to , among other things , extend the termination date of the 38 ( ) facility by one year to april 5 , 2018. lastly , we also managed front yard 's amendment and extension of its repurchase facility ( the “ cs repurchase agreement ” ) with credit suisse first boston mortgage capital , llc ( “ cs ” ) . in connection therewith , certain of the financial covenants under the cs repurchase facility were updated to customary provisions to better reflect front yard 's business , and the maturity date was extended to november 16 , 2018. the aggregate maximum borrowing capacity of the cs repurchase facility remained unchanged at $ 350.0 million . we believe all of the foregoing developments continue to be critical to our strategy of building long-term stockholder value for front yard through the creation of a large portfolio of sfr homes that we target operating for front yard at an attractive yield . to the extent front yard is successful in implementing this strategy under our management , the fees we earn under the ama should be positively impacted . observations on current market opportunities we believe there is a compelling opportunity in the sfr market and that we have implemented the right strategic plan for front yard to capitalize on the sustained growth in sfr demand . front yard targets the moderately-priced single-family home market to acquire rental units that , in our view , offer optimal yield opportunities . in the current market , tighter credit availability for lower-income buyers and the relative scarcity of institutional buyers and operators should result in reduced price competition for reasonably priced homes . story_separator_special_tag we believe that , when combined with sustained renter demand for affordable homes , front yard 's lower home acquisition costs and careful evaluation of capital expenditure requirements prior to acquisition will offer attractive yield opportunities . we view this as a significant differentiator for front yard . asset management agreement with front yard pursuant to the ama , we design and implement front yard 's business strategy , administer its business activities and day-to-day operations and provide corporate governance services , subject to oversight by front yard 's board of directors . we are responsible for , among other duties : ( 1 ) performing and administering all of front yard 's day-to-day operations ; ( 2 ) defining investment criteria in front yard 's investment policy in cooperation with its board of directors ; ( 3 ) sourcing , analyzing and executing asset acquisitions , including the related financing activities ; ( 4 ) analyzing and executing sales of reo properties and residential mortgage loans ; ( 5 ) overseeing the property managers ' renovation , leasing and property management of front yard 's sfr properties ; ( 6 ) overseeing the servicing of front yard 's remaining residential mortgage loans ; ( 7 ) performing asset management duties and ( 8 ) performing corporate governance and other management functions , including financial , accounting and tax management services . we provide front yard with a management team and support personnel who have substantial experience in the acquisition and management of residential rental properties and residential mortgage loans . our management also has significant corporate governance experience that enables us to manage front yard 's business and organizational structure efficiently . we have agreed not to provide the same or substantially similar services without the prior written consent of front yard 's board of directors to any business or entity competing against front yard in ( a ) the acquisition or sale of sfr and or reo properties , non-performing and re-performing mortgage loans or other similar assets ; ( b ) the carrying on of an sfr business or ( c ) any other activity in which front yard engages . notwithstanding the foregoing , we may engage in any other business or render similar or different services to any businesses engaged in lending or insurance activities or any other activity other than those described above . further , at any time following front yard 's determination and announcement that it will no longer engage in any of the above-described competitive activities , we would be entitled to provide advisory or other services to businesses or entities in such competitive activities without front yard 's prior consent . on march 31 , 2015 , we entered into the ama with front yard . the ama , which became effective on april 1 , 2015 , provides for the following management fee structure : base management fee . we are entitled to a quarterly base management fee equal to 1.5 % of the product of ( i ) front yard 's average invested capital ( as defined in the ama ) for the quarter multiplied by ( ii ) 0.25 , while it has fewer than 2,500 sfr properties actually rented ( “ rental properties ” ) . the base management fee percentage increases to 1.75 % of average invested capital while front yard has between 2,500 and 4,499 rental properties and increases to 2.0 % of average invested capital while it has 4,500 or more rental properties ; incentive management fee . we are entitled to a quarterly incentive management fee equal to 20 % of the amount by which front yard 's return on invested capital ( based on affo , defined as net income attributable to holders of common stock calculated in accordance with gaap plus real estate depreciation expense minus recurring capital expenditures on all real estate assets owned by front yard ) exceeds an annual hurdle return rate of between 7.0 % and 39 ( ) 8.25 % ( or 1.75 % and 2.06 % per quarter ) , depending on the 10 -year treasury rate . to the extent front yard has an aggregate shortfall in its return rate over the previous seven quarters , that aggregate return rate shortfall gets added to the normal quarterly 1.75 % return hurdle for the next quarter before we are entitled to an incentive management fee . the incentive management fee increases to 22.5 % while front yard has between 2,500 and 4,499 rental properties and increases to 25 % while it has 4,500 or more rental properties ; and conversion fee . we are entitled to a quarterly conversion fee equal to 1.5 % of the market value of assets converted into leased single-family homes by front yard for the first time during the quarter . because front yard has more than 4,500 rental properties , we are entitled to receive a base management fee of 2.0 % of front yard 's invested capital and a potential incentive management fee percentage of 25 % of the amount by which front yard exceeds its then-required return on invested capital threshold . front yard has the flexibility to pay up to 25 % of the incentive management fee to us in shares of its common stock . under the ama , front yard reimburses us for the compensation and benefits of the general counsel dedicated to front yard and certain other out-of-pocket expenses incurred on front yard 's behalf . the ama requires that we are the exclusive asset manager for front yard for an initial term of 15 years from april 1 , 2015 , with two potential five -year extensions , subject to front yard achieving an average annual return on invested capital of at least 7.0 % .
| in addition , the net income attributable to non-controlling interest in consolidated affiliate is no longer applicable for periods beginning on or after january 1 , 2016. fiscal year ended december 31 , 2017 compared to fiscal year ended december 31 , 2016 management fees and expense reimbursements pursuant to the ama , we earned base management fees from front yard of $ 16.0 million for the year ended december 31 , 2017 compared to $ 17.3 million for the year ended december 31 , 2016 . the decrease in base management fees is primarily driven by declines in front yard 's average invested capital as defined in the ama , partially offset by increases in the base management fee percentage under the ama due to the increase in the number of rental properties in front yard 's portfolio to more than 4,500 homes , as described in more detail below . 44 ( ) we earned conversion fees of $ 1.3 million and $ 1.8 million for the years ended december 31 , 2017 and 2016 , respectively . we expect the conversion fees we receive to fluctuate dependent upon the number and fair market value of properties converted to rental properties for the first time during the quarter . we expect reductions in the amount of conversion fees we receive as front yard 's portfolios of mortgage loans and reo properties decline . because front yard has more than 4,500 rental properties , we are entitled to receive a base management fee of 2 % of front yard 's invested capital and a potential incentive management fee percentage of 25 % of the amount by which front yard exceeds its then-required return on invested capital threshold . we recognized expense reimbursements due from front yard of $ 0.9 million for the year ended december 31 , 2017 compared to $ 0.8 million for the year ended december 31 , 2016 . expense reimbursements relate primarily to travel and other out-of-pocket costs in managing front yard 's business and the employment costs related to the general counsel dedicated to front yard . salaries and employee benefits salaries and employee benefits increased to $ 19.4 million from $ 17.4 million for the years ended december 31 , 2017 and
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during 2018 , we invested $ 102.5 million in three mixed-use new development projects that are partially or wholly owned and a 30-story , high-rise residential tower at our river oaks shopping center in houston , texas . also during 2018 , we invested $ 37.9 million in 15 redevelopment projects that were partially or wholly owned . effective january 1 , 2019 , we stabilized the development in seattle , washington , moving it to our operating property portfolio , which added 63,000 square feet to the portfolio at an estimated cost per square foot of $ 490. for 2019 , we expect to invest in new development and redevelopments in the range of $ 175 million to $ 225 million , but we can give no assurances that this will actually occur . we strive to maintain a strong , conservative capital structure which should provide ready access to a variety of attractive long and short-term capital sources . we carefully balance lower cost , short-term financing with long-term liabilities associated with acquired or developed long-term assets . we continue to look for transactions that will strengthen our consolidated balance sheet and further enhance our access to various sources of capital , while reducing our cost of capital . due to the variability in the capital markets , there can be no assurance that favorable pricing and accessibility will be available in the future . during 2018 , we paid down debt totaling $ 251.0 million and repurchased $ 18.5 million ( before commissions ) of our common shares . these transactions were funded with proceeds from our disposition program and cash generated from operations to further strengthen our balance sheet . operational metrics in assessing the performance of our centers , management carefully monitors various operating metrics of the portfolio . as a result of our strong leasing activity and low tenant fallout , the operating metrics of our portfolio remained strong in 2018 as we focused on increasing rental rates and same property net operating income ( `` spnoi '' and see non-gaap financial measures for additional information ) . our portfolio delivered solid operating results with : occupancy of 94.4 % at december 31 , 2018 ; an increase of 3.4 % in spnoi that includes redevelopments for the three months ended december 31 , 2018 over the same period of 2017 ; and rental rate increases of 37.4 % for new leases and 5.3 % for renewals during the three months ended december 31 , 2018 . below are performance metrics associated with our signed occupancy , spnoi growth and leasing activity on a pro rata basis : replace_table_token_9_th replace_table_token_10_th _ ( 1 ) see non-gaap financial measures for a definition of the measurement of spnoi and a reconciliation to net income attributable to common shareholders within this section of item 7 . 27 replace_table_token_11_th _ ( 1 ) average external lease commissions per square foot for the three and twelve months ended december 31 , 2018 were $ 5.35 and $ 5.42 , respectively . changing shopping habits , driven by rapid expansion of internet-driven procurement , has led to increased financial problems for many retailers , which has had a negative impact on the retail real estate sector . we continue to monitor the effects of these trends , including the impact of retail customer spending over the long-term . we believe the desirability of our physical locations , the significant diversification of our portfolio , both geographically and by tenant base , and the quality of our portfolio , along with its leading retailers and service providers that sell primarily grocery and basic necessity-type goods and services , position us well to mitigate the impact of these changes . additionally , most retailers have implemented omni-channel networks that integrate on-line shopping with in-store experiences that has further reinforced the need for bricks and mortar locations . despite recent tenant bankruptcies , we continue to believe there is retailer demand for quality space within strong , strategically located centers . while we anticipate occupancy in 2019 to increase slightly from 2018 , we may experience some fluctuations due to announced bankruptcies and the repositioning of those spaces in the future . a reduction in the availability of quality retail space , as well as continued retailer demand , contributed to the increase in overall rental rates on a same-space basis as we completed new leases and renewed existing leases ; however , the magnitude of these increases decreased in comparison to previous years due to , among other factors , a recent shift in negotiating leverage to the tenant . we expect rental rates to continue to increase and the funding of tenant improvements and allowances could increase ; however , the variability in the mix of leasing transactions as to size of space , market , use and other factors may impact the magnitude of these increases , both positively and negatively . leasing volume is anticipated to fluctuate due to the uncertainty in tenant fallouts related to bankruptcies and tenant non-renewals . our expectation is that spnoi growth including redevelopments will average between 2.0 % to 3.0 % for 2019 assuming no significant tenant bankruptcies , although there are no assurances that this will occur . new development/redevelopment at december 31 , 2018 , we had three mixed-use projects and a 30-story , high-rise residential tower at our river oaks shopping center that were in various stages of development and are partially or wholly owned . we have funded $ 246.6 million through december 31 , 2018 on these projects , and we estimate our aggregate net investment upon completion to be $ 512.5 million . overall , the average projected stabilized return on investment for these multi-use properties , that include retail , office and residential components , is expected to approximate 5.6 % upon completion . we have 15 redevelopment projects in which we plan to invest approximately $ 90.8 million . story_separator_special_tag upon completion , the average projected stabilized return on our incremental investment on these redevelopment projects is expected to be between 8.0 % and 14.0 % . 28 we had approximately $ 45.7 million in land held for development at december 31 , 2018 that may either be developed or sold . while we are experiencing some interest from retailers and other market participants in our land held for development , opportunities for economically viable developments remain limited . we intend to continue to pursue additional development and redevelopment opportunities in multiple markets ; however , finding the right opportunities remains challenging . acquisitions acquisitions are a key component of our long-term growth strategy . the availability of quality acquisition opportunities in the market remains sporadic in our targeted markets . intense competition , along with a decline in the volume of high-quality core properties on the market , has driven pricing to very high levels . we intend to remain disciplined in approaching these opportunities , pursuing only those that provide appropriate risk-adjusted returns . dispositions dispositions are also a key component of our ongoing management process where we selectively prune properties from our portfolio that no longer meet our geographic or growth targets . dispositions provide capital , which may be recycled into properties that are high barrier-to-entry locations within high growth metropolitan markets , and thus have higher long-term growth potential . additionally , proceeds from dispositions may be used to reduce outstanding debt , further deleveraging our consolidated balance sheet , to repurchase our common shares and or debt , dependent upon market prices , or to fund new development and redevelopment projects . summary of critical accounting policies our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and contingencies as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods . we evaluate our assumptions and estimates on an ongoing basis . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies require more significant judgments and estimates used in the preparation of our consolidated financial statements . real estate joint ventures and partnerships to determine the method of accounting for partially owned real estate joint ventures and partnerships , management determines whether an entity is a variable interest entity ( “ vie ” ) and , if so , determines which party is the primary beneficiary by analyzing whether we have both the power to direct the entity 's significant economic activities and the obligation to absorb potentially significant losses or receive potentially significant benefits . significant judgments and assumptions inherent in this analysis include the design of the entity structure , the nature of the entity 's operations , future cash flow projections , the entity 's financing and capital structure , and contractual relationships and terms . we consolidate a vie when we have determined that we are the primary beneficiary . primary risks associated with our involvement with our vies include the potential funding of the entities ' debt obligations or making additional contributions to fund the entities ' operations or capital activities . partially owned , non-variable interest real estate joint ventures and partnerships over which we have a controlling financial interest are consolidated in our consolidated financial statements . in determining whether we have a controlling financial interest , we consider factors such as ownership interest , authority to make decisions , kick-out rights and substantive participating rights . partially owned real estate joint ventures and partnerships where we do not have a controlling financial interest , but have the ability to exercise significant influence , are accounted for using the equity method . management continually analyzes and assesses reconsideration events , including changes in the factors mentioned above , to determine if the consolidation treatment remains appropriate . decisions regarding consolidation of partially owned entities frequently require significant judgment by our management . errors in the assessment of consolidation could result in material changes to our consolidated financial statements . impairment our property is reviewed for impairment if events or changes in circumstances indicate that the carrying amount of the property , including any capitalized costs and any identifiable intangible assets , may not be recoverable . 29 if such an event occurs , a comparison is made of the current and projected operating cash flows of each such property into the foreseeable future , with consideration of applicable holding periods , on an undiscounted basis to the carrying amount of such property . if we determine the carrying amount is not recoverable , our basis in the property is reduced to its estimated fair value to reflect impairment in the value of the asset . fair values are determined by management utilizing cash flow models , market capitalization rates and market discount rates , or by obtaining third-party broker or appraisal estimates in accordance with our fair value measurements accounting policy . we review current economic considerations each reporting period , including the effects of tenant bankruptcies , the suspension of tenant expansion plans for new development projects , declines in real estate values and any changes to plans related to our new development projects including land held for development , to identify properties where we believe market values may be deteriorating .
| impairment loss the impairment loss in 2018 is associated primarily with the disposition of three centers as compared to the losses in 2017 associated with the disposition of four centers , interests in two 50 % unconsolidated joint ventures and the disposition of an unimproved land parcel . general and administrative expenses the decrease in general and administrative expenses of $ 3.0 million is primarily attributable to a reduction in salary expense associated with a fair value decrease of $ 1.8 million for assets held in a grantor trust related to deferred compensation and a decrease in restricted share compensation due to unanticipated reductions in our share valuation , as well as a reduction in personnel . interest expense , net net interest expense decreased $ 17.0 million or 21.1 % . the components of net interest expense were as follows ( in thousands ) : replace_table_token_13_th the decrease in net interest expense is primarily attributable to a reduction in the weighted average debt outstanding due to the pay down of debt with proceeds from dispositions and cash generated from operations , and a $ 3.8 million gain on extinguishment of debt during 2018 , which includes the effect of a swap termination . for the year ended december 31 , 2018 , the weighted average debt outstanding was $ 1.9 billion at a weighted average interest rate of 4.0 % as compared to $ 2.2 billion outstanding at a weighted average interest rate of 3.8 % in the same period of 2017. also the increase in capitalized interest of $ 3.1 million is associated with an increase in new development activities . interest and other income ( expense ) the decrease of $ 4.7 million in interest and other income ( expense ) is attributable primarily to a fair value decrease of $ 5.4 million for assets held in a grantor trust related to deferred compensation , which is offset by a net $ .6 million increase primarily associated with
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accordingly , these are the policies management believes are the most critical to aid in fully understanding and evaluating the company 's financial condition and results of operations . revenue recognition the company follows specific and detailed guidelines in determining the proper amount of revenue to be recorded ; however , certain judgments affect the application of its revenue recognition policy . the company commences revenue recognition when all of the following conditions are met : there is persuasive evidence of an arrangement ; the product has been delivered or the services have been provided to the customer ; the collection of the fees is reasonably assured ; and the amount of fees to be paid by the customer is fixed or determinable . revenue results are difficult to predict , and any shortfall in revenue or delay in recognizing revenue could cause the company 's operating results to vary significantly from period to period . the significant judgments for revenue recognition typically involve allocation of revenue to multiple element arrangements , which must be analyzed to determine the fair value of each element , the amount of revenue to be recognized for each element , if any , and the period and conditions under which deferred revenue should be recognized . as a result , if facts and circumstances change that affect management 's current judgments , the company 's revenue could be materially different in the future . long-lived assets the company continually monitors events and changes in circumstances that could indicate that carrying amounts of its long-lived assets , including property and equipment and intangible assets may not be recoverable . when such events or changes in circumstances occur , the company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through their undiscounted expected future cash flows . if the future undiscounted cash flows are less than the carrying amount of these assets , the company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets . goodwill the company records goodwill when consideration paid in a purchase acquisition exceeds the fair value of the net tangible assets and the identified intangible assets acquired . goodwill is not amortized , but rather is tested for impairment annually or more frequently if facts and circumstances warrant a review . the company has determined that there is a single reporting unit for the purpose of goodwill impairment tests . for purposes of assessing the impairment of goodwill , the company annually , at its fiscal year end , estimates the fair value of the reporting unit and compares this amount to the carrying value of the reporting unit . if the company determines that the carrying value of the reporting unit exceeds its fair value , an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds its fair value . 23 during the year ended december 31 , 2015 , the company 's stock price traded at levels which caused the company 's enterprise value , excluding any control premium , to approximate its book value , resulting in increased risk of a potential impairment of goodwill . as of december 31 , 2015 , the company 's market capitalization , without a control premium , was less than its book value suggesting a possible goodwill impairment . the company engaged a third party valuation firm to assist the company with its goodwill impairment analysis . based on the analysis , the company determined its enterprise value using a discounted cash flow analysis and a comparable public company analysis , giving both equal weight , was greater than the company 's book value by 14 % . as a result , the company concluded there was no goodwill impairment . while not a factor used for the december 31 , 2015 goodwill impairment analysis , the company 's market capitalization increased to $ 48.7 million as of march 14 , 2016 which was in excess of its book value at december 31 , 2015 by 58 % . declines in the company 's market capitalization could require the company to record goodwill and other impairment charges . while a goodwill impairment charge is a non-cash charge , it would have a negative impact on the company 's results of operations . investment in nonconsolidated company as of december 31 , 2015 and 2014 , the company held an investment totaling $ 3.1 million in convertible preferred stock of briefcam , ltd. ( `` briefcam '' ) a privately-held israeli company that develops video synopsis technology to augment security and surveillance systems to facilitate review of surveillance video . the investment is included in other non-current assets . because qumu 's ownership interest is less than 20 % and it has no other rights or privileges that enable it to exercise significant influence over the operating and financial policies of briefcam , qumu accounts for this equity investment using the cost method . equity securities accounted for under the cost method are reviewed quarterly for changes in circumstances or the occurrence of events that suggest the company 's investment may not be fully recoverable . if an unrealized loss for the investment is considered to be other-than-temporary , the loss will be recognized in the consolidated statements of operations in the period the determination is made . qumu monitors briefcam 's results of operations , business plan and capital raising activities and is not aware of any events or circumstances that would indicate a decline in the carrying value of its investment . stock-based compensation stock-based compensation is measured at the grant date , based on the fair value of the award , and is recognized ratably as an expense over the vesting period of the award . story_separator_special_tag determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the use of subjective assumptions , including the expected life of the stock-based payment awards and stock price volatility . management uses the black-scholes option pricing model to value award grants and determine the related compensation expense . the assumptions used in calculating the fair value of stock-based payment awards represent management 's best estimates , but the estimates involve inherent uncertainties and the application of management judgment . as a result , if factors change and management uses different assumptions , the company 's stock-based compensation expense could be materially different in the future . the company expects to continue to grant stock-based awards in the future , and to the extent that the company does , its actual stock-based compensation expense recognized in future periods will likely increase . royalties for third party technology royalties for third party technology are either paid in advance and capitalized as prepaid royalties or are accrued as incurred and subsequently paid . these royalties are generally expensed to cost of revenue generally at the greater of the contractual rate or an effective royalty rate based on the total projected net revenue for contracts with guaranteed minimums . each quarter , the company also evaluates the expected future realization of its prepaid royalties , as well as any minimum commitments not yet paid to determine amounts it deems unlikely to be realized through product sales . any impairments or losses determined before the launch of a product are generally charged to general and administrative expense , and any impairments or losses determined post-launch are charged to cost of revenue . unrecognized minimum royalty-based commitments are accounted for as executory contracts , and therefore , any losses on these commitments are recognized when the underlying intellectual property is abandoned ( i.e. , cease use ) or the contractual rights to use the intellectual property are terminated . during the quarter ended december 31 , 2015 , the company recognized a loss relating to a third party license agreement of $ 1.2 million to general and administration expense which included the write-off of a $ 606,000 prepaid royalty and the accrual of the remaining $ 606,000 minimum royalty payments . income taxes significant judgment is required in determining the realizability of deferred tax assets . management must assess the likelihood that the company 's net deferred tax assets will be recovered from future taxable income , and to the extent management believes that recovery is not likely , the company must establish a valuation allowance . considerations for determining the realizability of the company 's deferred tax assets primarily involve cumulative pre-tax income for financial reporting purposes , cumulative taxable income for the past three years , estimated future pre-tax income for financial reporting purposes and 24 estimated future taxable income from the company 's core business . management also considers the expiration dates and amounts of net operating loss carryforwards and other tax credits , and estimate the impact of future tax deductions from the exercise of stock options . these estimates are projected through the life of the related deferred tax assets based on assumptions which management believes to be reasonable and consistent with current operating results . since 2012 , the company has maintained a full valuation allowance against the company u.s. deferred tax assets . if pretax results improve in future periods , the company may be able to reverse the valuation allowance , which would positively impact earnings . results of operations the percentage relationships to revenues of certain income and expense items for the years ended december 31 , 2015 , 2014 and 2013 , and the percentage changes in these income and expense items between years , are contained in the following table ( all amounts presented reflect only the financial results of the company 's continuing enterprise video content management software business ) : replace_table_token_7_th revenues the company generates revenue through the sale of enterprise video content management software solutions , hardware , maintenance and support , and professional and other services . software sales may take the form of a perpetual software license , a term software license or a cloud-hosted software as a service ( saas ) . software licenses and appliances revenue includes sales of perpetual software licenses and hardware . service revenue includes term software licenses , saas , maintenance and support , and professional and other services . the table below describes qumu 's revenues by product category ( in thousands ) : replace_table_token_8_th the $ 7.9 million increase in total revenues from 2014 to 2015 reflects a $ 9.8 million increase in service revenues , partially offset by a $ 1.9 million decrease in software licenses and appliances revenues . the decrease in software license revenues in 2015 was largely impacted by a decrease in the value of perpetual product license contracts entered into in 2015 and converted to revenue . revenues can vary year to year based on the type of contract the company enters into with each customer . contracts for perpetual software licenses , which are included in software licenses and appliances revenue , generally result in revenue recognized closer to the contract commitment date , while contracts for term software licenses and saas , which are included in service revenue , result in most of the revenue being recognized over the period of the contract . the $ 9.8 million increase in service revenues from 2014 to 2015 story_separator_special_tag relating to a third party license agreement of $ 1.2 million , and severance expense of $ 2.1 million relating the cost reduction initiatives and executive transitions . research and development research and development expenses were as follows ( dollars in thousands ) : replace_table_token_11_th total research and development expenses for the years ended december 31 , 2015 , 2014 and 2013 represented 31 % , 36 % and 49 % of revenues , respectively .
| other factors that will influence future consolidated revenues include the timing of customer orders , the impact of changes in economic conditions and the impact of foreign currency exchange rate fluctuations . cost of revenues and gross profit a comparison of gross profit and gross margin by revenue category is as follows ( dollars in thousands ) : replace_table_token_9_th the 3.8 % improvement in gross margin in 2015 compared to 2014 was primarily driven by the 12.1 % improvement in service gross margin primarily driven by improved economies of scale on increased service revenue ; service margin also improved due to cost savings initiatives in the second half of 2015. the year ended december 31 , 2015 included severance expense of $ 49,000 relating the cost reduction initiatives . the company had 43 and 49 service personnel at december 31 , 2015 and 2014 , respectively . the 13.2 % decline in gross margin in 2014 compared to 2013 resulted from increased investments in customer support and professional services costs to support growth in the customer base , deployment of a growing base of software contracts and expansion of service offerings . additionally , the sales mix shifted in 2014 compared to 2013 to include a higher concentration of lower margin hardware in perpetual license transactions . the overall growth in revenue volume in 2014 provided greater absorption of fixed service costs , partially offsetting the impact of the changes described above . for the years ended december 31 , 2015 , 2014 and 2013 , gross margins are inclusive of the impact of approximately $ 1.3 million , $ 0.7 million and $ 0.6 million , respectively , in amortization expense associated with intangible assets acquired as a result of the acquisition of qumu , inc. in the fourth quarter of 2011 and kulu valley in the fourth quarter of 2014. cost of software licenses and appliances revenues in 2016 are expected to
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depreciation , depletion and amortization for oil and gas properties the quantities of estimated proved oil and gas reserves are a significant component of our calculation of depletion expense and revisions in such estimates may alter the rate of future expense . holding all other factors constant , if reserves were revised upward or downward , earnings would increase or decrease respectively . depreciation , depletion and amortization of the cost of proved oil and gas properties are calculated using the unit-of-production method . the reserve base used to calculate depletion , depreciation or amortization is the sum of proved developed reserves and proved undeveloped reserves for leasehold acquisition costs and the cost to acquire proved properties . the reserve base includes only proved developed reserves for lease and well equipment costs , which include development costs and successful exploration drilling costs . estimated future dismantlement , restoration and abandonment costs , net of salvage values , are taken into account . liquidity and capital resources : net cash provided by operating activities for the year ended december 31 , 2014 was $ 56 million , compared to $ 36 million in the prior year . excluding the effects of significant unforeseen expenses or other income , our cash flow from operations fluctuates primarily because of variations in oil and gas production and prices or changes in working capital accounts . our oil and gas production will vary based on actual well performance but may be curtailed due to factors beyond our control . 32 our realized oil and gas prices vary due to world political events , supply and demand of products , product storage levels , and weather patterns . we sell the vast majority of our production at spot market prices . accordingly , product price volatility will affect our cash flow from operations . to mitigate price volatility we sometimes lock in prices for some portion of our production through the use of derivatives . if our exploratory drilling results in significant new discoveries , we will have to expend additional capital in order to finance the completion , development , and potential additional opportunities generated by our success . we believe that , because of the additional reserves resulting from the successful wells and our record of reserve growth in recent years , we will be able to access sufficient additional capital through additional bank financing . as of march 1 , 2015 , the company maintains a credit facility totaling $ 250 million , with a borrowing base of $ 130 million . the bank reviews the borrowing base semi-annually and , at their discretion , may decrease or propose an increase to the borrowing base relative to a redetermined estimate of proved oil and gas reserves . our oil and gas properties are pledged as collateral for the line of credit and we are subject to certain financial and operational covenants defined in the agreement . we are currently in compliance with these covenants and expect to be in compliance over the next twelve months . if we do not comply with these covenants on a continuing basis , the lenders have the right to refuse to advance additional funds under the facility and or declare all principal and interest immediately due and payable . it is our goal to increase our oil and gas reserves and production through the acquisition and development of oil and gas properties . we continued our drilling program in our west texas and mid-continent regions . based upon the results of horizontal wells drilled by us and other offsetting operators and historical vertical well performance we have decided to reduce the number of vertical wells in our drilling program and drill more horizontal wells . we believe horizontal development of our resource base will provide the opportunity to improve returns relative to vertical drilling by accessing a larger base of reserves in target zone with a lateral wellbore . during 2014 , we drilled a total of 25 gross ( 11.8 net ) wells , primarily in the west texas and oklahoma areas at a net cost of $ 36 million . in our mid-continent region , the horizontal development is primarily in grant and canadian counties where we have approximately 6,450 net acres which we believe have significant resource potential based on our drilling results and those of offset operators . we began our west texas , upton county horizontal drilling program in the first quarter of 2015 , and will drill up to 4 wells in this phase at a net cost of approximately $ 10 million . the first well was spudded march 17 , 2015 and discussions with our joint venture partner in that program , apache corporation , indicate that including additional phases of development in the program will result in approximately 60 horizontal wells being drilled over the next 18 to 24 months at a cost of approximately $ 470. the actual number of wells to be drilled and the timing of the drilling may vary based on commodity market conditions . we own various interests , ranging from 16 % up to 50 % interest in the lands to be developed in the program , and expect our share of these capital expenditures to be approximately $ 120 million . we maintain an acreage position of over 26,000 gross ( 16,500 net ) acres in the permian basin in west texas , primarily in reagan , upton , martin and midland counties . we have currently identified 126 proved undeveloped drilling locations there and believe this acreage has significant resource potential in the spraberry and wolfcamp intervals for additional drilling locations opportunities . we also continue to explore and consider opportunities to further expand our oilfield servicing revenues through additional investment in field service equipment . as of march 1 , 2015 , the company has $ 11.8 million outstanding on our equipment financing facilities which are secured by substantially story_separator_special_tag depreciation , depletion and amortization for oil and gas properties the quantities of estimated proved oil and gas reserves are a significant component of our calculation of depletion expense and revisions in such estimates may alter the rate of future expense . holding all other factors constant , if reserves were revised upward or downward , earnings would increase or decrease respectively . depreciation , depletion and amortization of the cost of proved oil and gas properties are calculated using the unit-of-production method . the reserve base used to calculate depletion , depreciation or amortization is the sum of proved developed reserves and proved undeveloped reserves for leasehold acquisition costs and the cost to acquire proved properties . the reserve base includes only proved developed reserves for lease and well equipment costs , which include development costs and successful exploration drilling costs . estimated future dismantlement , restoration and abandonment costs , net of salvage values , are taken into account . liquidity and capital resources : net cash provided by operating activities for the year ended december 31 , 2014 was $ 56 million , compared to $ 36 million in the prior year . excluding the effects of significant unforeseen expenses or other income , our cash flow from operations fluctuates primarily because of variations in oil and gas production and prices or changes in working capital accounts . our oil and gas production will vary based on actual well performance but may be curtailed due to factors beyond our control . 32 our realized oil and gas prices vary due to world political events , supply and demand of products , product storage levels , and weather patterns . we sell the vast majority of our production at spot market prices . accordingly , product price volatility will affect our cash flow from operations . to mitigate price volatility we sometimes lock in prices for some portion of our production through the use of derivatives . if our exploratory drilling results in significant new discoveries , we will have to expend additional capital in order to finance the completion , development , and potential additional opportunities generated by our success . we believe that , because of the additional reserves resulting from the successful wells and our record of reserve growth in recent years , we will be able to access sufficient additional capital through additional bank financing . as of march 1 , 2015 , the company maintains a credit facility totaling $ 250 million , with a borrowing base of $ 130 million . the bank reviews the borrowing base semi-annually and , at their discretion , may decrease or propose an increase to the borrowing base relative to a redetermined estimate of proved oil and gas reserves . our oil and gas properties are pledged as collateral for the line of credit and we are subject to certain financial and operational covenants defined in the agreement . we are currently in compliance with these covenants and expect to be in compliance over the next twelve months . if we do not comply with these covenants on a continuing basis , the lenders have the right to refuse to advance additional funds under the facility and or declare all principal and interest immediately due and payable . it is our goal to increase our oil and gas reserves and production through the acquisition and development of oil and gas properties . we continued our drilling program in our west texas and mid-continent regions . based upon the results of horizontal wells drilled by us and other offsetting operators and historical vertical well performance we have decided to reduce the number of vertical wells in our drilling program and drill more horizontal wells . we believe horizontal development of our resource base will provide the opportunity to improve returns relative to vertical drilling by accessing a larger base of reserves in target zone with a lateral wellbore . during 2014 , we drilled a total of 25 gross ( 11.8 net ) wells , primarily in the west texas and oklahoma areas at a net cost of $ 36 million . in our mid-continent region , the horizontal development is primarily in grant and canadian counties where we have approximately 6,450 net acres which we believe have significant resource potential based on our drilling results and those of offset operators . we began our west texas , upton county horizontal drilling program in the first quarter of 2015 , and will drill up to 4 wells in this phase at a net cost of approximately $ 10 million . the first well was spudded march 17 , 2015 and discussions with our joint venture partner in that program , apache corporation , indicate that including additional phases of development in the program will result in approximately 60 horizontal wells being drilled over the next 18 to 24 months at a cost of approximately $ 470. the actual number of wells to be drilled and the timing of the drilling may vary based on commodity market conditions . we own various interests , ranging from 16 % up to 50 % interest in the lands to be developed in the program , and expect our share of these capital expenditures to be approximately $ 120 million . we maintain an acreage position of over 26,000 gross ( 16,500 net ) acres in the permian basin in west texas , primarily in reagan , upton , martin and midland counties . we have currently identified 126 proved undeveloped drilling locations there and believe this acreage has significant resource potential in the spraberry and wolfcamp intervals for additional drilling locations opportunities . we also continue to explore and consider opportunities to further expand our oilfield servicing revenues through additional investment in field service equipment . as of march 1 , 2015 , the company has $ 11.8 million outstanding on our equipment financing facilities which are secured by substantially
| natural decline of existing properties . the natural gas volume decreases are primarily due to the natural decline of existing properties substantially offset by production from new wells in the west texas and oklahoma regions recently placed into production . the following table summarizes the primary components of production volumes and average sales prices realized for the years ended december 31 , 2014 and 2013 ( excluding realized gains and losses from derivatives ) . replace_table_token_11_th realized net gains ( losses ) on derivative instruments , net include net gains of $ 0.6 million and net losses of $ 0.5 million on the settlements of crude oil and natural gas derivatives , respectively for the year ended december 31 , 2014. during 2014 , we unwound and monetized natural gas swaps with original settlement dates from january 2015 through december 2015 for net proceeds of $ 0.28 million . in addition we unwound and monetized crude oil swaps with original settlement dates from january 2016 through december 2016 for net proceeds of $ 0.70 million . the $ 0.98 million in gains associated with these early settlement transactions is included in realized gain on derivative instruments for the year ended december 31 , 2014 . 34 oil and gas prices received including the impact of derivatives but excluding the early settlement transactions were : replace_table_token_12_th we do not apply hedge accounting to any of our commodity based derivatives thus changes in the fair market value of commodity contracts held at the end of a reported period , referred to as mark-to-market adjustments , are recognized as unrealized gains and losses in the accompanying consolidated statements of operations . as oil and natural gas prices remain volatile , mark-to-market accounting treatment creates volatility in our revenues . during the year ended december 31 , 2014 , we recognized net unrealized gains of $ 15.03 million associated with crude oil fixed swaps and collars and net unrealized gains
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customers that represented more than 10 % of net sales for the periods presented were as follows : replace_table_token_10_th our sales to each of the major customers listed above involve several product lines and programs . industry update information concerning our industry appears in part i , item 1. business under the caption “ industry overview. ” competitive improvement program during fiscal 2015 , we initiated phase i of the cip comprised of activities and initiatives aimed at reducing costs in order for us to continue to compete successfully . phase i is composed of three major components : ( i ) facilities optimization and 24 footprint reduction ; ( ii ) product affordability ; and ( iii ) reduced administrative and overhead costs . on april 6 , 2017 , the board of directors approved phase ii of our previously announced cip . pursuant to phase ii , our plans are to expand cip and further consolidate our sacramento , california , and gainesville , virginia sites , while centralizing and expanding our existing presence in huntsville , alabama . when fully implemented , we anticipate that the cip will result in annual cost reductions of $ 230 million . we currently estimate that we will incur restructuring and related costs of the phase i and ii programs of approximately $ 235.1 million ( including approximately $ 60.5 million of capital expenditures ) . we incurred $ 79.5 million of such costs through december 31 , 2017 , including $ 32.5 million in capital expenditures . environmental matters our current and former business operations are subject to , and affected by , federal , state , local , and foreign environmental laws and regulations relating to the discharge , treatment , storage , disposal , investigation , and remediation of certain materials , substances , and wastes . see notes 8 ( c ) and 8 ( d ) of the notes to consolidated financial statements and `` environmental matters '' below for summary of our environmental reserve activity . capital structure we have a substantial amount of debt for which we are required to make interest and principal payments . interest on long-term financing is not a recoverable cost under our u.s. government contracts . as of december 31 , 2017 , we had $ 670.9 million of debt principal outstanding . retirement benefits we expect to make cash contributions of approximately $ 42.0 million to our tax-qualified defined benefit pension plan in fiscal 2018 of which $ 37.5 million is expected to be recoverable from our u.s. government contracts in fiscal 2018 with the remaining $ 4.5 million being potentially recoverable from our u.s. government contracts in the future . during fiscal 2017 , we made cash contributions of $ 75.8 million to our tax-qualified defined benefit pension plan of which $ 33.7 million was recoverable from our u.s. government contracts in fiscal 2017 with the remaining $ 42.1 million expected to be recoverable from our u.s. government contracts in the future . we generally are able to recover cash contributions related to our tax-qualified defined benefit pension plan as allowable costs on our u.s. government contracts , but there can be differences between when we contribute cash to our tax-qualified defined benefit pension plan under pension funding rules and recover it under cas . the funded status of our retirement benefit plans may be adversely affected by investment experience , by any changes in u.s. law and by changes in the statutory interest rates used by tax-qualified pension plans in the u.s. to calculate funding requirements . accordingly , if the performance of our retirement benefit assets does not meet our assumptions , if there are changes to the irs regulations or other applicable law or if other actuarial assumptions are modified , our future contributions to our underfunded retirement benefit plans could be higher than we expect . additionally , the level of returns on retirement benefit assets , changes in interest rates , changes in legislation , and other factors affect our financial results . the timing of recognition of retirement benefit expense or income in our financial statements differs from the timing of the required funding under the ppa or the amount of funding that can be recorded in our overhead rates through our u.s. government contracting business . story_separator_special_tag roman ; font-size:10pt ; width:100 % ; border-collapse : collapse ; text-align : left ; '' > one month ended december 31 , 2015 ( in millions , except percentage amounts ) components of cost of sales : cost of sales excluding retirement benefits $ 71.3 retirement benefits 4.1 cost of sales $ 75.4 percentage of net sales 78.3 % percentage of net sales excluding retirement benefits 73.9 % cost of sales as a percentage of net sales excluding retirement benefits for the month ended december 31 , 2015 included favorable changes in contract estimates due to better than expected performance primarily on the standard missile and thaad programs as a result of manufacturing efficiencies and risk mitigation . these favorable factors were partially offset by contract losses on an electric propulsion contract . ar1 research and development : replace_table_token_13_th * primary reason for change . our company-sponsored r & d expenses ( reported as a component of cost of sales ) are generally allocated among all contracts and programs in progress under u.s. government contractual arrangements . from time to time , we believe it is in our best interests to self-fund and not allocate costs for certain r & d activities to the u.s. government contracts . in fiscal 2015 , we self-funded $ 32.1 million of engine development expenses associated with our newest liquid booster engine , the ar1 , and did not allocate these costs to the u.s. government . the table below summarizes total ar1 r & d costs net of reimbursements : replace_table_token_14_th 27 selling , general and administrative expense ( “ sg & a ” ) : replace_table_token_15_th * primary reason for change . the increase in sg & a expense was primarily driven by an increase of $ 9.1 story_separator_special_tag million in stock-based compensation primarily as a result of increases in the fair value of stock appreciation rights , the accelerated vesting of stock awards to a former executive officer , and the august 2016 stock award granted to the executive chairman that vested according to the attainment of share prices ranging from $ 22 per share to $ 27 per share of our common stock . * * primary reason for change . the increase in sg & a expense was primarily driven by an increase of $ 4.3 million in stock-based compensation which was primarily a result of an increase in performance based stock compensation . one month ended december 31 , 2015 ( in millions , except percentage amounts ) components of sg & a : sg & a excluding retirement benefits and stock-based compensation $ 1.7 stock-based compensation ( 0.4 ) retirement benefits 1.5 sg & a $ 2.8 percentage of net sales 2.9 % sg & a expense as a percentage of net sales for the month ended december 31 , 2015 was relatively proportional to the first quarter of fiscal 2016 . 28 depreciation and amortization : replace_table_token_16_th * primary reason for change . the increase in depreciation expense was primarily the result of increased accelerated depreciation associated with changes in the estimated useful lives of long-lived assets and capital projects being placed in service to support the cost saving initiatives of the cip . * * primary reason for change . depreciation and amortization expense was essentially unchanged for the period . one month ended december 31 , 2015 ( in millions ) components of depreciation and amortization : depreciation $ 3.8 amortization 1.1 accretion 0.2 depreciation and amortization $ 5.1 depreciation and amortization expense for the month ended december 31 , 2015 was relatively proportional to the first quarter of fiscal 2016. other expense , net and loss on debt : replace_table_token_17_th * primary reason for change . the decrease was primarily due to a decrease of $ 35.5 million in unusual items ( discussed below ) and a decrease of $ 10.1 million in environmental remediation expenses ( see discussion of `` environmental matters '' below ) . * * primary reason for change . the decrease in other expense , net was primarily due to a decrease of $ 17.4 million in unusual items charges ( see discussion of unusual items below ) . one month ended december 31 , 2015 ( in millions ) other expense , net : $ 0.2 the $ 0.2 million of other expense , net for the month ended december 31 , 2015 was insignificant . 29 total unusual items , comprised of a component of other expense , net and loss on debt in the consolidated statements of operations , was as follows : replace_table_token_18_th ( 1 ) operating ( income ) expense ( 2 ) non-operating expense fiscal 2017 activity : we recorded $ 2.0 million of realized gains , net of interest associated with the failure to register with the sec the issuance of certain of our common shares under the defined contribution 401 ( k ) employee benefit plan . on may 30 , 2017 , we made a registered rescission offer to buy back unregistered shares from eligible plan participants at the original purchase price plus interest , or to reimburse eligible plan participants for losses they may have incurred if their shares had been sold . the actual cost of the registered rescission offer was less than the previously estimated costs . the registered rescission offer expired on june 30 , 2017 and settlement payments of $ 3.5 million under the offer have been completed in the third quarter of fiscal 2017. we recorded $ 1.0 million of costs related to the acquisition of coleman aerospace from l3 technologies , inc. fiscal 2016 activity : on july 18 , 2016 , we redeemed $ 460.0 million principal amount of our 7.125 % second-priority senior secured notes ( “ 7 1 / 8 % notes ” ) , representing all of the outstanding 7 1 / 8 % notes , at a redemption price equal to 105.344 % of the principal amount , plus accrued and unpaid interest . we incurred a pre-tax charge of $ 34.1 million in fiscal 2016 associated with the extinguishment of the 7 1 / 8 % notes . the $ 34.1 million pre-tax charge was the result of the $ 24.6 million paid in excess of the par value and $ 9.5 million associated with the write-off of unamortized deferred financing costs . we retired $ 13.0 million principal amount of our delayed draw term loan resulting in a loss of $ 0.3 million . we recorded a charge of $ 0.1 million associated with an amendment to the senior credit facility . fiscal 2015 activity : we recorded an expense of $ 50.0 million associated with a legal settlement . aerojet rocketdyne entered into a settlement and mutual release agreement ( the “ agreement ” ) with orbital sciences corporation ( “ orbital ” ) pursuant to which the parties mutually agreed to a termination for convenience of the contract relating to the provision by aerojet rocketdyne of 20 aj-26 liquid propulsion rocket engines to orbital for the antares program ( the “ contract ” ) . the agreement also settles all claims the parties may have had against one another arising out of the contract and the launch failure that occurred on october 28 , 2014 of an antares launch vehicle carrying the cygnus orb-3 service and cargo module . we retired $ 76.0 million principal amount of our delayed draw term loan resulting in $ 1.9 million of losses associated with the write-off of deferred financing fees . december 2015 activity : we recorded $ 0.4 million for realized losses and interest associated with the failure to register with the sec the issuance of certain of our common shares under the defined contribution 401 ( k ) employee benefit plan . 30 interest income : replace_table_token_19_th * primary reason for change .
| these factors were partially offset by ( i ) the sale of approximately 550 acres of our sacramento land for $ 42.0 million in fiscal 2015 and ( ii ) a decrease of $ 36.8 million in the various standard missile contracts primarily from the timing of deliveries on the standard missile-3 block ib contract and standard missile mk72 booster contract . further , as a result of the 2016 calendar , aerojet rocketdyne had 53 weeks of operations in fiscal 2016 compared with 52 weeks of operations in fiscal 2015. the additional week of operations , which occurred in the fourth quarter of fiscal 2016 and accounted for $ 32.2 million in additional net sales , is included in the above discussion of program changes . one month ended december 31 , 2015 ( in millions ) net sales : $ 96.3 net sales for the month ended december 31 , 2015 was primarily comprised of the following : ( i ) sales of $ 32.4 million in missile defense and strategic systems programs primarily driven by the deliveries on the thaad and standard missile programs ; ( ii ) sales of $ 26.4 million in our space launch programs primarily associated with the rl10 program as a result of deliveries on this multi-year contract and deliveries on the atlas v program ; and ( iii ) sales of $ 26.1 million in space advanced programs primarily driven by work on the commercial crew development program and the rs-25 program which is currently engaged in a significant development and integration effort in support of the sls program . cost of sales ( exclusive of items shown separately below ) : replace_table_token_12_th * primary reason for change . the decrease in cost of sales as a percentage of net sales excluding retirement benefits was primarily due to favorable contract performance on numerous programs as a result of overhead cost reductions and reduced program risks , most notably on the thaad program , partially offset by cost growth and manufacturing inefficiencies in fiscal 2017 on electric propulsion contracts . * * primary reason for change . the increase in cost of sales as a percentage of net sales excluding retirement benefits was primarily due to the fiscal 2015 land sale of approximately 550 acres of
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these judgments are based on estimates about future taxable income , which is inherently uncertain . accounts receivable allowances an allowance for placement falloffs is recorded , as a reduction of revenues , for estimated losses due to applicants not remaining employed for the company 's guarantee period . an allowance for doubtful accounts is recorded , as a charge to bad debt expense , where collection is considered to be doubtful due to credit issues . these allowances reflect management 's estimate of potential losses inherent in the accounts receivable balances , based on historical loss statistics and known current factors impacting its customers . goodwill goodwill represents the excess of cost over the fair value of the net assets acquired in the june 1 , 2010 acquisition of on-site services , inc. , the november 1 , 2010 purchase of dmcc staffing , llc and rffg of cleveland , llc and ashley ellis , llc on september 1 , 2011. the company early adopted asu 2011-08 , the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if the entity determines that this threshold is not met , then performing the two-step impairment test is unnecessary . the company early adopted this provision and does not believe that asu 2011-08 will have a significant impact on the company 's consolidated financial statements . an impairment loss would be recognized to the extent the carrying value of goodwill exceeds its implied fair value . intangible assets customer lists and non-compete agreements were recorded at their estimated fair value and are amortized over their estimated useful lives ranging from two to five years using accelerated and straight-line methods , respectively . impairment of long-lived assets the company records impairment on long-lived assets ( including amortizable intangible assets ) used in operations , other than goodwill , when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items . the net carrying value of assets not recoverable is reduced to fair value , which is typically calculated using the discounted cash flow method . segment data the company has three operating business segments a ) contract staffing services , b ) direct hire placement services and c ) management services . these operating segments were determined based primarily on how the chief operating decision maker views and evaluates our operations . operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance . other factors , including type of business , type of employee , length of employment , revenue recognition are considered in determining these operating segments . revenue recognition placement service revenues are recognized when applicants accept offers of employment , less a provision for estimated losses due to applicants not remaining employed for the company 's guarantee period . contract service revenues are recognized when services are rendered . recent accounting pronouncements in may 2011 , the financial accounting standards board ( fasb ) and international accounting standards board ( iasb ) issued accounting standards update ( asu ) no . 2011-04 , fair value measurement ( topic 820 ) : amendments to achieve common fair value measurement and disclosure requirements in gaap and international financial reporting standards ( asu 2011-04 ) . asu 2011-04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing guidance in gaap . asu 2011-04 is effective for interim and annual reporting periods beginning after december 15 , 2011 and shall be applied prospectively . the company does not expect asu 2011-04 to have a material effect on our consolidated financial statements , however , it may result in additional disclosures . 9 in june 2011 , the fasb issued asu no . 2011-05 , comprehensive income ( topic 220 ) : presentation of comprehensive income ( asu 2011-05 ) . asu 2011-05 will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements , eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders ' equity . asu 2011-05 does not change the items which must be reported in other comprehensive income , how such items are measured or when they must be reclassified to net income . asu 2011-05 is effective for interim and annual reporting periods beginning after december 15 , 2011. because asu 2011-05 impacts presentation only , it will have no effect on the company 's consolidated financial statements . in september 2011 , the fasb issued asu no . 2011-08 , intangibles – goodwill and other ( topic 350 ) : testing goodwill for impairment ( asu 2011-08 ) . under asu 2011-08 , a company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if the entity determines that this threshold is not met , then performing the two-step impairment test is unnecessary . asu 2011-08 is effective for interim and annual impairment tests performed for fiscal years beginning after december 15 , 2011 ; however , early adoption is permitted . the company early adopted this provision and does not believe that asu 2011-08 will have a significant impact on the company 's consolidated financial statements . forward-looking statements as a matter of policy , the company does not provide forecasts of future financial performance . the story_separator_special_tag these judgments are based on estimates about future taxable income , which is inherently uncertain . accounts receivable allowances an allowance for placement falloffs is recorded , as a reduction of revenues , for estimated losses due to applicants not remaining employed for the company 's guarantee period . an allowance for doubtful accounts is recorded , as a charge to bad debt expense , where collection is considered to be doubtful due to credit issues . these allowances reflect management 's estimate of potential losses inherent in the accounts receivable balances , based on historical loss statistics and known current factors impacting its customers . goodwill goodwill represents the excess of cost over the fair value of the net assets acquired in the june 1 , 2010 acquisition of on-site services , inc. , the november 1 , 2010 purchase of dmcc staffing , llc and rffg of cleveland , llc and ashley ellis , llc on september 1 , 2011. the company early adopted asu 2011-08 , the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if the entity determines that this threshold is not met , then performing the two-step impairment test is unnecessary . the company early adopted this provision and does not believe that asu 2011-08 will have a significant impact on the company 's consolidated financial statements . an impairment loss would be recognized to the extent the carrying value of goodwill exceeds its implied fair value . intangible assets customer lists and non-compete agreements were recorded at their estimated fair value and are amortized over their estimated useful lives ranging from two to five years using accelerated and straight-line methods , respectively . impairment of long-lived assets the company records impairment on long-lived assets ( including amortizable intangible assets ) used in operations , other than goodwill , when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items . the net carrying value of assets not recoverable is reduced to fair value , which is typically calculated using the discounted cash flow method . segment data the company has three operating business segments a ) contract staffing services , b ) direct hire placement services and c ) management services . these operating segments were determined based primarily on how the chief operating decision maker views and evaluates our operations . operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance . other factors , including type of business , type of employee , length of employment , revenue recognition are considered in determining these operating segments . revenue recognition placement service revenues are recognized when applicants accept offers of employment , less a provision for estimated losses due to applicants not remaining employed for the company 's guarantee period . contract service revenues are recognized when services are rendered . recent accounting pronouncements in may 2011 , the financial accounting standards board ( fasb ) and international accounting standards board ( iasb ) issued accounting standards update ( asu ) no . 2011-04 , fair value measurement ( topic 820 ) : amendments to achieve common fair value measurement and disclosure requirements in gaap and international financial reporting standards ( asu 2011-04 ) . asu 2011-04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing guidance in gaap . asu 2011-04 is effective for interim and annual reporting periods beginning after december 15 , 2011 and shall be applied prospectively . the company does not expect asu 2011-04 to have a material effect on our consolidated financial statements , however , it may result in additional disclosures . 9 in june 2011 , the fasb issued asu no . 2011-05 , comprehensive income ( topic 220 ) : presentation of comprehensive income ( asu 2011-05 ) . asu 2011-05 will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements , eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders ' equity . asu 2011-05 does not change the items which must be reported in other comprehensive income , how such items are measured or when they must be reclassified to net income . asu 2011-05 is effective for interim and annual reporting periods beginning after december 15 , 2011. because asu 2011-05 impacts presentation only , it will have no effect on the company 's consolidated financial statements . in september 2011 , the fasb issued asu no . 2011-08 , intangibles – goodwill and other ( topic 350 ) : testing goodwill for impairment ( asu 2011-08 ) . under asu 2011-08 , a company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if the entity determines that this threshold is not met , then performing the two-step impairment test is unnecessary . asu 2011-08 is effective for interim and annual impairment tests performed for fiscal years beginning after december 15 , 2011 ; however , early adoption is permitted . the company early adopted this provision and does not believe that asu 2011-08 will have a significant impact on the company 's consolidated financial statements . forward-looking statements as a matter of policy , the company does not provide forecasts of future financial performance . the
| selling , general and administrative expenses selling , general and administrative expenses include the following categories : · compensation in the operating divisions , which includes commissions earned by the company 's employment consultants and branch managers on permanent and temporary placements . it also includes salaries , wages , unrecovered advances against commissions , payroll taxes and employee benefits associated with the management and operation of the company 's staffing offices . · administrative compensation , which includes salaries , wages , payroll taxes and employee benefits associated with general management and the operation of the finance , legal , human resources and information technology functions . · occupancy costs , which includes office rent , depreciation and amortization , and other office operating expenses . · recruitment advertising , which includes the cost of identifying job applicants . · other selling , general and administrative expenses , which includes travel , bad debt expense , fees for outside professional services and other corporate-level expenses such as business insurance and taxes . the company 's largest selling , general and administrative expense is for compensation in the operating divisions . most of the company 's employment consultants are paid on a commission basis and receive advances against future commissions . when commissions are earned , prior advances are applied against them and the consultant is paid the net amount . at that time , the company recognizes the full amount as commission expense , and advance expense is reduced by the amount recovered . thus , the company 's advance expense represents the net amount of advances paid , less amounts applied against commissions . 5 selling , general and administrative expenses for the year ended september 30 , 2011 increased $ 2,577,000 ( 41.1 % ) as compared to the prior year . the placement sales consultants ' commissions , payroll tax expenses increased $ 799,000 ( 45.2 % ) and compensation in the operating divisions increased by $ 1,039,000 ( 94.6 % ) , reflecting greater commission expense on the higher volume of placement business and the addition of ashley ellis , llc $ 110,000. administrative compensation increased by
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our goal is to commence initial commercial sales of the apc-3000 nasal steroid product in the third quarter of calendar 2014 and two other respiratory products in calendar 2015. during fiscal 2011 , we entered into a strategic manufacturing , supply , and product development agreement with beximco pharmaceuticals ltd. beximco is a leading manufacturer of pharmaceutical formulations and active pharmaceutical ingredients in bangladesh . beximco has a large number of products covering broad therapeutic categories , including asthma and allergy inhalers , antibiotics , anti-hypertensives , anti-diabetics , and anti-retrovirals . adamis and beximco intend to introduce a number of separate drugs into the u.s. over the next years in the allergy and respiratory areas and may co-develop certain drugs . we also have a contraceptive gel product candidate named savvy ( c31g® ) . in december 2010 , we announced the successful completion of a phase 3 contraceptive trial of savvy . the study met its primary endpoint and was conducted by the eunice kennedy shriver national institute of child health and human development ( nichd ) , national institutes of health ( nih ) , in the contraceptive clinical trials network at 14 sites in the united states . the phase 3 trial was a randomized , double-masked , controlled comparator study to assess whether a gel containing the spermicide c31g was non-inferior to conceptrol® , a commercially available product containing nonoxynol-9 ( n-9 ) . the clinical investigators found that c31g was not inferior in contraceptive efficacy to the comparator drug . moreover , the gel was well-tolerated and had a high degree of acceptability in women who completed the study . currently , to our knowledge all spermicides commercially available in the u.s. contain the active ingredient n-9 in a carrier such as a gel , film , cream , foam , suppository , or tablet . c31g does not contain nonoxynol-9 and , if commercialized , may offer an alternative for women who seek a non-hormonal method of contraception . in considering commercialization alternatives , we will likely focus on seeking to enter into an out-licensing or similar transaction with organizations that have a focus or business unit in the area of contraception . there are no assurances that any third party will have an interest in pursuing discussions concerning a transaction regarding c31g . 44 our general business strategy is to generate revenue through launch of our allergy and respiratory products in development , in order to generate cash flow to help fund expansion of our allergy and respiratory business , as well as support our future cancer and vaccine product development efforts . to achieve our goals and support our overall strategy , we will need to raise a substantial amount of funding and make substantial investments in equipment , new product development and working capital . we estimate that approximately $ 2.5 million to $ 3 million will be required to support the regulatory application and a commercial launch of the pfs syringe product following marketing approval , and that an additional approximately $ 6- $ 9 million or more must be invested to support development and commercial introduction of our apc-3000 aerosolized nasal steroid product candidate and our two other allergy and respiratory product candidates . corporate background adamis pharmaceuticals corporation was founded in june 2006 as a delaware corporation . effective april 1 , 2009 , the company formerly named adamis pharmaceuticals corporation , or old adamis , completed a business combination transaction with cellegy . before the merger , cellegy was a public company and old adamis was a private company . in connection with the consummation of the merger and pursuant to the terms of the definitive merger agreement relating to the transaction , cellegy was the surviving corporation in the merger and changed its name from cellegy pharmaceuticals , inc. to adamis pharmaceuticals corporation , and old adamis survived as a wholly-owned subsidiary and changed its corporate name to adamis corporation . we have three wholly-owned subsidiaries : adamis corporation ; biosyn , inc. , which has rights to the c31g product ; and cellegy holdings , inc. adamis corporation has two wholly-owned subsidiaries : adamis viral therapies , inc. , or adamis viral , was formed to focus on our cancer and vaccine technologies ; and adamis laboratories , inc. , or adamis labs , was formed to focus on our allergy and respiratory products . going concern and management plan our independent registered public accounting firm has included a “ going concern ” explanatory paragraph in its report on our financial statements for the years ended march 31 , 2012 and 2011 indicating that we have incurred recurring losses from operations and have limited working capital to pursue our business alternatives , and that these factors raise substantial doubt about our ability to continue as a going concern . as of march 31 , 2012 , we had approximately $ 7,500 in cash , an accumulated deficit of approximately $ 31 million and substantial liabilities and obligations . as described below under the heading , “ liquidity and capital resources , ” we terminated our november 2010 purchase agreement with an investor that had previously provided funding during fiscal 2011 and fiscal 2012 , and we do not expect to receive additional funds from that investor pursuant to the purchase agreement . we have limited cash reserves , liabilities that exceed our assets and significant cash flow deficiencies . additionally , we will need significant funding in the short term to continue operations and for the future operations and the expenditures that will be required to conduct the clinical and regulatory work to develop our product candidates . story_separator_special_tag as previously reported , after the end of our fiscal 2012 year , on april 2 , 2012 , and june 11 , 2012 we completed private placement financing transactions with two investors pursuant to securities purchase agreements , pursuant to which we issued an aggregate of three 10 % convertible notes in the aggregate principal amount of $ 2.0 million and 2,000,000 shares of our common stock , and received gross proceeds of $ 2.0 million , excluding transaction costs and expenses . at june 13 , 2012 , we had approximately $ 1.1 million in cash and cash equivalents . continued operations are dependent on our ability to complete other equity or debt funding transactions . given the recent downturn in the economy , such capital formation activities may not be available or may not be available on reasonable terms . if we do not obtain additional equity or debt funding in the near future , our cash resources will rapidly be depleted and we will be required to materially reduce or suspend operations , which would likely have a material adverse effect on our business , stock price and our relationships with third parties with whom we have business relationships , at least until additional funding is obtained . 45 the above conditions raise substantial doubt about our ability to continue as a going concern . the financial statements included elsewhere herein for the year ended march 31 , 2012 , were prepared under the assumption that we would continue our operations as a going concern , which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business . in preparing these consolidated financial statements , consideration was given to our future business as described elsewhere herein , which may preclude us from realizing the value of certain assets . our financial statements do not include any adjustments that may result from the outcome of this uncertainty . this basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business . without additional funds from debt or equity financing , sales of assets , sales or out-licenses of intellectual property or technologies , or from a business combination or a similar transaction , we will soon exhaust our resources and will be unable to continue operations . if we can not continue as a viable entity , our stockholders may lose some or all of their investment in us . our management intends to address any shortfall of working capital by attempting to secure additional funding through equity or debt financings , sales or out-licensing of intellectual property assets , seeking partnerships with other pharmaceutical companies or third parties to co-develop and fund research and development efforts , or similar transactions . however , there can be no assurance that we will be able to obtain any sources of funding . if we are unsuccessful in securing funding from any of these sources , we will defer , reduce or eliminate certain planned expenditures . there is no assurance that any of the above options will be implemented on a timely basis or that we will be able to obtain additional financing on acceptable terms , if at all . if adequate funds are not available on acceptable terms , we could be required to delay development or commercialization of some or all of our products , to license to third parties the rights to commercialize certain products that we would otherwise seek to develop or commercialize internally , or to reduce resources devoted to product development . in addition , one or more licensors of patents and intellectual property rights that we have in-licensed could seek to terminate our license agreements , if our lack of funding made us unable to comply with the provisions of those agreements . if we did not have sufficient funds to continue operations , we could be required to seek bankruptcy protection or other alternatives that could result in our stockholders losing some or all of their investment in us . any failure to dispel any continuing doubts about our ability to continue as a going concern could adversely affect our ability to enter into collaborative relationships with business partners , make it more difficult to obtain required financing on favorable terms or at all , negatively affect the market price of our common stock and could otherwise have a material adverse effect on our business , financial condition and results of operations . funding that we may receive during fiscal 2013 is expected to be used to satisfy existing obligations and liabilities and working capital needs , to begin building working capital reserves and to fund a number of projects , which may include some or all of the following : ● continue development of the generic nasal steroid product candidate ; ● pursue the development of other product candidates that we may develop or acquire ; ● fund clinical trials and seek regulatory approvals ; ● expand research and development activities ; ● access manufacturing and commercialization capabilities ; ● implement additional internal systems and infrastructure ; ● maintain , defend and expand the scope of our intellectual property portfolio ; and ● hire additional management , sales , research , development and clinical personnel . story_separator_special_tag discretion of the investor at an initial conversion price per share of $ 0.20. effective june 30 , 2011 , we paid in full the unconverted $ 345,000 outstanding principal amount of the secured notes and related accrued interest , and there are no longer any outstanding secured notes . on november 10 , 2010 , we completed a private placement transaction with eses holdings ( fze ) , a foreign investor ( the “ purchaser ” ) , pursuant to a common stock purchase agreement and a registration rights agreement .
| the decrease in interest expense for fiscal 2012 , in comparison to fiscal 2011 was due to the payment or conversion of the gemini notes and the g-max notes effective june 30 , 2011. liquidity and capital resources we have incurred net losses of approximately $ 4.9 million and $ 7.0 million for the years ended march 31 , 2012 and 2011 , respectively . since our inception , june 6 , 2006 , and through march 31 , 2012 , we have an accumulated deficit of approximately $ 30.8 million . since inception and through march 31 , 2012 , we have financed our operations principally through debt financing and through private issuances of common stock . since inception , we have raised a total of approximately $ 19 . 6 million in debt and equity financing transactions , consisting of approximately $ 6.3 million in debt financing and approximately $ 13.3 million in equity financing transactions . we expect to finance future cash needs primarily through proceeds from equity or debt financings , loans , sales of assets , out-licensing transactions , and or collaborative agreements with corporate partners . we have used the net proceeds from debt and equity financings for general corporate purposes , which have included funding for research and development , selling , general and administrative expenses , working capital , reducing indebtedness , pursuing and completing acquisitions or investments in other businesses , products or technologies , and for capital expenditures . our cash was approximately $ 7,500 and $ 1.2 million as of march 31 , 2012 and march 31 , 2011 , respectively , and we had no outstanding accounts receivable at march 31 , 2012. the decrease in cash compared to the end of fiscal 2011 was primarily the result of less cash received from the sale of common stock and repayment of notes payable during fiscal 2012 , less cash received from sale of common stock from the investor pursuant to payments relating to the first milestone conditions under the purchase agreement . net cash used in operating activities from continuing operations for fiscal 2012 and 2011 were approximately $ 3.3
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because we require an ordering physician to requisition a test , our revenue growth also depends on our ability to successfully promote the adoption of our testing services and expand our base of ordering clinicians . we believe that establishing coverage and obtaining contracts from third-party payers is an important factor in gaining adoption by ordering clinicians . our arrangements for laboratory services with payers cover approximately 295 million lives , comprised of medicare , all national commercial health plans , and medicaid in most states , including california ( medi-cal ) , our home state . in cases where we have established reimbursement rates with third-party payers , we face additional challenges in complying with their procedural requirements for reimbursement . these requirements may vary from payer to payer , and it may be time-consuming and require substantial resources to meet these requirements . we may also experience delays in or denials of coverage if we do not adequately comply with these requirements . in addition , we have experienced , and may continue to experience , delays in reimbursement when we transition to being an in-network provider with a payer . we expect to continue to focus our resources on increasing adoption of , and expanding coverage and reimbursement for , our current tests , tests provided by companies we acquire and any future tests we may develop . however , if we are not able to continue to obtain and maintain adequate reimbursement from third-party payers , institutions and partners for our testing services and expand the base of clinicians and patients ordering our tests , we may not be able to effectively increase the number of billable tests or our revenue . ability to lower the costs associated with performing our tests reducing the costs associated with performing our genetic tests is both a focus and a strategic objective of ours . over the long term , we will need to reduce the cost of raw materials by improving the output efficiency of our assays and laboratory processes , modifying our platform-agnostic assays and laboratory processes to use materials and technologies that provide equal or greater quality at lower cost , improve how we manage our materials , port some tests onto a next generation sequencing platform and negotiate favorable terms for our materials purchases . our acquisition of singular bio is a component of this objective and we expect the technology acquired in this transaction , once developed , to help decrease the costs associated with our nips offering . we also intend to continue to design and implement hardware and software tools that are designed to reduce personnel-related costs for both laboratory and clinical operations/medical interpretation by increasing personnel efficiency and thus lowering labor costs per test . finally , we will need to reduce our costs of providing tests internationally to enable us to expand more rapidly outside of the united states . ability to expand our genetic content our focus on reducing the average cost per test will have a countervailing force — increasing the number of tests we offer and the content of each test . we intend to continue to expand our test menus by steadily releasing additional genetic content for the same or lower prices per test , ultimately leading to affordable whole genome services . the breadth and flexibility of our offering will be a critical factor in our ability to address new markets , including internationally , for genetic testing services . both of these , in conjunction with our continued focus on strategic partnerships , will be important to our ability to continue to grow the volume of billable tests we deliver . investment in our business and timing of expenses we plan to continue to invest in our genetic testing and information management business . we deploy state-of-the-art and costly technologies in our genetic testing services , and we intend to continue to scale our infrastructure , including our testing capacity and information systems . we also expect to incur software development costs as we seek to further automate our laboratory processes and our genetic interpretation and report sign-out procedures , scale our customer service capabilities to improve our customers ' experience , and expand the functionality of our website . we will incur costs related to marketing and branding as we spread our initiatives beyond our current customer base and focus on providing access to customers through our website . we plan to hire additional personnel as necessary to support anticipated growth , including software engineers , sales and marketing personnel , billing personnel , research and development personnel , medical specialists , biostatisticians and geneticists . we will also incur additional costs related to the expansion of our production facilities in san francisco and irvine to accommodate growth and as we expand internationally . in addition , we 44 expect to incur ongoing expenses as a result of operating as a public company . the expenses we incur may vary significantly by quarter as we focus on building out different aspects of our business . how we recognize revenue we generally recognize revenue on an accrual basis , which is when a customer obtains control of the promised goods or services , typically a test report . accrual amounts recognized are based on estimates of the consideration that we expect to receive and such estimates are adjusted and subsequently recorded until fully settled . changes to such estimates may increase or decrease revenue recognized in future periods . revenue from our tests may not be equal to billed amounts due to a number of factors , including differences in reimbursement rates , the amounts of patient copayments , the existence of secondary payers and claim denials . financial overview revenue we primarily generate revenue from the sale of our tests , which provide the analysis and associated interpretation of the sequencing of parts of the genome . clients are billed upon delivery of test results . story_separator_special_tag our ability to increase our revenue will depend on our ability to increase our market penetration , obtain contracted reimbursement coverage from third-party payers , enter into contracts with institutions and partners , and increase the rate at which we are paid for tests performed . cost of revenue cost of revenue reflects the aggregate costs incurred in delivering test results to clinicians and patients and includes expenses for materials and supplies , personnel-related costs , equipment and infrastructure expenses associated with testing and allocated overhead including rent , equipment depreciation , amortization of acquired intangibles , and utilities . costs associated with performing our test are recorded as the patient 's sample is processed . we expect cost of revenue to generally increase in line with the increase in the number of tests we perform . however , we expect that the cost per test will decrease over time due to the efficiencies we expect to gain as test volume increases and from automation and other cost reductions . these expected reductions will be offset by new tests which often have a higher cost per test during the introductory phases before we are able to gain efficiencies . the cost per test may fluctuate from quarter to quarter . operating expenses our operating expenses are classified into three categories : research and development , selling and marketing , and general and administrative . for each category , the largest component is personnel-related costs , which include salaries , employee benefit costs , bonuses , commissions , as applicable , and stock-based compensation expense . research and development research and development expenses represent costs incurred to develop our technology and future tests . these costs are principally for process development associated with our efforts to expand the number of genes we can evaluate in our tests and with our efforts to lower the cost of performing our tests . in addition , we incur process development costs to further develop the software we use to operate our laboratory , analyze the data it generates , process customer orders , enable ease of customer ordering , deliver reports and automate our business processes . these costs consist of personnel-related costs , including stock-based compensation , laboratory supplies and equipment expenses , consulting costs , amortization of acquired intangible assets , and allocated overhead including rent , information technology , equipment depreciation and utilities . we expense all research and development costs in the periods in which they are incurred . we expect our research and development expenses to increase as we continue our efforts to develop additional tests , make investments to reduce testing costs , streamline our technology to provide patients access to testing , scale our business domestically and internationally and acquire and integrate new technologies . during the second quarter of 2019 through our acquisition of singular bio , we recognized $ 30.0 million of in-process r & d technology using an income approach . this technology is estimated to be developed in 2021 with significant development costs incurred during the second half of 2019 and expected through development completion . if not completed timely , the ability to lower the cost of our nips offering may be delayed . additionally , we expect stock-based compensation to significantly increase in future periods related to singular bio , which we acquired in june 2019 . 45 selling and marketing selling and marketing expenses consist of personnel-related costs , client service expenses , advertising and marketing expenses , educational and promotional expenses , market research and analysis , and allocated overhead including rent , information technology , equipment depreciation , amortization of acquired intangibles , and utilities . we expect our selling and marketing expenses to significantly increase as we expand our salesforce and continue to build our brand . general and administrative general and administrative expenses include executive , finance and accounting , billing and collections , legal and human resources functions as well as other administrative costs . these expenses include personnel-related costs ; audit , accounting and legal expenses ; consulting costs ; allocated overhead including rent , information technology , equipment depreciation , and utilities ; costs incurred in relation to our collaboration and co-development agreements ; and post-combination expenses incurred in relation to companies we acquire . we expect our general and administrative expenses to increase as we support continued growth of operations . other expense , net other expense , net , primarily consists of losses on extinguishment of debt partially offset by interest income earned on our cash equivalents and marketable securities . interest expense interest expense is primarily attributable to interest incurred related to our debt financings and finance leases . see note 8 , “ commitments and contingencies ” in notes to consolidated financial statements in part ii , item 8 of this annual report for more details . income tax benefit since we generally establish a full valuation allowance against our deferred tax balances , our income tax benefit primarily consists of tax impacts of our deferred income tax assessments resulting from our acquisitions . critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or u.s. gaap . the preparation of these financial statements requires us to make judgments , estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenue generated and expenses incurred during the reporting periods . we evaluate our estimates on an ongoing basis . our estimates are based on current facts , 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 .
| the cost per sample accessioned decreased primarily due to increased volume which resulted in lower labor costs , production improvements which resulted in material efficiencies and 49 automation and software improvements which reduced the medical interpretation time per report , which were partially offset by an increase in amortization of acquired intangible assets of $ 4.4 million . research and development the increase in research and development expense of $ 78.0 million for the year ended december 31 , 2019 compared to the same period in 2018 was due to growth in the business and the effect of business acquisitions in 2019 and principally consisted of increases in personnel-related costs of $ 77.4 million , reflecting increased headcount as well as $ 39.1 million of stock-based compensation related to inducement equity awards granted to employees who joined invitae in connection with our acquisition of singular bio ; increase in information technology costs by $ 3.5 million due to increased spending on networking equipment and software licenses ; increase in travel-related costs of $ 1.3 million due to increased headcount ; and a $ 1.0 million increase in professional fees . these cost increases were partially offset by a decrease of $ 2.7 million of amortization of intangible assets associated with business acquisitions and a net increase of $ 2.0 million in allocations of resources from research and development to cost of revenue to support the increase in production volumes . selling and marketing the increase in selling and marketing expenses of $ 47.8 million for the year ended december 31 , 2019 compared to the same period in 2018 was due to growth in the business and increased spending on marketing and branding initiatives and principally consisted of the following elements : increases in personnel costs of $ 27.6 million due to increases in headcount ; marketing costs , principally for branding initiatives and advertising , increased
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financial operations overview we have never been profitable , and since our inception , we have incurred significant operating losses . our net loss was $ 193.6 million in 2019 and $ 146.7 million in 2018. as of december 31 , 2019 and 2018 , we had an accumulated deficit of $ 533.4 million and $ 339.7 million , respectively . we expect to incur significant expenses and operating losses for the foreseeable future . revenue we have not generated any product revenue since our inception and do not expect to generate any revenue from the sale of products for the foreseeable future . our revenue during the years ended december 31 , 2019 and 2018 represented revenue earned under our revenue-generating two collaboration agreements : the pfizer collaboration agreement ( as defined in note 5 in the notes to the consolidated financial statements appearing elsewhere in this annual report on form 10-k ( “ note 5 ” ) ) , which was entered into in may 2016 , and the takeda collaboration agreement ( as defined in note 5 ) , which became effective in april 2018. operating expenses our operating expenses since inception have consisted primarily of research and development costs and general and administrative costs . research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts , and the development of our product candidates , which include : compensation-related expenses , including employee salaries , bonuses , share-based compensation expense and other related benefits expenses for personnel in our research and development organization ; expenses incurred under agreements with third parties , including contract research organizations ( “ cros ” ) that conduct research , preclinical and clinical activities on our behalf , as well as contract manufacturing organizations ( “ cmos ” ) that manufacture drug product for use in our preclinical studies and clinical trials ; expenses incurred related to our internal manufacturing of drug substance for use in our preclinical studies and clinical trials ; expenses related to compliance with regulatory requirements ; expenses related to third-party consultants ; research and development supplies and services expenses ; and facility-related expenses , including rent , maintenance and other general operating expenses . we recognize research and development costs as incurred . we recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our financial statements as prepaid or accrued expenses . our primary research and development focus since inception has been the development of our proprietary discovery and drug development platform , prism . we are using prism to design , develop and commercialize a broad pipeline of nucleic acid therapeutic candidates . 86 our research and development expenses consist primarily of expenses related to our cros , cmos , consultants , other external vendors and fees paid to global regulatory agencies to conduct our clinical trials , in addition to compensation-related expenses , internal manufacturing expenses , facility-related expenses and other general operating expenses . these expenses are incurred in connection with research and development efforts and our preclinical studies and clinical trials . we track certain external expenses on a program-by-program basis . however , we do not allocate compensation-related expenses , internal manufacturing expenses , equipment repairs and maintenance expense , facility-related expenses or other operating expenses to specific programs . these expenses , which are not allocated on a program-by-program basis , are included in the “ prism and other research and development expenses ” category along with other external expenses related to our discovery and development programs , as well as platform development and identification of potential drug discovery candidates . the table below summarizes our research and development expenses incurred for the years ended december 31 , 2019 and 2018. replace_table_token_2_th ( 1 ) includes discovery and development programs , identification of potential drug discovery candidates , compensation-related expenses , internal manufacturing expenses , equipment repairs and maintenance expense , facility-related expenses and other operating expenses , which are not allocated to specific programs . 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 expect to continue to incur significant research and development expenses in the foreseeable future as we continue to manage our existing clinical trials , initiate additional clinical trials for certain product candidates , pursue later stages of clinical development for certain product candidates , maintain our manufacturing capabilities and continue to discover and develop additional product candidates in multiple therapeutic areas . general and administrative expenses general and administrative expenses consist primarily of compensation-related expenses , including salaries , bonuses , share-based compensation and other related benefits costs for personnel in our executive , finance , corporate , legal and administrative functions , as well as compensation-related expenses for our board of directors . general and administrative expenses also include legal fees ; expenses associated with being a public company ; professional fees for accounting , auditing , tax and consulting services ; insurance costs ; travel expenses ; other operating costs ; and facility-related expenses . other income , net other income , net consists primarily of refundable tax credits from tax authorities and dividend and interest income earned on cash and cash equivalents balances for the years ended december 31 , 2019 and 2018. we recognize refundable tax credits when there is reasonable assurance that we will comply with the requirements of the refundable tax credit and that the refundable tax credit will be received . income taxes we are a singapore multi-national company subject to taxation in the united states and various other jurisdictions . in 2019 , the company recorded no income tax provision . story_separator_special_tag in 2018 , our provision for income taxes was $ 0.1 million on a pre-tax loss of $ 146.6 million . as of december 31 , 2019 and 2018 , we have recorded a full valuation allowance against our net operating loss carryforwards and federal and state tax credits in all jurisdictions due to uncertainty regarding future taxable income . 87 story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > this annual report on form 10-k , we have amend ed the shelf registration statement to register for sale up to $ 500 million of any combination of our ordinary shares , debt securities , warrants , rights and or units from time to time and at prices and on terms that we may determine , including the $ 250 million in ordinary shares that we may issue and sell from time to time pursuant to our “ at-the-market ” equity program . adequate additional financing may not be available to us on acceptable terms , or at all . our inability 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 . cash flows the following table summarizes our sources and uses of cash for each of the periods presented : replace_table_token_5_th operating activities during 2019 , operating activities used $ 188.2 million of cash , primarily due to our net loss of $ 193.6 million and changes in our operating assets and liabilities of approximately $ 23.3 million , offset by non-cash charges of $ 28.7 million . the non-cash charges for 2019 related mainly to share-based compensation expense of $ 19.5 million and $ 7.6 million of depreciation expense . during 2018 , operating activities used $ 22.9 million of cash , due to our net loss of $ 146.7 million , which was offset by changes in our operating assets and liabilities of $ 102.4 million and non-cash charges of $ 21.4 million . the largest changes in operating assets and liabilities were an increase of $ 160.6 million in deferred revenue offset by an increase of $ 59.0 million in accounts receivable , which were primarily driven by the upfront consideration received and accounts receivable recorded upon entry into the takeda collaboration agreement , as well as increases of $ 4.9 million in accounts payable and $ 5.9 million in accrued expenses and other liabilities . the non-cash charges for 2018 related mainly to share-based compensation expense of $ 15.6 million and $ 5.6 million of depreciation expense . investing activities during 2019 , investing activities used $ 3.9 million of cash , consisting of purchases of property and equipment . during 2018 , investing activities used $ 9.9 million of cash , consisting of purchases of property and equipment . financing activities during 2019 , net cash provided by financing activities was $ 164.4 million , which was due to the $ 161.8 million in net proceeds from our january 2019 follow-on underwritten public offering and approximately $ 2.6 million in proceeds from the exercise of share options . during 2018 , net cash provided by financing activities was $ 65.1 million , which was primarily due to the $ 60.0 million in proceeds from the issuance of 1,096,892 ordinary shares to takeda , as well as the $ 5.1 million in proceeds from the exercise of share options . funding requirements we expect to continue to incur significant expenses in connection with our ongoing research and development activities and our internal cgmp manufacturing activities . furthermore , we anticipate that our expenses will continue to vary if and as we : continue to conduct our clinical trials evaluating our product candidates in patients ; 90 conduct research and preclinical development of discovery targets and advance additional programs into clinical development ; file clinical trial applications with global regulatory agencies and conduct clinical trials for our programs ; advance our research and development activities in rare , inherited eye diseases ; make strategic investments in continuing to innovate our research and development platform , prism , and in optimizing our manufacturing processes and formulations ; maintain our manufacturing capabilities through our internal facility and our cmos ; maintain our intellectual property portfolio and consider the acquisition of complementary intellectual property ; seek and obtain regulatory approvals for our product candidates ; and establish and build capabilities to market , distribute and sell our product candidates . we may experience delays or encounter issues with any of the above , including but not limited to failed studies , complex results , safety issues or other regulatory challenges . for example , in december 2019 , we announced the discontinuation of our development of suvodirsen for patients with dmd based on our interim analysis of our phase 1 open-label extension study . because of the numerous risks and uncertainties associated with the development of drug candidates and because the extent to which we may enter into collaborations with third parties for development of product candidates is unknown , we are unable to estimate the amounts of future capital outlays and operating expenses associated with completing the research and development for our therapeutic programs .
| research and development expenses were $ 175.4 million for the year ended december 31 , 2019 , compared to approximately $ 134.4 million for the year ended december 31 , 2018. the increase of $ 41.0 million was due primarily to the following : an increase of $ 28.6 million in external expenses related to our now discontinued dmd programs , including suvodirsen , mainly due to our investment in suvodirsen clinical trial activities , including our open-label extension study and costs related to our phase 2/3 dystance 51 trial ; an increase of $ 3.8 million in external expenses related to our hd programs for our phase 1b/2a clinical trials ; 88 a de crease of $ 2 . 7 million in external expenses related to our als and ftd program s ; and an increase of $ 11.3 million in internal and external expenses that are not allocated on a program-by-program basis and are related to other discovery and development programs , including prism and identification of potential drug discovery candidates , due to an increase of $ 8.6 million in compensation-related expenses , which was the result of organizational growth , and an increase of $ 2.7 million in external research and development supplies and services expenses and facility-related expenses . general and administrative expenses general and administrative expenses were $ 48.9 million for the year ended december 31 , 2019 compared to $ 39.5 million for the year ended december 31 , 2018. the increase of $ 9.4 million was mainly driven by organizational growth to support our 2019 corporate goals . other income , net other income , net for the years ended december 31 , 2019 and 2018 was $ 14.7 million and $ 12.9 million , respectively . the increase of approximately $ 1.8 million in other income , net is primarily due to an increase of $ 1.5 million in dividend income earned on our cash equivalents during the year ended december 31 , 2019. income tax benefit ( provision ) during the year ended december 31 , 2019 , we recorded no income tax provision . during the year ended december 31 , 2018 , we recorded a tax provision of $ 0.1 million . the 2018 tax provision was due
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changes from quarter to quarter , and at any point in time , are impacted by specific activity related to an investment , but the overall growth trend demonstrates the effectiveness of our investment efforts . net asset value of our portfolio decreased to $ 5.16 per share , or $ 32.6 million , at december 31 , 2016 , down ( $ 0.19 ) per share , or ( 3.6 % ) , compared with net asset value of $ 5.35 per share , or $ 33.9 million , at the end of the prior year . we exited from one investment during 2016 , gemcor , whose appreciated value was recorded during 2015 and in prior years . accordingly , our net asset value did not benefit from any exits during 2016. at year end , the estimated value of our portfolio , which included securities held in 33 businesses , was $ 27.5 million . this value included $ 4.1 million in net pre-tax unrealized depreciation . approximately 64 % of the portfolio was equity investments with the remainder being debt and loan investments . the portfolio generated approximately $ 1.0 million in interest , fee , dividend and other income . during 2016 , we made $ 5.9 million in new investments in 12 businesses , including follow-on investments in eight existing portfolio companies . we added four new portfolio companies during the year . in january 2017 , we received a green light letter from the sba that authorized us to file a formal application for a new sbic fund . if approved , the new sbic will provide $ 15 million of available sba borrowings for additional investments . outlook at the end of 2016 , we had $ 12.3 million in cash for future investments and expenses , an increase from $ 5.8 million at the end of 2015. the increase is the result of cash proceeds from the gemcor sale during 2016. during our 12-year holding period , gemcor grew to be a strong provider of cash flow to rand in the form of dividend and investment income . accordingly , our near-term investment focus is on rebuilding cash dividends and interest to fund our ongoing operating expenses . with the green light letter from the sba authorizing us to proceed with our application process we plan to use some of the cash we received from the gemcor exit , combined with additional the sba additional leverage , to create a new $ 22.5 million sbic fund . we will use the fund to advance our investment strategy of focusing on privately-held , early stage and emerging growth businesses with proven management teams . as we work to create our new sbic fund , we believe the combination of cash on hand , proceeds from portfolio exits , potential future sba leverage , and prospective investment income provide sufficient capital for us to continue to add new investments to our portfolio while reinvesting in existing portfolio companies that demonstrate continued growth potential . both short and long-term trends provide us confidence in our ability to grow rand . we expect that well run businesses will require capital to grow and should be able to compete effectively given the low cost of capital , strong business and consumer spending , and eager reception of new technologies and service concepts . 12 given our increased scale we are able to invest larger amounts in companies , which will provide an opportunity to accelerate our rate of growth . we continue to manage risk by investing with other investors , when possible . we are actively involved with the governance and management of our portfolio companies which enables us to support their operating and marketing efforts and facilitate their growth . as our portfolio continues to expand , we are able to better leverage our infrastructure . we have sufficient cash to invest in new opportunities and to repurchase shares . at year end , we had authorization to repurchase an additional 458,954 shares of our common stock . however , our prioritized use of cash continues to be growing our portfolio . critical accounting policies we prepare our consolidated financial statements in accordance with united states generally accepted accounting principles , or gaap , which require the use of estimates and assumptions that affect the reported amounts of assets and liabilities . for a summary of all significant accounting policies , including critical accounting policies , see note 1 to the consolidated financial statements in item 8 of this annual report . the increasing complexity of the business environment and applicable authoritative accounting guidance require us to closely monitor our accounting policies and procedures . we have two critical accounting policies that require the use of significant judgment . the following summary of critical accounting policies is intended to enhance a reader 's ability to assess our financial condition and results of operations and the potential volatility due to changes in estimates . valuation of investments investments are valued at fair value as determined in good faith by management and submitted to the board of directors for approval . we invest in loan , debt , and equity instruments and there is no single standard for determining fair value of these investments . as a result , determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment and employing a consistent valuation process . we analyze and value each investment quarterly , and record unrealized depreciation for an investment that we believe has become impaired , including where collection of a loan or realization of the recorded value of an equity security is doubtful . conversely , we will record unrealized appreciation if we believe that an underlying portfolio company has appreciated in value and , therefore , its equity security has also appreciated in value . story_separator_special_tag these estimated fair values may differ from the values that would have been used had a ready market for the investments existed and these differences could be material if our assumptions and judgments differ from results of actual liquidation events . our investments are carried at fair value in accordance with fasb accounting standards codification ( asc ) 820 , fair value measurements and disclosures , which defines fair value , establishes a framework for measuring fair value in accordance with gaap , and expands disclosures about fair value measurements . loan investments are defined as traditional loan financings with no equity features . debt investments are defined as debt financings that include one or more equity features such as conversion rights , stock purchase warrants , and or stock purchase options . a financing may also be categorized as a debt financing if it is accompanied by the direct purchase of an equity interest in the company . we utilize several approaches to determine the fair value of an investment . the main approaches are : loan and debt securities are valued at cost when it is representative of the fair value of the investment or sufficient assets or liquidation proceeds are expected to exist from a sale of a portfolio company at its estimated fair value . however , they may be valued at an amount other than the price the security would command given the rate and related inherent portfolio risk of the investment . we believe the contractual rates of the respective portfolio investments represent market . 13 a loan or debt instrument may be reduced in value if it is judged to be of poor quality , collection is in doubt or insufficient liquidation proceeds exist . equity securities may be valued using the asset approach , market approach or income approach. the asset approach involves estimating the liquidation value of the portfolio company 's assets . the market approach uses observable prices and other relevant information generated by similar market transactions . it may include the use of market multiples derived from a set of comparables to assist in pricing the investment . additionally , we may adjust valuations if a subsequent significant equity financing has occurred that includes a meaningful portion of the financing by a sophisticated , unrelated new investor . the income approach employs a cash flow and discounting methodology to value an investment . asc 820 classifies the inputs used to measure fair value into the following hierarchy : level 1 : quoted prices in active markets for identical assets or liabilities , used in our valuation at the measurement date . level 2 : quoted prices for similar assets or liabilities in active markets , or quoted prices for identical or similar assets or liabilities in markets that are not active , or other observable inputs other than quoted prices . level 3 : unobservable and significant inputs to determining the fair value . financial assets are categorized based upon the level of judgment associated with the inputs used to measure their fair value . any changes in estimated fair value are recorded in the statement of operations as net ( decrease ) increase in unrealized depreciation or appreciation on investments. under the valuation policy , we value unrestricted publicly traded companies , categorized as level 1 investments , at the average closing bid price for the last three trading days of the reporting period . there were no such level 1 investments as of december 31 , 2016. in the valuation process , we value restricted securities , categorized as level 3 investments , using information from these portfolio companies , which may include : audited and unaudited statements of operations , balance sheets and operating budgets ; current and projected financial , operational and technological developments ; current and projected ability of the portfolio company to service its debt obligations ; the current capital structure of the business and the seniority of the various classes of equity if a deemed liquidation event were to occur ; pending debt or capital restructuring of the portfolio company ; current information regarding any offers to purchase the investment , or recent fundraising transactions ; current ability of the portfolio company to raise additional financing if needed ; changes in the economic environment which may have a material impact on the operating results of the portfolio company ; internal occurrences that may have an impact ( both positive and negative ) on the operating performance of the portfolio company ; qualitative assessment of key management ; contractual rights , obligations or restrictions associated with the investment ; and other factors deemed relevant by our management to assess valuation . 14 the valuation may be reduced if a portfolio company 's performance and potential have deteriorated significantly . if the factors that led to a reduction in valuation are overcome , the valuation may be readjusted . equity securities equity securities may include preferred stock , common stock , warrants and limited liability company membership interests . the significant unobservable inputs used in the fair value measurement of our equity investments are earnings before interest , taxes and depreciation and amortization ( ebitda ) and revenue multiples , where applicable , the financial and operational performance of the business , and the senior equity preferences that may exist in a deemed liquidation event . standard industry multiples may be used when available ; however , our portfolio companies are typically small and in early stages of development and these industry standards may be adjusted to more closely match the specific financial and operational performance of the portfolio company . due to the nature of certain investments , fair value measurements may be based on other criteria , which may include third party appraisals . significant changes to the unobservable inputs , such as variances in financial performance from expectations , may result in a significantly higher or lower fair value measurement . significant changes in any of these unobservable inputs may result in a significantly higher or lower fair value estimate .
| our investment agreements with certain llcs require those llcs to distribute funds to us for payment of income taxes on our allocable share of the llc 's profits . these portfolio companies may also elect to make additional discretionary distributions . dividend income will fluctuate based upon the profitability of these llcs and corporations and the timing of the distributions or the impact of new investments or divestitures . dividend and other investment income decreased in 2016 due to the asset sale of gemcor ii , llc in march 2016. the dividend distributions for the respective years were : replace_table_token_14_th fee income fee income consists of the revenue associated with the amortization of financing fees charged to the portfolio companies upon successful closing of rand sbic financings and income from portfolio company board attendance fees . the financing fees are amortized ratably over the life of the instrument associated with the fees . the unamortized fees are carried on the balance sheet under the line item deferred revenue. 19 the income associated with the amortization of financing fees was $ 22,634 and $ 18,333 for the years ended december 31 , 2016 and 2015 , respectively . the financing fee income based on the existing portfolio is expected to be approximately $ 20,000 in 2017 , $ 15,000 in 2018 , $ 11,000 in 2019 and $ 300 in 2020. fees paid for board service at the portfolio companies were $ 4,000 and $ 11,000 for the years ended december 31 , 2016 and 2015 , respectively . comparison of the years ended december 31 , 2015 and 2014 investment income increased 9 % , or $ 239,862 , from $ 2,584,475 for the year ended december 31 , 2014 to $ 2,824,337 for the year ended december 31 , 2015. the net increase was primarily attributable to an increase in dividend income . replace_table_token_15_th interest from portfolio companies our portfolio interest income decreased during 2015 due to the decrease in principal balances on loan and debt investments in gemcor , ii , llc ( gemcor ) and carolina skiff , llc ( carolina skiff ) . after
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in 2011 our e & d expenditures were largely funded by cash flow provided by operating activities and sales of non-strategic assets . based on current market prices and service costs , our 2012 e & d capital expenditures are presently projected to be in the range of $ 1.4 - 1.6 billion . we expect nearly all of our 2012 capital to be directed towards oil or liquids-rich gas drilling in the permian basin and cana-woodford shale play . we expect our 2012 e & d capital expenditures to be funded from cash flow , property sales and borrowings . proved reserves our year end 2011 proved reserves grew 9 % to 2.05 tcfe , up from 1.88 tcfe at year-end 2010. the increase in 2011 proved reserves is net of production of 216.2 bcfe and sales of 226.3 bcfe . adjusted for the impact of property sales , proved reserves increased 23 % over 2010. reserve additions were comprised of 45 % oil and ngls and 55 % gas . with our continued focus on liquids rich production , the amount of proved reserves comprised of liquids at year-end 2011 increased to 41 % as compared to 33 % at year-end 2010. proved reserves are 82 % developed at year-end 2011 compared to 77 % at year-end 2010. reserves added from e & d totaled 587.0 bcfe and 23.9 bcfe were acquired via property purchases . net negative revisions during 2011 were 7.2 bcfe , which included positive 3.8 bcfe driven by commodity prices . the negative revisions relate primarily to increases in operating expenses , which shortened the economic lives of the properties . overall , approximately 67 % of our proved reserves are in our mid-continent region and 31 % are in the permian basin . our onshore gulf coast and other onshore operations collectively make up another 2 % of total proved reserves . less than 1 % of our total proved reserves are in the gulf of mexico . the process of estimating quantities of oil , gas and ngl reserves is complex . significant decisions are required in the evaluation of all available geological , geophysical , engineering and economic data . the data for a given field may also change substantially over time as a result of numerous factors including , but 31 not limited to , additional development activity , evolving production history , contractual arrangements and continual reassessment of the viability of production under varying economic conditions . as a result , material revisions to existing reserve estimates may occur from time to time . although every reasonable effort is made to ensure that our reserve estimates represent the most accurate assessments possible , subjective decisions and available data for our various fields make these estimates generally less precise than other estimates included in financial statement disclosures . see note 18 , unaudited supplemental oil and gas disclosures for more reserve information . revenues all of our revenues are derived from the sale of our oil , gas , and ngl production and do not include the effects of the settlements of our hedges . while our revenues are a function of both production and prices , wide swings in commodity prices have had the greatest impact on our results of operations . compared to 2010 , our 2011 average realized gas price decreased by 10 % and our average realized oil price increased by 21 % . the ngl price we received also increased by 21 % . since year-end 2011 , gas prices have declined further and oil prices have remained stable . like gas , ngl prices have also declined . the following table presents our average realized commodity prices for the years ended 2011 , 2010 and 2009. the realized prices do not include settlements of our commodity hedging contracts . replace_table_token_16_th on an energy equivalent basis , 56 % of our 2011 aggregate production was natural gas . a $ 0.10 per mcf change in our average realized gas sales price would have resulted in a $ 12 million change in our gas revenues . similarly , 44 % of our production was crude oil and ngl 's . a $ 1.00 per barrel change in our average realized sales prices would have resulted in a $ 16 million change in our oil and ngl revenues . production and other operating expenses costs associated with finding and producing oil and gas are substantial . some of these costs vary with commodity prices , some trend with the type and volume of production and others are a function of the number of wells we own . at the end of 2011 , we owned interests in 12,701 gross wells . production expense generally consists of the cost of water disposal , power and fuel , direct labor , third-party field services , compression and certain maintenance activity ( workovers ) necessary to produce oil and gas from existing wells . transportation expense is comprised of costs paid to move oil and gas from the wellhead to a specified sales point . in some cases we receive a payment from purchasers which is net of transportation costs , and in other instances we separately pay for transportation . if costs are netted in the proceeds received , both the gross revenues and gross costs are shown in sales and expenses , respectively . 32 depreciation , depletion , and amortization ( dd & a ) of our producing properties is computed using the units-of-production method . the economic life of each producing well depends upon the assumed price for future sales of production . therefore , fluctuations in oil and gas prices will impact the level of proved reserves used in the calculation . higher prices generally have the effect of increasing reserves , which reduces depletion expense . lower prices generally have the effect of decreasing reserves , which increases depletion expense . story_separator_special_tag in addition , changes in estimates of reserve quantities , estimates of operating and future development costs , and reclassifications from unproved properties to proved properties will impact depletion expense . general and administrative expenses consist primarily of salaries and related benefits , office rent , legal fees , consultants , systems costs and other administrative costs incurred in our offices and not directly associated with exploration , development or production activities . while we expect these costs to increase with our growth , we also expect such increases to be proportionately smaller than our production growth . production taxes are assessed by state and local taxing authorities pertaining to production , revenues or the value of properties . these typically include production severance , ad valorem , and excise taxes . stock compensation expense consists of non-cash charges resulting from the issuance of restricted stock , restricted stock units and stock options . in accordance with our stock incentive plan , such grants are periodically made to non-employee directors , officers and other eligible employees . the net gain or loss on derivative instruments is the net realized and unrealized gain or loss on derivative contracts , to which we did not apply hedge accounting treatment . that amount will fluctuate based on changes in the fair value of the underlying commodities . hedging from time to time we attempt to mitigate a portion of our price risk through the use of hedging transactions . management has been authorized to hedge up to 50 % of our anticipated 2012 and 2013 equivalent production . in 2009 we entered into derivative contracts covering approximately 40 % of our anticipated 2010 oil and gas production volumes . these contracts were settled in 2010 for a net gain of $ 52.1 million . during 2010 we entered into oil and gas contracts relative to our 2011 production which approximated 40 to 45 % of our anticipated 2011 oil production and 5 to 6 % of projected gas production . those contracts were settled in 2011 for a net gain of $ 6.7 million . for 2012 we have hedged approximately 50 % of our anticipated oil production . we do not have any of our gas or ngl production hedged . as of december 31 , 2011 we had entered into the following contracts relative to our 2012 production : oil contracts weighted average price period type volume/day index ( 1 ) floor ceiling jan 12 - dec 12 collar 2,000 bbls wti $ 80.00 $ 114.70 ( 1 ) wti refers to west texas intermediate price as quoted on the new york mercantile exchange . 33 subsequent to december 31 , 2011 we entered into additional oil contracts as follows : replace_table_token_17_th ( 1 ) wti refers to west texas intermediate price as quoted on the new york mercantile exchange . depending on changes in oil and gas futures markets and management 's view of underlying supply and demand trends , we may increase or decrease our current hedging positions . while the use of such instruments limits the downside risk of adverse price changes , their use may also limit future revenues from favorable price changes . we have chosen not to apply hedge accounting treatment to any of the derivative contracts we have entered into since 2009. therefore , settlements on our derivative contracts do not impact our realized commodity prices during the periods they cover . instead , any settlements on the contracts are shown as a component of operating costs and expenses as either a net gain or loss on derivative instruments . see item 7a and note 4 , derivative instruments/hedging , to the consolidated financial statements of this report for additional information regarding our derivative instruments . story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0001168054/000104746912001276/ # bg46201a_main_toc '' > in 2011 our production costs were $ 247 million ( $ 1.14 per mcfe ) up from $ 194 million ( $ 0.89 per mcfe ) during 2010. the $ 53.0 million increase accounted for 24 % of our total increase in operating costs and expenses . our production costs consist of lease operating expense and workover expense as follows ( in thousands ) : replace_table_token_21_th about half of the $ 43.1 million increase in our lease operating expense resulted from higher water disposal costs associated with wells coming on line from our successful permian basin and mid-continent drilling programs . increased costs for equipment maintenance , rentals , labor , power and fuel also contributed to the increase in year over year lease operating expense . workover expense for 2011 was $ 9.9 million higher than 2010 , primarily as a result of more activity being necessary in 2011. transportation costs rose to $ 61.8 million ( $ 0.29 per mcfe ) for 2011 from $ 50.0 million ( $ 0.23 per mcfe ) in 2010. transportation costs will fluctuate based on increases or decreases in sales volumes , compression charges and fluctuation in the price of the fuel cost component . also , in the latter part of 2010 and continuing throughout 2011 , our mid-continent and permian basin wells have experienced increases in transportation rates due to higher contractual rates associated with new wells coming online and contracts for existing wells being renewed . taxes other than income increased $ 4.7 million from $ 121.8 million in 2010 to $ 126.5 million in 2011. the $ 4.7 million increase in taxes resulted primarily from higher realized oil and ngl prices in 2011. our general and administrative expense was $ 45.3 million in 2011 compared to $ 48.6 million for 2010. the $ 3.4 million decrease is mostly due to lower bonus expense in 2011. stock compensation expense , net consists of non-cash charges resulting from the issuance of restricted stock , restricted stock units and stock option awards , net of amounts capitalized .
| during the fourth quarter of 2011 our daily gas production averaged 334.2 mmcf per day , down 2 % from 341.5 mmcf per day , for the same period of 2010. the decline in fourth quarter 2011 gas production resulted in $ 2.8 million less revenue compared to the fourth quarter of 2010. oil production for 2011 averaged 26,789 barrels per day , down slightly from production of 26,969 barrels per day in 2010. the decrease in 2011 production resulted in $ 5.1 million lower oil revenue for all of 2011. our fourth quarter 2011 oil production averaged 27,431 barrels per day , or a slight increase compared to daily oil production of 27,137 barrels for the fourth quarter of 2010. the higher production in the fourth quarter of 2011 increased oil sales by $ 2.2 million . in 2011 our average daily ngl production volume was 17,086 barrels per day compared to 11,705 barrels per day for 2010. the 46 % higher ngl production volumes in 2011 contributed $ 68.5 million of additional revenue for 2011. during the fourth quarter of 2011 our average daily ngl production was 17,107 barrels per day , up from 16,702 barrels per day during the fourth quarter of 2010. this 2 % increase in ngl production provided an additional $ 1.4 million of revenue in the fourth quarter of 2011. the increases in our 2011 ngl production reflect our continued focus on drilling in more liquids-rich gas basins that produce more attractively priced ngl liquids such as ethane , propane and butane , rather than in gas basins that produce dry gas alone . our average realized gas price for 2011 fell to $ 4.42 per mcf , compared to $ 4.92 per mcf in 2010. the 10 % decrease in prices received during 2011 resulted in lower gas sales of $ 60.1 million in 2011 compared to 2010 gas revenue . during the fourth quarter of 2011 our average realized gas price decreased by 7 % to $ 3.90 per mcf . for the same period of 2010 , we realized an average price per mcf of $ 4.18. the decrease in prices received in the fourth quarter of 2011
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sales volumes increased 2 % , primarily driven by 29 organic growth and new business with major restaurant chains in north america . while net sales in international markets increased nominally , sales volumes declined as we chose to improve customer and product mix , as well as lower shipments to certain export markets . foodservice net sales increased $ 69.1 million , or 7 % , to $ 1,099.1 million , compared with $ 1,030.0 million in fiscal 2017. net sales in fiscal 2018 reflect a 6 % increase related to favorable pricing , as well as actions to improve customer and product mix . sales volume increased 1 % , which was primarily related to growth of sales of lamb weston -branded and operator label products to small and mid-sized restaurant chains , partially offset by lower sales volume of distributor label products . retail net sales increased $ 64.3 million , or 17 % , to $ 449.2 million , compared with $ 384.9 million in fiscal 2017. net sales in fiscal 2018 reflect a 12 % increase in sales volume , driven by distribution gains of grown in idaho and other branded products , as well as increased shipments of private label products . price/mix increased 5 % , reflecting higher prices across the branded and private label portfolios , as well as improved mix , partially offset by higher trade investments to support expanded distribution of grown in idaho branded products . net sales in our other segment increased $ 2.9 million , or 2 % , to $ 131.2 million , compared with $ 128.3 million in fiscal 2017 , primarily due to favorable product mix in our vegetable business . product contribution margin global product contribution margin increased $ 37.1 million , or 11 % , to $ 375.7 million in fiscal 2018 , as a result of favorable price/ mix and volume growth . global cost of sales was $ 1,361.8 million , or 6 % higher in fiscal 2018 , as compared to fiscal 2017 , largely due to higher volume , input , manufacturing , transportation and warehousing cost inflation , higher depreciation expense primarily related to our new french fry production line in richland , washington , and higher incentive compensation costs , partially offset by supply chain efficiency savings . advertising and promotion spending was $ 0.9 million higher in 2018 , as compared to fiscal 2017. foodservice product contribution margin increased $ 35.2 million , or 11 % , to $ 365.9 million in fiscal 2018 , primarily as a result of favorable price/mix . cost of sales was $ 724.7 million , or 5 % higher in fiscal 2018 , as compared to fiscal 2017 , largely due to input , manufacturing , transportation and warehousing cost inflation , higher depreciation expense primarily related to our new french fry production line in richland , washington , and higher compensation costs , partially offset by supply chain efficiency savings . advertising and promotion spending was $ 1.6 million higher in fiscal 2018 , compared with fiscal 2017. retail product contribution margin increased $ 9.7 million , or 13 % , to $ 87.3 million in fiscal 2018 due to favorable price/mix and higher sales volumes . cost of sales was $ 346.0 million , or 16 % higher in fiscal 2018 as compared to fiscal 2017 , largely due to higher volume and transportation , warehousing , input and manufacturing cost inflation . advertising and promotion spending was $ 6.5 million higher in fiscal 2018 , compared with fiscal 2017 , as we invested behind the introduction of grown in idaho branded products . other product contribution margin increased $ 9.7 million to $ 19.0 million in fiscal 2018 , as compared to $ 9.3 million in fiscal 2017. the increase was primarily due to a change in unrealized mark-to-market adjustments of approximately $ 4 million related to our commodity option contracts and an expense in the prior year related to a recall of some vegetable products that were produced by a third party . selling , general and administrative expenses selling , general and administrative expenses increased $ 38.9 million , or 15 % , in fiscal 2018 compared with fiscal 2017. fiscal 2018 and 2017 , included $ 8.7 million ( $ 5.7 million after-tax ) and $ 26.5 million ( $ 16.7 million after-tax ) of expenses for costs related to the separation , primarily related to professional fees and other employee-related costs . fiscal 2017 also included a $ 3.1 million ( $ 2.0 million after-tax ) non-cash gain on assets . excluding these items , fiscal 2018 , 30 selling , general and administrative expenses increased $ 53.6 million , or 23 % , versus the prior year largely due to incremental costs associated with being a stand-alone public company , higher incentive compensation costs based on operating performance , and a $ 9.0 million increase in advertising and promotional support . in addition , the increase in selling , general and administrative expenses also includes approximately $ 5 million to establish a new lamb weston charitable foundation , and approximately $ 4 million of costs related to transitioning our foodservice segment go-to-market strategy from a broker-led sales model to a direct sales model . interest expense , net interest expense , net was $ 108.8 million in fiscal 2018 , an increase of $ 47.6 million compared with fiscal 2017. the increase in interest expense , net was the result of recognizing interest expense for a full-year for the debt incurred in connection with the separation , compared with recognizing approximately only seven months of interest expense on this debt during fiscal 2017. for more information , see note 9 , debt and financing obligations , of the notes to combined and consolidated financial statements in “ part ii , item 8. financial statements and supplementary data ” in this form 10-k. for the period prior to the separation , interest expense was included for only the legal entities that comprised the lamb weston business , and did story_separator_special_tag not include any allocated interest expense from conagra . income taxes replace_table_token_5_th ( a ) excluding $ 28.4 million of provisional impacts of the tax act , the effective tax rate was 27.0 % . this rate varies from the fiscal 2018 u.s. federal statutory tax rate of 29.3 % , primarily due to the impact of u.s. state taxes , the domestic manufacturers deduction , foreign taxes , and other permanent differences . the tax act decreased income tax expense by $ 64.7 million ; $ 36.3 million of the decrease related to a lower u.s. corporate tax rate and $ 28.4 million related to the provisional impacts of the tax act that was enacted in december 2017. for further information on the tax act and its impact , see note 4 , income taxes , of the notes to combined and consolidated financial statements in “ part ii , item 8. financial statements and supplementary data ” in this form 10-k. equity method investment earnings we conduct meaningful business through unconsolidated joint ventures and include our share of the earnings based on our economic ownership interest in them . lamb weston 's share of earnings from its equity method investments was $ 83.6 million and $ 53.3 million for fiscal 2018 and 2017 , respectively . these amounts included a nominal unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts in the current year , and a $ 3.6 million gain related to the contracts in fiscal 2017. excluding these adjustments , earnings from equity method investments increased $ 33.9 million , driven by solid operating results in europe and the u.s. , including lower raw potato and production costs in europe , volume growth , a $ 5.4 million foreign currency translation benefit , and an approximate $ 4 million gain related to a divestiture of a non-core business . the increase was partially offset by lower price/mix in europe . for more information about our joint ventures , see note 6 , investments in joint ventures , of the notes to combined and consolidated financial statements in “ part ii , item 8. financial statements and supplementary data ” in this form 10-k. 31 fiscal year ended may 28 , 2017 compared to fiscal year ended may 29 , 2016 net sales and product contribution margin ( dollars in millions ) replace_table_token_6_th net sales lamb weston 's net sales for fiscal 2017 were $ 3,168.0 million , an increase of $ 174.2 million , or 6 % , compared with fiscal 2016. net sales in fiscal 2017 reflect a 4 % increase in price/mix and volume growth of 2 % , with growth across our core operating segments . global net sales increased $ 75.4 million , or 5 % , to $ 1,624.8 million , compared with $ 1,549.4 million in fiscal 2016. net sales in fiscal 2017 reflect a 4 % increase in sales volume , driven by growth domestically , which included organic growth and new business with major restaurant chains , as well as growth in international markets . additionally , net sales in fiscal 2017 reflect a 1 % increase in price/mix associated with price increases in both domestic and international markets , as well as actions to improve customer and product mix . foodservice net sales increased $ 84.0 million , or 9 % , to $ 1,030.0 million , compared with $ 946.0 million in fiscal 2016. net sales in fiscal 2017 reflect an 8 % increase related to favorable pricing , as well as actions to improve customer and product mix . sales volume increased 1 % , which related to growth of small and mid-sized restaurant chain operators , as well as regional and independent food distributors . retail net sales increased $ 12.8 million , or 3 % , to $ 384.9 million , compared with $ 372.1 million in fiscal 2016. net sales in fiscal 2017 reflect a 2 % increase related to favorable pricing and customer mix changes due to the increase of licensed brands and trade efficiencies . sales volume increased 1 % , primarily driven by growth of licensed and private label products . net sales in our other segment increased $ 2.0 million , or 2 % , to $ 128.3 million , compared with $ 126.3 million in fiscal 2016 , primarily due to favorable product mix in our vegetable business . product contribution margin global product contribution margin increased $ 45.4 million , or 15 % , to $ 338.6 million in fiscal 2017 , as a result of favorable price/mix , supply chain efficiency savings , and volume growth . global cost of sales was $ 1,280.4 million , or 3 % higher in fiscal 2017 , as compared to fiscal 2016 , largely due to higher volume , partially offset by supply chain efficiency savings . advertising and promotion spending was $ 1.1 million lower in 2017 , as compared to fiscal 2016 , driven by the timing of costs related to our global rebranding in fiscal 2016. foodservice product contribution margin increased $ 77.7 million , or 31 % , to $ 330.7 million in fiscal 2017 as a result of favorable price/mix , supply chain efficiency savings , and volume growth . cost of sales was $ 692.4 million , or 1 % higher in fiscal 2017 , as compared to fiscal 2016 , largely due to higher volume , partially offset by supply chain efficiency savings . advertising and promotion spending was $ 0.3 million lower in fiscal 2017 , compared with fiscal 2016 . 32 retail product contribution margin increased $ 8.5 million , or 12 % , to $ 77.6 million due to favorable price/mix . cost of sales was $ 297.8 million , or 2 % higher in fiscal 2017 as compared to fiscal 2016 , largely due to higher volume and higher supply chain costs .
| · adjusted diluted eps increased $ 0.34 , or 15 % , to $ 2.66. approximately $ 0.25 of the increase was driven by a lower u.s. corporate tax rate as a result of the tax act . the remainder of the increase reflects growth in income from operations and equity method investment earnings , partially offset by higher interest expense . · adjusted ebitda including unconsolidated joint ventures increased $ 113.3 million , or 16 % , to $ 820.4 million , reflecting growth in income from operations and equity method investment earnings . · gross profit increased $ 100.7 million , or 13 % , to $ 879.5 million , driven by favorable price/mix , sales volume growth and supply chain efficiency savings , partially offset by input , manufacturing , transportation and warehousing cost inflation , higher depreciation expense primarily related to our new french fry production line in richland , washington , and higher incentive compensation costs . · equity method investment earnings increased $ 30.3 million to $ 83.6 million , and included a nominal unrealized loss related to mark-to-market adjustments associated with currency and commodity hedging contracts compared to a $ 3.6 million gain in the prior year , a $ 5.4 million foreign currency translation benefit , and an approximate $ 4 million gain related to a divestiture of a non-core business . · net cash provided by operating activities for fiscal 2018 was $ 481.2 million , compared with $ 446.9 million in the prior year . during fiscal 2018 , we added $ 309.0 million of capital assets and paid $ 110.2 million in dividends to stockholders . · the global segment 's net sales increased to $ 1,744.2 million , up $ 119.4 million , with price/mix up 5 % and volume up 2 % , compared with fiscal 2017. global segment product contribution margin increased $ 37.1 million to $ 375.7 million . · the foodservice segment 's net sales increased $ 69.1 million to $ 1,099.1 million , with price/mix up 6 % and volume up 1 % . foodservice segment product contribution margin increased $ 35.2 million to $ 365.9 million . · the retail segment 's net sales increased $ 64.3 million to $ 449.2
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this portfolio represents a significant opportunity to recapture valuable real estate within our portfolio and enhances several expansion and redevelopment opportunities , including re-tenanting the anchor space and adding new in-line gla . the acquisition is expected to close in the second quarter of 2012 subject to customary closing conditions . we seek to increase long-term noi growth through proactive management and leasing of our regional malls . our leasing strategy is to identify and provide the right stores and the appropriate merchandise for each of our regional malls . we believe that the most significant operating factor affecting incremental cash flow and noi is increased rents earned from tenants at our properties . these rental revenue increases are primarily achieved by : renewing expiring leases and re-leasing existing space at rates higher than expiring or existing rates ; increasing occupancy at the properties so that more space is generating rent ; and increased tenant sales in which we participate through overage rent . the following table summarizes selected operating statistics for our portfolio of regional malls : replace_table_token_21_th ( 1 ) data excludes rpi , a 30-mall wholly owned subsidiary of ggp which was spun-off on january 12 , 2012 , and international . ( 2 ) weighted average rent of mall stores less than 10,000 square feet as of december 31 , 2011 , which represents approximately 90 % of our total square footage . rent is presented on a cash basis and consists of minimum rent , common area costs and real estate taxes and includes any tenant concessions that may have been granted . ( 3 ) represents contractual obligations for space in regional malls or predominantely retail centers and excludes traditional anchors . ( 4 ) comparative rolling twelve month tenant sales for mall stores less than 10,000 square feet , which represents 90 % of our total square footage . 41 story_separator_special_tag zeq.=2 , seq=46 , efw= '' 2207620 '' , cp= '' general growth properties inc. '' , dn= '' 1 '' , chk=45991 , folio='44 ' , file='disk112 : [ 12zaa1.12zaa10001 ] ds10001a . ; 14 ' , user='mpieror ' , cd='27-feb-2012 ; 17:26 ' -- > year ended december 31 , 2010 and 2009 retail and other the following table compares major revenue and expense items : replace_table_token_25_th the following table is a breakout of the components of minimum rents : replace_table_token_26_th the base minimum rents decreased $ 11.8 million primarily due to a decrease in rents per square foot and occupancy and $ 11.1 million due to the reduction in specialty leasing . the changes in 45 straight-line rent and above- and below-market tenant leases reflect the impact of the application of the acquisition method of accounting in the fourth quarter of 2010. tenant recoveries decreased $ 24.8 million primarily as the result of the conversion of tenants to gross leases and lower recoveries related to common area maintenance , real estate taxes and electric utility expense as a result of tenant settlements for prior years that were delayed due to the predecessor 's bankruptcy and $ 5.0 million resulting from lower marketing and promotional revenue . overage rents increased $ 6.3 million for the year ended december 31 , 2010 primarily due to increased tenant sales in 2010. property maintenance costs increased $ 8.3 million for the year ended december 31 , 2010 primarily due to increased spending on mall upkeep , including labor costs and equipment and supplies . marketing increased $ 4.4 million for the year ended december 31 , 2010 primarily due to increased spending on national projects such as our shop 'til you rock , e-marketing and shopper rewards programs . other property operating costs decreased by $ 6.2 million for the year ended december 31 , 2010 primarily due to reduced utility costs . partially offsetting this decrease is increased electric expense in 2010 due to comparatively warmer summer weather conditions , and increases in landscaping and cleaning costs . the provision for doubtful accounts decreased $ 9.6 million for the year ended december 31 , 2010 primarily due to higher allowances in 2009 related to tenant bankruptcies and weak economic conditions . net operating income to operating income replace_table_token_27_th management fees and other corporate revenues decreased $ 12.1 million for the year ended december 31 , 2010 primarily due to a $ 2.3 million decrease in lease fees , a $ 3.4 million decrease in development fees and a $ 3.0 million decrease in management fees . of the total decrease , $ 5.7 million resulted from the sale of our third-party management business in july 2010. property management and other costs decreased $ 3.8 million for the year ended december 31 , 2010 primarily due to a $ 17.5 million decrease in compensation expense primarily resulting from a reduction in force in 2009 and the sale of our third party management business in july 2010. the decrease was partially offset by an $ 11.7 million increase in professional services primarily due to an increase in expenses for leasing , brokerage fees and information technology . 46 general and administrative expenses decreased $ 47.2 million for the year ended december 31 , 2010 due to a $ 2.9 million decrease in legal fees in 2010 and a $ 62.5 million decrease in professional fees related to the restructuring efforts incurred in 2009 prior to filing for chapter 11 protection . similar fees incurred after filing for chapter 11 protection are recorded as reorganization items for the period january 1 , 2010 through november 9 , 2010. the decrease was partially offset by $ 11.0 million increase in executive compensation ( primarily related to terminated employees ) and a $ 1.1 million increase in fees paid to the board of directors . in addition , we have incurred $ 5.6 million of professional and other costs related to our emergence from bankruptcy and implementation of the plan since the effective date which could not be accrued as of the effective date or classified as reorganization items . story_separator_special_tag based on the results of the predecessor 's evaluations for impairment , we recognized impairment charges of $ 4.5 million for the year ended december 31 , 2010 and $ 393.1 million for the year ended december 31 , 2009 related to properties not classified as held for disposition . impairments on properties held for disposition are classified within discontinued operations . the following are explanations for significant changes in line items reported below operating income : interest expense increased $ 115.7 million for the year ended december 31 , 2010 primarily due to default interest that was incurred prior to the effective date , partially offset by reductions in 2010 interest expense on existing consolidated debt . the warrant liability adjustment was $ 205.3 million in the period november 10 , 2010 through december 31 , 2010 due to the non-cash expense recognized in the period from november 10 , 2010 through december 31 , 2010 due to the mark-to-market of the warrant liability as of december 31 , 2010 , primarily due to the increase in price of ggp 's common stock since the effective date . income taxes resulted in a benefit from of $ 69.4 million for the year ended december 31 , 2010 and a provision for of $ 6.6 million for the year ended december 31 , 2009. the change was primarily due to changes in liabilities pursuant to uncertain tax positions . the decrease in equity in ( loss ) income of unconsolidated real estate affiliates for the year ended december 31 , 2010 was primarily due to the following : ( $ 21.1 ) million related to the impairments of our investment in turkey ; ( $ 2.4 ) million of lower interest income on ggp/homart ii joint venture as the member loans were distributed to the members in december 2009 ; $ 9.7 million gain the aliansce ipo ; and $ 1.6 million reflects the disposition of our interest in highland mall . reorganization items under the bankruptcy filings are expense or income items that were incurred or realized by the debtors as a result of the chapter 11 cases . these items include professional fees and similar types of expenses incurred directly related to the bankruptcy filings , gains or losses resulting from activities of the reorganization process , including gains related to recording the mortgage debt at fair value upon emergence from bankruptcy and interest earned on cash accumulated by the debtors . such expenses increased in 2010 as the plan was developed and finalized ( note 3 ) . 47 liquidity and capital resources our capital plan is to refinance our existing debt , lower our borrowing costs , manage our future maturities and provide the necessary capital to fund growth . we believe that we currently have sufficient liquidity to satisfy all of our commitments in the form of $ 572.9 million of unrestricted cash and $ 750.0 million of available credit under our credit facility , as well as anticipated cash provided by operations . our primary sources of cash to pay operating expenses , service debt , reinvest in properties , develop and redevelop properties and pay dividends include operating cash flows and borrowings under our revolving credit facility . we have executed a refinancing strategy of extending the average debt maturity profile while reducing interest rates . we will continue to modify our capital structure to provide the necessary financial flexibility to the company . during 2011 , we executed the following refinancing and capital transactions ( at our prorata share ) : refinanced $ 2.6 billion of mortgage notes and decreased our borrowing costs and lengthened our overall remaining term-to-maturity ; sold , or transferred to the mortgage holder , whole or partial interests in approximately 11.5 million square feet of gross leasable area comprised of regional malls for $ 879.7 million including property level debt of $ 752.1 million ; and improved the overall quality of our portfolio of assets through the approval of the rpi spin-off , making them more attractive to finance . as of december 31 , 2011 we have $ 9.4 billion of debt pre-payable at par . we may pursue opportunities to refinance this debt at better terms . our long term goal is to improve our overall debt to ebidta and leverage ratios by improving operations , amortization of debt and refinancing debt at improved terms . our key financing and capital raising objectives include the following : continue to refinance our maturing debt , and certain debt prepayable without penalty , with the goal of lowering our overall borrowing costs and managing future maturities ' raise capital by forming joint ventures with institutional investors to acquire partial interests in regional malls , either currently owned by us or through a new acquisition ; and dispose of properties in our portfolio that do not fit within our long-term strategy , including certain of our office properties , retail strips and regional malls . we may also raise capital through public or private issuances of debt securities , preferred stock , common stock , common units of the operating partnership or other capital raising activities . as of december 31 , 2011 , our proportionate share of total debt aggregated $ 20.04 billion consisting of our consolidated debt , net of noncontrolling interest , of $ 17.24 billion combined with our share of the debt of our unconsolidated real estate affiliates of approximately $ 2.78 billion . the following table illustrates the scheduled loan maturities of our mortgages , notes and loans payable for our consolidated debt ( net of noncontrolling interest ) and unconsolidated debt at our proportionate share as of december 31 , 2011. the table excludes debt included in liabilities on assets held for disposition .
| real estate taxes increased $ 1.3 million for the year ended december 31 , 2011 primarily due to the amortization of an intangible asset related to real estate taxes at one property , which was partially offset by a favorable real estate tax settlement that resulted in lower expense in 2010. marketing increased $ 2.0 million for the year ended december 31 , 2011 primarily due to increased marketing efforts related to internal and external advertising , which was partially offset by a decrease in national advertising . other property operating costs increased $ 3.2 million for the year ended december 31 , 2011 primarily due to a $ 10.5 million increase in utilities and a $ 3.3 million increase in outside professional services , which are partially offset by a $ 11.5 million decrease in payroll , benefits and incentive compensation . the provision for doubtful accounts decreased $ 9.9 million for the year ended december 31 , 2011 primarily due to improved collections of outstanding accounts receivable during 2011. in addition , the provision was higher in 2010 as the result of tenant bankruptcies and weaker economic conditions . net operating income to operating income replace_table_token_24_th management fees and other corporate revenues decreased $ 2.1 million for the year ended december 31 , 2011 due to a $ 1.4 million decrease in management fees resulting from the sale of our third-party management business in july 2010. in addition , development fees and specialty lease fees 43 decreased approximately $ 1.5 million for the year ended december 31 , 2011 due to lower fees earned as a result of delays in projects at three properties owned by our unconsolidated real estate affiliates . property management and other costs increased $ 39.1 million for the year ended december 31 , 2011 due to a $ 20.0 million increase in professional services primarily related to the rpi spin-off , a $ 12.4 million increase in severance as part of the realignment of the company , a $ 9.2 million increase in incentive compensation and a $ 2.9 million increase in occupancy costs , which were partially offset by a $ 5.8 million decrease in payroll and benefits . general and administrative expenses decreased by $ 11.2 million for the year ended december 31 , 2011 primarily due to the reversal of previously accrued bankruptcy costs and gains on bankruptcy settlements of $ 23.1 million ,
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we expect that a significant portion of our total revenues will continue to be derived from international sales . ( see note 2 – revenue and note 14 - segment information of notes to consolidated financial statements for details concerning the geographic breakdown of our net sales and long-lived assets , respectively ) . we manufacture substantially all of our product volume at our facilities in debrecen , hungary and penang , malaysia . delivering high quality , reliable products we believe that our long-term growth and success depend on delivering high quality software and hardware products on a timely basis . accordingly , we focus significant efforts on research and development . we focus our research and development efforts on enhancing existing products and developing new products that incorporate appropriate features and functionality to be competitive with respect to technology , price and performance . our success also depends on our ability to obtain and maintain patents and other proprietary rights related to technologies used in our products . we have engaged in litigation when necessary , and will likely engage in future litigation to protect our intellectual property rights . our operating results fluctuate from period to period due to changes in global economic conditions and a number of other factors such as the impact of the covid-19 pandemic . as a result , we believe our historical results of operations should not be relied upon as indications of future performance . there can be no assurance that our net sales will grow , or not decline , or that we will remain profitable in future periods . recent developments - impact of covid-19 pandemic as further discussed below and in the `` risk factors '' section of this form 10-k , our operations and the operations of our customers and suppliers have been adversely impacted by the challenges resulting from the covid-19 pandemic . current business outlook while we remain cautious due to continuing uncertainty , we are optimistic about our position to capture long-term growth opportunities as we continue to enhance our offerings in key focus areas . we are seeing early signs of recovery in end markets where we experienced weaker demand over the past year , such as transportation . while we expect headwinds related to the covid-19 pandemic to continue over the next few quarters , we expect demand to increase as our customers make investments in emerging technologies related to 5g/mmwave and vehicle electrification . we also expect recent additions and enhancements to our software offerings will fuel long-term revenue growth across our various end markets , particularly at our largest customers . we also remain confident in the strength of our operating model . over the past several years , we had taken steps to improve efficiencies and rebalance our resources on activities that we believe will generate a higher return . these steps involved , among other things , reduction in our overall employee headcount and optimization of our organizational structure . we believe these pre-pandemic efforts have enhanced our financial and structural position to navigate the current challenges of the covid-19 pandemic . additionally , we are currently focusing on proactively managing expenses intended to help us maintain strength in our balance sheet and improve our financial position . during the three months ended december 31 , 2020 , we began implementing additional measures that will reduce our headcount by approximately 9 % , the remaining 6 % of which we expect to occur over the next six to nine months . we expect our recent restructuring plan will reduce our operating expenses by approximately $ 40 million per year , which we expect to be offset by increases in operating expenses related to other strategic initiatives . we believe these measures will allow us to accelerate our growth strategy and achieve our long-term financial goals . we remain committed to maintaining our critical investments and capacity to run our business while continuing to innovate . furthermore , we continue to focus on scale and efficiency in serving our broad-based customers . our focus to streamline the process of doing business with ni means both reducing our costs and improving the experience of the large number of smaller accounts we serve . this includes investment in ni.com for a better digital experience and significantly expanding the usage of our distributor channel in 2021 and beyond . we believe these actions will allow our direct sales force to support proactive engagements with accounts where we can deliver enterprise-level value . 30 during the twelve months ended december 31 , 2020 , we saw continued volatility in the exchange rates between the u.s. dollar and many of the currency markets where we have exposure . as of february 12 , 2021 , the u.s. dollar index , as tracked by the st. louis federal reserve is below its 10-year average , approximately 5 % above its low value over that period . if the us dollar maintains its current trading ranges against the major currency markets where we do business , we could see a modest benefit to our us dollar equivalent sales during 2021. we can not predict to what degree foreign currency markets will fluctuate in the future . see results of operations - net sales below for additional discussion on the impact of foreign exchange rates on our net sales and note 5 - derivative instruments and hedging activities of notes to consolidated financial statements for a further description of our derivative instruments and hedging activities . acquisitions and divestitures on january 15 , 2020 , we completed the sale of awr corporation ( `` awr '' ) for approximately $ 161 million . we recognized a gain of approximately $ 160 million on the sale . the gain is included within `` gain on sale of business/assets '' in the consolidated statements of income , which also included approximately $ 1 million of transaction costs . ( see note 1 - basis of presentation of notes to consolidated financial statements for additional details concerning the divestiture of the awr business . ) story_separator_special_tag on july 2 , 2020 , we completed our acquisition of optimalplus . total proceeds used to acquire the business and replace certain unvested share options consisted of approximately $ 365 million in cash , inclusive of $ 18 million in cash acquired . ( see note 1 - basis of presentation and note 18 - acquisitions of notes to consolidated financial statements for additional details concerning this acquisition . ) story_separator_special_tag roman ' , sans-serif ; font-size:4pt ; font-weight:400 ; line-height:120 % '' > figures may not sum due to rounding . replace_table_token_7_th figures may not sum due to rounding . to help protect against changes in the u.s. dollar equivalent value caused by fluctuations in foreign currency exchange rates of forecasted foreign currency cash flows resulting from international sales , we hedge portions of our forecasted revenue denominated in foreign currencies with average rate forward contracts . ( see note 5 - derivative instruments and hedging activities of notes to consolidated financial statements for further discussion regarding our cash flow hedging program and its related impact on our consolidated sales for 2020 and 2019 ) . gross profit . the following table sets forth our gross profit and gross profit as a percentage of net sales for the years ended december 31 , 2020 , 2019 , and 2018 along with the percentage changes in gross profit for the corresponding periods . we continue to focus on cost control and cost reduction measures throughout our manufacturing cycle . replace_table_token_8_th 33 the decreases in our gross profit and gross profit as a percentage of net sales were primarily related to the following : twelve months ended december 31 , 2019 75.1 % impact of acquisition-related intangible amortization , fair value adjustments and sales mix related to the optimalplus acquisition ( 0.8 ) % changes in sales mix related to recently divested awr business ( included in comparative period ) ( 0.6 ) % changes in sales mix related to service cost reallocation ( 0.8 ) % impact of restructuring related costs ( 0.1 ) % increase in outbound freight and other logistics costs due to covid-19 pandemic ( 0.4 ) % changes in foreign currency exchange rates ( 0.1 ) % other changes in sales mix , product material variances and reserves ( 1.1 ) % december 31 , 2020 71.2 % during the years ended december 31 , 2020 and 2019 , the change in exchange rates had the effect of decreasing our cost of sales by $ 2.1 million and $ 3.3 million , respectively . to help protect against changes in our cost of sales caused by a fluctuation in foreign currency exchange rates of forecasted foreign currency cash flows , we hedge portions of our forecasted costs of sales denominated in foreign currencies with average rate forward contracts . during the years ended december 31 , 2020 and 2019 , these hedges had the effect of increasing our cost of sales by $ 2.2 million and $ 0.5 million , respectively . ( see note 5 - derivative instruments and hedging activities of notes to consolidated financial statements for further discussion regarding our cash flow hedging program and its related impacted on our results of operations ) . operating expenses . the following table sets forth our operating expenses for the years ended december 31 , 2020 , 2019 , and 2018 along with the percentage changes between the corresponding periods and the line item as a percentage of total net sales . replace_table_token_9_th the $ 7 million increase in our total operating expenses , excluding the gain on sale of business/assets , during 2020 compared to 2019 was primarily related to the following : $ 24 million increase in severance and other restructuring-related charges . $ 15 million increase in non-acquisition personnel costs , primarily attributable to higher salaries and accrued payments under our variable pay programs , as well as additional stock-based compensation expense ( due to comparatively higher stock prices on the grant date of unvested rsu awards and a shorter average service period for our awards ) , which was partially offset by reductions in benefit costs due to lower headcount ; $ 13 million increase attributable to acquisition-related transaction and integration costs , compensation expense related to unvested options acquired and replaced with cash-settled awards that will be recognized as post-combination expense over the remaining service period , amortization of acquisition-related intangibles , and higher operating costs related to our recently acquired optimalplus business , which were partially offset by a reduction in operating costs related to the divestment of our awr business ; 34 $ 5 million increase related to lower software development costs eligible for capitalization ; $ ( 29 ) million related to decreases in travel and event related expenses related to the travel restrictions from covid-19 , partially offset by additional advertising-related costs associated with our 2020 rebranding initiative ; $ ( 11 ) million decrease attributable to the strategic reallocation of resources related to the delivery of certain services offerings . the cost related to these activities are now classified as “ cost of sales ” whereas historically they were presented as “ sales and marketing ” expenses , as further discussed above under “ gross profit ” ; $ ( 7 ) million decrease related to a charitable contribution made during 2019 ; and $ ( 3 ) million decrease related to the effect of changes in foreign currency exchange rates . the increase in research and development costs during 2020 was primarily related to a $ 5 million increase in software development costs expensed , that did not qualify for capitalization and an increase in stock-based compensation expense . in the second quarter of 2018 , we began moving toward agile methodologies of software development , which are characterized by a more dynamic development process with more frequent and iterative revisions to a product 's features and functions .
| in 2019 , product and software maintenance sales decreased compared to 2018. the decrease in product and software maintenance sales during the period was primarily attributable to unfavorable changes in exchange rates and general weakness in the industrial economy throughout most of 2019 , particularly in the emea region , which was partially offset by strength in the apac region . orders with a value greater than $ 20,000 increased by 3 % year over year during 2020 compared to a year over year increase of 4 % in 2019 , driven by increased demand for the system-level offerings described above . orders with a value less than $ 20,000 decreased by 11 % year over year during 2020 compared to a year over year decrease of 6 % in 2019. orders with a value greater than $ 20,000 were 64 % , 60 % , and 58 % of our total orders for the years ended december 31 , 2020 , 2019 , and 2018 , respectively . the following table sets forth our net sales by geographic region for the years ended december 31 , 2020 , 2019 , and 2018 along with the changes between the corresponding periods and the region 's percentage of total net sales . replace_table_token_5_th 32 we expect sales outside of the americas to continue to represent a significant portion of our revenue . we intend to continue to expand our international operations by increasing our presence in existing markets , adding a presence in some new geographical markets and expanding the use of distributors to sell our products in some countries . almost all of the sales made by our direct sales offices in the americas ( excluding the u.s. ) , emea , and apac are denominated in local currencies , and accordingly , the u.s. dollar equivalent of these sales is affected by changes in foreign currency exchange rates . in order to provide a framework for assessing how our underlying business performed excluding the effects of foreign currency fluctuations between periods , we compare the percentage change in
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our artist nation segment is focused on serving its existing artists as well as developing new relationships with top artists and extending the various services it provides . our sponsorship & advertising segment revenue increased by 5 % as compared to last year driven by growth in online sales in north america as well as new sponsorship deals . overall , operating income is up due to increased revenue as well as improved margins on our sponsorships compared to last year when we had several clients with higher activation program costs . our extensive on-site and online reach , global venue distribution network , artist relationships and ticketing operations are the key to securing long-term sponsorship agreements with major brands and we plan to expand these assets while extending our sales reach further into new markets internationally . we continue to be optimistic about the long-term potential of our company and are focused on the key elements of our business model : expand our concert platform , drive conversion of ticket sales through development of innovative products , grow sponsorship and advertising , sell more tickets and drive reductions in the cost to sell a ticket , grow secondary ticket volume and drive artist management through our other core businesses . segment overview our reportable segments are concerts , ticketing , artist nation and sponsorship & advertising . concerts our concerts segment principally involves the global promotion of live music events in our owned or operated venues and in rented third-party venues , the operation and management of music venues and the production of music festivals across the world . while our concerts segment operates year-round , we experience higher revenue during the second and third quarters due to the seasonal nature of shows at our outdoor amphitheaters and festivals , which primarily occur from may through september . revenue and related costs for events are generally deferred and recognized when the event occurs . all advertising costs incurred during the year for shows in future years are expensed at the end of the year . to judge the health of our concerts segment , we primarily monitor the number of confirmed events in our network of owned or operated and third-party venues , talent fees , average paid attendance and advance ticket sales . in addition , at our 28 owned or operated venues , we monitor attendance , ancillary revenue per fan and premium ticket sales . for business that is conducted in foreign markets , we also compare the operating results from our foreign operations to prior periods on a constant currency basis . ticketing the ticketing segment is primarily an agency business that sells tickets for events on behalf of our clients and retains a convenience charge and order processing fee for these services . we sell tickets through websites , mobile apps , ticket outlets and telephone call centers . our ticketing sales are impacted by fluctuations in the availability of events for sale to the public , which may vary depending upon scheduling by our clients . we also offer ticket resale services , or secondary ticketing , primarily through our integrated inventory platform , referred to as tm+ . our ticketing segment also manages our online activities including enhancements to our websites and bundling product offerings . through our websites , we sell tickets to our own events as well as tickets for our ticketing clients and provide event information . revenue related to ticketing service charges is recognized when the ticket is sold except for our own events where we control ticketing and then the revenue is deferred and recognized as the event occurs . to judge the health of our ticketing segment , we primarily review the gross transaction value and the number of tickets sold through our ticketing operations , average convenience charges and order processing fees , the number of clients renewed or added and the average royalty rate paid to clients who use our ticketing services . in addition , we review the number of visits to our websites , the overall number of customers in our database , the number of tickets sold via mobile apps and the gross transaction value and fees related to secondary ticket sales . for business that is conducted in foreign markets , we also compare the operating results from our foreign operations to prior periods on a constant currency basis . artist nation the artist nation segment primarily provides management services to music artists in exchange for a commission on the earnings of these artists . our artist nation segment also creates and sells merchandise for music artists at live performances , to retailers and directly to consumers via the internet . revenue earned from our artist nation segment is impacted to a large degree by the touring schedules of the artists we represent and generally , we experience higher revenue during the second and third quarters as the period from may through september tends to be a popular time for touring events . to judge the health of our artist nation segment , we primarily review the annual commissions earned for each artist represented and the percentage of top artists on tour or with planned album releases , as these activities tend to drive higher revenue . for business that is conducted in foreign markets , we also compare the operating results from our foreign operations to prior periods on a constant currency basis . sponsorship & advertising our sponsorship & advertising segment employs a sales force that creates and maintains relationships with sponsors , through a combination of strategic , international , national and local opportunities that allow businesses to reach customers through our concert , venue , artist relationship and ticketing assets , including advertising on our websites . we drive increased advertising scale to further monetize our concert platform through rich media offerings including live streaming and music-related original content . story_separator_special_tag we work with our corporate clients to help create marketing programs that drive their business goals and connect their brands directly with fans and artists . we also develop , book and produce custom events or programs for our clients ' specific brands which are typically experienced exclusively by the clients ' consumers . these custom events can involve live music events with talent and media , using both online and traditional outlets . we typically experience higher revenue in the second and third quarters , as a large portion of sponsorships are typically associated with our outdoor venues and festivals which are primarily used in or occur from may through september . to judge the health of our sponsorship & advertising segment , we primarily review the average revenue per sponsor , the total revenue generated through sponsorship arrangements , the percentage of expected revenue under contract and the online revenue received from sponsors advertising on our websites . for business that is conducted in foreign markets , we also compare the operating results from our foreign operations to prior periods on a constant currency basis . 29 story_separator_special_tag 117.0 million and $ 17.9 million were recorded in conjunction with our annual impairment tests related to the international concerts reporting unit in the concerts segment and the artist services ( non-management ) reporting unit in the artist nation segment , respectively . see “ —critical accounting policies and estimates —goodwill ” for further discussion of the factors impacting this impairment . gain on disposal of operating assets gain on disposal of operating assets for the year ended december 31 , 2014 was $ 4.5 million consisting primarily of a gain recognized in our concerts segment in connection with the final insurance recovery received for storm damage to an amphitheater in new york during hurricane sandy in 2012. gain on disposal of operating assets for the year ended december 31 , 2013 was $ 38.3 million consisting primarily of a $ 24.8 million gain recognized in our concerts segment from the may 2013 sale of a theater in new york . in addition , we recognized a gain in our concerts segment of $ 14.1 million in connection with insurance recoveries for storm damage sustained to an amphitheater as discussed above . corporate expenses corporate expenses increased $ 6.6 million , or 7 % , during the year ended december 31 , 2014 as compared to the prior year primarily due to higher compensation-related costs driven by higher headcount and annual salary increases . corporate expenses decreased $ 19.0 million , or 17 % , during the year ended december 31 , 2013 as compared to the prior year primarily from a reduction in stock-based compensation and expense related to payments on the trust note due to the resignation of an executive on december 31 , 2012. acquisition transaction expenses acquisition transaction expenses were $ 10.1 million , $ 6.4 million and $ 3.4 million during the years ended december 31 , 2014 , 2013 and 2012 , respectively . all years include current-year acquisition costs that vary based on the size and number of acquisitions in the year and ongoing litigation costs relating to our merger with ticketmaster . interest expense interest expense decreased $ 5.3 million , or 5 % , during the year ended december 31 , 2014 as compared to the prior year primarily due to the interest cost reduction realized from the august 2013 redemption of the 8.125 % senior notes and the september 2014 redemption of the 2.875 % convertible senior notes partially offset by additional interest cost from the 7 % senior notes issued in august 2013 and the 5.375 % senior notes and the 2.5 % convertible senior notes issued in may 2014. interest expense decreased $ 12.1 million , or 10 % , for the year ended december 31 , 2013 as compared to the prior year primarily due to the interest cost reduction realized from the august 2012 redemption of the 10.75 % senior notes and the august 2013 redemption of the 8.125 % senior notes , partially offset by the additional interest cost from the 7 % senior notes issued in august 2012 and 2013. our debt balances and weighted-average cost of debt , excluding unamortized debt discounts of $ 33.0 million and including debt premium of $ 7.3 million , were $ 2.1 billion and 4.3 % , respectively , as of december 31 , 2014 . loss ( gain ) on extinguishment of debt we recorded a loss on extinguishment of debt of $ 36.3 million for the year ended december 31 , 2013 in connection with the refinancing of the term loans under our senior secured credit facility and the redemption of our 8.125 % senior notes in august 2013. these obligations were paid with proceeds from incremental term loans under our amended senior secured credit facility and the issuance of additional 7 % senior notes . equity in earnings of nonconsolidated affiliates equity in earnings of nonconsolidated affiliates increased $ 3.3 million during the year ended december 31 , 2014 as compared to the prior year primarily due to impairment charges of $ 9.2 million recorded in 2013 related to investments in a concert promoter located in europe and an ecommerce business , partially offset by lower earnings in 2014 on certain investments in the concerts and ticketing segments . equity in earnings of nonconsolidated affiliates decreased $ 9.1 million during the year ended december 31 , 2013 as compared to the prior year primarily due to impairment charges of $ 9.2 million recorded in 2013 as discussed above . other expense , net other expense , net includes the impact of changes in foreign exchange rates of $ 28.9 million and $ 2.8 million in net losses for the years ended december 31 , 2014 and 2013 , respectively , and a net gain of $ 1.4 million for the year ended 33 december 31 , 2012 .
| the overall increase in revenue was primarily due to an increase in our concerts segment of $ 646.8 million . excluding the decrease of approximately $ 3.9 million related to the impact of changes in foreign exchange rates , revenue increased $ 663.4 million , or 11 % . more detailed explanations of these changes along with the impact of changes in foreign exchange rates , if significant , are included in the applicable segment discussions below . direct operating expenses our direct operating expenses increased $ 239.5 million , or 5 % , during the year ended december 31 , 2014 as compared to the prior year . the overall increase in direct operating expenses was primarily due to increases in our concerts and ticketing segments of $ 186.5 million and $ 91.1 million , respectively . excluding the increase of approximately $ 5.3 million related to the impact of changes in foreign exchange rates , direct operating expenses increased $ 234.2 million , or 5 % . our direct operating expenses increased $ 529.2 million , or 13 % during the year ended december 31 , 2013 as compared to the prior year . the overall increase in direct operating expenses was primarily due to an increase in our concerts segment of $ 555.0 million . excluding the decrease of approximately $ 3.2 million related to the impact of changes in foreign exchange rates , direct operating expenses increased $ 532.4 million , or 13 % . direct operating expenses include artist fees , event production costs , ticketing client royalties , show-related marketing and advertising expenses , along with other costs . more detailed explanations of these changes along with the impact of changes in foreign exchange rates , if significant , are included in the applicable segment discussions below . selling , general and administrative expenses our selling , general and administrative expenses increased $ 103.3 million , or 8 % , during the year ended december 31 , 2014 as compared to the prior year . the overall increase in
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for a further discussion about the company 's critical accounting policies , please see note 1 to the consolidated financial statements of the company included in item 8 of this annual report on form 10-k. liquidity and capital resources at october 31 , 2015 , the company had unrestricted cash and cash equivalents of $ 6.6 million compared to $ 73.0 million at october 31 , 2014. the company 's sources of liquidity and capital resources include its cash and cash equivalents , proceeds from bank borrowings and long-term mortgage debt , capital financings and sales of real estate investments . payments of expenses related to real estate operations , debt service , management and professional fees , and dividend requirements place demands on the company 's short-term liquidity . in october 2014 , the company completed the sale of 2.8 million shares of series g - 6.75 % preferred stock that raised net proceeds of $ 67.8 million . in november 2014 , the company completed the sale of an additional 200,000 shares of the series g preferred stock that raised an additional $ 4.8 million of net proceeds and the sale of 2,875,000 shares of class a common stock that raised proceeds of $ 59.9 million . the company used the proceeds from these stock sales in connection with the following : on november 21 , 2014 , $ 61.25 million was used to repurchase all of the company 's outstanding series d preferred stock . on december 10 , 2014 , $ 61.9 million was used to fund a portion of the $ 124.6 million purchase of four retail properties located in three counties in northern new jersey . in november and december 2014 and march 2015 the company repaid a net $ 9.35 million on its unsecured revolving credit facility ( the `` facility '' ) . the company maintains a conservative capital structure with low leverage levels by commercial real estate standards . the company maintains a ratio of total debt to total assets below 34 % and a very strong fixed charge coverage ratio of over 2.75 to 1 , which we believe will allow the company to obtain additional secured mortgage borrowings if necessary . the company does not have any fixed rate debt coming due until august 2016 and has forty-five properties in its consolidated portfolio that are not encumbered by secured mortgage debt . at october 31 , 2015 , the company had loan availability of $ 56.2 million on its unsecured revolving line of credit . in july 2015 , one of the company 's largest tenants , a & p filed a voluntary petition under chapter 11 of title 11 of the united states code ( the `` bankruptcy code '' ) . as of november 2015 , four of the nine a & p leases in our portfolio have been purchased by acme , a division of albertson 's and one of the leases has been purchased by key food . as a result , there will be no negative effect on the company for those leases . the company has purchased and terminated the leases within its valley ridge and bloomfield shopping centers from a & p and now has control of those spaces , which it expects to re-lease in due course . the company purchased these two leases believing the base rental rate on the leases was below market , which would allow for the company to increase its cash flow if the spaces could be re-leased to new tenants at prevailing market rates . the remaining two spaces ( pompton and boonton ) may still be sold by a & p to a new operator during the bankruptcy process . alternatively , the leases could be rejected in bankruptcy , in which event the company would have to re-lease those spaces . the company believes that it will be able to re-lease the two spaces it purchased from a & p and potentially the pompton and boonton spaces ( if necessary ) but can not predict when such re-leasing will occur . the table below details information about the nine leases in company 's portfolio affected by the a & p bankruptcy . replace_table_token_9_th * subject to further tenant renewals * * company has amended the lease with tenant to increase the base rent per square foot from $ 3.71 to $ 10.00 per square foot through 10/31/19 and to provide a new tenant option though 10/31/24 at a base rent per square foot of $ 25.00. cash flows the company expects to meet its short-term liquidity requirements primarily by generating net cash from the operations of its properties . the company believes that its net cash provided by operations will be sufficient to fund its short-term liquidity requirements for fiscal 2016 and to meet its dividend requirements necessary to maintain its reit status . in fiscal 2015 , 2014 and 2013 , net cash flow provided by operations amounted to $ 51.1 million , $ 50.9 million and $ 51.0 million , respectively . cash dividends paid on common and preferred shares equaled $ 50.0 million in fiscal 2015 compared to $ 45.9 million in fiscal 2014 and $ 46.6 million in fiscal 2013. the company expects to continue paying regular dividends to its stockholders . these dividends will be paid from operating cash flows which are expected to increase due to property acquisitions and growth in operating income in the existing portfolio and from other sources . the company derives substantially all of its revenues from rents under existing leases at its properties . the company 's operating cash flow therefore depends on the rents that it is able to charge to its tenants , and the ability of its tenants to make rental payments . the company believes that the nature of the properties in which it typically invests , primarily grocery-anchored neighborhood and community shopping centers , provides a more stable revenue flow in uncertain economic times , in that consumers still need to purchase basic staples and convenience items . story_separator_special_tag however , even in the geographic areas in which the company owns properties , general economic downturns may adversely impact the ability of the company 's tenants to make lease payments , the company 's ability to re-lease space as leases expire , and the ability of the company to re-lease space at rents equal to or greater than expiring rents . in any of these cases , the company 's cash flow could be adversely affected . over the last several years , the entire retail commercial real estate industry has seen increased competition from internet commerce , which has made it more difficult for certain types of `` brick and mortar '' businesses to compete , the result of which has been a reduction in the tenant pool for retail commercial real estate owners like us . if internet commerce continues to erode the need for traditional retail stores it could make it more difficult for the company to lease available space and the company 's future cash flow could be adversely affected . 19 net cash flows from : operating activities net cash flows provided by operating activities amounted to $ 51.1 million in fiscal 2015 , compared to $ 50.9 million in fiscal 2014 , and $ 51.0 million in fiscal 2013. the changes in operating cash flows were primarily the result of : decrease from fiscal 2014 to fiscal 2015 : the decrease was due primarily to an increase in other assets and other liabilities offset by an increase in the operating income generated by the company 's properties in the year ended october 31 , 2015 versus fiscal 2014. decrease from fiscal 2013 to fiscal 2014 : this decrease was predominantly caused by a decrease in accounts receivable collected and an increase in restricted cash related to new escrow accounts associated with mortgages assumed with new property acquisitions in fiscal 2014 offset by the addition of the net operating results of the company 's acquired properties in fiscal 2013 and fiscal 2014. investing activities net cash flows used in investing activities was $ 105.0 million in fiscal 2015 , $ 54.6 million in fiscal 2014 and $ 49.6 million in fiscal 2013. the change in investing cash flows was primarily the result of : increase in cash used from fiscal 2014 to fiscal 2015 : the increase in cash flows used in investing activities in fiscal 2015 when compared to the prior fiscal year was the result of the company purchasing six properties totaling $ 136.3 million in fiscal 2015 versus purchasing 8 properties in fiscal 2014 requiring $ 81.7 million . increase in cash used from fiscal 2013 to fiscal 2014 : the company acquired 8 properties in fiscal 2014 requiring $ 81.7 million in equity versus acquiring 11 properties in fiscal 2013 requiring $ 58.4 million in equity . the company also re-tenanted two shopping centers and as a result , the company expended $ 19.3 million on improvements to its properties in fiscal 2014 versus only $ 9.5 million in fiscal 2013. in addition , the company had loaned $ 13 million to one of its unconsolidated joint ventures in a prior year , which loan was repaid in fiscal 2013. this increase in cash used by investing activities was partially offset by proceeds in the amount of $ 47.8 million from the sale of three of the company 's properties in fiscal 2014. the company regularly makes capital investments in its properties for property improvements , tenant improvements costs and leasing commissions . financing activities net cash flows used by financing activities amounted to $ 12.5 million in fiscal 2015 compared with net cash provided by financing activities in fiscal 2014 of $ 73.8 and net cash used by financing activities in the amount of $ 76.5 million in fiscal 2013. the change in net cash provided ( used ) by financing activities was primarily attributable to : cash generated : fiscal 2015 : ( total $ 237.6 million ) proceeds from mortgage financing in the amount of $ 68.2 million . proceeds from revolving credit line borrowings in the amount of $ 104.8 million . proceeds from the insurance of series g preferred stock in the amount of $ 4.6 million . proceeds from the insurance of class a common stock in the amount of $ 59.8 million . fiscal 2014 : ( total $ 198.8 million ) proceeds from revolving credit line borrowings of $ 65.1 million . proceeds from unsecured term loan borrowing of $ 25 million . proceeds from mortgage financings of $ 40.7 million . proceeds from issuance of series g preferred stock of $ 67.8 million . fiscal 2013 : ( total $ 39.9 million ) proceeds from revolving credit line borrowings of $ 38.4 million . return of escrow deposit of $ 1.3 million . cash used : fiscal 2015 : ( total $ 250.1 million ) dividends to shareholders in the amount of $ 50.0 million . repayment of mortgage notes payable in the amount of $ 12.9 million . repayment of revolving credit line borrowings in the amount of $ 97.6 million . repayment of the unsecured term loan in the amount of $ 25 million . redemption of preferred stock in the amount of $ 61.3 million . repurchase of class a common stock in the amount of $ 3.4 million . fiscal 2014 : ( total $ 125.0 million ) dividends to shareholders in the amount of $ 45.9 million . repayments of mortgage notes payable in the amount of $ 20.3 million . repayments of revolving credit line borrowings in the amount of $ 58.8 million . fiscal 2013 : ( total $ 116.3 million ) dividends to shareholders in the amount of $ 46.6 million . repayment of mortgage notes payable in the amount of $ 6.6 million . repayment of revolving credit line borrowings in the amount of $ 40.7 million . repurchase of shares of the company 's series c senior cumulative preferred stock in the amount of $ 22.4 million .
| in fiscal 2014 , we increased the lease rate at the meriden property by 25 % and those new leases began to generate cash flow at various points throughout fiscal 2014. the new leases at meriden provided an additional $ 440,000 in base rental revenue in fiscal 2014. in fiscal 2014 , the company leased or renewed approximately 552,000 square feet ( or approximately 14.6 % of total consolidated property leasable area ) at a combined average per square foot increase of 0.48 % . at october 31 , 2014 , the company 's properties were approximately 94.8 % leased , an increase of 1.54 % from the end of fiscal 2013. the above percentages exclude the company 's westchester pavilion property . in november , 2014 , the company obtained a zoning change from the city of white plains that will allow this property to be converted to a higher and better use . on this basis , the company is maintaining vacancies to make potential redevelopment possible . for the fiscal year ended october 31 , 2014 , recoveries from tenants for properties owned in both periods ( which represent reimbursements from tenants for operating expenses and property taxes ) increased by a net $ 419,000. this net increase was a result of higher operating expenses at its properties held in both periods due predominantly to an increase in expenses relating to snow removal ; this increase was partially offset by a decrease in parking lot and building repairs . interest , dividends and other investment income decreased in the fiscal year ended october 31 , 2014 when compared to the corresponding period in the prior year by $ 1.2 million , predominantly as a result of the company investing approximately $ 27 million of the proceeds from its two equity offerings completed in october 2012 in income producing securities for the first six months of fiscal 2013. these securities were sold in may 2013 and the proceeds were invested into investment properties . expenses property operating expenses for properties held in both fiscal year 2014 and 2013 increased by $ 195,000 as a result of an increase in expenses relating to snow removal . this increase was partially offset by a decrease in parking lot and building repairs .
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in addition to historical information , this discussion and analysis contains forward-looking statements within the meaning of section 27a of the securities act , and section 21e of the exchange act . operating results are not necessarily indicative of results that may occur for the full fiscal year or any other future period . the term `` synta '' refers to synta pharmaceuticals corp. prior to the consummation of the merger described herein . unless otherwise indicated , references to the terms `` madrigal , '' the `` company , '' `` we , '' `` our '' and `` us '' refer to private madrigal prior to the consummation of the merger described herein and madrigal pharmaceuticals , inc. ( formerly known as synta pharmaceuticals corp. ) upon the consummation of the merger described herein . overview we are a clinical-stage biopharmaceutical company focused on the development and commercialization of innovative therapeutic candidates for the treatment of cardiovascular , metabolic , and liver diseases . our lead product candidate , mgl-3196 , is a proprietary , liver-directed , selective thyroid hormone receptor-ß , or thr-ß , agonist being developed as a once-daily oral pill that can potentially be used to treat a number of disease states with high unmet medical need , including non-alcoholic steatohepatitis , or nash . for nash , we enrolled 125 patients in a phase 2 clinical trial . we achieved the 12-week primary endpoint for this phase 2 clinical trial and reported the results in december 2017 , and we reported positive topline 36-week results at the conclusion of the phase 2 clinical trial in may 2018. we have an ongoing 36-week , open-label extension study in 31 participating nash patients from the phase 2 clinical trial , which includes 14 patients who received placebo in the main study . we are also developing mgl-3196 for dyslipidemia , which began with a study of a genetic dyslipidemia known as heterozygous familial hypercholesterolemia , or hefh . we enrolled 116 patients and completed a phase 2 clinical trial in hefh patients , and we reported the results in february 2018. in addition to the nash and hefh phase 2 clinical trials , mgl-3196 has also been studied in seven completed phase 1 trials in a total of 198 subjects . mgl-3196 appeared to be safe and was well-tolerated in these trials , which included a single ascending dose trial , a multiple ascending dose trial , two drug interaction trials with statins , a multiple dose mass balance study , a single dose relative bioavailability study of tablet formulations versus capsule formulation , and a multiple dose drug interaction and food effect study . key developments clinical trials in october 2016 , we initiated a phase 2 clinical trial in nash ( [ nct02912260 ] at www.clinicaltrials.gov ) . the randomized , double-blind , placebo-controlled , multi-center phase 2 study enrolled 125 patients 18 years of age and older with biopsy-confirmed nash . patients were randomized to receive either placebo or mgl-3196 , twice as many receiving mgl-3196 as placebo . efficacy was confirmed at the end of the trial ( 36 weeks ) by repeat magnetic resonance imagingproton density fat fraction , or mri-pdff , and conventional liver biopsy to examine histological evidence for the resolution of nash . recent published data show a high correlation of reduction of liver fat measured by mri-pdff to nash scoring on liver biopsy . other secondary endpoints included changes in clinically relevant biomarkers at 12 and 36 weeks , improvement in fibrosis by at least one stage with no worsening of steatohepatitis , and safety and tolerability . we reached our top-line analysis of the primary endpoint in december 2017 , and we reached our top-line analysis of 53 multiple 36-week endpoints , including key secondary endpoints , reduction and resolution of nash on liver biopsy , in may 2018. in february 2017 , we initiated a phase 2 clinical trial in hefh ( [ nct03038022 ] at www.clinicaltrials.gov ) . the 12-week , randomized , double-blind , placebo-controlled , multi-center phase 2 clinical trial enrolled 116 patients with hefh in several european countries . patients were randomized in a 2:1 ratio to receive either mgl-3196 or placebo , in addition to their current drug regimen ( including high dose statins and or ezetimibe ) . the primary endpoint of the study was reduction of ldl cholesterol , with secondary endpoints including reductions in tgs , lp ( a ) , and apob , as well as safety . lp ( a ) is a severely atherogenic lipid particle , commonly elevated in familial hypercholesterolemia patients , the levels of which are not adequately reduced by existing lipid lowering therapies . thr- b agonism is one of the few therapeutic approaches that can substantially lower lp ( a ) . in february 2018 , we announced positive results from the 12 week phase 2 clinical trial in hefh . reverse merger on july 22 , 2016 , synta completed its business combination with private madrigal in accordance with the terms of an agreement and plan of merger and reorganization , dated as of april 13 , 2016 , or the merger agreement . pursuant to the merger agreement , synta formed a wholly-owned subsidiary that merged with and into private madrigal , with private madrigal surviving the merger and becoming a wholly-owned subsidiary of synta , or the merger . story_separator_special_tag in connection with , and prior to the consummation of , the merger , synta effected a 1-for-35 reverse stock split of its common stock , or the reverse stock split , and , following the merger , changed its name to `` madrigal pharmaceuticals , inc. '' all shares and per share amounts have been retrospectively adjusted to give effect to the reverse stock split , except as otherwise disclosed . following the consummation of the merger , our business became the business conducted by private madrigal prior to the consummation of the merger . basis of presentation research and development expenses research and development expenses primarily consist of costs associated with our research activities , including the preclinical and clinical development of our product candidates . we expense our research and development expenses as incurred . we contract with clinical research organizations to manage our clinical trials under agreed upon budgets for each study , with oversight by our clinical program managers . we account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received . manufacturing expense includes costs associated with drug formulation development and clinical drug production . we do not track employee and facility related research and development costs by project , as we typically use our employee and infrastructure resources across multiple research and development programs . we believe that the allocation of such costs would be arbitrary and not be meaningful . our research and development expenses consist primarily of : salaries and related expense , including stock-based compensation ; external expenses paid to clinical trial sites , contract research organizations , laboratories , database software and consultants that conduct clinical trials ; expenses related to development and the production of nonclinical and clinical trial supplies , including fees paid to contract manufacturers ; expenses related to preclinical studies ; expenses related to compliance with drug development regulatory requirements ; and other allocated expenses , which include direct and allocated expenses for depreciation of equipment and other supplies . 54 we expect to continue to incur substantial expenses related to our development activities for the foreseeable future as we conduct our clinical studies programs , manufacturing and toxicology studies . 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 , additional drug manufacturing requirements , and later stage toxicology studies such as carcinogenicity studies . our research and development expenses have increased year over year in each of 2016 , 2017 , and 2018 and we expect that our research and development expenses will increase substantially in the future . the process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming . the probability of success for each product candidate is affected by numerous factors , including preclinical data , clinical data , competition , manufacturing capability and commercial viability . accordingly , we may never succeed in achieving marketing approval for any of our product candidates completion dates and costs for our clinical development programs as well as our research program can vary significantly for each current and future product candidate and are difficult to predict . as a result , we can not estimate with any degree of certainty the costs we will incur in connection with the development of our product candidates at this point in time . we expect that we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of early research programs , results of ongoing and future clinical trials , our ability to enter into collaborative agreements with respect to programs or potential product candidates , as well as ongoing assessments as to each current or future product candidate 's commercial potential . general and administrative expenses general and administrative expenses consist primarily of salaries , benefits and stock-based compensation expenses for employees , management costs , costs associated with obtaining and maintaining our patent portfolio , professional fees for accounting , auditing , consulting and legal services , and allocated overhead expenses . we expect that our general and administrative expenses may increase in the future as we expand our operating activities , maintain and expand our patent portfolio and incur additional costs associated with being a public company and maintaining compliance with exchange listing and sec requirements . we expect these potential increases will likely include management costs , legal fees , accounting fees , directors ' and officers ' liability insurance premiums and expenses associated with investor relations . critical accounting policies 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 gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued research and development expenses .
| interest expense ( income ) our interest income was $ 7.7 million for the year ended december 31 , 2018 compared to $ 0.6 million of interest expense for the year ended december 31 , 2017. the increase in interest income was due primarily to a higher average principal balance in our investment account in 2018 and increased interest rates . comparison of the years ended december 31 , 2017 and 2016 revenue we did not generate any revenue during the years ended december 31 , 2017 and 2016 , respectively . operating expenses the following table provides comparative results of our operating expenses for the years ended december 31 , 2017 and 2016 ( in thousands ) : replace_table_token_5_th research and development expense our research and development expenses were $ 24.4 million for the year ended december 31 , 2017 compared to $ 15.9 million for the year ended december 31 , 2016. research and development expenses increased by $ 8.5 million in the 2017 period due primarily to the expenses incurred to conduct and support the two phase 2 studies for mgl-3196 , which commenced in the fourth quarter of 2016 and the first quarter of 2017 , respectively . our increased research and development expenses include an $ 8.5 million increase in contract research organization costs directly associated with the two phase 2 studies . these increases were partially offset by lower stock based compensation expense in 2017 , due to the expense incurred in 2016 from the change in control bonus plan resulting from the merger . we expect our research and development expenses to increase over time as we advance our clinical and preclinical development . 57 general and administrative expense our general and administrative expenses were $ 7.7 million for the year ended december 31 , 2017 compared to $ 9.3 million for the year ended december 31 , 2016. general and administrative expenses decreased by $ 1.6 million in the 2017 period due primarily to expenses incurred in 2016 from the merger , including $ 0.6
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- 33 - given the historical volatility of crude oil prices , there remains a degree of risk that prices could remain at their current levels or deteriorate due to relatively high levels of global inventories , the potential for domestic crude oil production to increase , slowing growth rates in various global regions , and or the potential for ongoing supply/demand imbalances . conversely , if the global supply of crude oil were to decrease due to a prolonged reduction in capital investment by our customers ( which is occurring ) or government instability in a major oil-producing nation , and energy demand were to continue to increase in the united states , india and china 's outlook for growth improves , a further recovery in wti and brent crude oil prices could occur . the international energy agency ( “ iea ” ) calls for supply and demand to reach equilibrium by mid-2017 . in any event , crude oil price improvements will depend upon a rebalancing of global supply and demand , with a corresponding reduction in global inventories , the timing of which is difficult to predict . if commodity prices do not continue to improve , or decline , demand for our products and services could continue to be weak or could decline further . prices for natural gas in the united states averaged $ 2.52 per mmbtu in 2016 , which compares to $ 2.62 per mmbtu in 2015 and $ 4.37 per mmbtu in 2014. the 2016 average price of $ 2.52 per mmbtu was the lowest annual average since 1999 – driven by a mild winter which caused inventory storage levels to rise to historic highs in the first quarter of 2016. natural gas prices improved over the course of 2016 from an average of $ 1.99 per mmbtu in the first quarter to an average of $ 3.04 per mmbtu during the fourth quarter as a result of declining production , increased demand for natural gas to fuel electricity generation and colder temperatures in the northern united states . natural gas surpassed coal during 2014 as the largest energy source for generating electricity . reflecting the impact of decreased production and higher demand for natural gas , inventories in the united states were 1 % below the 5-year average at the end of 2016 , which compares to 14 % above the 5-year average at the end of 2015. customer spending in the natural gas shale plays has been limited due to associated natural gas being produced from unconventional oil wells in north america and the commissioning of a number of new , large lng export facilities around the world . as a result of natural gas supply growth outpacing demand growth in the united states in recent years , natural gas prices continue to be weak and are expected to remain below levels considered economical for new investments in certain natural gas fields . if natural gas production growth surpasses demand growth in the united states , and or if the supply of natural gas were to increase , whether from conventional or unconventional production or associated natural gas production from oil wells , prices for natural gas could remain depressed for an extended period of time and could result in fewer rigs drilling for natural gas . recent wti crude oil , brent crude and natural gas pricing trends are as follows : replace_table_token_7_th ( 1 ) source : u.s. energy information administration ( eia ) . as of february 10 , 2017 , wti crude oil , brent crude and natural gas traded at approximately $ 53.84 per barrel , $ 55.20 per barrel and $ 3.11 per mmbtu , respectively . overview demand for the products and services of our offshore products segment is driven by the longer-term outlook for commodity prices and , to a lesser extent , changes in land-based drilling and completion activity . demand for the equipment and services of our well site services segment responds to shorter-term movements in crude oil and natural gas prices and , specifically , changes in north american drilling and completion activity given the spot contract nature of our operations coupled with shorter cycles between drilling a well and bringing it on production . other factors that can affect our business and financial results include but are not limited to the general global economic environment , competitive pricing pressures and regulatory changes in the united states and international markets . - 34 - our offshore products segment provides highly-engineered products and services for offshore oil and natural gas production systems and facilities , as well as certain products and services to the offshore and land-based drilling and completion markets . approximately 60 % of offshore products sales in 2016 were driven by our customers ' capital spending for offshore production systems and subsea pipelines , repairs and , to a lesser extent , upgrades of existing offshore drilling rigs and construction of new offshore drilling rigs and vessels . as a result , this segment is particularly influenced by global deepwater drilling and production spending , which are driven largely by our customers ' longer-term outlook for crude oil and natural gas prices . deepwater oil and gas development projects typically involve significant capital investments and multi-year development plans . such projects are generally undertaken by larger exploration , field development and production companies ( primarily international oil companies ( “ iocs ” ) and state-run national oil companies ( “ nocs ” ) ) using relatively conservative crude oil and natural gas pricing assumptions . we believe some of these deepwater projects once approved for development are , therefore , less susceptible to short-term fluctuations in the price of crude oil and natural gas given longer lead times associated with field development . story_separator_special_tag however , the decline in crude oil prices that began in 2014 and continued throughout 2015 and into 2016 , coupled with the relatively uncertain outlook around shorter-term and possibly longer-term pricing improvements have caused exploration and production companies to reevaluate their future capital expenditures in regards to these deepwater projects since they are expensive to drill and complete , have long lead times to first production and may be considered uneconomical relative to the risk involved . sales of products and services to the land-based drilling and completion markets are impacted by near-term fluctuations in commodity prices . sales of these shorter-cycle products ( such as valves and elastomer products ) and services for this segment declined significantly in 2015 and 2016 ; however , demand for our elastomer products has increased in the second half of 2016 compared to levels of demand experienced in the first half of 2016 commensurate with the increase in the u.s. land rig count . our offshore products segment revenues and operating income declined at a slower pace than our well site services segment given the high levels of backlog that existed at the beginning of 2014. bidding and quoting activity , along with orders from customers , for our offshore products segment continued during 2015 and 2016 , albeit at a much slower pace . accordingly , backlog in our offshore products segment decreased to $ 199 million at december 31 , 2016 , from $ 340 million at december 31 , 2015 and $ 490 million at december 31 , 2014 , due to project deferrals and delays in award timing resulting from the low commodity price environment . our well site services segment is primarily affected by drilling and completion activity in the united states , including the gulf of mexico , and , to a lesser extent , canada and the rest of the world . u.s. drilling and completion activity and our well site services segment results , are particularly sensitive to near-term fluctuations in commodity prices given the call-out nature of our operations in this segment and have , therefore , been significantly negatively affected by the material decline in crude oil prices and customer spending from 2014 to the second half of 2016. however , u.s. oil price improvement is rapidly translating into increased drilling and completion activity in the u.s. shale play regions . over the past several years , our industry experienced a shift in customer spending from natural gas exploration and development to crude oil and liquids-rich exploration and development in the north american shale plays utilizing horizontal drilling and completion techniques . the u.s. natural gas-related working rig count declined from approximately 810 rigs at the beginning of 2012 to 81 rigs in august of 2016 , a more than 29 year low . according to rig count data published by baker hughes incorporated , the u.s. oil rig count peaked in october 2014 at 1,609 rigs but has declined materially since late 2014 due to much lower crude oil prices . the u.s. oil rig count troughed at 316 rigs in may 2016 , which was the lowest oil rig count during this current cyclical downturn and has increased gradually to 525 rigs as of december 31 , 2016. as of december 31 , 2016 , the oil-directed drilling accounted for 80 % of the total u.s. rig count – with the balance natural gas related . although the u.s. land rig count has increased 259 rigs , or 69 % , since troughing in may of 2016 , activity continues to remain at historically low levels . unless commodity prices continue to gradually improve , we expect that the rig count and demand from our customers for services provided by our well site services segment will continue to be tempered in the near term . in our well site services segment , we predominantly provide completion services and , to a lesser extent , land drilling services . our completion services business provides equipment and service personnel utilized in the completion and initial production of new and recompleted wells . activity for the completion services business is dependent primarily upon the level and complexity of drilling , completion , and workover activity throughout north america . well complexity has increased with the continuing transition to multi-well pads and the drilling of longer lateral wells along with the increased number of frac stages completed in horizontal wells . demand for our drilling services operations is driven by land drilling activity in our primary drilling markets of the permian basin in west texas , where we primarily drill oil wells , and the u.s. rocky mountain area , where we drill both liquids-rich and natural gas wells . - 35 - demand for our land drilling and completion services businesses is correlated to changes in the drilling rig count in north america , as well as changes in the total number of wells expected to be drilled , total footage expected to be drilled , and the number of drilled wells that are completed . the table below sets forth a summary of north american rig activity , as measured by baker hughes incorporated , for the periods indicated . replace_table_token_8_th the average north american rig count in 2016 declined 529 rigs , or 45 % , from the level reported in 2015 , in response to the sustained impact of significantly lower crude oil and natural gas prices from the levels experienced in 2014. exacerbating the steep declines in drilling activity , many of our exploration and production customers had deferred well completions . these deferred completions are referred to in the industry as drilled but uncompleted wells ( or “ ducs ” ) .
| consolidated revenues decreased $ 405.5 million , or 37 % , in 2016 compared to 2015 . - 37 - our well site services segment revenues decreased $ 190.2 million , or 51 % , in 2016 compared to 2015 due to decreases in both completion services and drilling services revenues . our completion services revenues decreased $ 145.0 million , or 47 % , in 2016 compared to 2015 , primarily due to a 55 % decrease in the number of service tickets completed as a result of continued extreme competitive pressures and depressed activity levels in the u.s. shale basins . our drilling services revenues decreased $ 45.2 million , or 67 % , in 2016 compared to 2015 , primarily as a result of the significant reduction in utilization of our drilling rigs from an average of 33 % during 2015 to an average of 12 % in 2016 due primarily to the continued weak commodity price environment . our offshore products segment revenues decreased $ 215.3 million , or 30 % , in 2016 compared to 2015 primarily as a result of lower contributions across most of the segment 's product lines , driven by a decline in demand for drilling products , production-related products and service activities as well as a backlog position that has trended lower since mid-2014 . these revenue declines were partially offset by modest full-year increases in sales of subsea pipeline and shorter-cycle product revenues . shorter-cycle products , such as elastomers , have benefited from increased land-based drilling and completion activity in the second half of 2016 in the united states . backlog for the segment decreased to $ 199 million at december 31 , 2016 , from $ 340 million at december 31 , 2015 and $ 490 million at december 31 , 2014 , due to project deferrals and delays in award timing resulting from the continued depressed commodity price environment . cost of sales and service s . our consolidated cost of sales and services decreased $ 258.9 million , or 33 % , in 2016 compared to 2015 as a result of decreased
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million , or 8.1 % of total loans , at september 30 , 2011 compared to $ 36.8 million , or 10.5 % of total loans , at september 30 , 2010. in general , consumer loans , including automobile loans , home equity lines of credit , unsecured loans and loans secured by deposits , have declined due to pay-downs , payoffs , charge-offs and management 's decision to focus on other lending opportunities with less inherent credit risk . in addition , the bank sold its $ 1.2 million credit card portfolio in may 2011 , resulting in a net gain of $ 104,000 on the sale . the largest decrease in this portfolio occurred with automobile loans , which decreased $ 3.6 million , or 26.7 % , from september 30 , 2010 to september 30 , 2011. commercial business loans totaled $ 40.6 million , or 11.2 % of total loans , at september 30 , 2011 compared to $ 30.9 million , or 8.9 % of total loans , at september 30 , 2010. the balance of commercial business loans has increased primarily due to our increased commercial lending personnel and continued focus by management to pursue commercial lending opportunities . 30 multi-family real estate loans totaled $ 24.9 million , or 6.9 % of total loans at september 30 , 2011 , compared to $ 20.4 million , or 5.8 % of total loans at september 30 , 2010. the balance of multi-family real estate loans increased primarily due to our increased commercial lending personnel and our offering of competitive short-term rates on these loans during 2011. residential construction loans totaled $ 8.0 million , or 2.2 % of total loans , at september 30 , 2011 of which $ 6.3 million were speculative construction loans . at september 30 , 2010 , residential construction loans totaled $ 15.9 million , or 4.6 % of total loans , of which $ 5.7 million were speculative loans . the general slowdown in the housing market in our primary market area and , to a lesser extent , increased competition in the market for these loans has decreased the opportunity to originate these loans and grow this segment of the portfolio . we intend to pursue quality construction lending opportunities as the housing market recovers . commercial construction loans totaled $ 4.1 million , or 1.1 % of total loans , at september 30 , 2011 compared to $ 9.9 million , or 2.8 % of total loans at september 30 , 2010. the general slowdown of commercial construction in our primary market area and increased competition in the marketplace has decreased the opportunity to originate these loans and grow this segment of the portfolio . land and land development loans totaled $ 12.9 million , or 3.6 % of total loans at september 30 , 2011 , compared to $ 9.1 million , or 2.6 % of total loans at september 30 , 2010. these loans are primarily secured by vacant lots to be improved for residential and nonresidential development and farmland . the balance of land and land development loans increased primarily due to greater opportunity to originate these loans during 2011 as a result of decreased competition in the marketplace . 31 the following table sets forth the composition of our loan portfolio at the dates indicated . replace_table_token_6_th 32 loan maturity the following table sets forth certain information at september 30 , 2011 regarding the dollar amount of loan principal repayments becoming due during the period indicated . the table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below . demand loans having no stated schedule of repayments and no stated maturity , are reported as due in one year or less . replace_table_token_7_th ( 1 ) includes multi-family loans . ( 2 ) includes farmland and land and land development loans . ( 3 ) includes construction loans for which the bank has committed to provide permanent financing . fixed vs. adjustable rate loans the following table sets forth the dollar amount of all loans at september 30 , 2011 that are due after september 30 , 2012 , and have either fixed interest rates or adjustable interest rates . the amounts shown below exclude unearned loan origination fees . replace_table_token_8_th ( 1 ) includes multi-family loans . ( 2 ) includes farmland and land and land development loans . 33 loan activity the following table shows loans originated , purchased and sold during the periods indicated . replace_table_token_9_th ( 1 ) includes multi-family loans . ( 2 ) includes farmland and land and land development loans . securities available for sale . our available for sale securities portfolio consists primarily of u.s. government agency and sponsored enterprises securities , mortgage backed securities and collateralized mortgage obligations issued by u.s. government agencies and sponsored enterprises , municipal bonds and privately-issued collateralized mortgage obligations . available for sale securities decreased by $ 1.4 million from september 30 , 2010 to september 30 , 2011 primarily due to maturities and calls of $ 25.9 million , sales of $ 6.8 million , principal repayments of $ 11.0 million and transfers of securities from available for sale to held to maturity of $ 7.4 million , which more than offset purchases of $ 49.0 million . securities held to maturity . our held to maturity securities portfolio consists primarily of mortgage-backed securities issued by government sponsored enterprises and municipal bonds . held to maturity securities increased by $ 5.6 million from september 30 , 2010 to september 30 , 2011 due primarily to transfers of securities from available for sale to held to maturity of $ 7.4 million , which more than offset a call and principal repayments of $ 1.5 million . 34 the following table sets forth the amortized costs and fair story_separator_special_tag million , or 8.1 % of total loans , at september 30 , 2011 compared to $ 36.8 million , or 10.5 % of total loans , at september 30 , 2010. in general , consumer loans , including automobile loans , home equity lines of credit , unsecured loans and loans secured by deposits , have declined due to pay-downs , payoffs , charge-offs and management 's decision to focus on other lending opportunities with less inherent credit risk . in addition , the bank sold its $ 1.2 million credit card portfolio in may 2011 , resulting in a net gain of $ 104,000 on the sale . the largest decrease in this portfolio occurred with automobile loans , which decreased $ 3.6 million , or 26.7 % , from september 30 , 2010 to september 30 , 2011. commercial business loans totaled $ 40.6 million , or 11.2 % of total loans , at september 30 , 2011 compared to $ 30.9 million , or 8.9 % of total loans , at september 30 , 2010. the balance of commercial business loans has increased primarily due to our increased commercial lending personnel and continued focus by management to pursue commercial lending opportunities . 30 multi-family real estate loans totaled $ 24.9 million , or 6.9 % of total loans at september 30 , 2011 , compared to $ 20.4 million , or 5.8 % of total loans at september 30 , 2010. the balance of multi-family real estate loans increased primarily due to our increased commercial lending personnel and our offering of competitive short-term rates on these loans during 2011. residential construction loans totaled $ 8.0 million , or 2.2 % of total loans , at september 30 , 2011 of which $ 6.3 million were speculative construction loans . at september 30 , 2010 , residential construction loans totaled $ 15.9 million , or 4.6 % of total loans , of which $ 5.7 million were speculative loans . the general slowdown in the housing market in our primary market area and , to a lesser extent , increased competition in the market for these loans has decreased the opportunity to originate these loans and grow this segment of the portfolio . we intend to pursue quality construction lending opportunities as the housing market recovers . commercial construction loans totaled $ 4.1 million , or 1.1 % of total loans , at september 30 , 2011 compared to $ 9.9 million , or 2.8 % of total loans at september 30 , 2010. the general slowdown of commercial construction in our primary market area and increased competition in the marketplace has decreased the opportunity to originate these loans and grow this segment of the portfolio . land and land development loans totaled $ 12.9 million , or 3.6 % of total loans at september 30 , 2011 , compared to $ 9.1 million , or 2.6 % of total loans at september 30 , 2010. these loans are primarily secured by vacant lots to be improved for residential and nonresidential development and farmland . the balance of land and land development loans increased primarily due to greater opportunity to originate these loans during 2011 as a result of decreased competition in the marketplace . 31 the following table sets forth the composition of our loan portfolio at the dates indicated . replace_table_token_6_th 32 loan maturity the following table sets forth certain information at september 30 , 2011 regarding the dollar amount of loan principal repayments becoming due during the period indicated . the table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below . demand loans having no stated schedule of repayments and no stated maturity , are reported as due in one year or less . replace_table_token_7_th ( 1 ) includes multi-family loans . ( 2 ) includes farmland and land and land development loans . ( 3 ) includes construction loans for which the bank has committed to provide permanent financing . fixed vs. adjustable rate loans the following table sets forth the dollar amount of all loans at september 30 , 2011 that are due after september 30 , 2012 , and have either fixed interest rates or adjustable interest rates . the amounts shown below exclude unearned loan origination fees . replace_table_token_8_th ( 1 ) includes multi-family loans . ( 2 ) includes farmland and land and land development loans . 33 loan activity the following table shows loans originated , purchased and sold during the periods indicated . replace_table_token_9_th ( 1 ) includes multi-family loans . ( 2 ) includes farmland and land and land development loans . securities available for sale . our available for sale securities portfolio consists primarily of u.s. government agency and sponsored enterprises securities , mortgage backed securities and collateralized mortgage obligations issued by u.s. government agencies and sponsored enterprises , municipal bonds and privately-issued collateralized mortgage obligations . available for sale securities decreased by $ 1.4 million from september 30 , 2010 to september 30 , 2011 primarily due to maturities and calls of $ 25.9 million , sales of $ 6.8 million , principal repayments of $ 11.0 million and transfers of securities from available for sale to held to maturity of $ 7.4 million , which more than offset purchases of $ 49.0 million . securities held to maturity . our held to maturity securities portfolio consists primarily of mortgage-backed securities issued by government sponsored enterprises and municipal bonds . held to maturity securities increased by $ 5.6 million from september 30 , 2010 to september 30 , 2011 due primarily to transfers of securities from available for sale to held to maturity of $ 7.4 million , which more than offset a call and principal repayments of $ 1.5 million . 34 the following table sets forth the amortized costs and fair
| net interest income increased $ 453,000 , or 2.3 % , from $ 20.1 million for the year ended september 30 , 2010 to $ 20.6 million for the year ended september 30 , 2011 primarily as the result of increases in the average balance of interest earning assets from 2010 to 2011 and the ratio of average interest-earning assets to average interest-bearing liabilities from 109.89 % in 2010 to 111.98 % in 2011 , which more than offset a decrease in the interest rate spread from 2010 to 2011. the interest rate spread , the difference between the average tax-equivalent yield on interest-earning assets and the average cost of interest-bearing liabilities , decreased from 4.44 % in 2010 to 4.30 % in 2011 due primarily to a decrease in the average tax-equivalent yield on interest-earning assets from 5.93 % in 2010 to 5.57 % in 2011 , which more than offset a decrease in the average cost of interest-bearing liabilities from 1.49 % in 2010 to 1.27 % in 2011. total interest income decreased $ 279,000 , or 1.1 % , from $ 26.3 million for 2010 to $ 26.0 million for 2011 due primarily to a decrease in the average tax-equivalent yield on interest-earning assets from 5.93 % in 2010 to 5.57 % in 2011 , which more than offset the change in interest income due to a $ 25.8 million increase in the average balance of interest-earning assets from $ 449.7 million in 2010 to $ 475.5 million in 2011. the increase in the average balance of interest-earning assets primarily relates to an increase in the average balance of investment securities of $ 28.4 million , which more than offset a decrease in the average balance of loans of $ 3.7 million when comparing the two years . interest income on loans decreased $ 1.5 million , or 6.9 % , from $ 22.2 million for 2010 to $ 20.7 million for 2010 due primarily to decreases in the average tax-equivalent yield on loans from 6.33 % in 2010 to 5.96 % in 2011 and the average balance of loans outstanding of $ 3.7 million from $ 352.2 million in 2010 to $ 348.5 million in 2011. the decrease in the average balance of loans outstanding primarily relates to repayments on residential mortgage and consumer loans , and decreases in residential and commercial construction lending . during 2011 , in an effort to increase the size and diversity of the loan portfolio , the bank offered competitive rates on short-term multi-family , commercial real estate mortgage and commercial business loans . the bank was successful in originating these loans , which minimized the attrition in the residential mortgage ,
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since we began operations in 2007 , we have increased our drilling activity , evaluated potential acquisitions and added to our acreage portfolio . because of our growth through acquisitions and development of our properties , our historical results of operations and period-to-period comparisons of these results and certain financial data may not be meaningful or indicative of future results . operating results overview during the year ended december 31 , 2012 , our average daily production was approximately 2,946 boe , consisting of 2,066 bbls/d of oil , 2,277 mcf/d of natural gas and 500 bbls/d of natural gas liquids , an increase of 78 % , or 1,288 boe/d , from average daily production of 1,658 boe/d for the year ended december 31 , 2011 , consisting of 1,231 bbls/d of oil , 1,133 mcf/d of natural gas and 238 bbls/d of natural gas liquids . during the year ended december 31 , 2012 , we drilled 57 gross ( 41 net ) wells , and participated in an additional eight gross ( three net ) non-operated wells , in the permian basin . reserves and pricing in the table below , ryder scott estimated all of our proved reserves at december 31 , 2012 and 2011 . pinnacle estimated all of our proved reserves at december 31 , 2010. the prices used to estimate proved reserves for all periods did not give effect to derivative transactions , 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_11_th replace_table_token_12_th 50 sources of our revenue our revenues are derived from the sale of oil and natural gas production , as well as the sale of natural gas liquids that are extracted from our natural gas during processing . our oil and natural gas revenues do not include the effects of derivatives . for the years ended december 31 , 2012 and 2011 , our revenues were derived 88 % and 84 % , respectively , from oil sales , 9 % and 10 % , respectively , from natural gas liquids sales , 3 % and 3 % , respectively , from natural gas sales and none and 3 % , respectively , from oil and natural gas services . our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in commodity prices . oil , natural gas liquids and natural gas prices have historically been volatile . during 2012 , west texas intermediate posted prices ranged from $ 77.72 to $ 109.39 per bbl and the henry hub spot market price of natural gas ranged from $ 1.82 to $ 3.77 per mmbtu . on december 31 , 2012 , the west texas intermediate posted price for crude oil was $ 91.83 per bbl and the henry hub spot market price of natural gas was $ 3.43 per mmbtu . 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 crude oil and natural gas production . we utilize commodity derivatives to reduce our exposure to fluctuations in nymex wti and brent crude benchmark prices . while these derivative contracts stabilize our cash flows when market prices are below our contract prices , they also prevent us from realizing increases in our cash flow when market prices are higher than our contract prices . we will sustain realized and unrealized losses to the extent our derivatives contract prices are lower than market prices and , conversely , we will sustain realized and unrealized gains to the extent our derivatives contract prices are higher than market prices . our derivatives contracts are not designated as accounting hedges and , as a result , gains or losses on derivatives contracts are recorded as other income ( expense ) in our statements of operations . for the year-end status of our derivatives , see note 11—derivatives , and for derivative contracts entered into subsequent to december 31 , 2012 , see note 14—subsequent events in the notes to the combined consolidated financial statements set forth in part iv , item 15 of this annual report on form 10-k. principal components of our cost structure lease operating and natural gas transportation and treating expenses . these are daily costs incurred to bring oil and natural gas out of the ground and to the market , together with the daily costs incurred to maintain our producing properties . such costs also include maintenance , repairs and workover expenses related to our oil and natural gas properties . production taxes . production taxes are paid on produced oil and natural gas based on a percentage of revenues from products sold at fixed rates established by federal , state or local taxing authorities . where available , we benefit from tax credits and exemptions in our various taxing jurisdictions . we are also subject to ad valorem taxes in the counties where our production is located . ad valorem taxes are generally based on the valuation of our oil and gas properties . general and administrative . these are costs incurred for overhead , including payroll and benefits for our corporate staff , costs of maintaining our headquarters , costs of managing our production and development operations , franchise taxes , audit and other fees for professional services and legal compliance . depreciation , depletion and amortization . under the full cost accounting method , we capitalize costs within a cost center and then systematically expense those costs on a units of production basis based on proved oil and natural gas reserve quantities . story_separator_special_tag we calculate depletion on the following types of costs : ( i ) all capitalized costs , other than the cost of investments in unproved properties and major development projects for which proved reserves can not yet be assigned , less accumulated amortization ; ( ii ) the estimated future expenditures to be incurred in developing proved reserves ; and ( iii ) the estimated dismantlement and abandonment costs , net of estimated salvage values . depreciation of other property and equipment is computed using the straight line method over their estimated useful lives , which range from three to fifteen years . impairment expense . this is the cost to reduce proved oil and gas properties to the calculated full cost ceiling value . other income ( expense ) interest income . this represents the interest received on our cash and cash equivalents . interest expense . we finance a portion of our working capital requirements , capital expenditures and acquisitions with borrowings under our credit facility . we incur interest expense that is affected by both fluctuations 51 in interest rates and our financing decisions . we reflect interest paid to our lender in interest expense . in addition , we include the amortization of deferred financing costs ( including origination and amendment fees ) , commitment fees and annual agency fees in interest expense . gain/loss on derivative instruments . we utilize commodity derivative financial instruments to reduce our exposure to fluctuations in the price of crude oil . this amount represents ( i ) the recognition of unrealized gains and losses associated with our open derivative contracts as commodity prices change and commodity derivative contracts expire or new ones are entered into , and ( ii ) our realized gains and losses on the settlement of these commodity derivative instruments . loss from equity investment . this line item represents our proportionate share of the earnings and losses from our investment in the membership interests of muskie , an equity method investment . income tax expense . prior our initial public offering in october 2012 , the operations of windsor permian and windsor ut , as limited liability companies , were not subject to federal income taxes . at the date of the merger of diamondback energy llc with and into diamondback , a corresponding “ first day ” tax expense to net income from continuing operations was recorded to establish a net deferred tax liability for differences between the tax and book basis of diamondback 's assets and liabilities . this charge was $ 54,142,000 . we use the asset and liability method of accounting for income taxes , under which deferred tax assets and liabilities are recognized for the future tax consequences of ( 1 ) temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and ( 2 ) operating loss and tax credit carryforwards . deferred income tax assets and liabilities are based on enacted tax rates applicable to the future period when those temporary differences are expected to be recovered or settled . the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period the rate change is enacted . a valuation allowance is provided for deferred tax assets when it is more likely than not the deferred tax assets will not be realized . 52 story_separator_special_tag style= '' text-align : left ; font-size:10pt ; '' > $ 5,294 natural gas 419,876 $ 3.98 $ 1,672 total revenues due to change in production volumes $ 35,270 total change in revenues $ 27,087 ( 1 ) production volumes are presented in bbls for oil and natural gas liquids and mcf for natural gas lease operating expense . lease operating expense was $ 16,793,000 ( $ 15.57 per boe ) for the year ended december 31 , 2012 , an increase of $ 6,196,000 , or 58 % , from $ 10,597,000 ( $ 17.51 per boe ) for the year ended december 31 , 2011 . the increase is due to increased drilling activity , which resulted in additional producing wells for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011 . our lease operating expense during both periods was also adversely impacted by the cost of processing and treating non-hydrocarbon gases from certain of our wells that came on-line in 2011. during the fourth quarter of 2012 , we completed construction of both oil and water gathering systems that will transport this gas stream to a sour gas pipeline , thereby eliminating the monthly processing and treating expense , and reducing water trucking , respectively . in addition , in the first quarter 2013 , we moved a portion of our produced water to pipe connected to a commercial salt water disposal well . we believe that the completion of the gathering systems , the connection to a salt water disposal well and other actions will help reduce our lease operating expense in future periods . 54 production tax expense . production taxes as a percentage of oil and natural gas sales was 4.9 % for both the year ended december 31 , 2012 and 2011 . production taxes are primarily based on the market value of our production at the wellhead and may vary across the different counties in which we operate . total production taxes increased $ 1,325,000 , from $ 2,366,000 during the year ended december 31 , 2011 to $ 3,691,000 during the year ended december 31 , 2012 , as a result of higher production and an increase in the market value of our production . depreciation , depletion and amortization . depreciation , depletion and amortization expense increased $ 10,672,000 , or 68 % , from $ 15,601,000 for the year ended december 31 , 2011 to $ 26,273,000 for the year ended december 31 , 2012 . this increase was due to an increase in our full cost pool as a result of our acquisitions and capital spending .
| the increases in production volumes were due to a combination of increased drilling activity and the effect of the contribution of gulfport 's permian basin assets during the period october 11 , 2012 through december 31 , 2012. the revenue increase attributable to the contribution of assets from gulfport during the period october 11 , 2012 through december 31 , 2012 was $ 7,353,000. our production increased by 306,852 bbls of oil , 96,299 bbls of natural gas liquids and 419,876 mcf of natural gas for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011 . the net dollar effect of the decreases in prices of approximately $ 8,183,000 ( calculated as the change in period-to-period average prices times current period production volumes of oil , natural gas liquids and natural gas ) and the net dollar effect of the increase in production of approximately $ 35,270,000 ( calculated as the increase in period-to-period volumes for oil , natural gas liquids and natural gas times the period average prices ) are shown below . change in prices production volumes ( 1 ) total net dollar effect of change ( in thousands ) effect of changes in price : oil $ ( 5.36 ) 756,286 $ ( 4,055 ) natural gas liquids $ ( 17.41 ) 183,114 $ ( 3,188 ) natural gas $ ( 1.13 ) 833,516 $ ( 940 ) total revenues due to change in price $ ( 8,183 ) change in production volumes ( 1 ) prior period average prices total net dollar effect of change ( in thousands ) effect of changes in production volumes : oil 306,852 $ 92.24 $ 28,304 natural gas liquids 96,299 $ 54.98 < div
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general and administrative expenses general and administrative ( “ g & a ” ) expenses consist primarily of salaries and related costs for personnel , including stock-based compensation expense . to date , we have estimated the fair value of stock-based awards issued to employees , directors and non-employees based on prices paid by unrelated third-parties for the purchases of our common stock . subsequent to the active trading date of our common stock on august 14 , 2018 , we have based the fair value of awards from august 14 , 2018 through december 31 , 2018 on the quoted closing bid price of our common stock on the otc markets on the date of grant . other g & a expenses include patent costs , and professional fees for legal , finance , accounting services , and a legal settlement in 2018. we anticipate that our g & a expenses will increase in future periods to support increases in our research and development activities and as a result of increased headcount , expanded infrastructure , increased legal , compliance , accounting and investor and public relations expenses associated with being a public company and increased insurance premiums , among other factors . interest expense interest expense consists of interest incurred on borrowings including amortization of beneficial conversation features and debt issue costs . story_separator_special_tag liabilities . for the fiscal year ended december 31 , 2018 , non-cash items consisted of non-cash interest expense , common stock issued as payment for services and employee compensation and changes in operating assets and liabilities consisted of an increase in inventory and an increase in accounts payable and accrued expenses . investing activities . cash used in investing activities consisted of additions to plant and current machinery and a payment on the distributorship agreement with aht . 19 financing activities . cash provided by financing activities consisted primarily of proceeds from the issuance of our common stock in private placements and borrowing in the form of notes payable , advances from related parties and borrowings on revenue sharing liabilities . funding requirements we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future . we anticipate that our expenses will increase substantially if and as we : establish a sales , marketing and distribution infrastructure to commercialize our water purification units and our other products ; maintain , expand and protect our intellectual property portfolio ; and add operational and financial personnel to handle the public company reporting and other requirements to which we will be subject . we expect that we will require additional capital to fund operations , including hiring additional employees and increasing inventory levels , during the next twelve ( 12 ) month period . because of the numerous risks and uncertainties associated with the development and commercialization of our products , we are unable to estimate the amounts of increased capital outlays and operating expenses associated with successfully commercializing such products . our future capital requirements will depend on many factors , including : the costs and timing of commercialization activities for our products , including manufacturing , sales , marketing and distribution ; revenues received from sales of our products ; the costs of preparing , filing and prosecuting patent applications , maintaining and enforcing our intellectual property rights and defending intellectual property-related claims ; and our ability to maintain manufacturing and distribution relationships on favorable terms , if at all . until such time , if ever , as we can generate substantial product revenues , we expect to finance our cash needs through a combination of equity offerings , debt financings , and strategic alliances . we do not have any committed external source of funds . to the extent that we raise additional capital through the sale of equity or convertible debt securities , the ownership interest of our shareholders will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common shareholders . debt financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends . if we raise additional funds through strategic alliances or licensing arrangements with third parties , we may 20 have to relinquish valuable rights to our technologies and future revenue streams or grant licenses on terms that may not be favorable to us . if we are unable to raise additional funds through equity or debt financings when needed , we may be required to delay , limit , reduce or terminate our product development or future commercialization efforts or grant rights to commercialize products that we would otherwise prefer to develop and market ourselves . significant accounting policies and recent accounting pronouncements the discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to revenue recognition , stock-based compensation , valuation of warrants , income taxes and contingencies and litigation , among others . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . story_separator_special_tag the accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties . for a discussion of our significant accounting policies , refer to note 3 – “ summary of significant accounting policies and recent accounting pronouncements ” in the notes to our consolidated financial statements for the year ended december 31 , 2018 , included in this annual report . principles of consolidation the consolidated financial statements include the accounts of the company and its wholly-owned subsidiary . intercompany accounts and transactions have been eliminated in consolidation . cash and cash equivalents cash and cash equivalents consist primarily of deposit accounts with original maturities of three months or less . inventory inventory includes manufacturing parts and work in process for the company 's water purification equipment . inventories are carried at the lower of cost ( on a first-in , first-out ( “ fifo ” ) ) basis , or net realizable value . use of accounting estimates the preparation of the financial statements in conformity with gaap requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . the most significant estimates and assumptions made by management related to determining the value of stock-based expenses . 21 plant and machinery plant and machinery are stated at cost less accumulated depreciation and depreciated on a straight-line basis over the estimated useful lives of the assets . such lives vary from 5 to 7 years . expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized . repair and maintenance costs are expensed as incurred . depreciation expense totaled approximately $ 28,000 and $ 6,000 for the years ended december 31 , 2018 and 2017 , respectively . revenue recognition in may 2014 , the fasb issued accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers ( “ asu 2014-09 ” ) , which supersedes nearly all existing revenue recognition guidance under gaap . the core principle of asu 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services . asu 2014-09 defines a five-step process to achieve this core principle and , in doing so , more judgment and estimates may be required within the revenue recognition process than are required under existing gaap . the standard 's effective date has been deferred by the issuance of asu no . 2015-14 , and is effective for annual periods beginning after december 15 , 2017 , and interim periods therein . the guidance permits using either of the following transition methods : ( i ) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients , or ( ii ) a retrospective approach with the cumulative effect of initially adopting asu 2014-09 recognized at the date of adoption ( which includes additional footnote disclosures ) . early application is permitted but not before december 15 , 2016 , the asu 's original effective date . the company adopted the new revenue recognition standard as of january 1 , 2018 using the cumulative effect method , which did not have a material impact on its consolidated financial statements . the company recognizes revenue and related costs from the sale of its products at the time the products are shipped to the customer . provisions for returns are established in the same period the related product sales are recorded . the company establishes sales return accruals for anticipated product returns . the company records the return amounts as a deduction to arrive at our net product sales . consistent with revenue recognition accounting guidance , the company estimates a reserve when the sales occur for future product returns related to those sales . this estimate is primarily based on historical return rates as well as specifically identified anticipated returns due to known business conditions and product expiry dates . there were no product returns as of december 31 , 2018 and 2017. income taxes income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities for a change in tax rate is recognized in income in 22 the period that includes the enactment date . valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized . we account for uncertain tax positions in accordance with financial accounting standards board 's ( “ fasb ” ) accounting standards codification ( “ asc ” ) 740-10 , “ income taxes. ” asc 740-10 provides several clarifications related to uncertain tax positions . most notably , a “ more likely-than-not ” standard for initial recognition of tax positions , a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization . asc 740-10 applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements . first , we must determine whether any amount of the tax benefit may be recognized .
| other income ( expense ) below is a summary of our other income ( expense ) for the fiscal years ended december 31 , 2018 and december 31 , 2017 , respectively . replace_table_token_4_th the company financed its growth during 2018 with equity and debt issuances . see notes 5 and 6 of the notes to condensed financial statements for the year ended december 31 , 2018 for details of the debt transactions . 18 net losses we incurred net losses of $ 4.4 million and $ 1.7 million for the fiscal year ended december 31 , 2018 and 2017 , respectively , because of the factors discussed above . net loss per share for the fiscal year ended december 31 , 2018 and 2017 was approximately $ ( 0.13 ) and $ ( 0.06 ) , respectively , based on the weighted-average number of shares issued and outstanding during the periods . liquidity and capital resources sources of liquidity through december 31 , 2018 , we have generated revenues of $ 204,000. from february 10 , 2016 ( inception ) through december 31 , 2018 , we have incurred losses aggregating $ 8.0 million . as of december 31 , 2018 , we had cash and cash equivalents of $ 53,000. our auditors issued a going concern opinion with respect to our financial statements as of and for the year ended december 31 , 2018 due to the incurrence of significant operating losses , which raise substantial doubt about our ability to continue as a going concern . we have financed our operations to date primarily through private placements of our common stock and borrowings . during the fiscal year ended december 31 , 2018 , we received approximately $ 1.5 million in net proceeds from the issuance of our common stock . as of december 31 , 2018 , we had total liabilities of $ 2.8 million . we expect to continue to utilize debt and equity to finance our operations until we become profitable . cash flows the following table sets forth the primary sources and uses of cash for the fiscal year ended december 31 , 2018 and
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the fiscal year change became effective beginning with the company 's 2016 fiscal year , which began on april 3 , 2016 and ended on april 1 , 2017. gross profit and gross margin gross profit is equal to our net sales less cost of sales . gross profit as a percentage of net sales is referred to as gross margin . cost of sales in our tcs segment includes the purchase cost of inventory less vendor rebates , in-bound freight , as well as inventory shrinkage . direct installation and organization costs , as well as costs incurred to ship or deliver merchandise to customers , are also included in cost of sales in our tcs segment . elfa segment cost of sales from manufacturing operations includes costs associated with production , primarily material , wages , freight and other variable costs , and applicable manufacturing overhead . the components of our cost of sales may not be comparable to the components of cost of sales or similar measures by other retailers . as a result , data in this report regarding our gross profit and gross margin may not be comparable to similar data made available by other retailers . our gross profit is variable in nature and generally follows changes in net sales . our gross margin can be impacted by changes in the mix of products and services sold . for example , sales from our tcs segment typically provide a higher gross margin than sales to third parties from our elfa segment . additionally , sales of products typically provide a higher gross margin than sales of services . gross margin for our tcs segment is also susceptible to foreign currency risk as purchases of elfa® products from our elfa segment are in swedish krona , while sales of these products are in u.s. dollars . we mitigate this risk through the use of forward contracts , whereby we hedge purchases of inventory by locking in foreign currency exchange rates in advance . similarly , gross margin for our elfa segment is susceptible to foreign currency risk as certain purchases of raw materials are transacted in currencies other than swedish krona , which is the functional currency of elfa . selling , general and administrative expenses selling , general and administrative expenses include all operating costs not included in cost of sales , stock-based compensation , and pre-opening costs . for our tcs segment , these include payroll and payroll-related expenses , marketing expenses , occupancy expenses ( which include rent , real estate taxes , common area maintenance , utilities , telephone , property insurance , and repairs and maintenance ) , costs to ship product from the distribution center to our stores , and supplies expenses . we also incur costs for our distribution and corporate office operations . for our elfa segment , these include sales and marketing expenses , product development costs , and all expenses related to operations at headquarters . depreciation and amortization are excluded from both gross profit and selling , general and administrative expenses . selling , general and administrative expenses include both fixed and variable components and , therefore , is not directly correlated with net sales . the components of our selling , general and administrative expenses may not be comparable to the components of similar measures of other retailers . we expect that our selling , general and administrative expenses will increase in future periods with expected future store growth . pre-opening costs non-capital expenditures associated with opening new stores and relocating stores , including rent , marketing expenses , travel and relocation costs , training costs , and certain corporate overhead costs , are expensed as incurred and are included in pre-opening costs in the consolidated statement of operations . 45 comparable store sales a store is included in the comparable store sales calculation on the first day of the sixteenth full fiscal month following the store 's opening . comparable store sales are net of discounts and returns . when a store is relocated , we continue to consider sales from that store to be comparable store sales . net sales from our website and call center are also included in calculations of comparable store sales . prior to fiscal 2015 , the comparable store sales growth operating measure does not include net sales from services . in the first quarter of fiscal 2016 , we changed our comparable store sales operating measure to reflect the point at which merchandise and service orders are fulfilled and delivered to customers , excluding shipping and delivery . prior to the first quarter of fiscal 2016 , our comparable store sales operating measure in a given period was based on merchandise and service orders placed in that period , excluding shipping and delivery , which did not always reflect the point at which merchandise and services were received by the customer and , therefore , recognized in our financial statements as net sales . we believe that changing the comparable store sales operating metric to better align with net sales presented in our financial statements will assist investors in evaluating our financial performance . comparable store sales allow us to evaluate how our retail store base is performing by measuring the change in period-over-period net sales in stores that have been open for fifteen months or more . the comparable store sales growth metric is an operating measure intended only as supplemental information and is not a substitute for net sales presented in accordance with generally accepted accounting principles . various factors affect comparable store sales , including : national and regional economic trends in the united states ; changes in our merchandise mix ; changes in pricing ; changes in timing of promotional events or holidays ; and weather . opening new stores is part of our growth strategy . as we continue to pursue our growth strategy , we anticipate that a portion of our net sales will come from stores not included in our comparable store sales calculation . story_separator_special_tag accordingly , comparable store sales is only one measure we use to assess the success of our growth strategy . ebitda and adjusted ebitda ebitda and adjusted ebitda are key metrics used by management , our board of directors and lgp to assess our financial performance . in addition , we use adjusted ebitda in connection with covenant compliance , executive performance evaluations , and to supplement gaap measures of performance to evaluate the effectiveness of our business strategies , to make budgeting decisions and to compare our performance against that of other peer companies using similar measures . we believe it is useful for investors to see the measures that management uses to evaluate the company , its executives and our covenant compliance , as applicable . ebitda and adjusted ebitda are also frequently used by analysts , investors and other interested parties to evaluate companies in our industry . we define ebitda as net income ( loss ) before interest , taxes , depreciation , and amortization . adjusted ebitda is calculated in accordance with the senior secured term loan facility and the revolving credit facility and is one of the components for performance evaluation under our executive compensation programs . adjusted ebitda reflects further adjustments to ebitda to eliminate the impact of certain items , including certain non-cash and other items , that we do not consider 46 representative of our ongoing operating performance . for reconciliation of adjusted ebitda to the most directly comparable gaap measure , refer to `` item 6 : selected financial and operating data. `` adjusted net income and adjusted net income per common sharediluted we use adjusted net income and adjusted net income per common sharediluted to supplement gaap measures of performance to evaluate the effectiveness of our business strategies , to make budgeting decisions and to compare our performance against that of other peer companies using similar measures . we present adjusted net income and adjusted net income per common sharediluted because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance and because we believe it is useful for investors to see the measures that management uses to evaluate the company . adjusted net income is a supplemental measure of financial performance that is not required by , or presented in accordance with , gaap . we define adjusted net income as net income ( loss ) available to common shareholders before distributions accumulated to preferred shareholders , stock-based compensation and other costs in connection with our ipo , restructuring charges , losses on extinguishment of debt , certain gains on disposal of assets and the tax impact of these adjustments and unusual or infrequent tax items . we define adjusted net income per common sharediluted as adjusted net income divided by the diluted weighted average common shares outstanding ; however for fiscal 2013 adjusted diluted weighted common shares outstanding are calculated based on the assumption that the number of shares outstanding as of march 1 , 2014 was outstanding at the beginning of the fiscal year . for a reconciliation of adjusted net income to the most directly comparable gaap measure , refer to `` item 6 : selected financial and operating data. `` adjustment for currency exchange rate fluctuations additionally , this management 's discussion and analysis also refers to elfa third party net sales after the conversion of elfa 's net sales from swedish krona to u.s. dollars using the prior year 's conversion rate . the company believes the disclosure of elfa third party net sales without the effects of currency exchange rate fluctuations helps investors understand the company 's underlying performance . note on dollar amounts all dollar amounts in this management 's discussion and analysis of financial condition and results of operations are in thousands , except per share amounts , unless otherwise stated . story_separator_special_tag style= '' font-family : times ; '' > net sales in the fiscal year ended april 1 , 2017 increased by $ 22,843 , or 2.9 % , compared to the fiscal year ended april 2 , 2016. this increase is comprised of the following components : net sales net sales for the fiscal year ended april 2 , 2016 $ 797,087 incremental net sales increase ( decrease ) due to : new stores 41,715 comparable stores ( including a $ 2,607 , or 4.4 % , decrease in online sales ) ( 17,234 ) elfa third party net sales ( excluding impact of foreign currency translation ) ( 490 ) impact of foreign currency translation on elfa third party net sales ( 1,683 ) shipping and delivery 535 net sales for the fiscal year ended april 1 , 2017 $ 819,930 in the fifty-two weeks ended april 1 , 2017 , seventeen new stores generated $ 41,715 of incremental net sales , ten of which were opened prior to april 2 , 2016 and seven of which were opened in fiscal 2016. the increase in net sales generated by new stores was partially offset by a $ 17,234 , or 2.4 % , decrease in sales from comparable stores . elfa third party net sales decreased $ 2,173 during fiscal 2016. after converting elfa 's third party net sales from swedish krona to u.s. dollars using the prior year 's conversion rate for fiscal 2016 and fiscal 2015 , elfa third party net sales decreased $ 490 primarily due to lower net sales in russia . gross profit and gross margin gross profit in the fiscal year ended april 1 , 2017 increased by $ 11,577 , or 2.5 % , compared to the fiscal year ended april 2 , 2016. the increase in gross profit was primarily the result of increased sales , partially offset by lower gross margins .
| prior to the first quarter of fiscal 2016 , our comparable store sales operating measure in a given period was based on merchandise and service orders placed in that period , excluding shipping and delivery , which did not always reflect the point at which merchandise and services were received by the customer and , therefore , recognized in our financial statements as net sales . we believe that changing the comparable store sales operating metric to better align with net sales presented in our financial statements will assist investors in evaluating our financial performance . the comparable store sales growth metric is an operating measure intended only as supplemental information and is not a substitute for net sales presented in accordance with generally accepted accounting principles ( `` gaap '' ) . ( 2 ) we have presented ebitda , adjusted ebitda , adjusted net income , and adjusted net income per common sharediluted as supplemental measures of financial performance that are not required by , or presented in accordance with , gaap . these non-gaap measures should not be considered as alternatives to net income ( loss ) as a measure of financial performance or cash flows from operations as a measure of liquidity , or any other performance measure derived in accordance with gaap and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items . these non-gaap measures are key metrics used by management , our board of directors , and lgp to assess our financial performance . we present these non-gaap measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance and because we believe it is useful for investors to see the measures that management uses to evaluate the company . these non-gaap measures are also frequently used by analysts , investors and other interested parties to evaluate companies in our industry . in evaluating these non-gaap measures , you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation . our presentation of these non-gaap measures should not be construed to imply that
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further , our ability to sell properties is limited by safe harbor rules applying to reits under the code which relate to the number of properties that may be disposed of in a year , their tax bases and the cost of improvements made to the properties , along with other tests which enable a reit to avoid punitive taxation on the sale of assets . if we are unable to sell properties on favorable terms , our income growth would be limited and our financial condition , results of operations , cash flow and ability to make distributions to our stockholders and unitholders , the market price of the company 's common stock and the market value of the units could be adversely affected . we utilize a portion of the net sales proceeds from property sales , borrowings under our unsecured credit facility and proceeds from the issuance , when and as warranted , of additional debt and equity securities to refinance debt and finance future acquisitions and developments . access to external capital on favorable terms plays a key role in our financial condition and results of operations , as it impacts our cost of capital and our ability and cost to refinance existing indebtedness as it matures and our ability to fund acquisitions and developments . our ability to access external capital on favorable terms is dependent on various factors , including general market conditions , interest rates , credit ratings on our debt , the market 's perception of our growth potential , our current and potential future earnings and cash distributions and the market price of the company 's common stock . if we were unable to access external capital on favorable terms , our financial condition , results of operations , cash flow and ability to make distributions to our stockholders and unitholders , the market price of the company 's common stock and the market value of the units could be adversely affected . summary of significant transactions during 2017 during 2017 , we completed the following significant transactions and financing activities : we acquired eight industrial properties comprising approximately 1.1 million square feet of gla and several land parcels for an aggregate purchase price of approximately $ 174.2 million . we placed in-service a development project totaling approximately 0.6 million square feet of gla at a total cost of approximately $ 45.4 million . the occupancy of this development project is 100 % at december 31 , 2017. we sold 60 industrial properties comprising approximately 4.6 million square feet of gla for total gross sales proceeds of approximately $ 236.1 million . we issued ten-year , $ 125.0 million private placement unsecured notes at a fixed rate of 4.30 % and twelve-year , $ 75.0 million private placement unsecured notes at a fixed rate of 4.40 % . also , subsequent to year-end , we issued $ 150 million of 3.86 % fixed rate senior unsecured notes with a 10-year term and $ 150 million of 3.96 % fixed rate senior unsecured notes with a 12-year term . see subsequent events . we amended the terms of our revolving line of credit to , among other things , decrease the interest spread , based on our current leverage , by five basis points , increase available capacity by $ 100 million and extend the maturity to october 2021 , with a one-year extension option . we amended the terms of both term loan agreements to , among other things , decrease by 50 basis points the interest spread on our $ 200 million term loan , which matures in january 2021 , and decrease by a 40 basis points the interest spread on our $ 260 million term loan , which matures in september 2022. we paid off and retired $ 156.9 million of unsecured notes with an average interest rate of 6.49 % as well as $ 36.1 million in mortgage loans payable with an average interest rate of 5.58 % . we issued 2,560,000 shares of the company 's common stock in an underwritten public offering for proceeds , net of underwriting discounts and commissions , of $ 74.9 million . we declared an annual cash dividend of $ 0.84 per common share or unit , an increase of 10.5 % from 2016 . 28 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > replace_table_token_13_th depreciation and other amortization from same store properties decreased by $ 1.4 million due to accelerated depreciation and amortization taken during the year ended december 31 , 2016 attributable to certain tenants who terminated their leases early . depreciation and other amortization from acquired properties increased $ 3.5 million due to properties acquired subsequent to december 31 , 2015. depreciation and other amortization from sold properties decreased $ 5.0 million due to properties sold subsequent to december 31 , 2015. depreciation and other amortization from ( re ) developments increased $ 1.8 million primarily due to an increase in depreciation and amortization related to completed developments offset by accelerated depre ciation on one property in rancho dominguez , ca which was razed during the year ended december 31 , 2016. dep reciation from corporate furniture , fixtures and equipment and other increased $ 0.2 million due to higher depreciation related to incurred leasing costs at three properties acquired in the year ended december 31 , 2015 that were placed in service during the year ended december 31 , 2016. for the year ended december 31 , 2017 , we recognized $ 131.3 million of gain on sale of real estate related to the sale of 60 industrial properties comprising approximately 4.6 million square feet of gla and one land parcel . for the year ended december 31 , 2016 , we recognized $ 68.2 million of gain on sale of real estate related to the sale of 63 industrial properties comprising approximately 3.9 million square feet of gla and several land parcels . story_separator_special_tag interest expense decreased $ 2.2 million , or 3.8 % , primarily due to a decrease in the weighted average interest rate for the year ended december 31 , 2017 ( 4.42 % ) as compared to the year ended december 31 , 2016 ( 4.50 % ) , a decrease in the weighted average debt balance outstanding for the year ended december 31 , 2017 ( $ 1,392.2 million ) as compared to the year ended december 31 , 2016 ( $ 1,400.5 million ) and an increase in capitalized interest of $ 0.8 million for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 due to an increase in development activities . amortization of debt issuance costs remained relatively unchanged . in september 2017 , we entered into interest rate protection agreements ( the “ treasury locks ” ) in order to fix the interest rate on an anticipated unsecured debt offering . the treasury locks were settled during the fourth quarter . due to the strict requirements surrounding the application of hedge accounting , we elected not to designate the treasury locks as hedges . as such , the company recorded the full change in the fair value of the treasury locks within the income statement as opposed to being recorded in other comprehensive income . during the year ended december 31 , 2017 , we recorded $ 1.9 million of settlement gain on interest rate protection agreements . for the year ended december 31 , 2017 , we recognized a loss from retirement of debt of $ 1.8 million due to prepayment penalties related to the early payoff of certain mortgage loans and the write-off of unamortized debt issuance costs on these mortgage loans as well as the write-off of unamortized debt issuance costs related to an exiting lender on our revolving line of credit and one of our unsecured term loans . the income tax provision remained relatively unchanged . 31 comparison of year ended december 31 , 2016 to year ended december 31 , 2015 the company 's net income was $ 125.7 million and $ 76.7 million for the years ended december 31 , 2016 and 2015 , respectively . the operating partnership 's net income was $ 125.7 million and $ 76.8 million for the years ended december 31 , 2016 and 2015 , respectively . the tables below summarize our revenues , property expenses and depreciation and other amortization by various categories for the years ended december 31 , 2016 and 2015. same store properties are properties owned prior to january 1 , 2015 and held as an in-service property through december 31 , 2016 and developments and redevelopments that were placed in service prior to january 1 , 2015 or were substantially completed for the 12 months prior to january 1 , 2015. properties which are at least 75 % occupied at acquisition are placed in service , unless we anticipate the tenants to move out in the first year of ownership . acquisitions that are less than 75 % occupied at the date of acquisition , developments and redevelopments are placed in service as they reach the earlier of a ) stabilized occupancy ( generally defined as 90 % occupied ) , or b ) one year subsequent to acquisition or development/redevelopment construction completion . acquired properties with occupancy greater than 75 % at acquisition , but with tenants that we anticipate will move out in the first year of ownership , will be placed in service upon the earlier of reaching 90 % occupancy or twelve months after move out . properties are moved from the same store classification to the redevelopment classification when capital expenditures for a project are estimated to exceed 25 % of the undepreciated gross book value of the property . acquired properties are properties that were acquired subsequent to december 31 , 2014 and held as an operating property through december 31 , 2016. sold properties are properties that were sold subsequent to december 31 , 2014 . ( re ) developments include developments and redevelopments that were not : a ) substantially complete 12 months prior to january 1 , 2015 ; or b ) stabilized prior to january 1 , 2015. other revenues are derived from the operations of properties not placed in service under one of the categories discussed above , the operations of our maintenance company and other miscellaneous revenues . other property expenses are derived from the operations of properties not placed in service under one of the categories discussed above , the operations of our maintenance company , vacant land expenses and other miscellaneous regional expenses . during the year ended december 31 , 2015 , one industrial property , comprising approximately 0.2 million square feet of gla , was taken out of service with the intention of demolishing the industrial property and developing a new industrial property . during the year ended december 31 , 2016 , the newly developed industrial property was completed and the results related to this industrial property are included in the ( re ) development classification . this property will return to the same store classification in the first quarter of 2018. during the year ended december 31 , 2016 , one industrial property , comprising approximately 28 thousand square feet of gla , was taken out of service due to a fire which caused complete destruction of the building . as a result of taking the industrial property out of service , the results related to this industrial property were reclassified from the same store classification to the ( re ) development classification . we intend to rebuild the damaged building and will reclassify the operations of the property to the same store classification following a complete calendar year of in service classification . our future financial condition and results of operations , including rental revenues , may be impacted by the future acquisition , ( re ) development and sale of properties . our future revenues and expenses may vary materially from historical rates .
| ( re ) developments include developments and redevelopments that were not : a ) substantially complete 12 months prior to january 1 , 2016 ; or b ) stabilized prior to january 1 , 2016. other revenues are derived from the operations of properties not placed in service under one of the categories discussed above , the operations of our maintenance company and other miscellaneous revenues . other property expenses are derived from the operations of properties not placed in service under one of the categories discussed above , the operations of our maintenance company , vacant land expenses and other miscellaneous regional expenses . during the year ended december 31 , 2017 , one industrial property , comprising approximately 0.1 million square feet of gla , was taken out of service due to a fire which caused major damage to the building . as a result of taking this industrial property out of service , the results of operations were reclassified from the same store property classification to the ( re ) development classification . additionally , during the year ended december 31 , 2016 , one industrial property , comprising approximately 28 thousand square feet of gla , was taken out of service due to a fire which caused complete destruction of the building . the results of this property are also included in the ( re ) development classification . we intend to rebuild and repair both of these damaged buildings and will reclassify the operations of both properties to the same store classification following a complete calendar year of in service classification . during the year ended december 31 , 2015 , one industrial property , comprising approximately 0.2 million square feet of gla , was taken out of service with the intention of demolishing the industrial property and developing a new industrial property . during the year ended december 31 , 2016 , the newly developed industrial property was completed and the results related to this industrial property are included in the ( re ) development classification . this property will return to the same store classification in the first quarter
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generally , we only expect to make investments in new development properties when approximately 70 % or more of the development property has been pre-leased before construction commences . we seek to invest in properties where we can develop strategic alliances with financially sound healthcare providers and healthcare delivery systems that offer need-based healthcare services in sustainable healthcare markets . we focus our investment activity on the following types of healthcare properties : medical office buildings ; outpatient treatment and diagnostic facilities ; physician group practice clinics ; ambulatory surgery centers ; and specialty hospitals and treatment centers . we believe that shifting consumer preferences , limited space in hospitals , the desire of patients and healthcare providers to limit non-essential services provided in a hospital setting , and cost considerations , among other trends , continue to drive the industry trend of performing procedures in outpatient facilities that have traditionally been performed in hospitals , 49 such as surgeries and other invasive medical procedures . as these trends continue , we believe that demand for medical office buildings and similar healthcare properties will continue to rise , and that our investment strategy accounts for these trends . we may invest opportunistically in life science facilities , assisted living , and independent senior living facilities and in the longer term , senior housing properties , including skilled nursing . consistent with our qualification as a reit , we may also opportunistically invest in companies that provide healthcare services , and in joint venture entities with operating partners , structured to comply with the reit investment diversification act of 2007 ( “ ridea ” ) . the trust is a maryland real estate investment trust and elected to be taxed as a reit for u.s. federal income tax purposes . we conduct our business through an upreit structure in which our properties are owned by our operating partnership directly or through limited partnerships , limited liability companies or other subsidiaries . the trust is the sole general partner of our operating partnership and , as of december 31 , 2016 , owned approximately 97.5 % of the op units . as of february 17 , 2017 , we have 135,999,067 common shares outstanding . key transactions in 2016 during 2016 , we completed acquisitions of 95 operating healthcare properties ( including 5 condominium units and the chi portfolio ) and 1 land parcel , located in 23 states for an aggregate purchase price of approximately $ 1.27 billion . in addition , we funded $ 14.2 million of other investments , including the issuance of loans , the acquisition of an equity interest in a joint venture , and buyouts of noncontrolling interests , resulting in total investments of $ 1.29 billion . acquisitions are detailed in note 3 to our consolidated financial statements included in item 8 to this report . during 2016 , we entered into separate agreements to purchase 52 medical office facilities ( which we now treat as 53 medical office facilities because we consider a certain condominium property as being separate from a nearby surgical center property ) from regional health systems controlled by catholic health initiatives ( “ chi ” ) containing 3,159,495 rentable square feet located in 10 states ( the “ chi portfolio ” ) . to date , we have completed the acquisition of 49 of the properties in the chi portfolio representing 3,016,926 net leasable square feet . we elected not to complete the acquisition of 2 of the chi portfolio properties . we still have one property under one of the original agreements to purchase a medical office facility in fruitland , idaho for $ 4.8 million , and we entered into a separate agreement to purchase a newly constructed medical office facility in omaha , nebraska for approximately $ 33.4 million that is 100 % leased and will be 100 % occupied by chi 's affiliate , creighton university medical center , upon its completion of certain tenant improvements . we anticipate closing on the omaha , nebraska medical office facility during the first quarter of 2017 and on the fruitland , idaho medical office facility later in 2017. in addition , we completed several key financing transactions during fiscal year 2016 , which are summarized under the heading “ liquidity and capital resources ” below . certain government regulations the healthcare industry is heavily regulated by u.s. federal , state and local governmental authorities . our tenants generally are subject to laws and regulations covering , among other things , licensure , certification for participation in government programs , billing for services , privacy and security of health information and relationships with physicians and other referral sources . in addition , new laws and regulations , changes in existing laws and regulations or changes in the interpretation of such laws or regulations could negatively affect our financial condition and the financial condition of our tenants . these changes , in some cases , could apply retroactively . the enactment , timing or effect of legislative or regulatory changes can not be predicted . the patient protection and affordable care act of 2010 ( the “ affordable care act ” ) and the health care and education reconciliation act of 2010 , which amends the affordable care act ( collectively , the “ health reform laws ” ) are changing how healthcare services are covered , delivered and reimbursed through expanded coverage of uninsured individuals and reduced medicare program spending . in addition , the new law reforms certain aspects of health insurance , expands existing efforts to tie medicare and medicaid payments to performance and quality and contains provisions intended to strengthen fraud and abuse enforcement . story_separator_special_tag the complexities and ramifications of the affordable care act are significant and are being implemented in a phased approach which began in 2010. at this time , it is difficult to predict the full effects of the affordable care act and its impact on our business , our revenues and financial condition and those of our tenants due to the law 's complexity , lack of implementing regulations or interpretive guidance , gradual implementation and possible amendment . further , we are unable to foresee how individuals and businesses will respond to the choices afforded them by the affordable care act , or the effect of any potential changes made to the affordable care act or other healthcare laws and programs . the affordable care act could adversely affect the reimbursement rates received by our tenants , the financial success of our tenants , and strategic partners and consequently us . 50 on june 28 , 2012 , the united states supreme court upheld the individual mandate of the affordable care act but partially invalidated the expansion of medicaid . the ruling on medicaid expansion allow states not to participate in the expansion ( and to forego funding for the medicaid expansion ) without losing their existing medicaid funding . while the u.s. federal government paid for approximately 100 % of those additional costs from 2014 to 2016 , states now are expected to pay a small percentage of those additional costs . because the u.s. federal government substantially funds the medicaid expansion , it is unclear how many states ultimately will elect this option . the participation by states in the medicaid expansion could have the effect of increasing some of our tenants ' revenues but also could be a strain on u.s. federal government and state budgets . since the enactment of the affordable care act , there have been multiple attempts through legislative action and legal challenge to repeal or amend the law , including the case that was before the u.s. supreme court , king v. burwell . although the supreme court in burwell upheld the use of subsidies to individuals in federally-facilitated health care exchanges on june 25 , 2015 , which ultimately did not disrupt significantly the implementation of the health reform laws , we can not predict whether other current or future efforts to repeal or amend the health reform laws will be successful , nor can we predict the impact that such a repeal or amendment would have on our operators or tenants and their ability to meet their obligations to us . president trump and leadership in congress have publicly stated their intention to repeal and replace the affordable care act . on january 20 , 2017 , president trump issued an executive order stating that it is the administration 's official policy to repeal the affordable care act and instructing the secretary of health and human services and the heads of all other executive departments and agencies with authority and responsibility under the affordable care act to , among other matters , delay implementation of or grant an exemption from any provision of the affordable care act that would impose a fiscal burden on any state or a cost , fee , tax , penalty , or regulatory burden on individuals , families , healthcare providers , health insurers , patients , and others . we can not predict the effect of this executive order on the affordable care act , or whether the attempt to repeal and replace the law will be successful . further , we can not predict how the affordable care act might be amended or modified , either through the legislative or judicial process , and how any such modification might impact our tenants ' operations or the net effect of this law on us . if the operations , cash flows or financial condition of our operators and tenants are materially adversely impacted by any repeal or modification of the law , our revenue and operations may be adversely affected as well . recent developments on december 22 , 2016 , the trust 's board of trustees authorized and we declared a cash distribution of $ 0.225 per common share and common op unit for the quarterly period ended december 31 , 2016 . the distribution was paid on january 18 , 2017 to common shareholders and op unit holders of record as of the close of business on january 5 , 2017 . on january 12 , 2017 , 91,236 series a preferred units issued in conjunction with the nashville mob acquisition were redeemed for a total value of $ 20.0 million . 2017 property acquisitions since january 1 , 2017 , we have completed acquisitions of 4 healthcare properties for an aggregate purchase price of $ 109.5 million containing an aggregate of 238,312 net leasable square feet . in addition , we funded an aggregate $ 2.3 million of loans in 2 separate transactions , resulting in aggregate investment activity of $ 111.8 million . property acquisitions subsequent to january 1 , 2017 are summarized below . replace_table_token_10_th we expect to acquire between $ 800 million and $ 1 billion of real estate during 2017 , including the approximately $ 109.5 million of acquisitions described above . 51 assets slated for disposition the company has determined that certain past and future rental payments and prepaid expenses from 4 assets affiliated with foundation healthcare , inc. ( otc : fdnh ) ( “ foundation healthcare ” ) may be uncollectible at this time and has reserved approximately $ 3.7 million against previously recognized rental revenue , prepaid expenses , and deferred rent . $ 1.1 million of this charge is attributable to a lease default by foundation healthcare 's wholly-owned subsidiary that rented a medical office facility from us in oklahoma city , oklahoma . we have entered in to a purchase and sale agreement to sell this medical office building for $ 15.3 million .
| expenses total expenses increase d by $ 92.7 million , or 79.3 % , for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 . an analysis of selected expenses follows . interest expense . interest expense for the year ended december 31 , 2016 was $ 23.9 million compared to $ 10.6 million for the year ended december 31 , 2015 , representing an increase of $ 13.2 million , or 124.4 % . an increase of $ 7.9 million resulted from the issuance of our senior notes , an increase of $ 3.5 million resulted from borrowings under the term loan provision of our unsecured credit facility , an increase of $ 1.0 million resulted from the amortization deferred financing fees on our credit facility , and an increase of $ 0.9 million was the result of an increase in interest on new mortgage debt . 54 general and administrative . general and administrative expenses increase d $ 3.5 million or 23.4 % , from $ 14.9 million during the year ended december 31 , 2015 to $ 18.4 million during the year ended december 31 , 2016 . the increase included salaries and benefits of $ 2.0 million ( including non-cash share compensation of $ 0.8 million ) , increased office expenditures of $ 0.7 million , and increased travel expenditures of $ 0.3 million . operating expenses . operating expenses increase d $ 35.0 million or 112.7 % , from $ 31.0 million during the year ended december 31 , 2015 to $ 66.0 million during the year ended december 31 , 2016 . the increase is primarily due to our 2016 and 2015 property acquisitions which resulted in additional operating expenses of $ 19.8 million and $ 11.8 million , respectively . depreciation and amortization . depreciation and amortization increase d $ 41.1 million , or 90.4 % , from $
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we potentially will have to issue additional debt or equity or enter into a strategic arrangement with a third party to carry out some aspects of our business plan . if we need to raise additional funds through the issuance of equity , equity-related or convertible debt securities in the future , these securities may have rights , preferences or privileges senior to those of the rights of holders of our common stock . we can not predict whether additional financing will be available to us on favorable terms when required , or at all . the issuance of additional common stock may have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock . historically , we have financed our cash needs by private placements of our securities and loans , bank financing and revenues from sales of our products . there is no assurance that we will be able to obtain financing on terms consistent with our past financings or satisfactory to us , if at all . 19 we currently have no agreements , arrangements or understandings with any person to obtain funds through bank loans , lines of credit or any other sources . since we have no other such arrangements or plans currently in effect , our inability to raise funds for the above purposes will have a severe negative impact on our ability to remain a viable company . we are dependent upon our significant shareholders to provide or loan us funds to meet our working capital needs . in anticipation of increased sales resulting from our developing product pipeline , we completed financing transactions that provided us with increased liquidity and a strengthened balance sheet . the following is a summary of these completed financing transaction : revolving line of credit from city national bank of florida . on august 2 , 2017 , the company issued a promissory note to city national bank of florida ( “ cnb ” ) in the principal amount of $ 2,000,000 , the cnb note , with a maturity date of august 2 , 2018. on september 26 , 2018 , the company and cnb agreed to extend the maturity date of the promissory note to august 2 , 2019. the company evaluated the modification under asc 470-50 and determined that it did not qualify as an extinguishment of debt . the note evidences a revolving line of credit with advances that may be requested by the company until the maturity date of august 2 , 2019 so long as no event of default exists under the note , the company or mr. nussbaum does not cease doing business , mr. nussbaum does not seek to revoke or modify his guarantee of the note , the company does not misapply the proceeds of this loan or cnb in good faith does not believe itself insecure . the initial cnb note bore an interest rate at a variable rate equal to 0.250 percentage points over the wall street journal prime rate payable monthly . at renewal , the variable rate was increased to 1.0 percentage points over the wall street journal prime rate . the company will pay to cnb a late charge of 5.0 % of any monthly payment not received by lender within 10 calendar days after its due date . the company may prepay the note at any time without penalty . in the event of a default , the interest rate will increase to the highest lawful rate . the company is obligated to maintain depository accounts with cnb with a minimum average annual balance of $ 1,600,000 based on the company and guarantor 's annualized balances . in the event the company does not maintain this account balance , cnb may charge the company a fee equal to 2 % of the deficiency as additional interest under the note . the cnb note is personally guaranteed by mr. nussbaum , the company 's chief executive officer pursuant to written guarantee in favor of cnb ( the “ cnb guarantee ” ) . mr. nussbaum and the company are obligated to maintain an aggregate unencumbered liquidity of no less than $ 6,000,000 in the form of cash , repurchase agreements , certificates of deposit or marketable securities acceptable to cnb . in addition , to secure our obligations under the note , we entered into a security agreement in favor of cnb ( the “ security agreement ” ) encumbering all of our accounts , inventory and equipment along with an assignment of a bank account we maintain at cnb with a balance of $ 120,000. as of december 31 , 2018 , $ 2,000,000 has been drawn against the line of credit , an increase of $ 1,000,000 over the balance at december 31 , 2017. series 2017 secured convertible note . on december 21 , 2018 , the company entered into an amendment with frost nevada investments trust to reduce the conversion price under such notes to $ 0.50 per share in exchange for frost nevada 's agreement to convert the principal amount and accrued interest under such notes concurrently with the execution of the amendment . the company issued 4,030,740 shares of common stock to frost gamma in full settlement of the $ 2,000,000 principal balance and $ 15,370 accrued interest . convertible promissory notes series 2016 . on december 21 , 2018 , the company entered into amendments with the owners and holders of the series 2016 convertible notes to reduce the conversion price under such notes to $ 0.50 per share in exchange for the holders of such convertible notes agreement to convert the principal amount and accrued interest under such notes concurrently with the execution of the amendment . story_separator_special_tag the company issued 3,177,411 shares of common stock to frost gamma in full settlement of the $ 1,500,000 principal balance and $ 88,705 accrued interest . the company issued 3,000,000 shares of common stock to jay nussbaum in full settlement of the $ 1,500,000 principal balance and settled $ 88,212 accrued interest in cash . 20 the accompanying consolidated financial statements and notes have been prepared assuming the company will continue as a going concern . for the year ended december 31 , 2017 , the company incurred a net loss of $ 10,323,992 , generated negative cash flow from operations , has an accumulated deficit of $ 29,996,777 and working capital deficit of $ 557,195. at that time , those circumstances raised substantial doubt as to the company 's ability to continue as a going concern . during 2018 , the company met or exceeded the factors that predicated the going concern in 2017 which is more fully described in note 2–management 's liquidity plan in the notes . the company 's ability to continue as a going concern is dependent upon the company 's ability to create and market innovative products , raise capital , reduce debt or renegotiate terms , and to sustain adequate working capital to finance its operations . the failure to achieve the necessary levels of profitability and cash flows or obtain additional funding would be detrimental to the company . the consolidated financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern . sources and uses of cash replace_table_token_2_th operating activities : net cash used in operating activities during 2018 was $ 2,387,731 , which was a decrease of $ 938,291 , or 28 % , from $ 3,326,022 net cash used in operating activities during 2017. the net loss of $ 8,475,313 for 2018 was $ 1,848,679 less than the same period of 2017 , which was $ 10,323,992. inventory decreased $ 683,772 to $ 307,925 in 2018 primarily due to a write down of $ 565,406 for parts and finished goods not expected to be monetized in the next twelve months . the company recorded $ 4,746,605 in non-cash stock-based compensation expenses which was a decrease of $ 1,856,201 in 2018 from the previous year . the company recognized a non-cash gain on derivative liability of $ 1,831,635 offset by $ 1,409,790 amortization of debt discount expense and $ 681,988 loss on debt extinguishment in 2017. investing activities : net cash provided by investing activities was $ 54,721 in 2018 compared to $ 73,817 net cash used in investing activities in 2017 , a positive difference of $ 128,538. net cash provided by investing activities for 2018 was comprised of $ 60,000 from the sale of a vehicle partially offset in both periods by purchases of fixed assets that included shop machines and equipment , computers , electronics and furniture and equipment . the company plans to invest in upgraded aerostat manufacturing equipment and leasehold improvements for newly leased space to accommodate expanded aerostat manufacturing in 2019. financing activities : financing activities during 2018 and 2017 included $ 1,000,000 proceeds from a bank line of credit , $ 1,000,000 proceeds from a related party convertible note payable and $ 100,000 proceeds from a short-term related party note which was subsequently repaid . in 2018 , financing activity included $ 2,000,000 proceeds from the sale of common stock . as of december 31 , 2018 , the company has common stock outstanding , as well as a bank line of credit . off-balance sheet arrangements we do not have any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition , changes in financial condition , revenues , expenses , results of operations , liquidity , capital expenditures or capital resources . 21 critical accounting policies and estimates the following is not intended to be a comprehensive list of our accounting policies or estimates . our significant accounting policies are more fully described in note 1–summary of significant accounting policies in the notes . in preparing our financial statements and accounting for the underlying transactions and balances , we apply our accounting policies and estimates as disclosed in the notes . we consider the policies and estimates discussed below as critical to an understanding of our financial statements because their application places the most significant demands on our judgment , with financial reporting results dependent on estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . specific risks for these critical accounting estimates are described in the following paragraphs . the impact and any associated risks related to these estimates on our business operations are discussed throughout this md & a where such estimates affect our reported and expected financial results . preparation of this annual report requires us to make estimates and assumptions that affect the reported amount of assets and liabilities , disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period . actual results may differ from those estimates . besides estimates that meet the “ critical ” accounting estimate criteria , we make many other accounting estimates in preparing our financial statements and related disclosures . all estimates , whether or not deemed critical , affect reported amounts of assets , liabilities , revenue and expenses as well as disclosures of contingent assets and liabilities . estimates are based on experience and other information available prior to the issuance of the financial statements . materially different results can occur as circumstances change and additional information becomes known , including for estimates that we do not deem “ critical.
| margins also vary based on customer payload selection ; therefore , future margins may vary accordingly . general and administrative expenses : general and administrative ( “ g & a ” ) expense primarily consists of payroll and related costs , sales and marketing costs , research and development costs , business overhead and costs related to maintaining a public entity . g & a expense decreased by $ 1,430,477 , or 14 % , to $ 8,639,364 in 2018 from $ 10,069,841 in 2017. contributing to the decrease was non-cash stock-based compensation which decreased $ 1,856,201 or 28 % in 2018 to $ 4,746,605 from $ 6,602,806 in 2017. research and development expenses decreased $ 244,753 or 70 % to $ 107,015 in 2018 from $ 351,768 in 2017. this decrease was anticipated as the company is relying on past research and development to support its current products . future research and development costs are not expected to rise significantly . marketing expense in 2018 was $ 185,284 which was a decrease of $ 128,900 , or 41 % , from marketing expense of $ 314,184 in 2017. during 2017 , the company conducted a thirty-day demonstration on the us/mexican border which caused an increase that year . legal expense decreased $ 73,747 or 56 % to $ 58,671 in 2018 from $ 132,418 in 2017. legal defense costs in the banco matter decreased approximately $ 28,000 in 2018 and the company saved approximately $ 40,000 on securities counsel when it changed representation to another highly qualified firm . payroll expense increased by $ 940,570 or 70 % to $ 2,275,256 in 2018 from $ 1,334,686 in 2017. payroll increased approximately $ 84,000 due to bringing a contractor onto salary , $ 75,000 due to the bonus effect of payroll taxes paid on the vesting of the september 2016 stock awards and $ 670,000 bonuses approved for milestone achievements in 2018 , $ 350,000 of which remain accrued at december 31 , 2018 and salary adjustments . 18 loss from
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we evaluate each expansion project on the basis of its ability to produce sustained returns in excess of our cost of capital and its ability to improve efficiency or reduce operating costs . we also regularly look at acquisition opportunities that would be consistent with , or complimentary to , our overall business strategies . depending on the size of the acquisition , any such acquisitions could require external financing . as noted above in item 1a , `` risk factors , '' we are subject to extensive environmental regulations , which may impose significant additional costs on our operations in the future . further , concerns about ghg emissions and their possible effects on climate change has led to the enactment of regulations , and to proposed legislation and additional regulations , that could affect us in the form of increased cost of feedstocks and fuel , other increased costs of production and decreased demand for our products . while we do not expect any of these enactments or proposals to have a material adverse effect on us in the near term , we can not predict the longer-term effect of any of these regulations or proposals on our future financial condition , results of operations or cash flows . non-gaap financial measures the body of accounting principles generally accepted in the united states is commonly referred to as `` gaap . '' for this purpose , a non-gaap financial measure is generally defined by the sec as one that purports to measure historical or future financial performance , financial position or cash flows that ( 1 ) excludes amounts , or is subject to adjustments that have the effect of excluding amounts , that are included in the most directly comparable measure calculated and presented in accordance with gaap in the statement of income , balance sheet or statement of cash flows ( or equivalent statements ) of the registrant ; or ( 2 ) includes amounts , or is subject to adjustments that have the effect of including amounts , that are excluded from the most directly comparable measure so calculated and presented . in this report , we disclose non-gaap financial measures , primarily earnings before interest , taxes , depreciation and amortization ( `` ebitda '' ) . we define ebitda as net income before interest expense , income taxes , depreciation and amortization . the non-gaap financial measures described in this form 10-k are not substitutes for the gaap measures of earnings and cash flows . ebitda is included in this form 10-k because our management considers it an important supplemental measure of our performance and believes that it is frequently used by securities analysts , investors and other interested parties in the evaluation of companies in our industry , some of which present ebitda when reporting their results . we regularly evaluate our performance as compared to other companies in our industry that have different financing and capital structures and or tax rates by using ebitda . in addition , we utilize ebitda in evaluating acquisition targets . management also believes that ebitda is a useful tool for measuring our ability to meet our future debt service , capital expenditures and working capital requirements , and ebitda is commonly used by us and our investors to measure our ability to service indebtedness . ebitda is not a substitute for the gaap measures of net income , income from operations and net cash provided by operating activities and is not necessarily a measure of our ability to fund our cash needs . in addition , it should be noted that companies calculate ebitda differently and , therefore , ebitda as presented for us may not be comparable to ebitda reported by other companies . ebitda has material limitations as a performance measure because it excludes interest expense , depreciation and amortization and income taxes . 30 significant developments covid-19 , industry conditions and our business on march 11 , 2020 , the world health organization declared the ongoing covid-19 outbreak a pandemic and recommended containment and mitigation measures worldwide . the pandemic has resulted in widespread adverse impacts on the global economy . we experienced significant disruptions in the second quarter of 2020 as the pandemic and its impact on the global economy spread through most of our markets . while demand for some of our products used in cleaning , packaging and medical applications and manufacturing continues to be firm , we expected lower demand for certain of our other products that led us to proactively temporarily idle production at several of our smaller non-integrated plants and reduce operating rates at others in the beginning of the second quarter of 2020. since the middle of the second quarter of 2020 , a general ease in government restrictions in many jurisdictions across the world has resulted in a gradual increase in demand for our products . as a result , all of our idled plants recommenced production . operating rates have improved over the course of the third and the fourth quarters of 2020 for most of our plants due to continuing increase in demand for our products . for a discussion of the additional impact on plant operating rates from hurricanes in the second half of 2020 , see `` impact of hurricanes laura and delta `` below . we continue to monitor the volatile environment and may reduce operating rates or idle production if the pandemic and its financial impacts persist or worsen . considering the uncertain and volatile environment , we could continue to experience significant disruptions to our business operations in the near future . our first priority in our response to this crisis has been the health and safety of our employees and those of our customers and vendors . we have implemented preventative measures and developed corporate and regional response plans to minimize unnecessary risk of exposure . story_separator_special_tag we have modified certain business practices ( including those related to employee travel , employee work locations and employee work practices ) to conform to government restrictions and best practices encouraged by the center for disease control and prevention , the world health organization and other governmental and health authorities . though the government restrictions across the world generally started to ease in the later part of the second quarter of 2020 , there is considerable uncertainty regarding the extent to which covid-19 will continue to spread and the extent and duration of governmental and other measures implemented to try to slow the spread of the virus , such as large-scale travel bans and restrictions , border closures , quarantines , shelter-in-place orders and business and government shutdowns ( whether through a continuation of existing measures or the re-imposition of prior measures ) . certain parts of the world may see the implementation of new government restrictions due to a recent increase in covid-19 cases . restrictions of this nature have caused , and may continue to cause , us and our customers to experience reduced demand and operational delays . lockdowns across the world and curtailed business activities specifically in transportation , construction , automotive and oil and gas related activities have resulted in and may continue to result in an oversupplied market . due to the sudden collapse of crude oil prices in early march 2020 , the cost advantage of north american ethane-based ethylene producers over naphtha-based ethylene producers has been significantly eroded . we started seeing impact from this erosion towards the end of the first quarter of 2020. crude oil prices have recovered somewhat since the second quarter of 2020 , and the cost advantage of north american ethane-based ethylene producers has improved as well . if this trend is not sustained in the future , it could continue to result in reduced prices and lower margins for some of our products in the vinyls segment and the olefins segment . we have taken proactive actions to respond to the challenges presented by the conditions described above and minimize the impact to our business . we have implemented strategies to reduce costs , increase operational efficiencies , maintain strong liquidity and lower our capital spending . additionally , we deferred the planned turnaround at our petro 2 ethylene unit and associated maintenance cost into the second half of 2021. the turnaround is expected to last approximately 60 days . in addition , as of december 31 , 2020 , we had $ 1,313 million of cash and cash equivalents on our consolidated balance sheet , which remains available to support our operations , in addition to the $ 1 billion of availability under the credit agreement . on june 4 , 2020 , we fully repaid our borrowings of $ 1 billion under the credit agreement from march 20 , 2020. the impact that covid-19 will have on our business , cash flows , liquidity , financial condition and results of operations will depend on future developments , including , among others , the ultimate geographic spread and severity of the virus , the consequences of governmental and other measures designed to prevent the spread of the virus , the development of effective treatments and vaccines and their roll out , the duration of the outbreak , actions taken by governmental authorities , customers , suppliers and other third parties , workforce availability , and the timing and extent to which normal economic and operating conditions resume . 31 cares act on march 27 , 2020 , the coronavirus aid , relief , and economic security act ( the `` cares act '' ) was enacted and signed into law . the cares act , among other things , permits any federal net operating loss ( `` nol '' ) generated in 2018 , 2019 and 2020 to be carried back to each of the five tax years preceding the tax year of the federal nol to fully offset taxable income to generate a refund of previously paid income taxes . however , any such federal nol not carried back can be carried forward to fully offset taxable income , but only for the taxable years beginning before january 1 , 2021 , after which , the federal nol deduction limitation not to exceed 80 % of taxable income under the u.s. tax cuts and jobs act ( the `` tax act '' ) will be reinstated . federal nols generated in 2018 , 2019 and 2020 measured at the current u.s. corporate tax rate of 21 % that are carried back to taxable years prior to the tax act to fully offset taxable income taxed at the u.s. corporate tax rate of 35 % result in an income tax rate benefit . at the end of 2019 , we generated a federal nol primarily due to bonus tax depreciation from the company 's investment in lacc , llc ( `` lacc '' ) , which is accounted for as an equity method investment . this federal nol was increased to account for the disallowed interest deduction which originated in 2019 that is no longer disallowed due to the increase in the business interest expense deduction limitation from 30 % to 50 % of adjusted taxable income for tax years 2019 and 2020 as permitted under the cares act . for the year ended december 31 , 2020 , the carryback of the federal nol resulted in a net tax benefit of $ 95 million for the company , primarily from the tax rate difference , partially offset by the reduction in the internal revenue code section 199 ( `` section 199 '' ) domestic manufacturing deduction . 3.375 % senior notes due 2030 on june 12 , 2020 , we completed the registered public offering of $ 300 million aggregate principal amount of the 3.375 % 2030 senior notes .
| ( 10 ) average north american export price for low density polyethylene gp-film grade over the period . ( 11 ) average north american low spot export prices of caustic soda over the period . ( 12 ) average north american spot export prices of pvc over the period . 35 summary for the year ended december 31 , 2020 , net income attributable to westlake chemical corporation was $ 330 million , or $ 2.56 per diluted share , on net sales of $ 7,504 million . this represents a decrease in net income attributable to westlake chemical corporation of $ 91 million , or $ 0.69 per diluted share , compared to 2019 net income attributable to westlake chemical corporation of $ 421 million , or $ 3.25 per diluted share , on net sales of $ 8,118 million . net income for the year ended december 31 , 2020 decreased versus the prior year primarily due to lower global sales prices for several of our major products , including caustic soda , and lower sales volumes for caustic soda resulting from the impact of the covid-19 pandemic and lower crude oil prices . net income for 2020 was also impacted by the shutdowns of our lake charles facilities in the second half of 2020 due to hurricanes laura and delta , which resulted in lower plant operating rates , higher maintenance expense and lower production for many of our major products . in addition , in 2020 we had a higher interest expense related to higher average borrowings . these decreases were partially offset by the income tax rate benefit of $ 95 million , or $ 0.74 per diluted share , resulting from the carryback of federal net operating losses permitted by the cares act , higher sales volumes for downstream building products , higher contributions from our ethylene joint venture lacc , llc ( `` lacc '' ) and lower fuel costs and selling , general and administrative expenses . income from operations was $ 429 million for the year ended december 31 , 2020 as compared to $ 656 million for the year ended december 31 , 2019 , a
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results of operations financial data replace_table_token_15_th 38 table of content other financial data replace_table_token_16_th ( 1 ) earnings before interest , taxes , depreciation and amortization , which we refer to as “ ebitda , ” is calculated as net income ( loss ) attributable to hollyfrontier stockholders plus ( i ) interest expense , net of interest income , ( ii ) income tax provision , and ( iii ) depreciation and amortization . ebitda is not a calculation provided for under gaap ; however , the amounts included in the ebitda calculation are derived from amounts included in our consolidated financial statements . ebitda should not be considered as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity . ebitda is not necessarily comparable to similarly titled measures of other companies . ebitda is presented here because it is a widely used financial indicator used by investors and analysts to measure performance . ebitda is also used by our management for internal analysis and as a basis for financial covenants . ebitda presented above is reconciled to net income under “ reconciliations to amounts reported under generally accepted accounting principles ” following item 7a of part ii of this form 10-k. supplemental segment operating data our operations are organized into three reportable segments , refining , lubricants and specialty products and hep . see note 20 “ segment information ” in the notes to consolidated financial statements for additional information on our reportable segments . refining segment operating data our refinery operations include the el dorado , tulsa , navajo , cheyenne and woods cross refineries . the following tables set forth information , including non-gaap performance measures , about our consolidated refinery operations . the cost of products and refinery gross and net operating margins do not include the non-cash effects of goodwill and asset impairments charges , lower of cost or market inventory valuation adjustments and depreciation and amortization . reconciliations to amounts reported under gaap are provided under “ reconciliations to amounts reported under generally accepted accounting principles ” following item 7a of part ii of this form 10-k. replace_table_token_17_th ( 1 ) crude charge represents the barrels per day of crude oil processed at our refineries . ( 2 ) refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other conversion units at our refineries . ( 3 ) represents barrels sold of refined products produced at our refineries ( including hfc asphalt ) and does not include volumes of refined products purchased for resale or volumes of excess crude oil sold . ( 4 ) represents crude charge divided by total crude capacity ( bpsd ) . our consolidated crude capacity is 457,000 bpsd . ( 5 ) represents average amount per produced barrel sold , which is a non-gaap measure . reconciliations to amounts reported under gaap are provided under “ reconciliations to amounts reported under generally accepted accounting principles ” following item 7a of part ii of this form 10-k. 39 table of content ( 6 ) excludes lower of cost or market inventory valuation adjustments . ( 7 ) represents total refining segment operating expenses , exclusive of depreciation and amortization , divided by sales volumes of refined products produced at our refineries . ( 8 ) represents total refining segment operating expenses , exclusive of depreciation and amortization , divided by refinery throughput . lubricants and specialty products segment operating data the following table sets forth information about our lubricants and specialty products operations and includes our petro-canada lubricants business for the period february 1 , 2017 ( date of acquisition ) through december 31 , 2017. red giant oil is included for the period august 1 , 2018 ( date of acquisition ) through december 31 , 2018. replace_table_token_18_th our lubricants and specialty products segment includes base oil production activities , by-product sales to third parties and intra-segment base oil sales to rack forward referred to as “ rack back. ” “ rack forward ” includes the purchase of base oils and the blending , packaging , marketing and distribution and sales of finished lubricants and specialty products to third parties . supplemental financial data attributable to our lubricants and specialty products segment is presented below : replace_table_token_19_th ( 1 ) rack back consists of our pcli base oil production activities , by-product sales to third parties and intra-segment base oil sales to rack forward . ( 2 ) rack forward activities include the purchase of base oils from rack back and the blending , packaging , marketing and distribution and sales of finished lubricants and specialty products to third parties . 40 table of content ( 3 ) intra-segment sales of rack back produced base oils to rack forward are eliminated under the “ eliminations ” column . results of operations – year ended december 31 , 2018 compared to year ended december 31 , 2017 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > $ 131.4 million for the year ended december 31 , 2018 compared to $ 117.6 million for the year ended december 31 , 2017 . this increase was due to interest attributable to higher debt levels and market interest rate increases during the current year relative to 2017 . for the years ended december 31 , 2018 and 2017 , interest expense included $ 71.9 million and $ 58.4 million , respectively , in interest costs attributable to hep operations . loss on early extinguishment of debt for the year ended december 31 , 2017 , a $ 12.2 million loss was recorded upon hep 's redemption of its $ 300 million aggregate principal amount of 6.5 % senior notes maturing march 2020 at a cost of $ 309.8 million . story_separator_special_tag gain on foreign currency transactions remeasurement adjustments resulting from the conversion of the intercompany financing structure on our pcli acquisition from local currencies to the u.s. dollar resulted in $ 6.2 million and $ 16.9 million gains for the years ended december 31 , 2018 and 2017 , respectively . the $ 6.2 million gain for 2018 consists of a $ 41.8 million gain on foreign exchange forward contracts ( utilized as an economic hedge ) , net of a $ 35.6 million remeasurement loss on our intercompany financing structure . gain on foreign currency swap during the year ended december 31 , 2017 , we recorded a $ 24.5 million gain on currency swap contracts that effectively fixed the conversion rate on $ 1.125 billion canadian dollars ( the pcli purchase price ) , which were settled on february 1 , 2017 , in connection with the closing of the pcli acquisition . income taxes for the year ended december 31 , 2018 , we recorded an income tax expense of $ 347.2 million compared to an income tax benefit of $ 12.4 million for the year ended december 31 , 2017 . our effective tax rates , before consideration of earnings attributable to the noncontrolling interest , were 22.8 % and ( 1.4 ) % for the years ended december 31 , 2018 and 2017 , respectively . during the year ended december 31 , 2017 , we recorded a tax benefit of $ 307.1 million as a result of the tax cut and jobs act which was enacted on december 22 , 2017 . 42 table of content results of operations – year ended december 31 , 2017 compared to year ended december 31 , 2016 summary net income attributable to hollyfrontier stockholders for the year ended december 31 , 2017 was $ 805.4 million ( $ 4.54 per basic and $ 4.52 per diluted share ) , a $ 1,065.8 million increase compared to a net loss attributable to hollyfrontier stockholders of $ 260.5 million ( $ 1.48 per basic and diluted share ) for the year ended december 31 , 2016. net income increased due principally to an increase in refining segment sales volumes and gross refining margins and the inclusion of earnings attributable to the operations of our petro-canada lubricants business acquired in 2017. additionally , we recorded long-lived asset impairment charges totaling $ 23.2 million for the year ended december 31 , 2017 compared to goodwill and long-lived asset impairment charges totaling $ 654.1 million for the year ended december 31 , 2016. for the year ended december 31 , 2017 , lower of cost or market inventory reserve adjustments increased pre-tax earnings by $ 108.7 million compared to $ 291.9 million for the year ended december 31 , 2016. refinery gross margins for the year ended december 31 , 2017 increased to $ 11.56 per barrel sold from $ 8.16 for the year ended december 31 , 2016. during 2017 , our cheyenne refinery and woods cross refinery were each granted a one-year small refinery exemption from the epa at which time we recorded a $ 30.5 million and $ 27.3 million , respectively , decrease to our cost of products sold , reflecting the reinstatement of rins previously expensed in 2016. the tax cut and jobs act was enacted on december 22 , 2017 , resulting in a tax benefit of $ 307.1 million for the year ended december 31 , 2017. sales and other revenues sales and other revenues increased 35 % from $ 10,535.7 million for the year ended december 31 , 2016 to $ 14,251.3 million for the year ended december 31 , 2017 due to a year-over-year increase in sales prices and higher product sales volumes . sales and other revenues for the years ended december 31 , 2017 and 2016 include $ 77.2 million and $ 68.9 million , respectively , in hep revenues attributable to pipeline and transportation services provided to unaffiliated parties . additionally , the operations of our petro-canada lubricants business contributed $ 1,125.3 million in sales and other revenues to our lubricants and specialty products segment for the year ended december 31 , 2017. cost of products sold total cost of products sold increased 34 % from $ 8,474.1 million for the year ended december 31 , 2016 to $ 11,359.2 million for the year ended december 31 , 2017 , due principally to higher crude oil costs and higher sales volumes of products . additionally , cost of products sold reflects a $ 108.7 million benefit that is attributable to a decrease in the lower of cost or market reserve for the year ended december 31 , 2017 , a $ 183.3 million decrease compared to $ 291.9 million for the same period in 2016. the reserve at december 31 , 2017 is based on market conditions and prices at that time . additionally , we recorded a $ 30.5 million and $ 27.3 million rins cost reduction during 2017 as a result of the reinstatement of previously utilized rins following our cheyenne refinery and woods cross refinery , respectively , small refinery exemptions . gross refinery margins gross refinery margin per barrel sold increased 42 % from $ 8.16 for the year ended december 31 , 2016 to $ 11.56 for the year ended december 31 , 2017. this was due to the effects of an increase in the average per barrel sold sales price , partially offset by increased crude oil and feedstock prices during 2017. gross refinery margin does not include the non-cash effects of lower of cost or market inventory valuation adjustments , goodwill and asset impairment charges or depreciation and amortization . see “ reconciliations to amounts reported under generally accepted accounting principles ” following item 7a of part ii of this form 10-k for a reconciliation to the income statement of sale prices of products sold and cost of products purchased .
| sales and other revenues for the years ended december 31 , 2018 and 2017 include $ 108.4 million and $ 77.2 million , respectively , in hep revenues attributable to pipeline and transportation services provided to unaffiliated parties . additionally , sales and other revenues included $ 1,799.5 million and $ 1,594.0 million in unaffiliated revenues related to our lubricants and specialty products segment for the years ended december 31 , 2018 and 2017 . cost of products sold total cost of products sold increased 24 % from $ 11,359.2 million for the year ended december 31 , 2017 to $ 14,077.1 million for the year ended december 31 , 2018 , due principally to higher crude oil costs . additionally , for the year ended december 31 , 2018 , we recognized a $ 136.3 million lower of cost or market inventory valuation charge compared to a benefit of $ 108.7 million for the same period of 2017 , resulting in a new $ 360.1 million inventory reserve at december 31 , 2018 . the reserve at december 31 , 2018 is based on market conditions and prices at that time . during the years ended december 31 , 2018 and 2017 , we recorded $ 97.0 million and $ 57.8 million , respectively , rins cost reduction as a result of our cheyenne refinery and woods cross refinery small refinery exemptions . gross refinery margins gross refinery margin per barrel sold increased 53 % from $ 11.56 for the year ended december 31 , 2017 to $ 17.71 for the year ended december 31 , 2018 . this was due to the effects of an increase in the average per barrel sold sales price , partially offset by increased crude oil and feedstock prices during the current year . gross refinery margin does not include the non-cash effects of lower of cost or market inventory valuation adjustments , asset impairment charges or depreciation and amortization . see “ reconciliations to amounts reported under generally accepted accounting principles ” following item
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if available , and determined by management to be appropriate , appraised values are used , rather than these estimated values . because we believe that substantially all of the leases in place at properties we will acquire will be at market rates , as the majority of the leases are month-to-month contracts , we do not expect to allocate any portion of the purchase prices to above or below market leases . the determination of market rates is also subject to a number of estimates and assumptions . our allocations of purchase prices could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements , as such allocations may vary dramatically based on the estimates and assumptions we use . real estate facilities real estate facilities are recorded at cost . we capitalize costs incurred to develop , construct , renovate and improve properties , including interest and property taxes incurred during the construction period . the construction period begins when expenditures for the real estate assets have been made and activities that are necessary to prepare the asset for its intended use are in progress . the construction period ends when the asset is substantially complete and ready for its intended use . 36 impairment of long-lived assets the majority of our assets consist of long-lived real estate assets as well as intangible assets related to our acquisitions . we will continually evaluate such assets for impairment based on events and changes in circumstances that may arise in the future and that may impact the carrying amounts of our long-lived assets . when indicators of potential impairment are present , we will assess the recoverability of the particular asset by determining whether the carrying value of the asset will be recovered , through an evaluation of the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition . this evaluation is based on a number of estimates and assumptions . based on this evaluation , if the expected undiscounted future cash flows do not exceed the carrying value , we will adjust the value of the long-lived asset and recognize an impairment loss . our evaluation of the impairment of long-lived assets could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements , as the amount of impairment loss , if any , recognized may vary based on the estimates and assumptions we use . estimated useful lives of long-lived assets we assess the useful lives of the assets underlying our properties based upon a subjective determination of the period of future benefit for each asset . we will record depreciation expense with respect to these assets based upon the estimated useful lives we determine . our determinations of the useful lives of the assets could result in a materially different presentation of the financial statements or materially different amounts being reported in the financial statements , as such determinations , and the corresponding amount of depreciation expense , may vary dramatically based on the estimates and assumptions we use . consolidation considerations current accounting guidance provides a framework for identifying vies and determining when a company should include the assets , liabilities , noncontrolling interests , and results of activities of the vie in its consolidated financial statements . in general , a variable interest entity ( a vie ) is an entity or other legal structure used to conduct activities or hold assets that either ( 1 ) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support , ( 2 ) has a group of equity owners that are unable to make significant decisions about its activities , or ( 3 ) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations . generally , a vie should be consolidated if a party with an ownership , contractual , or other financial interest in the vie ( a variable interest holder ) has the power to direct the vie 's most significant activities and the obligation to absorb losses or right to receive benefits of the vie that could be significant to the vie . a variable interest holder that consolidates the vie is called the primary beneficiary . upon consolidation , the primary beneficiary generally must initially record all of the vie 's assets , liabilities , and noncontrolling interest at fair value and subsequently account for the vie as if it were consolidated based on majority voting interest . goodwill valuation goodwill is recorded as the difference , if any , between the aggregate consideration paid for an acquisition and the fair value of the net tangible assets and other intangible assets acquired . goodwill is allocated to various reporting units , as applicable and is not amortized . we will perform an annual impairment test for goodwill and between annual tests , we will evaluate the recoverability of goodwill whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be fully recoverable . in our impairment tests of goodwill , we will first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if based on this assessment , management determines that the fair value of the reporting unit is not less than its carrying amount , then performing the additional two-step impairment test is unnecessary . if the carrying amount of goodwill exceeds its fair value , an impairment charge will be recognized . trademark valuation trademarks are based on the value of our brands . trademarks are valued using the relief from royalty method , which presumes that without ownership of such trademarks , we would have to make a stream of payments to a brand or franchise owner in return for the right to use their name . story_separator_special_tag by virtue of this asset , we avoid any such payments and record the related intangible value of our ownership of the brand name . we used the following significant projections and assumptions to determine value under the relief from royalty method : revenues ; royalty rate ; tax expense ; terminal growth rate ; and discount rate . for the smartstop ® trademark , the projections underlying this relief from royalty model were forecasted for eight years and then a terminal value calculation was applied . for the strategic storage ® trademark , the projections underlying the relief from royalty model were forecasted for 6 years . applying the selected pretax royalty rates to the applicable revenue base in 37 each period yielded pretax income for each of our trademarks . these pretax totals were tax effected utilizing the applicable tax rate to arrive at net , after-tax cash flows . the net , after-tax flows were then discounted to present value utilizing an appropriate discount rate . the present value of the after-tax cash flows were then added to the present value of the amortization tax benefit ( considering the 15-year amortization of intangible assets pursuant to u.s. tax legislation ) to arrive at the recommended fair values for the trademarks . we will evaluate whether any triggering events or changes in circumstances have occurred subsequent to our annual impairment test that would indicate an impairment condition may exist . if any change in circumstance or triggering event occurs , and results in a significant impact to our revenue and profitability projections , or any significant assumption in our valuations methods is adversely impacted , the impact could result in a material impairment charge in the future . reit qualification we made an election under section 856 ( c ) of the code to be taxed as a reit commencing with the taxable year ended december 31 , 2008. by qualifying as a reit for federal income tax purposes , we generally will not be subject to federal income tax on income that we distribute to our stockholders . if we fail to qualify as a reit in any taxable year , we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a reit for federal income tax purposes for four years following the year in which our qualification is denied . such an event could materially and adversely affect our net income and could have a material adverse impact on our financial condition and results of operations . however , we believe that we are organized and operate in a manner that will enable us to qualify for treatment as a reit for federal income tax purposes and we intend to continue to operate as to remain qualified as a reit for federal income tax purposes . story_separator_special_tag margin-bottom:0pt ; text-indent:4 % ; font-size:10pt ; font-family : times new roman '' > property operating expenses for the year ended december 31 , 2014 were approximately $ 31.5 million ( approximately 32.1 % of total revenues ) as compared to property operating expenses for the year ended december 31 , 2013 of approximately $ 28.4 million ( approximately 34.1 % of total revenues ) . property operating expenses includes the costs to operate our facilities including payroll , utilities , insurance , real estate taxes and marketing . the majority of the increase in property operating expenses , approximately $ 2.1 million , arose from the 13 operating properties we acquired in 2013 and 2014 and two canadian development properties that were in lease-up , and an increase in same-store property operating expenses of approximately $ 1.0 million of which approximately $ 0.4 million related to increased payroll as a result of the self administration and investment management transaction . our property operating expenses as a percentage of revenues decreased by approximately 2 % compared to the year ended december 31 , 2013 , primarily due to increased same-store revenues . property operating expenses affiliates property operating expenses affiliates for the year ended december 31 , 2014 were approximately $ 7.9 million ( approximately 8.0 % of total self storage related revenues ) as compared to property operating expenses affiliates for the year ended december 31 , 2013 of approximately $ 9.9 million ( approximately 12.0 % of total self storage related revenues ) . through august 31 , 2014 , property operating expenses affiliates included property management fees and asset management fees . effective august 31 , 2014 , as a result of the self administration and investment management transaction such fees will no longer be incurred . through august 31 , 2014 , property operating expenses affiliates increased over the same period of 2013 primarily due to the 13 operating properties we acquired in 2013 and 2014 and two canadian development properties that were in lease-up ( approximately $ 0.8 million ) . also , during the first nine months of 2013 our former advisor permanently waived certain asset management fees due pursuant to the former advisory agreement totaling approximately $ 0.5 million . such asset management fees were not waived during the first eight months of 2014 and approximately $ 0.5 million of such fees were therefore recorded , thus causing a commensurate increase . additionally , through august 31 , 2014 , an increase in same-store revenues caused an increase in property management fees of approximately $ 0.3 million over the same period of 2013. such increases were offset by the amount of property and asset management fees incurred from september 2013 through december 2013 of approximately $ 3.7 million , which were not incurred from september 2014 through december 2014 due to the self administration and investment management transaction . investment management expenses investment management expenses for the year ended december 31 , 2014 were approximately $ 0.7 million .
| of the 122 properties we owned as of december 31 , 2013 , we owned them for an average of approximately eleven months during 2013. in 2012 , we acquired 19 operating self storage facilities for consideration of approximately $ 93 million . of the 110 properties we owned as of december 31 , 2012 , we owned them for an average of approximately ten months during 2012. in addition , as a result of the self administration and investment management transaction , effective september 1 , 2014 we no longer incur acquisition , asset and property managements fees , which we previously incurred while we were externally advised . however , we now incur additional payroll and overhead related costs . additionally , we now are the sponsor for the managed reits , generating revenue and incurring expenses associated with such activities . 38 due to the items noted above , we believe there is little basis for comparison between the years ended december 31 , 2014 , 2013 and 2012. self administration and investment management transaction impact on september 4 , 2014 , we and our operating partnership entered into the self administration and investment management transaction with ssh and our former advisor , pursuant to which , effective as of august 31 , 2014 , we acquired the self storage advisory , asset management , property management and investment management businesses of ssh , including the assembled management team and workforce , intellectual property ( including all rights to the smartstop ® brand and strategic storage ® related trademarks ) , website , revenue management system and other technologies . the former advisor had been responsible for , among other things , managing our affairs on a day-to-day basis and identifying and making acquisitions and investments on our behalf . as a result of the self administration and investment management transaction , we are now self-managed , and succeed to the advisory , asset management and property management arrangements with the managed reit 's . see note 3 of the notes to the consolidated financial statements contained in this report for additional information . below we have summarized the impact , before noncontrolling interests ,
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the company 's installation services are not considered to be essential to the functionality of the software license . the company does not achieve vendor-specific objective evidence ( “ vsoe ” ) of the fair value of the undelivered elements of its software arrangements ( primarily pcs ) and , therefore , these arrangements are accounted for as a single unit of accounting with revenue recognized ratably over the minimum bundled pcs period . the company 's revenue arrangements ( not involving software elements ) may include multiple elements . in assessing the separation of revenue for elements of such arrangements , we first determine whether each delivered element has standalone value based on whether we or other vendors sell the services separately . we also consider whether there is sufficient evidence of the fair value of the elements in allocating the fees in the arrangement to each element . revenue allocated to an element is limited to revenue that is not subject to refund or otherwise represents contingent revenue . 15 on january 1 , 2011 , the company prospectively adopted accounting standard update ( “ asu ” ) 2009-13 , revenue recognition ( topic 605 ) : multiple-deliverable revenue arrangements ( asu 2009-13 ) . for arrangements entered into or materially modified beginning january 1 , 2011 , we allocated revenue to arrangements with multiple elements based on relative selling price using a selling price hierarchy . the selling price for a deliverable is based on its vsoe if it exists , otherwise third-party evidence of selling price . if neither exists for a deliverable , the best estimate of the selling price is used for that deliverable based on list price , representing a component of management 's market strategy , and an analysis of historical prices for bundled and standalone arrangements . valuation of goodwill and identifiable intangible assets intangible assets include customer relationships , trade names , non-compete agreements and goodwill . intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment . goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized . goodwill is reviewed for impairment at least annually . the goodwill impairment test is a two-step test . under the first step , the fair value of the reporting unit is compared with its carrying value ( including goodwill ) . if the fair value of the reporting unit is less than its carrying value , an indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test ( measurement ) . under step two , an impairment loss is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the fair value of that goodwill . the fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the fair value of the reporting unit goodwill . fair value of the reporting unit is determined using a discounted cash flow analysis and comparable market multiples . if the fair value of the reporting unit exceeds its carrying value , step two does not need to be performed . all of the company 's goodwill is allocated to its reporting units . as of october 1 of each year ( or more frequently as changes in circumstances indicate ) , the company tests goodwill for impairment . under the income approach , there are a number of inputs used to calculate the fair value using a discounted cash flow model , including operating results , business plans , projected cash flows and a discount rate . discount rates , growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment . discount rates are determined by using a weighted average cost of capital , which considers market and industry data . operational management develop growth rates and cash flow projections for each reporting unit considering industry and company-specific historical and projected information . terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant weighted average cost of capital and low long-term growth rates . under the market approach , the company considers its market capitalization , comparisons to other public companies ' data and recent transactions of similar businesses within the company 's industry . no impairments were recorded during the years ended december 31 , 2011 , 2010 or 2009. income taxes the company uses the asset and liability method of accounting for income taxes . under that method , deferred income 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 using enacted tax rates . 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 . valuation allowances , if any , are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized . the company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained . recognized income tax positions are measured at the largest amount that is greater than 50 % likely of being realized . changes in recognition or measurement are reflected in the period in which the change in judgment occurs . management judgment is required to determine the provision for income taxes and to determine whether deferred income taxes will be realized in full or in part . story_separator_special_tag such judgments include , but are not limited to , the likelihood we would realize the benefits of net operating loss carryforwards , the adequacy of valuation allowances , the election to capitalize or expense costs incurred , and the probability of outcomes of uncertain tax positions . it is possible that the various taxing authorities could challenge those judgments or positions and reach conclusions that would cause us to incur tax liabilities in excess of , or realize benefits less than , those currently recorded . in addition , changes in the geographical mix or estimated amount of annual pretax income could impact our overall effective tax rate . 16 story_separator_special_tag acquisition and transition costs associated with the acquisition of ocs , investment in a new product development , expansion of the sales force , and the addition of several executives in various leadership roles . selling , general and administrative expenses increased as a percentage of revenue to 31.9 % in 2010 from 27.8 % in 2009 , mainly due to sales expansion efforts in 2010 throughout the company , acquisition and transition costs associated with ocs and investment in a new product development . depreciation and amortization . depreciation and amortization expenses increased 22.8 % to $ 4.7 million in 2010 from $ 3.8 million in 2009. depreciation and amortization increased as a percentage of revenue to 7.4 % in 2010 from 6.6 % in 2009. approximately $ 351,000 of the increase was related to the acquisition of ocs , with the remainder primarily due to a large software project that was placed into service at the end of 2009. provision for income taxes . the provision for income taxes totaled $ 4.8 million ( 36.2 % effective tax rate ) for 2010 compared to $ 4.6 million ( 35.3 % effective tax rate ) for 2009. the effective tax rate was higher in 2010 due to an adjustment to deferred tax balances based on higher projected federal taxable rates and a decrease in research and development tax credits . 18 inflation and changing prices inflation and changing prices have not had a material impact on revenue or net income in the last three years . liquidity and capital resources as of december 31 , 2011 , our principal sources of liquidity included $ 8.1 million of cash and cash equivalents and up to $ 6.5 million of unused borrowings under our revolving credit note . the amount of unused borrowings actually available under the revolving credit note varies in accordance with the terms of the agreement . the company believes that our existing sources of liquidity , including cash and cash equivalents , borrowing availability , and operating cash flow will be sufficient to meet its projected capital and debt maturity needs and dividend policy for the foreseeable future . working capital the company had a working capital deficiency of $ 2.3 million on december 31 , 2011 , compared to a $ 8.8 million working capital deficiency on december 31 , 2010. the working capital deficiency balance is primarily due to a deferred revenue balance of $ 16.5 million and $ 17.7 million as of december 31 , 2011 and 2010 , respectively . the deferred revenue balance is primarily due to timing of initial billings on new and renewal contracts . the company typically invoices clients for performance tracking services and custom research projects before they have been completed . billed amounts are recorded as billings in excess of revenue earned , or deferred revenue , on the company 's consolidated financial statements , and are recognized as income when earned . in addition , when work is performed in advance of billing , the company records this work as revenue earned in excess of billings , or unbilled revenue . substantially all deferred revenue and all unbilled revenue will be earned and billed respectively , within 12 months of the respective period ends . cash flow analysis a summary of operating , investing , and financing activities are shown in the following table : replace_table_token_7_th 19 cash flows from operating activities cash flows from operating activities consist of net income adjusted for non-cash items including depreciation and amortization , deferred taxes , and the effect of working capital changes . net cash provided by operating activities was $ 18.5 million for the year ended december 31 , 2011 , which included net income of $ 11.6 million , plus non-cash charges ( benefits ) for deferred tax expense , depreciation and amortization , tax benefit from exercise of stock options and non-cash stock compensation totaling $ 7.2 million . changes in working capital decreased 2011 cash flows from operating activities by $ 273,000 , primarily due to timing of initial billings on new or renewal contracts decreasing cash flows provided from trade accounts receivable and deferred revenue , partially offset by timing of payments on accrued expenses and income taxes . net cash provided by operating activities was $ 14.6 million for the year ended december 31 , 2010 , which included net income of $ 8.5 million , plus non cash charges ( benefits ) for deferred tax expense , depreciation and amortization and non-cash stock compensation totaling $ 6.1 million . net cash provided by operating activities was $ 13.7 million for the year ended december 31 , 2009 , which included net income of $ 8.5 million , plus non-cash charges ( benefits ) for deferred tax expense , depreciation and amortization , and non-cash stock compensation totaling $ 6.2 million . changes in working capital reduced 2009 cash flows from operating activities by $ 1.0 million . cash flows from investing activities net cash of $ 6.9 million was used for investing activities in the year ended december 31 , 2011. earn-out payments related to the miv acquisition approximated $ 4.1 million , and purchases of property and equipment totaled $ 2.8 million .
| the addition of ocs also increased variable expenses by $ 106,000 and fixed expenses by $ 809,000. direct expenses decreased as a percentage of revenue to 37.8 % in 2011 from 38.8 % during 2010 , mainly due to leveraging revenue growth and expanded use of more cost-efficient survey methodologies . the company increased direct expense in the fourth quarter of 2011 and will continue to increase direct expenses as a percentage of revenue in the short term , as we increased staffing to support new clients added in late 2011 . 17 selling , general and administrative expenses . selling , general and administrative expenses increased $ 3.1 million or 15.3 % to $ 23.3 million in 2011 from $ 20.2 million in 2010. of the increase , $ 2.0 million was primarily due to the expansion of the sales force , increased sales commissions , and the addition of several executives in various leadership roles . the addition of ocs accounted for the remaining $ 1.1 million of the increase . selling , general , and administrative expenses decreased as a percentage of revenue to 30.8 % for 2011 from 31.9 % for 2010 , primarily due to 2011 sales and revenue growth from the sales expansion in 2010 , decreases in acquisition and transition-related expenses for ocs and the consolidation of miv sales and operations activities into the lincoln location incurred in 2010 compared to 2011. the company expects selling , general and administrative expenses as a percentage of revenue to continue to decline as we continue to leverage revenue growth in 2012 against selling , general and adminstrative expenses . depreciation and amortization . depreciation and amortization expenses increased 7.7 % to $ 5.1 million in 2011 from $ 4.7 million in 2010 , primarily due to the addition of ocs in 2010. depreciation and amortization expenses as a percentage of revenue decreased to 6.7 % in 2011 from 7.4 % in 2010. the company expects depreciation expense in 2012 to continue at a comparable rate as a percentage of revenue . provision for
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in each of our operating segments , the rates we are able to charge for air-time , advertising and other products and services are dependent upon several factors , including : audience share ; how well our programs and advertisements perform for our clients ; the size of the market and audience reached ; 28 the number of impressions delivered ; the number of advertisements and programs streamed ; the number of page views achieved ; the number of downloads completed ; the number of events held , the number of event sponsorships sold and the attendance at each event ; demand for books and publications ; general economic conditions ; and supply and demand for air-time on a local and national level . broadcasting our foundational business is radio broadcasting , which includes the ownership and operation of radio stations in large metropolitan markets , our national networks and our national sales firms including salem surround . refer to item 1. business of this annual report for a description of our broadcasting operations . revenues generated from our radio stations , networks and sales firms are reported as broadcast revenue in our consolidated financial statements included in item 8 of this quarterly report on form 10-k. advertising revenue is recorded on a gross basis unless an agency represents the advertiser , in which case , revenue is reported net of the commission retained by the agency . broadcast revenues are impacted by the rates radio stations can charge for programming and advertising time , the level of airtime sold to programmers and advertisers , the number of impressions delivered or downloads made , and the number of events held , including the size of the event and the number of attendees . block programming rates are based upon our stations ' ability to attract audiences that will support the program producers through contributions and purchases of their products . advertising rates are based upon the demand for advertising time , which in turn is based on our stations and networks ' ability to produce results for their advertisers . we market ourselves to advertisers based on the responsiveness of our audiences . we do not subscribe to traditional audience measuring services for most of our radio stations . in select markets , we subscribe to nielsen audio , which develops quarterly reports measuring a radio station 's audience share in the demographic groups targeted by advertisers . each of our radio stations and our networks has a pre-determined level of time available for block programming and or advertising , which may vary at different times of the day . nielsen audio uses the portable people meter tm ( ppm ) technology to collect data for its ratings service . ppm is a small device that is capable of automatically measuring radio , television , internet , satellite radio and satellite television signals encoded by the broadcaster . the ppm offers a number of advantages over traditional diary ratings collection systems , including ease of use , more reliable ratings data , shorter time periods between when advertising runs and actual listening data , and little manipulation of data by users . a disadvantage of the ppm includes data fluctuations from changes to the panel ( a group of individuals holding ppm devices ) . this makes all stations susceptible to some inconsistencies in ratings that may or may not accurately reflect the actual number of listeners at any given time . as is typical in the radio broadcasting industry , our second and fourth quarter advertising revenue generally exceeds our first and third quarter advertising revenue . this seasonal fluctuation in advertising revenue corresponds with quarterly fluctuations in the retail advertising industry . additionally , we experience increased demand for advertising during election years by way of political advertisements . during election years , or even numbered years , we benefit from a significant increase in political advertising revenue over non-election or odd numbered years . political advertising revenue varies based on the number and type of candidates as well as the number and type of debated issues . quarterly block programming revenue tends not to vary significantly because program rates are generally set annually and recognized on a per program basis . 29 our cash flows from broadcasting are affected by transitional periods experienced by radio stations when , based on the nature of the radio station , our plans for the market and other circumstances , we find it beneficial to change the station format . during this transitional period , when we develop a radio station 's listener and customer base , the station may generate negative or insignificant cash flow . in broadcasting , trade or barter agreements are commonly used to reduce cash expenses by exchanging advertising time for goods or services . we may enter barter agreements to exchange air time or digital advertising for goods or services that can be used in our business or that can be sold to our audience under listener purchase programs . the terms of these barter agreements permit us to preempt the barter air time or digital campaign in favor of customers who purchase the air time or digital campaign for cash . the value of these non-cash exchanges is included in revenue in an amount equal to the fair value of the goods or services we receive . each transaction must be reviewed to determine that the products , supplies and or services we receive have economic substance , or value to us . we record barter operating expenses upon receipt and usage of the products , supplies and services , as applicable . we record barter revenue as advertising spots or digital campaigns are delivered , which represents the point in time that control is transferred to the customer thereby completing our performance obligation . barter revenue is recorded on a gross basis unless an agency represents the programmer , in which case , revenue is reported net of the commission retained by the agency . story_separator_special_tag during the year ended december 31 , 2018 , 97 % of our broadcast revenue was sold for cash as compared to 98 % during the year ended december 31 , 2017. broadcast operating expenses include : ( i ) employee salaries , commissions and related employee benefits and taxes , ( ii ) facility expenses such as rent and utilities , ( iii ) marketing and promotional expenses , ( iv ) production and programming expenses , and ( v ) music license fees . in addition to these expenses , our network incurs programming costs and lease expenses for satellite communication facilities . digital media web-based and digital content continues to be a focus of future development . our digital media based businesses provide christian , conservative , investing and health-themed content , e-commerce , audio and video streaming , and other resources digitally through the web . refer to item 1. business of this annual report for a description of each of our digital media websites and operations . revenues generated from this segment are reported as digital media revenue in our consolidated statements of operations included in this annual report on form 10-k. digital media revenues are impacted by the rates our sites can charge for advertising time , the level of advertisements sold , the number of impressions delivered or the number of products sold and the number of digital subscriptions sold . like our broadcasting segment , our second and fourth quarter advertising revenue generally exceeds our first and third quarter advertising revenue . this seasonal fluctuation in advertising revenue corresponds with quarterly fluctuations in the retail advertising industry . we also experience fluctuations in quarter-over-quarter comparisons based on the date on which the easter holiday is observed , as this holiday generates a higher volume of product downloads from our church product sites . additionally , we experience increased demand for advertising time and placement during election years for political advertisements . the primary operating expenses incurred by our digital media businesses include : ( i ) employee salaries , commissions and related employee benefits and taxes , ( ii ) facility expenses such as rent and utilities , ( iii ) marketing and promotional expenses , ( iv ) royalties , ( v ) streaming costs , and ( vi ) cost of goods sold associated with e-commerce sites . publishing our publishing operations include book publishing through regnery ® publishing , a print magazine and our self-publishing services . refer to item 1. business of this annual report for a description of each of our publishing operations . 30 revenues generated from this segment are reported as publishing revenue in our consolidated statements of operations included in this annual report on form 10-k. publishing revenue is impacted by the retail price of books and e-books , the number of books sold , the number and retail price of e-books sold , the number and rate of print magazine subscriptions sold , the rate and number of pages of advertisements sold in each print magazine , and the number and rate at which self-published books are published . regnery ® publishing revenue is impacted by elections as it generates higher levels of interest and demand for publications containing conservative and political based opinions . the primary operating expenses incurred by our publishing businesses include : ( i ) employee salaries , commissions and related employee benefits and taxes , ( ii ) facility expenses such as rent and utilities , ( iii ) marketing and promotional expenses ; and ( iv ) cost of goods sold that includes printing and production costs , fulfillment costs , author royalties and inventory reserves . known trends and uncertainties broadcast revenue growth remains challenged , which we believe is due to several factors , including increasing competition from other forms of content distribution and time spent listening by audio streaming services , podcasts and satellite radio . this increase in competition and mix of radio listening time may lead advertisers to conclude that the effectiveness of radio has diminished . to minimize the impact of these factors , we continue to enhance our digital assets to complement our broadcast content . the increase use of voice activated platforms , or smart speakers , that provide audiences with the ability to access am and fm radio stations show increased potential for broadcasters to reach audiences . our broadcast revenues are particularly dependent on our los angeles and dallas markets , which generated 12.0 % and 10.4 % , respectively , of our total net broadcasting revenue for the year ended december 31 , 2018. revenues from print magazines , including advertising revenue and subscription revenues , are challenged both economically and by the increasing use of other mediums that deliver comparable information . book sales are contingent upon overall economic conditions and our ability to attract and retain authors . because digital media has been a growth area for us , decreases in digital revenue streams could adversely affect our operating results , financial condition and results of operations . digital revenue is impacted by the nature and delivery of page views . we have experienced a shift in the number of page views from desktop devices to mobile devices . while mobile page views have increased dramatically , they carry a lower number of advertisements per page which are generally sold at lower rates . digital media revenue is impacted by page views and the number of advertisements per page . declines in desktop page views impact revenue as mobile devices carry lower rates and less advertisement per page . to minimize the impact that any one of these areas could have , we continue to explore opportunities to cross-promote our brands and our content , and to strategically monitor costs .
| we may pay up to an additional $ 0.1 million of contingent earn-out consideration over the next two years based on the achievement of certain revenue benchmarks as part of the purchase agreement . using a probability-weighted discounted cash flow model based on our own assumptions as to the ability of just1word to achieve the income targets at the time of closing , we estimated the fair value of the contingent earn-out consideration to be $ 12,750 , which was recorded at the discounted present value of $ 12,212. the discount will be accreted to interest expense over the two year earn-out period . on august 6 , 2018 , we closed on the sale of radio station kgbi-fm in omaha , nebraska for $ 3.2 million on july 25 , 2018 , we acquired radio station kzts-am ( formerly kdxe-am ) and an fm translator in little rock , arkansas for $ 0.2 million in cash . the radio station is currently operated under an lma agreement with another party and is not reflected in the accompanying consolidated statements of operations . on july 24 , 2018 , we acquired the childrens-ministry-deals.com website and related assets for $ 3.7 million in cash . we paid $ 3.5 million in cash upon closing and may pay an additional $ 0.2 million in cash within twelve months from the closing date provided that the seller meet certain post-closing requirements with regard to intellectual property . on june 25 , 2018 , we acquired radio station kdxe-fm ( formerly kzts-fm ) in little rock , arkansas for $ 1.1 million in cash . we programmed the station under an lma as of april 1 , 2018. on june 28 , 2018 , we closed on the sale of land in lakeside , california for $ 0.3 million in cash . on june 20 , 2018 , we closed on the sale of radio station wbix-am in boston , massachusetts for $ 0.7 million
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unusual items replace_table_token_17_th 33 * primary reason for change . a summary of the unusual charges is shown below : replace_table_token_18_th fiscal 2010 in fiscal 2010 , we recorded $ 1.4 million associated with executive severance . in addition , we recorded a charge of $ 1.9 million related to the estimated unrecoverable costs of legal matters and $ 0.9 million for realized losses and interest associated with the failure to register with the sec the issuance of certain of its common shares under the defined contribution 401 ( k ) employee benefit plan . further , we recorded a $ 2.7 million gain related to a legal settlement . in addition , during fiscal 2010 , we recorded $ 0.7 million of losses related to an amendment to the senior credit facility . during fiscal 2010 , we repurchased $ 77.8 million principal amount of our 2 1 / 4 % debentures at various prices ranging from 93.0 % of par to 98.975 % of par , plus accrued and unpaid interest using a portion of the net proceeds of our 4 1 / 16 % debentures issued in december 2009. a summary of our losses on the 2 1 / 4 % debentures repurchased during fiscal 2010 is as follows ( in millions ) : replace_table_token_19_th 34 during fiscal 2010 , we repurchased $ 22.5 million principal amount of our 9 1 / 2 % notes at 102 % of par , plus accrued and unpaid interest using a portion of the net proceeds of our 4 1 / 16 % debentures issued in december 2009. a summary of our losses on the 9 1 / 2 % notes repurchased during fiscal 2010 is as follows ( in millions ) : replace_table_token_20_th fiscal 2009 in fiscal 2009 , we recorded a charge of $ 1.3 million for realized losses and interest associated with its failure to register with the sec the issuance of certain of the company 's common shares under its defined contribution 401 ( k ) employee benefit plan . during fiscal 2009 , we also incurred a charge of $ 3.1 million associated with executive severance agreements . additionally , we recorded costs of $ 0.2 million related to a bank amendment . fiscal 2008 on november 25 , 2008 , we decided to amend our defined benefit pension and benefits restoration plans to freeze future accruals under such plans . effective february 1 , 2009 and july 31 , 2009 , future benefit accruals for all current salaried employees and collective bargaining unit employees were discontinued , respectively . as a result of the defined benefit pension plan amendment and freeze , we incurred a curtailment charge of $ 14.6 million in the fourth quarter of fiscal 2008 primarily due to the immediate recognition of unrecognized prior service costs . on march 5 , 2008 , we entered into a second amended and restated shareholder agreement ( shareholder agreement ) which resulted in a charge of $ 13.8 million in the first half of fiscal 2008. additionally , during the fourth quarter of fiscal 2008 , we incurred a charge of $ 3.0 million associated with two executive severance agreements . the charges were comprised of the following ( in millions ) : replace_table_token_21_th in fiscal 2008 , we also recorded a charge of $ 2.9 million related to the estimated unrecoverable costs of legal matters , including $ 1.7 million associated with the failure to register with the sec the issuance of certain of its common shares under its defined contribution 401 ( k ) employee benefit plan and $ 1.2 million related to a legal settlement and other legal matters . the company recorded a $ 1.2 million gain related to an insurance settlement for an environmental claim . interest expense replace_table_token_22_th 35 * primary reason for change . the decrease in interest expense was primarily due to lower amortization of deferred financing costs on the 4 % notes in fiscal 2010 compared to fiscal 2009. in january 2010 , we redeemed $ 124.7 million principal amount of our 4 % notes which were presented for payment . in march 2010 , we redeemed the remaining $ 0.3 million principal amount of our 4 % notes . * * primary reason for change . the increase in interest expense was primarily due to an increase of $ 2.6 million in amortization of deferred financing costs as a result of a change in the fourth quarter of fiscal 2008 in the estimated life of deferred financing costs for the 4 % notes and 2 1 / 4 % debentures . the increase in interest expense was partially offset by lower average interest rates on variable rate debt . interest income replace_table_token_23_th * primary reason for change . the decrease in interest income was primarily due to lower average market interest rates partially offset by higher average cash balances in fiscal 2010 compared to fiscal 2009 . * * primary reason for change . the decline in interest income was primarily due to lower average market interest rates partially offset by higher average cash balances in fiscal 2009 compared to fiscal 2008. income tax ( benefit ) provision replace_table_token_24_th the income tax benefit of $ 3.9 million in fiscal 2010 is primarily related to a private letter ruling ( plr ) from the internal revenue service ( irs ) allowing us to revoke our election made on the fiscal 2003 income tax return to capitalize and amortize certain research expenditures . as a result of the plr , an income tax benefit of $ 6.3 million was recorded . this is offset by current federal alternative minimum tax ( amt ) expense of $ 1.1 million and current state tax expense of $ 3.1 million . additionally , we recorded a deferred tax benefit of $ 1.9 million relating to prior years offset by $ 0.1 million of deferred tax expense for the current period . story_separator_special_tag the income tax benefit of $ 17.6 million in fiscal 2009 was primarily related to new guidance that was published by the chief counsel 's office of the irs in december 2008 clarifying which costs qualify for ten-year carryback of tax net operating losses for refund of prior years ' taxes . as a result of the clarifying language , during the first quarter of fiscal 2009 , we recorded an income tax benefit of $ 19.7 million , of which $ 14.5 million was for the release of the valuation allowance associated with the utilization of the qualifying tax net operating losses and $ 5.2 million was for the recognition of affirmative claims related to previous uncertain tax positions associated with prior years refund claims related to the qualifying costs . the income tax provision of $ 0.9 million in fiscal 2008 was primarily related to the impact of a fiscal 2008 change in tax method of accounting adopted for unbilled receivables . the new tax method of accounting adopted in fiscal 2008 in accordance with guidance published by the irs defers such revenue until the all events test is met for tax purposes . the fiscal 2008 tax net operating loss from continuing operations resulted in an income tax benefit of $ 9.5 million for carryback to prior years and a refund of previously paid taxes . due to the tightening of the credit market in the fourth quarter of fiscal 2008 , a tax planning strategy relied on for realizability of a portion of the deferred tax assets ceased to be prudent and feasible , resulting in a charge to deferred income tax expense of $ 8.0 million and a corresponding increase to the valuation allowance . 36 discontinued operations : on august 31 , 2004 , we completed the sale of our gdx automotive business . on november 30 , 2005 , we completed the sale of our fine chemicals business . the remaining subsidiaries after the sale of gdx automotive , including snappon sa , and the fine chemicals business are classified as discontinued operations in the notes to consolidated financial statements . in november 2003 , we announced the closing of a gdx manufacturing facility in chartres , france owned by snappon sa , a subsidiary of the company . the decision resulted primarily from declining sales volumes with french automobile manufacturers . in june 2004 , we completed the legal process for closing the facility and establishing a social plan . in fiscal 2004 , an expense of approximately $ 14.0 million related to employee social costs was recorded . an expense of $ 1.0 million was recorded during fiscal 2005 primarily related to employee social costs that became estimable in fiscal 2005. during fiscal 2009 , an expense of approximately 2.9 million ( $ 3.8 million ) was recorded related to legal judgments rendered against snappon sa under french law , related to wrongful discharge claims by certain former employees of snappon sa . during the second quarter of fiscal 2009 , snappon sa filed for declaration of suspensions of payments with the clerk 's office of the paris commercial court ( see note 7 ( b ) in notes to consolidated financial statements ) . summarized financial information for discontinued operations is set forth below : replace_table_token_25_th retirement benefit plans : components of retirement benefit expense ( benefit ) are : replace_table_token_26_th ( 1 ) on november 25 , 2008 , the company decided to amend the defined benefit pension and benefits restoration plans to freeze future accruals under such plans . effective february 1 , 2009 and july 31 , 2009 , future benefit accruals for all current salaried employees and collective bargaining unit employees were discontinued , respectively . accordingly , for fiscal 2010 , service cost for pension benefits represents the administrative costs of the pension plan . for fiscal 2009 , service cost for pension benefits include administrative costs and service cost for all current salaried employees until february 1 , 2009 and collective bargaining unit employees until july 31 , 2009. for fiscal 2008 , service cost for pension benefits is the actuarial present value of benefits attributed by the defined benefit pension plans ' benefit formulas for services rendered by participants during the period , including the administrative costs . the increase in retirement benefit expense was primarily due to higher actuarial losses recognized in fiscal 2010 compared to fiscal 2009. the increase in actuarial losses was primarily the result of : ( i ) a decrease in the 37 discount rate due to lower market interest rates used to determine our retirement benefit obligation to 5.65 % as of november 30 , 2009 compared to 7.10 % as of august 31 , 2008 and ( ii ) an increase in the impact of amortization of prior years ' net investment losses . we estimate that our retirement benefit expense will be approximately $ 46 million in fiscal 2011 compared to $ 41.9 million in fiscal 2010. market conditions and interest rates significantly affect assets and liabilities of our pension plans . pension accounting permits market gains and losses to be deferred and recognized over a period of years . this smoothing results in the creation of other accumulated income or losses which will be amortized to retirement benefit expense or benefit in future years . the accounting method we utilize recognizes one-fifth of the unamortized gains and losses in the market-related value of pension assets and all other gains and losses , including changes in the discount rate used to calculate benefit costs each year . investment gains or losses for this purpose are the difference between the expected return and the actual return on the market-related value of assets which smoothes asset values over three years . although the smoothing period mitigates some volatility in the calculation of annual retirement benefit expense , future expenses are impacted by changes in the market value of pension plan assets and changes in interest rates .
| customers that represented more than 10 % of net sales for the fiscal years presented are as follows : replace_table_token_11_th sales in fiscal 2010 , 2009 , and 2008 directly and indirectly to the u.s. government and its agencies , including sales to our significant customers discussed above , totaled $ 786.1 million , $ 701.3 million , and $ 641.7 million , respectively . the standard missile program , which is included in the u.s. government sales , represented 26 % , 22 % , and 16 % of net sales for fiscal 2010 , 2009 , and 2008 , respectively . the demand for certain of our services and products is directly related to the level of funding of government programs . during fiscal 2010 , approximately 50 % of our net sales were from fixed-price contracts , 43 % from cost reimbursable contracts , and 7 % from other sales including commercial contracts and real estate activities . operating income replace_table_token_12_th * primary reason for change . the decrease in the fiscal 2010 operating income margin of 5.4 points , compared to the comparable prior year , was driven by the increase in retirement benefit expense of $ 53.8 million which represented a 6.3 point decrease in operating margin , partially offset by higher sales and lower overhead costs contributing 2.3 points to the operating margin . additionally , we had an increase in environmental remediation costs that represented 0.5 of a point decrease in operating margin and an increase in other operating costs represented the remaining 0.9 point decrease in operating margin . see additional information below . * * primary reason for change . the increase in the fiscal 2009 operating income margin of 5.9 points , compared to the comparable prior year , was driven by the following : ( i ) decrease in unusual items of $ 28.5 million which represented a 3.9 point increase in operating margin ; ( ii ) lower retirement benefit expenses of $ 19.9 million which represented a 2.5 point increase in operating margin ; and ( iii ) decrease in environmental remediation costs of $ 6.6 million which represented a 1.0 increase in operating margin . the increase in operating margin was partially offset by a land sale resulting in a gain of $ 6.8 million which represented a 0.9
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