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the administration of inappropriate therapy is a driving force behind the spread of antimicrobial-resistant pathogens , which the cdc recently called “ one of our most serious health threats. ” the addition of the use of our products , t2bacteria and t2candida , which both run on the t2dx instrument , with the standard of care for the management of patients suspected of sepsis , enables clinicians to potentially treat 90 % of patients with sepsis pathogen infections with the right targeted therapy within the first twelve hours of development of the symptoms of disease . currently , high risk patients are typically initially treated with broad spectrum antibiotic drugs that typically cover approximately 60 % of patients with infections . of the remaining 40 % of patients , approximately 30 % of the patients typically have a bacterial infection and 10 % typically have candida infections . t2candida and t2bacteria are designed to identify pathogens commonly not covered by broad spectrum antibiotic drugs . faster administrations of the appropriate therapy may also shorten the overall length of stay , and reduce readmissions , furthering reduction in hospital costs . we compete with traditional blood culture-based diagnostic companies , including becton dickinson & co. and biomerieux , inc. , as well as companies offering post-culture species identification using both molecular and non-molecular methods , including biomerieux , inc. ( and its affiliate , biofire diagnostics , inc. ) , bruker corporation , accelerate diagnostics , luminex , genmark , cepheid and beckman coulter , a danaher company . in addition , there may be a number of new market entrants in the process of developing other post-blood culture diagnostic technologies that may be perceived as competitive with our technology . karius , inc. offers a lab developed culture independent diagnostic test for the identification of pathogens that has not been cleared by the fda but may be perceived as competitive with our technology . 63 we have never been profitable and have incurred net losses in each year since inception . our accumulated deficit at december 31 , 2019 was $ 376 . 2 million , we had a stockholders ' deficit of $ 34.0 million and we have experienced cash outflows from operating activities over the past years . substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from selling , general and administrative costs associated with our operations . we have incurred significant commercialization expenses related to product sales , marketing , manufacturing and distribution of our fda-cleared products , t2dx , t2candida and t2bacteria . in addition , we will continue to incur significant costs and expenses as we continue to develop other product candidates , improve existing products and maintain , expand and protect our intellectual property portfolio . we may seek to fund our operations through public equity or private equity or debt financings , as well as other sources . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on our business , results of operations and financial condition and our ability to develop , commercialize and drive adoption of the t2dx instrument , t2candida , t2bacteria , t2resistance , and future t2mr-based diagnostics . pursuant to the requirements of accounting standards codification ( asc ) 205-40 , disclosure of uncertainties about an entity 's ability to continue as a going concern , management must evaluate whether there are conditions or events , considered in the aggregate , that raise substantial doubt about the company 's ability to continue as a going concern within one year after the date that the financial statements are issued . this evaluation initially does not take into consideration the potential mitigating effect of management 's plans that have not been fully implemented as of the date the financial statements are issued . when substantial doubt exists under this methodology , management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about our ability to continue as a going concern . the mitigating effect of management 's plans , however , is only considered if both ( 1 ) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued , and ( 2 ) it is probable that the plans , when implemented , will mitigate the relevant conditions or events that raise substantial doubt about the entity 's ability to continue as a going concern within one year after the date that the financial statements are issued . we believe that our existing cash and cash equivalents at december 31 , 2019 , along with sales of our common stock since december 31 , 2019 pursuant to our recently established equity distribution agreement ( the “ sales agreement ” ) with canaccord genuity llc , as agent ( “ canaccord ” ) of $ 29.4 million through march 13 , 2020 , and additional funding available through the sales agreement and purchase agreement with lincoln park capital fund , llc ( “ lincoln park ” ) ( the “ purchase agreement ” ) ( note 7 ) in the future , will be sufficient to fund our current operating plan assuming availability of funds through those agreements . however , because certain elements of our operating plan are outside of our control , including our ability to sell shares under the sales agreement and the purchase agreement , those elements can not be considered probable according to accounting standards . under asc 205-40 , the future receipt of potential funding from our co-development partners and other resources can not be considered probable at this time because none of the plans are entirely within our control . the purchase agreement may not be readily available for use if the stock price remains below $ 1.00 ( note 7 ) . story_separator_special_tag the term loan agreement with crg requires us to achieve certain annual revenue targets , whereby we are required to pay double the amount of any shortfall as an acceleration of principal payments , and maintain a minimum liquidity amount of $ 5.0 million ( note 6 ) . the term loan agreement with crg is classified as a current liability on the balance sheet at december 31 , 2019 , based on our consideration of the probability of violating the minimum liquidity covenant . should we fall short of the revenue target we would seek a waiver of this provision . there can be no assurances that we would be successful in obtaining a waiver . these conditions raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that the financial statements are issued . management 's plans to alleviate the conditions , should it be necessary , include raising additional funding , earning payments pursuant to our co-development agreements , delaying certain research projects and capital expenditures and eliminating certain future operating expenses in order to fund operations at reduced levels to continue as a going concern for a period of 12 months from the date the financial statements are issued . management has concluded the likelihood that its plan to obtain sufficient funding from one or more of these sources or adequately reduce expenditures will be successful , while reasonably possible , is less than probable . our commercial products and the unmet clinical need the t2 biosystems portfolio , including all current products utilizing t2mr technology that run on the t2dx instrument , represent the only fda-cleared products that detect and identify sepsis-causing bacterial and fungal pathogens directly from whole blood , without the need for blood culture . all other fda-cleared products must wait for cells to divide in blood culture to achieve cell titer levels of greater than 1,000,000 cfu/ml . in contrast , the t2direct diagnostic products detect pathogens directly as they exist in blood , with limits of detection of 1 to 11 cfu/ml . the result is at least two days faster in time to pathogen identification , as demonstrated by two clinical trials , each including greater than 1,400 patients in addition to many clinical cases and independent studies . the current standard of care is to treat patients suspected of a bloodstream infection using empiric antimicrobial therapy without diagnostic evidence , and then to revise therapy when diagnostic evidence is available . but as demonstrated by a meta-analysis of 70 studies , the proportion of infected patients receive effective therapy by the empiric approach is only 53.5 % . however , the proportion of patients placed on effective therapy after receiving a diagnostic species identification from a blood sample is greater than 95 % . we believe this is the principal value of our t2 biosystems portfolio , to increase the proportion of patients on effective therapy from 55 % to 95 % within three to five hours , instead of days . 64 the benefits to clinical care outcomes from faster time to effective therapy include a reduction in average patient length of stay within a hospital , increased hospital cost savings , and reduced mortality . across three interventional studies , the mean ratio of length of stay reduction to time to effective therapy was 2.7 hours . in other words , for every one hour faster time to effective therapy , patient length of stay was reduced by 2.7 hours . the mean reduction in length of stay from early effective therapy in these studies was up to eight days and an independent economic analysis found a $ 1,149 cost savings per patient tested with the t2candida panel . an independent economic review also found rapid , direct-from-blood diagnostics result in cost savings when sensitivity is greater than 52 % , the cost of the test is less than $ 270 , and results are returned within two to seven hours . all of these requirements are met by the t2 biosystems diagnostic panels . additionally , in septic shock patients , every hour delaying effective antimicrobial therapy decreases survival by an estimated 7.6 % . in 111,816 patients given a new york state mandated sepsis bundle , the relative probability of death increased by four percent for every hour delay in the administration of effective therapy . in a retrospective analysis of 70 studies , compared to patients given an appropriate empiric antimicrobial therapy , patients given inappropriate empiric antimicrobials showed over two-times higher probability of death . taken together , t2 biosystems allow for a reduction in time to effective therapy by multiple days , which are realized as patient and hospital benefits in reduced length of stay , cost of care , and mortality . our fda-cleared products , the t2dx instrument , t2candida , and t2bacteria utilize t2mr to detect species-specific candida and sepsis-causing bacteria , respectively , directly from whole blood in as few as three hours versus the one to six or more days typically required by blood culture-based diagnostics . this allows the patient to potentially receive the correct treatment in four to six hours versus 24 to 144 hours for blood culture . the t2candida and t2bacteria run on the t2dx instrument and provide high sensitivity with a limit of detection as low as 1 cfu/ml , even in the presence of antimicrobial therapy . sepsis is one of the leading causes of death in the united states , claiming more lives annually than breast cancer , prostate cancer and aids combined , and it is the most expensive hospital-treated condition . most commonly afflicting immunocompromised , critical care and elderly patients , sepsis is a severe inflammatory response to a bacterial or fungal infection with a mortality rate of approximately 30 % .
| also at asm microbe 2018 , clinicians from northwestern university presented its findings that the t2bacteria panel was more sensitive when compared to blood culture testing and detected 18 clinically important urinary and respiratory infections that were missed by blood culture . the authors concluded that t2bacteria may improve patient care by providing clinicians rapid and actionable information for treating patients . in november 2015 , the company presented preliminary data demonstrating the ability of our t2bacteria product candidate to provide the rapid and sensitive identification of certain sepsis-causing bacteria included in the panel , directly from whole blood . the bacteria species included in t2bacteria are staphylococcus aureus , enterococcus faecium , escherichia coli , klebsiella pneumoniae , and pseudomonas aeruginosa . the five bacteria species in our t2bacteria panel are responsible for about half of all septic infections . at the 2019 eccmid conference , several clinical presentations were made on our products . these include a poster and podium presentation by dr. tom walsh from new york presbyterian / cornell hospital highlighting the clinical utility of t2bacteria in the hematologic malignancy and stem cell transplant patient population . within his institution , t2bacteria showed a 75 % positive predictive agreement with blood culture and 98 % negative predictive agreement and covered 80 % of significant species detected by blood culture . t2bacteria could have potentially influenced care and provided an opportunity to place patients with infections that were diagnosed by t2bacteria but missed by blood culture on effective therapy faster than with culture dependent methods . another study presented by maiken arendrup from rigshospitalet , denmark evaluated the performance of t2candida , mannan ag and blood culture for diagnosis of invasive candidiasis infections across 126 patients . the sensitivity for invasive candidiasis was higher for t2candida compared to blood culture and mannan ag and the positive predictive value was highest for t2candida . a group from bambino gesu pediatrics hospital in rome , italy presented a comparison of t2candida , septifast and blood culture in pediatric and neonatal patients showing an 89 % concordance between blood culture and t2mr . data
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annual auvs are calculated by dividing sales for the trailing 52-week period for all company-operated restaurants that are in the comparable base by the total number of restaurants in the comparable base for such period . this measurement allows management to assess changes in consumer traffic and spending patterns at our company-operated restaurants and the overall performance of the restaurant base . restaurant contribution and restaurant contribution margin restaurant contribution and restaurant contribution margin are neither required by , nor presented in accordance with u.s gaap . restaurant contribution is defined as company restaurant sales less restaurant operating expenses , which are food and paper costs , labor and related expenses and occupancy and other operating expenses . restaurant contribution margin is defined as restaurant contribution as a percentage of company restaurant sales . restaurant contribution and restaurant contribution margin are supplemental measures of operating performance of restaurants and the calculations thereof may not be comparable to those reported by other companies . restaurant contribution and restaurant contribution margin have limitations as analytical tools , and you should not consider them in isolation or as substitutes for analysis of results as reported under u.s. gaap . management believes that restaurant contribution and restaurant contribution margin are important tools for investors because they are widely-used metrics within the restaurant industry to evaluate restaurant-level productivity , efficiency and performance . management uses restaurant contribution and restaurant contribution margin as key performance indicators to evaluate the profitability of incremental sales at del taco restaurants , to evaluate restaurant performance across periods and to evaluate restaurant financial performance compared with competitors . a reconciliation of restaurant contribution to company restaurant sales is provided below ( in thousands ) : replace_table_token_10_th number of new restaurant openings the number of restaurant openings reflects the number of new restaurants opened by us and our franchisees during a particular reporting period . before a new restaurant opens , we and our franchisees incur pre-opening costs , as described below . some new restaurants open with an initial start-up period of higher than normal sales volumes , which subsequently decrease to stabilized levels . typically new restaurants experience normal inefficiencies in the form of higher food and paper , labor and other direct operating expenses and , as a result , restaurant contribution margins are generally lower during the start-up period of operation . typically , the average start-up period after which new company restaurant sales and restaurant operating expenses normalize is 44 approximately 26 to 52 weeks . in new markets , the length of time before average company restaurant sales and restaurant operating expenses for new restaurants stabilize is less predictable and can be longer as a result of limited knowledge of these markets and consumers ' limited awareness of our brand . when we enter new markets , we may be exposed to start-up times that are longer and restaurant contribution margins that are lower than typical historical experience , and these new restaurants may not be profitable and their sales performance may not follow historical patterns . ebitda and adjusted ebitda ebitda represents net income ( loss ) before interest expense , provision for income taxes , depreciation and amortization . adjusted ebitda represents net income ( loss ) before interest expense , provision for income taxes , depreciation , amortization and items that we do not consider representative of ongoing operating performance , as identified in the reconciliation table below . ebitda and adjusted ebitda as presented in this quarterly statement are supplemental measures of performance that are neither required by , nor presented in accordance with u.s. gaap . ebitda and adjusted ebitda are not measurements of financial performance under u.s. gaap and should not be considered as alternatives to net income ( loss ) , income from operations or any other performance measures derived in accordance with u.s. gaap or as alternatives to cash flow from operating activities as a measure of liquidity . in addition , in evaluating ebitda and adjusted ebitda , you should be aware that in the future we may incur expenses or charges such as those added back to calculate ebitda and adjusted ebitda . our presentation of ebitda and adjusted ebitda should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items . ebitda and adjusted ebitda have limitations as analytical tools , and you should not consider them in isolation , or as substitutes for analysis of results as reported under u.s. gaap . some of these limitations include but are not limited to : ( i ) they do not reflect cash expenditures , or future requirements for capital expenditures or contractual commitments ; ( ii ) they do not reflect changes in , or cash requirements for , working capital needs ; ( iii ) they do not reflect the significant interest expense , or the cash requirements necessary to service interest or principal payments , on debt ; ( iv ) although depreciation and amortization are non-cash charges , the assets being depreciated and amortized will often have to be replaced in the future , and ebitda and adjusted ebitda do not reflect any cash requirements for such replacements ; ( v ) they do not adjust for all non-cash income or expense items that are reflected in the statements of cash flows ; ( vi ) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of ongoing operations ; and ( vii ) other companies in the industry may calculate these measures differently than we do , limiting their usefulness as comparative measures . we compensate for these limitations by providing specific information regarding the u.s. gaap amounts excluded from such non-gaap financial measures . we further compensate for the limitations in the use of non-gaap financial measures by presenting comparable u.s. gaap measures more prominently . story_separator_special_tag we believe ebitda and adjusted ebitda facilitate operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies . these potential differences may be caused by variations in capital structures ( affecting interest expense ) , tax positions ( such as the impact on periods or changes in effective tax rates or net operating losses ) and the age and book depreciation of facilities and equipment ( affecting relative depreciation expense ) . we also present ebitda and adjusted ebitda because ( i ) we believe these measures are frequently used by securities analysts , investors and other interested parties to evaluate companies in their industry , ( ii ) we believe investors will find these measures useful in assessing our ability to service or incur indebtedness , and ( iii ) it uses ebitda and adjusted ebitda internally as benchmarks to compare performance to that of competitors . the following table sets forth reconciliations of ebitda and adjusted ebitda to net income ( loss ) ( in thousands ) : 45 replace_table_token_11_th ( a ) includes non-cash , stock-based compensation . ( b ) loss ( gain ) on disposal of assets includes the loss or gain on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment . ( c ) includes costs related to impairment of long-lived assets . ( d ) includes costs related to future obligations associated with the closure or net sublease shortfall of restaurants , including in fiscal 2015 , the closure of 12 restaurants . ( e ) includes amortization of favorable lease assets and unfavorable lease liabilities . ( f ) includes costs associated with debt refinancing transactions in april 2014 , march 2015 and august 2015 . ( g ) includes costs related to the strategic sale process which commenced during 2014 and resulted in the stock purchase agreement with the levy newco parties and the business combination consummated pursuant to the merger agreement as well as the costs related to the secondary offering of common stock completed in october 2015 . ( h ) relates to fair value adjustments to the warrants to purchase shares of common stock of dth that had been issued to certain of dth 's equity shareholders , all of which were exchanged for shares of common stock of dth on march 20 , 2015 . ( i ) pre-opening costs consist of costs directly associated with the opening of new restaurants and incurred prior to opening , including restaurant labor , supplies , rent expense and other related pre-opening costs . these are generally incurred over the three to five months prior to opening . ( j ) includes a $ 1.8 million increase in fiscal 2014 in workers ' compensation expense due to higher payments and reserves related to underlying claims activity . ( k ) we recorded a gain of $ 0.2 million based on the amount of the liquidating distribution received in excess of our investment in four public partnerships . see note 2 , basis of presentation and summary of significant accounting policies , in the notes to the consolidated financial statements included elsewhere in this annual report on form 10-k for more information . key financial definitions company restaurant sales company restaurant sales represents sale of food and beverages in company-operated restaurants , net of promotional allowances , employee meals and other discounts . company restaurant sales in any period is directly influenced by the number of operating weeks in such period , the number of open restaurants , same store sales performance and per restaurant sales . 46 franchise revenue franchise revenue consists of franchise royalty income from the franchisee and , to a lesser extent , renewal fees and franchise fees from franchise owners for new franchise restaurant openings . franchise fees are recognized when all material obligations have been performed and conditions have been satisfied , typically when operations of a new franchise restaurant have commenced . the fees we collect upon signing a franchise agreement are deferred until operations have commenced . franchise sublease income franchise sublease income consists of rental income received from franchisees related to properties where we have subleased a leasehold interest to the franchisee but remain primarily liable to the landlord . food and paper costs food and paper costs include the direct costs associated with food , beverage and packaging of menu items . the components of food and paper costs are variable in nature , change with sales volume and are impacted by menu mix and are subject to increases or decreases based on fluctuations in commodity costs . other important factors causing fluctuations in food and paper costs include seasonality , promotional activity and restaurant level management of food and paper waste . food and paper are a significant expense and can be expected to grow proportionally as company restaurant sales grows . labor and related expenses labor and related expenses include all restaurant-level management and hourly labor costs , including wages , benefits , bonuses , workers ' compensation expense , group health insurance , paid leave and payroll taxes . like other expense items , we expect labor and related expenses to grow proportionately as company restaurant sales grows . factors that influence fluctuations in labor and related expenses include minimum wage , paid sick leave and payroll tax legislation , health care costs and the performance of del taco restaurants . occupancy and other operating expenses occupancy and other operating expenses include all other restaurant-level operating expenses , such as rent , utilities , restaurant supplies , repairs and maintenance , credit and debit card processing fees , advertising , insurance , common area maintenance , real estate taxes and other restaurant operating costs .
| we plan to open an estimated 15 to 18 system-wide restaurants in fiscal 2016. from time to time we and our franchisees close restaurants and we closed 12 underperforming company-operated restaurants in fiscal 2015 , as discussed in current year events below . restaurant re-imaging we and our franchisees commenced the ambience shake up ( asu ) re-imaging program in 2012 and , as of december 29 , 2015 , 91 % of our system restaurants feature our current image through a re-image or new prototype design , including all 297 restaurants that are company-operated . we expect substantially all of our restaurant system to feature the current image by the end of 2016. the asu remodeling program involved a use of cash and impacted net property and depreciation line items on the consolidated balance sheets and statements of comprehensive income ( loss ) , among others . the cost of the asu restaurant remodels varied depending on the scope of work required , but on average the company-operated investment was $ 45,000 per restaurant . we believe the asu remodeling program is an important element of our strategy that has led to higher system restaurant sales and a strengthened brand . current year events concurrent with the execution of the agreement and plan of merger dated as of march 12 , 2015 ( the `` merger agreement '' ) , levy epic acquisition company , llc ( “ levy newco ” ) , levy epic acquisition company ii , llc ( “ levy newco ii ” and with 42 levy newco , the “ levy newco parties ” ) , del taco holdings , inc. ( `` dth '' ) and the dth stockholders entered into a stock purchase agreement ( the “ stock purchase agreement ” ) . pursuant to the stock purchase agreement on march 20 , 2015 , levy newco parties purchased 2,348,968 shares of dth common stock from dth for $ 91.2 million in cash and 740,564 shares of dth common stock directly from existing dth shareholders for $ 28.8 million in cash ( the “ initial investment ” ) . as a result
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growth in europe will come from the introduction of nfs ascent , which will allow nte to support larger organizations than those typically selecting the existing leasesoft product set , and also opens the door for european expansion . this is designed to attract larger license and professional services revenues across a wider geography . in addition , leveraging the core strengths of nfs ascent will increasingly provide opportunities in the automotive sector where nte is currently underrepresented . growth in netsol 's traditionally strong base in asia pacific is expected through diversification across market segments to include new customers in related banking and commercial lending areas . at the same time , the existing customer base is tapped for increased service and maintenance revenues by offering enhanced features and new solutions to emerging customer needs . in addition , there is a potential for nfs ascent in asia pacific in the form of existing customers who are looking for replacement of their current system . in china , netsol is a leader in the leasing and finance enterprise solution domain . with this position , netsol continues to enjoy demand for the current nfs solution , as well as nfs ascent . netsol will continue strengthening its position within existing multinational auto manufacturers , as well as , local chinese captive finance and leasing companies . the chinese auto leasing market is young and low on consumer penetration in comparison with the giant u.s. market . we see a tremendous opportunity to grow demand for our products widely and in new markets in china such as shanghai . although not represented in our fiscal year 2018 financial results , in august 2018 , netsol signed a five-year contract with a major global auto captive to implement ascent retail and wholesale platforms in china which was valued at approximately $ 30 million . 13 in thailand , netsol established a sales headquarters and client service center . the netsol thai operation is the hub for netsol global markets and directly supports all apac markets including china , indonesia and australia . our operation in bangkok serves a very robust and growing market for leasing companies and regional banks . material trends affecting netsol management has identified the following material trends affecting netsol . positive trends : ● improving u.s. economy generally , and particularly auto and banking markets . ● robust chinese markets as asset-based leasing and finance sector are far from maturity levels . ● latin american markets , primarily in mexico , remain largely untapped . ● the gdp of pakistan is projected to have grown at a rate of 5.79 % during the fiscal year 2017-18 , according to the pakistan bureau of statistics . ● china investment or cpec ( china pakistan economic corridor ) has exceeded $ 60 billion from an original commitment of $ 46 billion in pakistan on energy and infrastructure projects . ● strong u.s. auto sales ( cars and light trucks , both commodity and premium/luxury ) in excess of 17.25 million units in 2017 , according to automotive news . ● new emerging markets and it destinations in thailand , malaysia , indonesia , china and australia . ● continued interest from fortune 500 multinational auto captives and global companies in netsol ascent . ● growing interest from existing clients in the nfs legacy systems in emerging and developing markets . ● growing demand and traction for upgrading to nfs ascent by existing tier one auto captive clients . ● higher caliber and quality talent joining netsol , globally . ● employee turnover is contained to 14 % level in 2018. negative trends : ● growing global terrorism and extremism threats in european countries . ● geopolitical unrest in the middle east and potential terrorism and the disruption risk it creates . ● restricted liquidity and financial burden due to tighter internal processes and limited budgets might cause delays in the receivables from some clients . ● the threats of conflict between in the middle eastern countries could potentially create volatility in oil prices , causing readjustments of corporate budgets and consumer spending slowing global auto sales . critical accounting policies our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the united states ( “ u.s . gaap ” ) . preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , and expenses . these estimates and assumptions are affected by management 's application of accounting policies . critical accounting policies for us include revenue recognition and multiple element arrangements , intangible assets , software development costs , and goodwill . revenue recognition the company derives revenues from the following sources : ( 1 ) software licenses , ( 2 ) services , which include implementation and consulting services , and ( 3 ) maintenance , which includes post contract support . the company recognizes revenue from license contracts without major customization when a non-cancelable , non-contingent license agreement has been signed , delivery of the software has occurred , the fee is fixed or determinable , and collectability is probable . delivery is considered to have occurred upon electronic transfer of the license key that provides immediate availability of the product to the purchaser . determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue the company reports . 14 if an arrangement does not qualify for separate accounting of the software license and consulting transactions , then new software license revenue is generally recognized together with the consulting services based on contract accounting using either the percentage-of-completion or completed contract method . story_separator_special_tag contract accounting is applied to any arrangements : ( 1 ) that include milestones or customer specific acceptance criteria that may affect collection of the software license fees ; ( 2 ) where services include significant modification or customization of the software ; ( 3 ) where significant consulting services are provided for in the software license contract without additional charge or are substantially discounted ; or ( 4 ) where the software license payment is tied to the performance of consulting services . revenue from consulting services is recognized as the services are performed for time-and-materials contracts . revenue from training and development services is recognized as the services are performed . revenue from maintenance agreements is recognized ratably over the term of the maintenance agreement , typically one year . multiple element arrangements the company may enter into multiple element revenue arrangements in which a customer may purchase a number of different combinations of software licenses , consulting services , maintenance and support , as well as training and development . vendor specific objective evidence ( “ vsoe ” ) of fair value for each element is based on the price for which the element is sold separately . the company determines the vsoe of fair value of each element based on historical evidence of the company 's stand-alone sales of these elements to third-parties or from the stated renewal rate for the elements contained in the initial software license arrangement . when vsoe of fair value does not exist for any undelivered element , revenue is deferred until the earlier of the point at which such vsoe of fair value exists or until all elements of the arrangement have been delivered . the only exception to this guidance is when the only undelivered element is maintenance and support or other services , then the entire arrangement fee is recognized ratably over the performance period . cost of revenues cost of revenues includes salaries and benefits for technical employees , consultant costs , amortization of capitalized computer software development costs , depreciation of computer and equipment , travel costs , and indirect costs such as rent and insurance . allowance for doubtful accounts the company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio . in establishing the required allowance , management regularly reviews the composition of accounts receivable and analyzes customer credit worthiness , customer concentrations , current economic trends and changes in customer payment patterns . reserves are recorded primarily on a specific identification basis . account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote . intangible assets intangible assets consist of product licenses , renewals , enhancements , copyrights , trademarks , trade names , and customer lists . intangible assets with finite lives are amortized over the estimated useful life and are evaluated for impairment at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable . we assess recoverability by determining whether the carrying value of such assets will be recovered through the discounted expected future cash flows . if the future discounted cash flows are less than the carrying amount of these assets , we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets . software development costs costs incurred to internally develop computer software products or to enhance an existing product are recorded as research and development costs and expensed when incurred until technological feasibility for the respective product is established . thereafter , all software development costs are capitalized and reported at the lower of unamortized cost or net realizable value . capitalization ceases when the product or enhancement is available for general release to customers . 15 the company makes on-going evaluations of the recoverability of its capitalized software projects by comparing the amount capitalized for each product to the estimated present value of future net income from the product . if such evaluations indicate that the unamortized software development costs exceed the present value of expected future net income , the company writes off the amount which the unamortized software development costs exceed such present value . capitalized and purchased computer software development costs are being amortized ratably based on the projected revenue associated with the related software or on a straight-line basis . share-based compensation the company records stock compensation in accordance with asc 718 , compensation – stock compensation . asc 718 requires companies to measure compensation cost for stock employee compensation at fair value at the grant date and recognize the expense over the employee 's requisite service period . the company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees . we estimate the grant date fair value of our stock options using the black-scholes option-pricing model with the assumptions of expected term , expected volatility , risk-free interest rate and expected dividend . each of these assumptions is subjective and generally requires significant judgment to determine . we estimate the volatility using our own common stock data . goodwill goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase businesses combination . goodwill is reviewed for impairment on an annual basis , or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired . 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 exceeds its carrying value , step two does not need to be performed .
| replace_table_token_3_th net revenues for the years ended june 30 , 2018 and 2017 by segment are as follows : replace_table_token_4_th revenues license fees license fees for the year ended june 30 , 2018 were $ 6,598,254 compared to $ 18,218,912 for the year ended june 30 , 2017 reflecting a decrease of $ 11,620,658 with a change in constant currency of $ 11,356,747. the decrease in license revenue for the fiscal year ended june 30 , 2018 compared to 2017 is primarily due to the $ 16,345,000 of license revenue recognized for the dfs , 12 country nfs ascent contract in financial year 2017. this license revenue for fiscal year 2017 was recognized based on our customizing and configuring nfs ascent per dfs requirements . during fiscal year 2018 , we had nfs ascent digital license revenue of approximately $ 2,600,000 and nfs ascent cap and cms license revenue of approximately $ 2,600,000. we also had license revenues through sales of our regional offerings in the u.s. and the u.k. of approximately $ 1,300,000. license fees – related party license fees from related party for the year ended june 30 , 2018 were $ 261,513 compared to $ 246,957 for the year ended june 30 , 2017 reflecting an increase of $ 14,556 with a change in constant currency of $ 7,851 . 18 maintenance fees maintenance fees for the year ended june 30 , 2018 , were $ 14,382,309 compared to $ 14,157,367 for the year ended june 30 , 2017 reflecting an increase of $ 224,942 with a change in constant currency of $ 358,477. maintenance fees begin once a customer has “ gone live ” with our product . the increase was due to the start of new maintenance agreements from customers who went live with our product during the latter stages of fiscal year 2017 and into fiscal year 2018. we anticipate maintenance fees to gradually increase as we implement both our nfs legacy product and nfs ascent . maintenance fees – related party maintenance fees from related party for the year ended june 30 , 2018 , were $ 418,444 compared to $ 311,359 for the year ended
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income from continuing operations was $ 110.6 million for 2010 , $ 116.9 million for 2009 , and $ 101.3 million for 2008. the decrease for 2010 compared to 2009 is primarily due to a decrease in operating earnings of $ 5.3 million , which included a pension settlement charge of $ 11.9 million , net of tax . the increase for 2009 compared to 2008 is primarily due to an increase in operating earnings of $ 20.6 million and a decline in net interest expense of $ 3.0 million , partially offset by a $ 7.9 million greater income tax provision . loss from discontinued operations , net of tax . there was no income or loss from discontinued operations in 2010. loss from discontinued operations , net of tax , was $ 12.2 million in 2009 and $ 7.9 million in 2008. the increased loss of $ 4.3 million for 2009 compared to 2008 was due to exiting the dtc business , including employee retention and lease exit costs , partially offset by a $ 3.2 million gain on the sale of the business . financial condition , liquidity and capital resources financial condition . accounts and notes receivable , net of allowances , decreased 5.3 % to $ 472 million at december 31 , 2010 , from $ 498 million at december 31 , 2009 , primarily due to improved collections . accounts receivable days outstanding ( dso ) , based on three months ' sales , improved to 19.6 days at december 31 , 2010 , 19 from 21.4 days at december 31 , 2009 , as a result of improved collections and increases in customer deposits compared to last year . merchandise inventories increased 4.4 % to $ 720 million at december 31 , 2010 from $ 690 million at december 31 , 2009. average annual inventory turnover was 10.4 and 10.6 in 2010 and 2009. the increase in merchandise inventories at 2010 year-end and the decline in inventory turnover for 2010 compared to the prior year primarily resulted from the inventory buildup for new customers . the improvement in average annual inventory turnover for 2009 compared to 2008 was the result of improved inventory management . liquidity and capital expenditures . the following table summarizes our consolidated statements of cash flows for the years ended december 31 , 2010 , 2009 and 2008 : replace_table_token_4_th cash and cash equivalents increased to $ 159 million at december 31 , 2010 from $ 96 million at december 31 , 2009. we generated cash from continuing operations of approximately $ 245 million in 2010 , $ 165 million in 2009 and $ 63 million in 2008. cash from continuing operations for 2010 was positively affected by operating earnings , a decrease in accounts and notes receivable resulting from improved collections and an increase in accounts payable , and was negatively affected by an increase in inventory for new customers . cash from continuing operations for 2009 was positively affected by operating earnings and a decrease in accounts and notes receivable , and negatively affected by a decrease in accounts payable and an increase in inventory . cash from continuing operations for 2008 was negatively affected by increases in accounts receivable and inventories largely as a result of the burrows acquisition . cash used for investing activities increased to $ 37.4 million for 2010 from $ 21.2 million for 2009 , which was decreased from $ 123.3 million for 2008. capital expenditures were $ 41.3 million for 2010 , primarily related to relocating or expanding distribution centers for new distribution and third-party logistics business , as well as continued investment in operational efficiency initiatives . capital expenditures in 2010 also included investments in software for the continued implementation of voice-pick and customer-facing technologies and other technology infrastructure enhancements . these capital expenditures were partially offset by proceeds from the sale of properties acquired from burrows . in 2009 , capital expenditures were $ 32.3 million , primarily related to our strategic initiatives , including leasehold improvements and information technology systems for our third-party logistics operations . during 2009 , we also invested in infrastructure initiatives designed to improve operational efficiency in our operating units . we installed automation equipment in certain large distribution centers where the high volume of low unit-of-measure business benefits the most from the use of such equipment through productivity improvements , such as an increase in the number of lines-picked-per-hour . in addition , we installed voice-pick technology in 40 distribution centers in 2009. these capital expenditures were partially offset by proceeds from the sale of properties acquired from burrows and the receipt of a $ 7.0 million purchase price adjustment . cash used for investing activities in 2008 was largely due to acquisition activity , as we invested $ 96.8 million in the burrows business , including intangible assets . we acquired certain assets and liabilities of burrows , in exchange for cash consideration of $ 17.5 million , net of a $ 7.0 million purchase price adjustment receivable at december 31 , 2008 , and including transaction costs , plus $ 56.1 million of assumed debt . the 20 assumed debt was satisfied in full on the acquisition date . we borrowed approximately $ 80 million under our revolving credit facility to fund this acquisition . in connection with the acquisition , we also acquired real property from burrows in december 2008 for $ 17.0 million . of the real property acquired , three properties were sold in 2010 , two properties were sold in 2009 , one is used in our operations and the remaining three are being offered for sale . in 2008 , we invested $ 27.0 million in capital expenditures , primarily for software , warehouse equipment and additional land for possible future expansion of our headquarters . story_separator_special_tag our financing activities used cash of $ 142.4 million in 2010 and $ 129.1 million in 2009 and provided $ 65.3 million of cash in 2008. in 2010 , we reduced drafts payable by $ 101.4 million , paid dividends of $ 44.8 million and paid financing costs of $ 2.8 million . in 2009 , proceeds of $ 63.0 million from the sale of the dtc business , as well as cash from operating activities of continuing operations and discontinued operations , were used primarily to reduce our revolving credit facility by $ 150.6 million , net of borrowings , and to pay dividends of $ 38.4 million . these decreases in cash were partially offset by an increase in drafts payable in 2009. in 2008 , cash provided by financing activities was primarily due to net borrowings under the revolving credit facility of $ 74.1 million , partially offset by the payment of dividends of $ 33.0 million . the borrowings were used to partially fund the burrows acquisition in 2008. cash generated by the operating activities of discontinued operations during 2009 was primarily from the collection of accounts receivable , partially offset by the payment of costs associated with exiting the dtc business . capital resources . our sources of liquidity include cash and cash equivalents and a revolving credit facility . on june 7 , 2010 , we entered into a credit agreement with bank of america , n.a. , wells fargo bank , n.a . and a syndication of banks . this agreement replaced an existing $ 306 million revolving credit facility ( which was to expire in may 2011 ) with a $ 350 million revolving credit facility which expires on june 7 , 2013 ( the revolving credit facility ) . the interest rate on the new facility , which is subject to adjustment quarterly , is based on , at our discretion , the london interbank offered rate ( libor ) , the federal funds rate or the prime rate , plus an adjustment based on our leverage ratio ( credit spread ) . we are charged a commitment fee of between 37.5 and 62.5 basis points on the unused portion of the facility . at december 31 , 2010 , the following financial institutions had commitments under the facility : bank of america , n.a. , wells fargo bank , n.a. , suntrust bank , n.a. , u.s. bank national association , jpmorgan chase bank n.a. , branch banking & trust company , citibank n.a. , comerica bank , fifth third bank , and pnc bank n.a . we may utilize the revolving credit facility for long-term strategic growth , capital expenditures , working capital and general corporate purposes . if we were unable to access the revolving credit facility , it could impact our ability to fund these needs . during 2010 , we had no borrowings or repayments under the revolving credit facility . at december 31 , 2010 , we had $ 10.4 million of letters of credit and no borrowings outstanding under the facility , leaving $ 339.6 million available for borrowing . based on our leverage ratio at december 31 , 2010 , the interest rate under the revolving credit facility , which is subject to adjustment quarterly , will remain unchanged at libor plus 250 basis points at the next adjustment date . we have $ 200 million of senior notes outstanding , which mature in 2016 and bear interest at 6.35 % , payable semi-annually on april 15 and october 15 . the revolving credit facility and senior notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement . we believe we were in compliance with our debt covenants at december 31 , 2010. we paid quarterly cash dividends on our outstanding common stock at the rate of $ 0.177 per share during 2010 and $ 0.153 per share during 2009. our annual dividend payout ratio for the three years ended december 31 , 2010 , was in the range of 35.5 % to 40.7 % . in february 2011 , the board of directors approved a 13 % increase in the amount of our quarterly dividend to $ 0.20 per share . we anticipate continuing to pay quarterly cash dividends 21 in the future . however , the payment of future dividends remains within the discretion of the board of directors and will depend upon our results of operations , financial condition , capital requirements and other factors . in february 2011 , the board of directors authorized a share repurchase program of up to $ 50 million of our outstanding common stock to be executed at the discretion of management over a three-year period , expiring in february 2014. the program is intended to offset shares issued in conjunction with our stock incentive plan and may be suspended or discontinued at any time . we believe available financing sources , including cash generated from continuing operations and borrowings under the revolving credit facility , will be sufficient to fund our working capital needs , capital expenditures , long-term strategic growth , payments under long-term debt and lease arrangements , payments of quarterly cash dividends , share repurchases and other cash requirements . while we believe that we will have the ability to meet our financing needs in the foreseeable future , changes in economic conditions may impact ( i ) the ability of financial institutions to meet their contractual commitments to us , ( ii ) the ability of our customers and suppliers to meet their obligations to us or ( iii ) our cost of borrowing . off-balance sheet arrangements we do not have guarantees or other off-balance sheet financing arrangements , including variable interest entities , which we believe could have a material impact on financial condition or liquidity .
| in addition , the decrease in gross margin dollars reflects an $ 8.4 million greater last-in , first out ( lifo ) provision ( 11 basis points ) . gross margin dollars in 2009 benefitted from a lower lifo provision due primarily to the effect of net supplier price changes . gross margin dollars increased 9.9 % to $ 814.4 million for 2009 , as compared with $ 741.1 million for 2008. the increase in gross margin dollars was primarily due to an increase in revenues . the decline of 10 basis points in gross margin as a percentage of revenue for 2009 as compared with 2008 was comprised of lower gross margin as a percentage of revenue on sales to new customers and customers obtained from the burrows acquisition , and a decrease in supplier incentives as a percentage of revenue . these decreases were partially offset by the effect of net supplier price changes , as well as the impact of changes in inventory mix on the lifo provision , which resulted in a $ 10.5 million lower lifo provision for 2009 compared to 2008. we value inventory under the lifo method . had inventory been valued under the first-in , first-out ( fifo ) method , gross margin as a percentage of revenue would have been higher by 14 basis points in 2010 , 3 basis points in 2009 and 18 basis points in 2008. selling , general and administrative ( sg & a ) expenses . sg & a expenses of $ 564.2 million for 2010 decreased $ 28.2 million compared to 2009. sg & a expenses decreased $ 17.3 million for labor costs , primarily related to incentive compensation expense ; $ 7.6 million for information technology outsourcing and consulting primarily related to technology infrastructure enhancements ; $ 4.3 million in burrows acquisition transition-related expenses ; $ 1.6 million for delivery costs ; and $ 1.3 million resulting from a lower provision for losses on accounts and notes receivable . these decreases in sg & a expenses were partially offset by an increase of $ 4.7 million for costs incurred in
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nabi-hb is indicated for the treatment of acute exposure to blood containing hbsag , prenatal exposure to infants born to hbsag-positive mothers , sexual exposure to hbsag-positive persons and household exposure to persons with acute hepatitis b virus infection . hepatitis b is a potentially life-threatening liver infection caused by the hepatitis b virus . it is a major global health problem . it can cause chronic infection and puts people at high risk of death from cirrhosis and liver cancer . nabi-hb has a well-documented record of long-term safety and effectiveness since its initial market introduction . fda approval for nabi-hb was received on march 24 , 1999. biotest acquired nabi-hb from nabi biopharmaceuticals in 2007. production of nabi-hb at the boca facility has continued since the third quarter of 2017. subsequent to the end of 2017 , we received authorization from the fda for the release of our first commercial batch of nabi-hb for commercial distribution in the u.s. bivigam bivigam is an intravenous immune globulin indicated for the treatment of primary humoral immunodeficiency . this includes , but is not limited to , agammaglobulinemia , common variable immunodeficiency , wiskott-aldrich syndrome and severe combined immunodeficiency . these primary immunodeficiencies ( “ pis ” ) are a group of genetic disorders . initially thought to be very rare , it is now believed that as many as one in every 1,200-2,000 people has some form of pi . bivigam contains a broad range of antibodies similar to those found in normal human plasma . these antibodies are directed against bacteria and viruses , and help to protect pi patients against serious infections . bivigam is a purified , sterile , ready-to-use preparation of concentrated immunoglobulin ( “ igg ” ) antibodies . antibodies are proteins in the human immune system that work to defend against disease . fda approval for bivigam was received on december 19 , 2012 , and sales commenced in the first quarter of 2013. in december 2016 , bpc temporarily suspended the commercial production of bivigam in order to focus on the completion of planned improvements to the manufacturing process . we resumed production of bivigam utilizing our optimized intravenous immunoglobulin ( “ ivig ” ) manufacturing process with two conformance lots in the fourth quarter of 2017 and a third conformance lot in the first quarter of 2018. subsequent to the end of 2017 , we qualified and filled these bivigam conformance batches and the product is on stability . we expect to file a prior approval supplement ( the “ pas ” ) with the fda during the first half of 2018 and are seeking fda clearance which would enable us to relaunch this product during the second half of 2018 . 48 our lead pipeline product candidate – ri-002 we are currently developing our lead pipeline product candidate , ri-002 , for the treatment of pidd , and have completed a pivotal phase iii clinical trial , which met the primary endpoint of no serious bacterial infections reported . secondary efficacy endpoints further demonstrated the benefits of ri-002 in the low incidence of infection , therapeutic antibiotic use , days missed from work/school/daycare , and unscheduled medical visits and hospitalizations . ri-002 is derived from human plasma blended from normal donors and from donors tested to have high levels of neutralizing titers to respiratory syncytial virus ( “ rsv ” ) . ri-002 is manufactured using a process known as fractionation , which purifies igg from this blended plasma pool resulting in a final ivig product enriched with naturally occurring polyclonal anti-pathogen antibodies , such as streptococcus pneumonia , h. influenza type b , cytomegalovirus , measles and tetanus . we use our proprietary rsv microneutralization assay to test for standardized levels of neutralizing antibodies to rsv in the final drug product . prior to the closing of the biotest transaction , btbu was our third-party manufacturer for ri-002 . in the third quarter of 2015 , the fda accepted for review our biologics license application for ri-002 ( the “ bla ” ) for the treatment of pidd . in july 2016 , the fda issued a complete response letter ( the “ crl ” ) , which reaffirmed the issues set forth in the november 2014 warning letter that had been issued by the fda to biotest related to certain issues identified at the boca facility ( the “ warning letter ” ) , but did not cite any concerns with the clinical safety or efficacy data for ri-002 submitted in our bla , nor did the fda request any additional clinical studies be completed prior to fda approval of ri-002 . the fda identified in the crl , among other things , certain outstanding inspection issues and deficiencies related to chemistry , manufacturing and controls and good manufacturing practices at the boca facility and at certain of our third-party vendors , and requested documentation of corrections for a number of these issues . the fda indicated in the crl that it can not grant final approval of our bla until , among other things , these deficiencies are resolved . following the completion of the biotest transaction , we now have control over the regulatory , quality , general operations and drug substance manufacturing process and our highest priority is to remediate the outstanding compliance issues that were identified at the boca facility in the warning letter . we have been working with a consulting firm consisting of quality management systems and biologics production subject matter experts in preparation for a re-inspection by the fda in order to improve the fda inspection classification relative to the warning letter compliance issues as indicated in the crl . story_separator_special_tag we believe that we have been inspection-ready for the fda since the end of 2017. once the warning letter status is improved following an fda inspection , we anticipate that we will be in a position to refile our bla for ri-002 in the second half of 2018. subsequent to the end of 2017 , we produced three conformance lots using the optimized ivig manufacturing process , and these batches are expected to be filled and finished during the second quarter of 2018 and will then be placed on stability . plasma collection facilities adma biocenters operates two fda-licensed , gha and kmfd certified source plasma collection facilities located in the u.s. , which provide us with a portion of our blood plasma for the manufacture of our products and product candidates . a typical plasma collection center , such as those operated by adma biocenters , can collect approximately 30,000 to 50,000 liters of source plasma annually , which may be sold for different prices depending upon the type of plasma , quantity of purchase and market conditions at the time of sale . plasma collected from adma biocenters ' facilities that is not used to manufacture our products or product candidates is sold to third-party customers in the u.s. , and other locations where we are approved globally under supply agreements or in the open `` spot '' market . 49 as part of the purchase price to acquire the biotest assets , we have agreed to transfer ownership of two of our plasma collection facilities to bpc on january 1 , 2019. we completed the construction of our third plasma collection facility , filed our biologics license application with the fda and initiated collections for this facility in december 2017. we anticipate fda approval of our third plasma collection facility to occur during the second half of 2018. story_separator_special_tag of forfeiture . research and development expenses our research and development ( “ r & d ” ) costs are expensed as incurred , including costs associated with ( i ) planning and conducting clinical trials ; ( ii ) drug product manufacturing for ri-002 , including the cost of plasma , plasma storage and transportation costs ; ( iii ) quality testing , validation , regulatory consulting and filing fees ; and ( iv ) employees ' compensation expenses directly related to r & d activities . impairment of long-lived assets we assess the recoverability of its long-lived assets , which include property and equipment and definite-lived intangible assets , whenever significant events or changes in circumstances indicate impairment may have occurred . if indicators of impairment exist , projected future undiscounted cash flows associated with the asset are compared to its carrying amount to determine whether the asset 's value is recoverable . any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results . for the year ended december 31 , 2017 , we recorded an impairment charge in the amount of $ 0.8 million related to assets acquired in the biotest transaction . for the year ended december 31 , 2016 , we determined that there was no impairment of its long-lived assets . goodwill is not amortized , but is assessed for impairment on an annual basis or more frequently if impairment indicators exist . we have the option to perform a qualitative assessment of goodwill to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount , including goodwill and other intangible assets . if we were to conclude that this is the case , then we must perform a goodwill impairment test by comparing the fair value of the reporting unit to its carrying value . an impairment charge is recorded to the extent the reporting unit 's carrying value exceeds its fair value , with the impairment loss recognized not to exceed the total amount of goodwill allocated to that reporting unit . we did not recognize any impairment charges related to goodwill for the year ending december 31 , 2017 . 51 recent accounting pronouncements on april 5 , 2012 , the jumpstart our business startups act ( the “ jobs act ” ) , was signed into law . the jobs act contains provisions that , among other things , reduce certain reporting requirements for qualifying public companies . we could be an emerging growth company until december 31 , 2018 , which is the last day of the fiscal year following the fifth anniversary of the first sale of our common equity securities pursuant to an effective registration statement under the securities act of 1933 , as amended ( the “ securities act ” ) . however , if certain events occur prior to the end of such five-year period , including if we become a “ large accelerated filer , ” our annual gross revenues exceed $ 1 billion or we issue more than $ 1 billion of non-convertible debt in any three-year period , we would cease to be an emerging growth company prior to the end of such five-year period . as an “ emerging growth company , ” we may , under section 7 ( a ) ( 2 ) ( b ) of the securities act , delay adoption of new or revised accounting standards applicable to public companies until such standards would otherwise apply to private companies . we may take advantage of this extended transition period until the first to occur of the date that we ( i ) are no longer an “ emerging growth company ” or ( ii ) affirmatively and irrevocably opt out of this extended transition period . we have elected to take advantage of the benefits of this extended transition period . our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards .
| revenue recognition revenues for the year ended december 31 , 2017 are comprised of ( i ) revenues from nabi-hb , ( ii ) product revenues from the sale of human plasma collected from our plasma collection centers segment , ( iii ) a compensation fee related to the amendment of our contract manufacturing agreement with sanofi pasteur s.a. ( “ sanofi ” ) ; and ( iv ) license and other revenues primarily attributable to the out-licensing of ri-002 to biotest to market and sell in europe and selected countries in north africa and the middle east . biotest has provided us with certain services and financial payments in accordance with the related biotest license agreement and is obligated to pay us certain amounts in the future if certain milestones are achieved . deferred revenue is recognized over the term of the biotest license . deferred revenue is amortized into income for a period of approximately 22 years , the term of the biotest license agreement . revenue from the sale of nabi-hb is recognized when the product reaches the customer 's destination . nabi-hb revenue is recorded net of estimated customer prompt pay discounts and contractual allowances in accordance with managed care agreements , including wholesaler chargebacks , rebates , customer returns and other wholesaler fees . product revenues from the sale of human plasma collected at our plasma collection centers are recognized at the time of transfer of title and risk of loss to the customer , which generally occurs at the time of shipment . product revenues are recognized at the time of delivery if the company retains the risk of loss during shipment . for the year ended december 31 , 2017 , bpc represented 47 % of our consolidated revenues , and the revenue attributable to the amendment of a contract manufacturing agreement represented 31 % of our consolidated revenues . for the year ended december 31 , 2016 , bpc and another customer represented approximately 82 % and 14 % , respectively , of our consolidated revenues . 50 accounts receivable accounts receivable are reported at realizable value , net of allowances for contractual credits and doubtful accounts , which are recognized in the period the related revenue is recorded . at december 31 , 2017 , sanofi accounted for 48 % of our total accounts receivable and sanofi , bpc , amerisourcebergen and mckesson corporation accounted for 96 % of consolidated accounts receivable . at december
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in addition , we use other information that may not be financial in nature , including industry standard statistical information and comparative data . we use this information to measure the operating performance of our individual hotels , groups of hotels and or business as 39 table of contents a whole . we also use these metrics to evaluate the hotels in our portfolio and potential acquisition opportunities to determine each hotel 's contribution to cash flow and its potential to provide attractive long-term total returns . the key indicators include : average daily rate — adr represents the total hotel room revenues divided by the total number of rooms sold in a given period . adr measures the average room price attained by a hotel and adr trends provide useful information concerning the pricing environment and the nature of the customer base at a hotel or group of hotels . we use adr to assess the pricing levels that we are able to generate , as changes in rates have a greater impact on operating margins and profitability than changes in occupancy . occupancy — occupancy represents the total number of hotel rooms sold in a given period divided by the total number of rooms available . occupancy measures the utilization of our hotels ' available capacity . we use occupancy to measure demand at a specific hotel or group of hotels in a given period . additionally , occupancy levels help us determine the achievable adr levels . revenue per available room — revpar is the product of adr and occupancy . revpar does not include non-room revenues , such as food and beverage revenue or other operating department revenue . we use revpar to identify trend information with respect to room revenues from comparable properties and to evaluate hotel performance on a regional basis . revpar changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than the changes that are driven primarily by changes in adr . for example , an increase in occupancy at a hotel would lead to additional variable operating costs ( including housekeeping services , utilities and room supplies ) and could also result in an increase in other operating department revenue and expense . changes in adr typically have a greater impact on operating margins and profitability as they only have a limited effect on variable operating costs . adr , occupancy and revpar are commonly used measures within the lodging industry to evaluate operating performance . revpar is an important statistic for monitoring operating performance at the individual hotel level and across our entire business . we evaluate individual hotel revpar performance on an absolute basis with comparisons to budget and prior periods , as well as on a regional and company-wide basis . adr and revpar include only room revenue . room revenue comprised approximately 87.1 % of our total revenue for the year ended december 31 , 2016 , and is dictated by demand ( as measured by occupancy ) , pricing ( as measured by adr ) and our available supply of hotel rooms . another commonly used measure in the lodging industry is the revpar penetration index , which measures a hotel 's revpar in relation to the average revpar of that hotel 's competitive set . like other lodging companies , we use the revpar penetration index as an indicator of a hotel 's market share in relation to its competitive set . however , the revpar penetration index for a particular hotel is not necessarily reflective of that hotel 's relative share of any particular lodging market . the revpar penetration index for a particular hotel is calculated as the quotient of ( 1 ) the subject hotel 's revpar divided by ( 2 ) the average revpar of the hotels in the subject hotel 's competitive set , multiplied by 100. for example , if a hotel 's revpar is $ 90 and the average revpar of the hotels in its competitive set is $ 90 , the revpar penetration index would be 100 , which would indicate that the subject hotel is capturing its fair market share in relation to its competitive set ( i.e. , the hotel 's revpar is , on average , the same as its competitors ) . if , however , a hotel 's revpar is $ 110 and the average revpar of the hotels in its competitive set is $ 90 , the revpar penetration index of the subject hotel would be 122.2 , which would indicate that the subject hotel has a revpar premium of approximately 22.2 % ( and , therefore , a market share premium ) in relation to its competitive set . one critical component in the revpar penetration index calculation is the determination of a hotel 's competitive set , which consists of a small group of hotels in the relevant market that we and the third-party hotel management company that manages the hotel believe are comparable for purposes of benchmarking the performance of such hotel . a hotel 's competitive set is mutually agreed upon by us and the hotel 's management company . factors that we consider when establishing a competitive set include geographic proximity , brand affiliations , rate structure , and the level of service provided at the hotel . the determination of the competitive set is highly subjective , however , our methodology for determining a hotel 's competitive set may differ materially from those used by other hotel owners and or management companies . for the year ended december 31 , 2016 , the portfolio wide revpar penetration index of our hotels was 113.9 , which indicates that , on average , our hotels maintained a market share premium of approximately 13.9 % in relation to their competitive set . we also use non-gaap measures such as ffo , adjusted ffo , ebitda and adjusted ebitda to evaluate the operating performance of our business . story_separator_special_tag for a more in depth discussion of the non-gaap measures , please refer to the `` non-gaap financial measures '' section . 40 table of contents principal factors affecting our results of operations the principal factors affecting our operating results include the overall demand for lodging compared to the supply of available hotel rooms and other lodging options , and the ability of our third-party hotel management companies to increase or maintain revenues while controlling expenses . demand — the demand for lodging , especially business travel , generally fluctuates with the overall economy . historically , periods of declining demand are followed by extended periods of relatively strong demand , which typically occurs during the growth phase of the lodging cycle . supply — the development of new hotels is driven largely by construction costs , the availability of financing and the expected performance of existing hotels and other lodging options . we expect that our adr , occupancy and revpar performance will be impacted by macroeconomic factors such as regional and local employment growth , government spending , personal income and corporate earnings , office vacancy rates , business relocation decisions , airport activity , business and leisure travel demand , new hotel construction and the pricing strategies of our competitors . in addition , our adr , occupancy and revpar performance are dependent on the continued success of the marriott , hilton and hyatt brands . revenue — substantially all of our revenue is derived from the operation of hotels . specifically , our revenue is comprised of : ◦ room revenue — occupancy and adr are the major drivers of room revenue . room revenue accounts for the majority of our total revenue . ◦ food and beverage revenue — occupancy , the nature of the hotel property and the type of customer staying at the hotel are the major drivers of food and beverage revenue ( i.e. , group business typically generates more food and beverage revenue through catering functions as compared to transient business , which may or may not utilize the hotel 's food and beverage outlets ) . ◦ other operating department revenue — occupancy and the nature of the hotel property are the main drivers of other ancillary revenue , such as parking fees , gift shop sales and other guest service fees . some hotels , due to the limited focus of the services offered and size or space limitations at the hotel , may not have the type of facilities that generate other operating department revenue . property operating expense — the components of our property operating expense are as follows : ◦ room expense — these expenses include housekeeping and front office wages and payroll taxes , reservation systems , room supplies , laundry services and other room-related costs . like room revenue , occupancy is the major driver of room expense . these costs can increase based on an increase in salaries and wages , as well as the level of service and amenities that are provided at the hotel . ◦ food and beverage expense — these expenses primarily include food , beverage and labor costs . occupancy and the type of customer staying at the hotel ( i.e. , catered functions are generally more profitable than restaurant , bar , and other food and beverage outlets that are located on the hotel property ) are the major drivers of food and beverage expense , which correlates closely with food and beverage revenue . ◦ management and franchise fee expense — a base management fee is computed as a percentage of gross hotel revenues . an incentive management fee is typically paid when the hotel 's operating income exceeds certain thresholds , and it is generally calculated as a percentage of hotel operating income after we have received a priority return on our investment in the hotel . a franchise fee is computed as a percentage of room revenue , plus an additional percentage of room revenue for marketing , central reservation systems and other franchisor costs . certain hotels will also pay an additional franchise fee which is computed as a percentage of food and beverage revenue . for a more in depth discussion of the management and franchise fees , please refer to the `` our hotel properties — our hotel management agreements '' and `` our hotel properties — franchise agreements '' sections . ◦ other operating expense — these expenses include labor and other costs associated with the other operating department revenue , as well as the labor and other costs associated with the administrative departments , sales and marketing , repairs and maintenance , and utility costs . most categories of variable operating expenses , including labor costs , fluctuate with changes in occupancy . increases in occupancy are accompanied by increases in most categories of variable operating expenses , while increases in adr typically only result in increases in certain categories of operating costs and expenses , such as franchise fees , management fees , travel 41 table of contents agency commissions and credit card processing fee expenses , all of which are based on hotel revenues . therefore , changes in the adr have a more significant impact on operating margins than changes in occupancy . 2016 significant activities our significant activities reflect our commitment to creating long-term shareholder value through enhancing our portfolio 's quality , recycling capital and maintaining a prudent capital structure .
| room revenue room revenue increased $ 25.3 million , or 2.6 % , to $ 1.011 billion for the year ended december 31 , 2016 from $ 985.4 million for the year ended december 31 , 2015 . the increase was a result of a $ 13.6 million increase in room revenue attributable to the comparable properties and an $ 11.6 million increase in room revenue attributable to the non-comparable properties . the increase in room revenue from the comparable properties was attributable to a 1.2 % increase in revpar , led 43 table of contents by revpar increases in our northern california , southern california and washington , d.c. markets of 9.6 % , 8.0 % and 4.4 % , respectively , which were partially offset by revpar decreases in our houston , chicago and new york city markets of 12.3 % , 3.3 % and 2.3 % , respectively . the following are the key hotel operating statistics for the comparable properties owned at december 31 , 2016 and 2015 , respectively : replace_table_token_9_th food and beverage revenue food and beverage revenue decreased $ 3.1 million , or 2.7 % , to $ 111.7 million for the year ended december 31 , 2016 from $ 114.8 million for the year ended december 31 , 2015 . the decrease was a result of a $ 2.0 million decrease in food and beverage revenue attributable to the comparable properties and a $ 1.1 million decrease in food and beverage revenue attributable to the non-comparable properties . other operating department revenue other operating department revenue , which includes revenue derived from ancillary sources such as parking fees , gift shop sales and other guest service fees , increased $ 1.5 million , or 4.2 % , to $ 37.7 million for the year ended december 31 , 2016 from $ 36.2 million for the year ended december 31 , 2015 . the increase was due to a $ 0.8 million increase in other operating department revenue attributable to the non-comparable properties and a $ 0.7 million
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● europe segment profit for the year ended december 31 , 2020 was $ 65.4 million , 18.3 % higher than the year ended december 31 , 2019. the increase in europe segment profit was due to the decrease in expenses , primarily due to cost reduction initiatives that we implemented in the second quarter , and the recognition of a $ 17.6 million gain related to our investment in visa series a preferred stock . ● the company processed approximately 3.6 billion transactions in the year ended december 31 , 2020 , a decrease of 1.6 % from the year ended december 31 , 2019 . covid-19 the covid-19 pandemic and related government actions to control its spread impacted our operating results beginning in march 2020. at the onset of the pandemic , year-over-year volumes declined in most of our markets and across most industry verticals , reaching a low point in mid-april . since then , we have experienced periods of improvement and decline in volumes , primarily relating to the status of government restrictions in various jurisdictions . volumes remained depressed in the fourth quarter , however , there was some improvement in december 2020 attributable largely to increased consumer holiday spending and the temporary loosening of government restrictions in certain markets in europe . in january 2021 , covid-19 related restrictions were reinstated or extended in parts of europe in response to an increase in infection rates , resulting in an additional decline in volume , particularly in our europe segment . february volumes to date remain depressed but showed a slight improvement as the vaccine deployment is now underway and certain governments have begun easing restrictions . it is likely that our volumes will continue to be under pressure as the effects of the pandemic extend into 2021 . 53 in the first quarter of 2020 , we implemented a number of business continuity plans and formed a crisis management team to address challenges arising from the covid-19 pandemic , including those related to the health and safety of our employees and partners , and to minimize disruption to our merchants . beginning in early april 2020 , we took a number of steps to align our cost structure and cash flows with the expected near-term revenue impact from the pandemic . these actions included a series of initiatives to reduce fixed costs , including significant reductions in payroll expenses through a combination of furloughs , terminations , and temporary salary reductions , and certain non-payroll related costs . employee salaries were reinstated during the fourth quarter of 2020. based on these actions , we estimate that we have reduced our cost structure on a go forward basis by approximately 10 % of our core selling , general and administrative expenses . in addition , we reduced our capital expenditures for 2020 through the deferral of non-critical projects and a reduction in terminal purchases . we will continue to actively manage our expenses and cash flows based on our revenues and the economic activity in our markets . the actions we have taken allowed us to realign our cost structure resulting in the financial capacity to invest in our business and support our customers while also increasing our margins . we expect that the covid-19 pandemic will continue to negatively impact our business and results of operations in the upcoming months . the extent of the impact on our future financial condition and operating results remains highly uncertain ; however , we are confident in our ability to manage through this period . longer term , we believe the pandemic will serve as a catalyst for greater utilization of digital payments , a trend we are already seeing in our markets . factors impacting our business and results of operations in general , our revenue is impacted by factors such as global consumer spending trends , foreign exchange rates , the pace of adoption of commerce-enablement and payment solutions , acquisitions and dispositions , types and quantities of products and services provided to enterprises , timing and length of contract renewals , new enterprise wins , retention rates , mix of payment solution types employed by consumers , and changes in card network fees , including interchange rates and size of enterprises served . in addition , we may pursue acquisitions from time to time . these acquisitions could result in redundant costs , such as increased interest expense resulting from indebtedness incurred to finance such acquisitions , or could require us to incur additional costs as we restructure or reorganize our operations following these acquisitions . seasonality we have experienced in the past , and expect to continue to experience , seasonality in our revenues as a result of consumer spending patterns . historically , in both the americas and europe , our revenue has been strongest in our fourth quarter and weakest in our first quarter as many of our merchants experience a seasonal lift during the traditional vacation and holiday months . operating expenses do not typically fluctuate seasonally . the government restrictions and changes in consumer spending resulting from the covid-19 pandemic have disrupted these typical seasonal patterns . foreign currency translation impact on our operations our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues recognized and expenses incurred by our non-u.s. operations . it is difficult to predict the future fluctuations of foreign currency exchange rates and how those fluctuations will impact our consolidated statements of operations and comprehensive income ( loss ) in the future . as a result of the relative size of our international operations , these fluctuations may be material on individual balances . our revenues and expenses from our international operations are generally denominated in the local currency of the country in which they are derived or incurred . therefore , the impact of currency fluctuations on our operating results and margins is partially mitigated . story_separator_special_tag 54 financial institution partners since 2012 , we have established partnerships with leading financial institutions around the world . we rely on our various financial institution relationships to grow and maintain our business . these relationships are structured in various ways , such as commercial alliance relationships , equity method investments , and joint ventures . we enter into long-term relationships with our bank partners where these partners typically provide exclusive merchant referrals and credit facilities to support the settlement process . our relationships with our financial institution partners may be impacted by , among other things , consolidations in the banking and payments industries . one of our financial institution referral partners , grupo banco popular , was acquired by santander in june 2017 , which has adversely impacted our business in spain . revenues from this channel have declined significantly due primarily to reduced merchant referrals following santander 's consolidation of grupo banco popular branches and the bank 's lack of performance of certain of its obligations under our agreements . we believe our agreements with santander , including the bank 's referral obligations , remain in full force and effect and we continue to utilize the contractual and legal remedies available to us as we work to resolve these and other matters . however , there can be no assurance that we will be able to successfully resolve this matter or that the bank will comply with its obligations under the agreements . increased regulations and compliance we , our partners and our merchants are subject to various laws and regulations that affect the electronic payments industry in the many countries in which our services are used , including numerous laws and regulations applicable to banks , financial institutions , and card issuers . a number of our subsidiaries in our european segment hold a pi license , allowing them to operate in the eu member states in which such subsidiaries do business . as a pi , we are subject to regulation and oversight in the applicable eu member states , which includes , among other obligations , a requirement to maintain specific regulatory capital and adhere to certain rules regarding the conduct of our business , including psd2 . psd2 contains a number of additional regulatory mandates , such as provisions relating to sca , which aim to increase the security of electronic payments by requiring multi-factor user authentication . sca regulations required industry-wide systems upgrades . in the second half of 2019 , we began updating our systems in preparation for the new sca compliance requirements . many new sca requirements became fully enforced in certain countries in europe at the end of 2020 while other countries in europe have adopted staggered timelines and have delayed full enforcement until later in 2021. from an operations perspective , we remain focused on developing , coordinating and implementing necessary sca updates with our merchants and third party providers , including hardware vendors , card issuers and the card networks . failure to comply with sca requirements may result in fines from card networks as well as declined payments from card issuers . the eu has also enacted certain legislation relating to the offering of dcc services , which went into effect in april 2020. these new rules require additional disclosures to consumers in connection with our dcc product offerings . as a result of the covid-19 pandemic , the eu commission and other national regulators have indicated that enforcement of these regulations will be delayed in order to allow providers additional time to fully implement changes necessary to meet these regulations . compliance with current and upcoming regulations and compliance deadlines remains a focus for 2021. in addition , we continue to closely monitor the impact of brexit on our operations as further details emerge regarding the post-brexit regulatory landscape . commencing in january 2021 , we availed ourselves of the united kingdom 's temporary permissions regime , which allows us to continue to operate in that market under our current regulatory permissions for a period of up to three years . key performance indicators transactions processed transactions processed refers to the number of transactions we processed during any given period of time and is a meaningful indicator of our business and financial performance , as a significant portion of our revenue is driven by the number of transactions we process . in addition , transactions processed provides a valuable measure of the level of economic activity across our merchant base . in our americas segment , transactions include acquired visa and mastercard credit and signature debit , american express , discover , unionpay , pin-debit , electronic benefit transactions and gift card transactions . in our europe segment , transactions include acquired visa and mastercard credit and signature debit , other card network merchant acquiring transactions , and atm transactions . 55 for the year ended december 31 , 2020 , we processed approximately 3.6 billion transactions , which included approximately 1.0 billion transactions in the americas and approximately 2.6 billion transactions in europe . this represents a decrease of 9.5 % in the americas and an increase of 1.8 % in europe for an aggregate decrease of 1.6 % compa red to the year ended december 31 , 2019 . transactions processed in the americas and europe accounted for 27 % and 73 % , respectively , of the total transactions we processed for the year ended december 31 , 2020 . for the year ended december 31 , 2019 , we processed approximately 3.6 billion transactions , which included more than 1.0 billion transactions in the americas and approximately 2.5 billion transactions in europe . this represents an increase of 12.4 % in the americas and an increase of 18.8 % in europe for an aggregate increase of 16.8 % compared to the year ended december 31 , 2018 .
| 58 on may 5 , 2020 , we entered into a limited waiver ( the “ limited waiver ” ) with respect to our senior secured credit facilities . the limited waiver effects certain changes applicable to our revolving credit facility , including a waiver of any default or event of default resulting from noncompliance with the consolidated leverage ratio for the period beginning june 30 , 2020 and ended on september 30 , 2021 ( such period of time , the “ covenant waiver period ” ) . during the covenant waiver period we are subject to ( 1 ) a consolidated leverage ratio of 6.0x for each fiscal quarter from the quarter ended june 30 , 2020 through and including march 31 , 2021 , a consolidated leverage ratio of 5.5x for the fiscal quarter ended june 30 , 2021 , and a consolidated leverage ratio of 5.25x for the fiscal quarter ended september 30 , 2021 and ( 2 ) increased limitations on restricted payments and the incurrence of indebtedness . other than the items noted above , the limited waiver does not modify the significant terms of the senior secured credit facilities . we have structured our operations in a manner to allow for cash to be repatriated through tax-efficient methods using dividends from foreign jurisdictions as our main source of repatriation . we follow local government regulations and contractual restrictions on cash as well as how much and when dividends can be repatriated . as of december 31 , 2020 , cash and cash equivalents of $ 418.4 million includes cash in the united states of $ 162.9 million and $ 255.5 million in foreign jurisdictions . of the united states cash balances , $ 43.4 million is available for general purposes , and the remaining $ 119.5 million is considered merchant reserves and settlement-related cash and is therefore unavailable for our general use . of the foreign cash balances , $ 101.6 million is available for general purposes , and the remaining $ 153.9 million is considered merchant reserves and settlement-related cash and is therefore unable to be repatriated . refer to note 1 , “ description
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in the aggregate , we have entered into forbearance and other agreements with varying terms and conditions that conditionally waive or defer payment defaults for loans with a total outstanding principal balance of approximately $ 3.6 billion out of approximately $ 3.7 billion in property level debt outstanding as of december 31 , 2020 . see note 7 to our consolidated financial statements . additionally , certain of the company 's hotel properties are subject to ground leases rather than a fee simple interest , with respect to all or a portion of the real property at those hotels . it is possible the company may default on some or all of the ground leases within the next twelve months . the company is also working more generally to contain costs while it experiences a significant decline in occupancy and revpar . the company continues to suspend its quarterly cash dividend on its common and preferred stock and to look for opportunities to renegotiate cash obligations where possible . the company continues to work closely with its hotel managers to significantly reduce its hotel operating expenses . the company is dependent on its hotel managers to make appropriate staffing decisions and to appropriately reduce staffing when market conditions are poor . as of december 31 , 2020 , the company held cash and cash equivalents of $ 92.9 million and restricted cash of $ 74.4 million . during the three months ended december 31 , 2020 , we utilized cash , cash equivalents and restricted cash of $ 43.1 million . we are currently experiencing significant variability in the operating cash flows of our hotel properties . we are also taking several steps to reduce our cash utilization and potentially raise additional capital . on january 15 , 2021 , the company entered into a senior secured term loan facility comprising of ( a ) initial term loans in an aggregate principal amount of $ 200 million , ( b ) initial delayed draw term loans in an aggregate principal amount of up to $ 150 million and ( c ) additional delayed draw term loans in an aggregate principal amount of up to $ 100 million . see note 25 . we can not predict when hotel operating levels will return to normalized levels after the effects of the pandemic subside , whether our hotels will be forced to shut down operations or whether one or more governmental entities may impose additional travel restrictions due to a resurgence of covid-19 cases in the future . as a result of these factors arising from the impact of the pandemic , we are unable to estimate future financial performance with certainty . however , based on our completed senior secured term loan facility with oaktree capital management l.p. and forbearance and other agreements with our property-level lenders , our current unrestricted and restricted cash on hand , our current cash utilization and forecast of future operating results for the next 12 months from the date of this report , and the actions we have taken to improve our liquidity , the company has concluded that management 's current plan alleviates the substantial doubt about its ability to continue as a going concern . facts and circumstances could change in the future that are outside of management 's control , such as additional government mandates , health official orders , travel restrictions and extended business shutdowns due to covid-19 . the spread of covid-19 and the recent developments surrounding the global pandemic are having significant negative impacts on our business . in response to the impact of covid-19 on the hospitality industry , the company is deploying numerous strategies and protocols to provide financial flexibility going forward to navigate this crisis , including : as of march 11 , 2021 , the company has temporarily suspended operations at one hotel property . the company 's remaining 101 hotel properties are open and operating ; the company has reduced its planned spending for capital expenditures for fiscal year 2021 ; the company has suspended its common stock dividends ; the company has suspended its preferred stock dividends ; the company has taken proactive and aggressive actions to protect liquidity and reduce corporate expenses through the curtailment of all non-essential expenses and will continue to take all necessary additional actions to preserve capital and liquidity ; and the company ended the year with cash and cash equivalents of $ 92.9 million and restricted cash of $ 74.4 million . the vast majority of the restricted cash is comprised of lender and manager held reserves . the company has worked with 55 tabl e of content s its property managers and lenders in order to utilize lender and manager held reserves to fund operating shortfalls . at december 31 , 2020 , there was also $ 9.4 million due to the company from third-party hotel managers , which is primarily the company 's cash held by one of its property managers which is also available to fund hotel operating costs . 2020 developments on january 9 , 2020 , we refinanced our $ 43.8 million mortgage loan , secured by the le pavillon in new orleans , louisiana . in connection with the refinance we reduced the loan amount by $ 6.8 million . the new mortgage loan totals $ 37.0 million . the new mortgage loan is interest only and provides for an interest rate of libor + 3.40 % . the stated maturity is january 2023 with two one-year extension options , subject to the satisfaction of certain conditions . the mortgage loan is secured by the le pavillon . on march 9 , 2020 , the company sold the crowne plaza in annapolis , maryland for approximately $ 5.1 million . the sale resulted in a gain of approximately $ 3.7 million for the year ended months ended december 31 , 2020 , which was included in “ gain ( loss ) on disposition of assets and hotel properties ” in the consolidated statements of operations . story_separator_special_tag pursuant to the terms of the letter agreement dated march 13 , 2020 ( the “ hotel management letter agreement ” ) , in order to allow remington hotels to better manage its corporate working capital and to ensure the continued efficient operation of our hotels , we agreed to pay the base fee and to reimburse all expenses on a weekly basis for the preceding week , rather than on a monthly basis . the hotel management letter agreement went into effect on march 13 , 2020 and will continue until terminated by us . on march 20 , 2020 , lismore capital llc ( “ lismore ” ) , a subsidiary of ashford inc. , entered into an agreement with the company to seek modifications , forbearances or refinancings of the company 's loans ( the “ lismore agreement ” ) . pursuant to the lismore agreement , lismore shall , during the agreement term ( which commenced on march 20 , 2020 and shall end on the date that is twelve months following the commencement date , or upon it being terminated by ashford trust on not less than thirty days written notice ) negotiate the refinancing , modification or forbearance of the existing mortgage debt on ashford trust 's hotels . for the purposes of the lismore agreement , financing shall include , without limitation , senior or subordinate loan financing , provided in any single transaction or a combination of transactions , including , mortgage loan financing , mezzanine loan financing , or subordinate loan financing encumbering the applicable hotel or unsecured loan financing . in april 2020 , certain subsidiaries of the company applied for and received loans from key bank , n.a . under the ppp , which was established under the cares act . all funds borrowed under the ppp were returned on or before may 7 , 2020. on april 17 , 2020 , the company was notified by the new york stock exchange ( the “ nyse ” ) that the average closing price of the company 's common stock over the prior 30 consecutive trading-day period was below $ 1.00 per share , which is the minimum average closing price per share required to maintain listing on the nyse under section 802.01c of the nyse listed company manual . effective may 13 , 2020 , douglas a. kessler voluntarily resigned as president and chief executive officer to pursue other professional opportunities . on may 14 , 2020 , the board of directors appointed j. robison hays , iii as the company 's new president and chief executive officer . in june 2020 , our board of directors approved a reverse stock split of our issued and outstanding common stock at a ratio of 1-for-10 . this reverse stock split converted every ten issued and outstanding shares of common stock into one share of common stock . the reverse share split was effective as of the close of business on july 15 , 2020. as a result of the reverse stock split , the number of shares of common stock outstanding was reduced from approximately 104.8 million shares to approximately 10.5 million shares on that date . additionally , the number of outstanding common units , long-term incentive plan ( “ ltip ” ) units and performance ltip units was reduced from approximately 20.5 million units to approximately 2.1 million units on that date . all common stock , common units , ltip units , performance ltip units , psus and restricted stock units as well as per share data related to these classes of equity have been updated in the accompanying consolidated financial statements to reflect this reverse stock split for all periods presented . on august 3 , 2020 , the nyse notified the company that it had cured its non-compliance with the nyse 's minimum average closing price per share standard because the average closing price of our common stock was above $ 1.00 per share on july 31 , 2020 and for the 30 consecutive trading-day period ending july 31 , 2020. on july 1 , 2020 , the company amended and restated the agreement with lismore with an effective date of april 6 , 2020. pursuant to the amended and restated agreement , the term of the agreement was extended to 24 months following the commencement date . in connection with the services provided by lismore under the amended and restated agreement , lismore is entitled to receive a fee of approximately $ 2.6 million in three equal installments of approximately $ 857,000 per month 56 tabl e of content s beginning july 20 , 2020 , and ending on september 20 , 2020. lismore is also entitled to receive a fee that is calculated and payable as follows : ( i ) a fee equal to 25 basis points ( 0.25 % ) of the amount of a loan , payable upon the acceptance by the applicable lender of any forbearance or extension of such loan , or in the case where a third-party agent or contractor engaged by the company has secured an extension of the maturity date equal to or greater than 12 months of any such loan , then the amount payable to lismore shall be reduced to 10 basis points ( 0.10 % ) ; ( ii ) a fee equal to 75 basis points ( 0.75 % ) of the amount of any principal reduction of a loan upon the acceptance by any lender of any principal reduction of such loan ; and ( iii ) a fee equal to 150 basis points ( 1.50 % ) of the implied conversion value ( but in any case , no less than 50 % percent of the face value of such loan or loans ) of a loan upon the acceptance by any lender of any debt to equity conversion of such loan . at the time of amendment , the company had paid lismore approximately $ 8.3 million , in the aggregate , pursuant to the original agreement .
| rooms revenue accounts for the substantial majority of our total revenue . food and beverage revenue-occupancy and the type of customer staying at the hotel are the major drivers of food and beverage revenue ( i.e. , group business typically generates more food and beverage business through catering functions when compared to transient business , which may or may not utilize the hotel 's food and beverage outlets or meeting and banquet facilities ) . other hotel revenue-occupancy and the nature of the property are the main drivers of other ancillary revenue , such as telecommunications , parking and leasing services . hotel operating expenses —the following presents the components of our hotel operating expenses : rooms expense-these costs include housekeeping wages and payroll taxes , reservation systems , room supplies , laundry services and front desk costs . like rooms revenue , occupancy is the major driver of rooms expense and , therefore , rooms expense has a significant correlation to rooms revenue . these costs can increase based on increases in salaries and wages , as well as the level of service and amenities that are provided . food and beverage expense-these expenses primarily include food , beverage and labor costs . occupancy and the type of customer staying at the hotel ( i.e. , catered functions generally are more profitable than restaurant , bar or other on-property food and beverage outlets ) are the major drivers of food and beverage expense , which correlates closely with food and beverage revenue . management fees-base management fees are computed as a percentage of gross revenue . incentive management fees generally are paid when operating profits exceed certain threshold levels . other hotel expenses-these expenses include labor and other costs associated with the other operating department revenues , as well as labor and other costs associated with administrative departments , franchise fees , sales and marketing , repairs and maintenance and utility costs . most categories of variable operating expenses , including labor costs such as housekeeping , fluctuate with changes in occupancy . increases in occupancy are accompanied by
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shares of common stock and per share amounts have been retrospectively adjusted to reflect the reverse stock split in the following management discussion and analysis . 23 going concern management has concluded that there is substantial doubt about our ability to continue as a going concern based upon our accumulated deficit , recurring losses and working capital deficit , as of december 31 , 2020. the financial statements do not include any adjustments that might result from the outcome of these uncertainties . in addition , we operate in industries that have been adversely affected by covid-19 ( e.g . food , hospitality and talent pr ) . on june 5 , 2020 , we sold 1.6 million shares and received proceeds in the amount of approximately $ 7.6 million . management is planning to raise any necessary additional funds through additional sales of our common stock , securities convertible into our common stock , debt securities , as well as available bank and non-bank financing , or a combination of such financing alternatives ; however , there can be no assurance that we will be successful in raising any necessary additional capital or securing loans . any such issuances of additional shares of our common stock or securities convertible into our common stock would dilute the equity interests of our existing shareholders , perhaps substantially . in april of 2020 , we received five separate loans for an aggregate amount of approximately $ 2.8 million under the paycheck protection program which was established under the coronavirus aid , relief and economic security act ( cares act ) . be social , which the company acquired on august 17 , 2020 , received a ppp loan in the amount of $ 304,169 , prior to the acquisition . the loans are unsecured and all or a portion of the loans may be forgiven upon application to the lender for certain expenditure amounts made , including payroll costs , in accordance with the requirements under the payroll protection program . there is no assurance that our loans will be forgiven . if we are unable to raise additional funds from the sale of common stock , securities convertible into our common stock , debt securities , bank and non-bank financing or any combination of such financing securities , we may not be able to continue as a going concern within one year from the issuance of these consolidated financial statements . revenues for the years ended december 31 , 2020 and 2019 , we derived substantially all of our revenues from our entertainment publicity and marketing segment . the entertainment publicity and marketing segment derives its revenues from providing public relations services for celebrities and musicians , entertainment and targeted content marketing for film and television series , strategic communications services for corporations and public relations , marketing services and brand strategies for hotels and restaurants . we additionally derived revenues from the content production segment primarily from the distribution of our feature films , max steel and believe . the table below sets forth the percentage of total revenue derived from our two segments for the years ended december 31 , 2020 and 2019 : replace_table_token_3_th entertainment publicity and marketing our revenue is directly impacted by the retention and spending levels of existing clients and by our ability to win new clients . we believe that we have a stable client base , and we have continued to grow organically through referrals and actively soliciting new business , as well as through acquisition of new businesses within the same industry . we earn revenues primarily from the following sources : ( i ) celebrity talent services ; ( ii ) content marketing services under multiyear master service agreements in exchange for fixed project-based fees ; ( iii ) individual engagements for entertainment content marketing services for durations of generally between three and six months ; ( iv ) strategic communications services ; ( v ) engagements for marketing of special events such as food and wine festivals ; ( vi ) engagement for marketing of brands ; ( vii ) arranging strategic marketing agreements between brands and social media influencers and ( viii ) content productions of marketing materials on a project contract basis . for these revenue streams , we collect fees through either fixed fee monthly retainer agreements , fees based on a percentage of contracts or project-based fees . 24 we earn entertainment publicity and marketing revenues primarily through the following : · talent – we earn fees from creating and implementing strategic communication campaigns for performers and entertainers , including oscar , tony and emmy winning film , theater and television stars , directors , producers , celebrity chefs and grammy winning recording artists . our services in this area include ongoing strategic counsel , media relations , studio and or network liaison work , and event and tour support . · entertainment marketing and brand strategy – we earn fees from providing marketing direction , public relations counsel and media strategy for entertainment content ( including theatrical films , television programs , dvd and vod releases , and online series ) from all the major studios , as well as content producers ranging from individual filmmakers and creative artists to production companies , film financiers , dvd distributors , and other entities . in addition , we provide entertainment marketing services in connection with film festivals , food and wine festivals , awards campaigns , event publicity and red-carpet management . as part of our services , we offer marketing and publicity services tailored to reach diverse audiences . we also provide marketing direction targeted to the ideal consumer through a creative public relations and creative brand strategy for hotel and restaurant groups . our clients for this type of service include major studios , streaming services , independent producers and leading hotel and restaurant groups . story_separator_special_tag we expect that increased digital streaming marketing budgets at several large key clients will drive growth of revenue and profit in 42west ' s entertainment marketing division over the next several years . · strategic communications – we earn fees by advising companies looking to create , raise or reposition their public profiles , primarily in the entertainment industry . we believe that growth in strategic communications division will be driven by increasing demand for these services by traditional and non-traditional media clients who are expanding their activities in the content production , branding , and consumer products pr sectors . we expect that this growth trend will continue for the next three to five years . we also help studios and filmmakers deal with controversial movies , as well as high-profile individuals address sensitive situations . · creative branding and production – we offer clients creative branding and production services from concept creation to final delivery . our services include brand strategy , concept and creative development , design and art direction , script and copyrighting , live action production and photography , digital development , video editing and composite , animation , audio mixing and engineering , project management and technical support . we expect that our ability to offer these services to our existing clients in the entertainment and consumer products industries , will be accretive to our revenue . · digital media influencer marketing campaigns – we arrange strategic marketing agreements between brands and social media influencers , for both organic and paid campaigns . we also offer services for social media activations at events , as well as editorial work on behalf of brand clients . our services extend beyond our own captive influencer network , and we manage custom campaigns targeting specific demographics and locations , from ideation to delivery of results reports . we expect that our relationship with social media influencers will provide us the ability to offer these services to our existing clients in the entertainment and consumer products industries and will be accretive to our revenue . content production project development and related services we have a team that dedicates a portion of its time to identifying scripts , story treatments and novels for acquisition , development and production . the scripts can be for either digital or motion picture productions . we have acquired the rights to certain scripts that we intend to produce and release in the future , subject to obtaining financing . we have not yet determined if these projects would be produced for digital , television or theatrical distribution . our pipeline of feature films includes : · youngblood , an updated version of the 1986 hockey classic and ; · sisters before misters , a comedy about two estranged sisters finding their way back to each other after a misunderstanding causes one of them to have to plan the other ' s wedding . · out of their league , a romantic comedy pitting husband versus wife in the cut-throat world of fantasy football ; and 25 we have completed development of each of these feature films , which means that we have completed the script and can begin pre-production once financing is obtained . we are planning to fund these projects through third-party financing arrangements , domestic distribution advances , pre-sales , and location-based tax credits , and if necessary , sales of our common stock , securities convertible into our common stock , debt securities or a combination of such financing alternatives ; however , there is no assurance that we will be able to obtain the financing necessary to produce any of these feature films . expenses our expenses consist primarily of : ( 1 ) direct costs ; ( 2 ) selling , general and administrative expenses ; ( 3 ) depreciation and amortization expense ; ( 4 ) legal and professional fees and ( 5 ) payroll expenses . direct costs include certain cost of services , as well as certain production costs , related to our entertainment publicity and marketing business . included within direct costs are immaterial impairments for any of our content production projects . selling , general and administrative expenses include all overhead costs except for payroll , depreciation and amortization and legal and professional fees that are reported as a separate expense item . depreciation and amortization include the depreciation of our property and equipment and amortization of intangible assets and leasehold improvements . legal and professional fees include fees paid to our attorneys , fees for investor relations consultants , audit and accounting fees and fees for general business consultants . payroll expenses include wages , payroll taxes and employee benefits . other income and expenses for the years ended december 31 , 2020 and 2019 , other income and expenses consisted primarily of : ( 1 ) gain or loss on extinguishment of debt ; ( 2 ) acquisition costs ; ( 3 ) changes in the fair value of put rights ; ( 4 ) changes in fair value of contingent consideration ; ( 5 ) changes in fair value of warrants ; ( 6 ) changes in fair value of convertible notes and derivative liabilities and ( 7 ) interest expense . for the year ended december 31 , 2020 , we also had a loss on the deconsolidation of our max steel variable interest entity . story_separator_special_tag convertible notes issued in 2020. the embedded conversion feature of the 2019 lincoln park note meets the criteria for a derivative . the fair value of these notes and embedded conversion feature are remeasured at every balance sheet date and any changes are recorded on our consolidated statements of operations .
| expenses for the years ended december 31 , 2020 and 2019 , our operating expenses were as follows : replace_table_token_5_th overall expenses decreased by approximately $ 2.5 million for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. the decrease is related to the changes described below . direct costs decreased by approximately $ 2.5 million for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. direct costs for viewpoint are primarily costs attributable to the production costs of each of their projects . the decrease in direct costs is primarily related to a decrease in viewpoint 's revenue due to covid-19 , as well as reduced direct client costs at 42west and the door from a slowdown in business from covid-19 . direct costs attributable to the content production segment for the year ended december 31 , 2020 were $ 0.05 million , mainly attributable to the impairment of script costs . direct costs related to the content production segment were approximately $ 0.8 million for 2019. during 2019 , direct costs for the content production segment consisted primarily of impairment of capitalized production for max steel as a result of the agreement to direct all future domestic film revenues up to $ 0.9 million to the print and advertising loan 's creditor , in settlement of said loan . we evaluate capitalized production costs to determine if the fair value of the capitalized production costs is below the carrying value . based on management 's estimate of ultimate revenues for max steel , the capitalized production costs in the amount of $ 0.6 million were determined to be above fair value and were impaired during the year ended december 31 , 2019. selling , general and administrative expenses increased by approximately $ 1.0 million for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. the increase is directly related to a full year of selling , general and administrative expenses for shore fire acquired in
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resulting in partial year retainer and meeting fees during 2010 , but a full year 's fees during 2011 ) combined with increases in annual retainer fees and meeting fees paid to directors during 2011. non-recurring legal fees of approximately $ 230,000 were expensed during 2010 related to a lawsuit on one well in western oklahoma and to the 2008 bankruptcy of semgroup , l.p. , which owed the company for crude oil they had purchased . provision ( benefit ) for income taxes the 2011 provision for income taxes of $ 3,192,000 was based on a pre-tax income of $ 11,685,912 , as compared to a provision for income taxes of $ 4,901,000 in 2010 , based on a pre-tax income of $ 16,320,690. income taxes in 2010 were reduced by the removal of the $ 278,000 valuation allowance on oklahoma nols which reduced the effective tax rate by 2 % . the effective tax rate for 2011 was 27 % , compared to an effective tax rate for 2010 of 30 % . the company 's utilization of excess ( 28 ) percentage depletion ( which is a permanent tax benefit ) decreases the provision for income taxes . the benefit of excess percentage depletion is not directly related to the amount of recorded income or loss . accordingly , in cases where the recorded income or loss is relatively small , the proportional effect of the excess percentage depletion on the effective tax rate may become significant . fiscal year 2010 compared to fiscal year 2009 overview the company recorded net income of $ 11,419,690 , or $ 1.36 per share , in 2010 compared to net loss of $ 2,405,021 , or $ .29 per share , in 2009. increased revenues in 2010 were mainly from increases in oil and natural gas sales , gains on derivative contracts and lease bonuses . higher oil and natural gas prices more than offset a 10 % decrease in production resulting in increased oil and natural gas sales ; actual and forward looking prices lower than the company 's fixed price swap contracts resulted in gains on derivative contracts in 2010 compared to a loss in 2009 ; and the renewal of leases on certain of the company 's arkansas undeveloped mineral acreage increased 2010 revenue from lease bonuses . the decrease in expenses was primarily related to lower dd & a and impairment costs , resulting from the increase in oil and natural gas reserves ( as of september 30 , 2010 ) which lowered the dd & a rate per mcfe of production . in 2010 , an income tax expense of $ 4,901,000 was incurred compared to a tax benefit of $ 2,568,000 recognized in 2009. oil and natural gas ( and associated natural gas liquids ) sales oil and natural gas sales increased $ 6,647,259 or 18 % for 2010 , as compared to 2009. driven by higher oil and natural gas prices of 41 % and 30 % , respectively , 2010 oil and natural gas sales went up , despite a 10 % decrease in combined oil and natural gas production on an mcfe basis . the production decrease occurred as fewer new wells were drilled and put on line in 2010 , thus the production decline of existing wells exceeded the production which came on line from new wells . production by quarter for 2010 and 2009 was as follows : replace_table_token_15_th lease bonus and rentals lease bonus and rentals increased $ 931,768 for 2010 , as compared to 2009. this increase was principally due to the renewal of leases on certain of the company 's arkansas undeveloped mineral acreage which increased 2010 revenue from lease bonuses approximately $ 723,000 . ( 29 ) gains ( losses ) on natural gas derivative contracts realized and unrealized gains and losses are scheduled below : replace_table_token_16_th lease operating expenses ( loe ) and production taxes loe increased $ 497,293 or 7 % in 2010. loe costs per mcfe of production increased from $ .78 in 2009 to $ .92 in 2010. increased natural gas prices , which increased value based fees ( primarily gathering , transportation and marketing costs ) caused total loe and loe per mcfe to increase . natural gas production from the southeast oklahoma woodford shale , anadarko ( cana ) woodford shale and fayetteville shale areas continued to increase as a proportion of total production . value based fees are charged as a percent of natural gas revenues and are significantly higher in these shale areas than like fees charged in other of the company 's production areas . the total amount of value based fees in these three shale areas typically are 12 % to 22 % of total natural gas revenues . value based fees increased $ 1,201,209 , or 36 % , in 2010 compared to 2009. value based fees per mcfe increased $ .17 , or 51 % , in 2010 compared to 2009. the increase in value based fees was partially offset by a decrease of $ 703,916 in loe related to field operating costs in 2010 compared to 2009 , a 16 % decrease . in 2010 , field operating costs were $ .38 per mcfe compared to $ .42 per mcfe in 2009 , a 9 % decrease . these decreases were due to fewer wells coming on line in 2010 with high initial loe , fewer well repairs made in 2010 compared to 2009 and the fiscal 2009 sale of wells in the southeast leedey field and the mcelmo dome unit , thus reducing fiscal 2010 loe . production taxes increased $ 245,336 , or 20 % , in 2010. the increase was the result of increased sales of oil and natural gas . story_separator_special_tag oil and natural gas sales in 2010 increased 18 % , and production taxes increased 20 % compared to 2009. production taxes were 3.3 % of oil and natural gas sales in 2010 , compared to 3.2 % in 2009. the low overall production tax rate was due to a large proportion of the company 's natural gas revenues coming from horizontally drilled wells , which were eligible for either oklahoma production tax credits or reduced arkansas production tax rates . exploration costs exploration costs were $ 1,583,773 in 2010 compared to $ 711,582 in 2009 , an $ 872,191 increase . during 2010 , leasehold impairment and expired leases totaled $ 1,191,598 compared to $ 634,918 during 2009 , a $ 556,680 increase . five exploratory dry holes incurred expenses of approximately $ 77,000 during 2009 ; one exploratory dry hole incurred expenses of approximately $ 5,000 during 2010. also , the company charged approximately $ 387,000 to exploration costs in 2010 related to geological and geophysical costs paid upon the execution of a joint exploration agreement with a privately held independent operator to explore for oil in eastern oklahoma . depreciation , depletion and amortization ( dd & a ) total dd & a decreased $ 8,946,810 , or 32 % , in 2010 , while dd & a per mcfe decreased to $ 2.16 in 2010 , as compared to $ 2.85 in 2009. approximately $ 2,744,000 of the dd & a decrease was the result of a 10 % decrease in 2010 combined oil and natural gas production on an mcfe basis . the remaining dd & a decrease of approximately $ 6,203,000 was attributable to the $ .69 decline in the dd & a rate per mcfe . this rate declined as a result of increased proved developed oil and natural gas reserves as of ( 30 ) september 30 , 2010 ( see financial statements , note 10 supplementary information on oil and natural gas reserves ) , as compared to september 30 , 2009 , and a net reduction during fiscal year 2009 of approximately $ 3.1 million of asset basis subject to dd & a . this asset basis reduction occurred as fiscal 2009 dd & a and impairment , combined with the basis reduction associated with assets sold , exceeded new additions to properties and equipment for oil and natural gas activities . provision for impairment the provision for impairment decreased $ 1,858,905 in 2010 , as compared to 2009. during 2010 , impairment of $ 605,615 was recorded on six fields . approximately $ 380,000 of the impairment was related to the buffalo wallow field in texas , where the first horizontal well in the field was recently drilled and completed with poor economic results . during 2009 , impairment of $ 2,464,520 was recorded on 13 fields driven by depressed oil and natural gas prices , which negatively affected the estimates of future net revenues from oil and natural gas properties . loss ( gain ) on asset sales , interest and other in 2010 , the company received $ 1,124,682 from the settlement of a lawsuit related to one well in western oklahoma . in 2009 , the company sold a portion of its working interest in the southeast leedey field and all of its working interest in the mcelmo dome co2 unit for a combined gain of approximately $ 2.5 million . general and administrative costs ( g & a ) g & a increased $ 728,455 , or 15 % , in 2010 due to increases in the following expense categories : salaries , bonuses and benefits $ 433,847 ; legal $ 161,016 ; board of directors fees $ 101,474 ; and insurance $ 87,350. personnel expenses increased mainly because of higher accrued performance bonuses based on improved company performance metrics in fiscal 2010 compared to 2009. legal expense increased primarily due to legal costs of approximately $ 129,000 incurred during 2010 on a lawsuit related to one well in western oklahoma . the addition of a new director , an increase in the number of board meetings and increased director fees resulted in the increase in board of directors ' expense in 2010. bad debt expense ( recovery ) on july 22 , 2008 , semgroup , l.p. and certain subsidiaries ( semgroup ) filed voluntary petitions for reorganization under chapter 11 of the u.s. bankruptcy code . on october 28 , 2009 , the u.s. bankruptcy court confirmed the fourth amended joint plan of affiliated debtors which set forth various settlement details for producers and interest owners . based on the details of the plan , discussion with operators impacted and management 's judgment , the company lowered the reserve for doubtful accounts to $ 405,129 at september 30 , 2009 , resulting in $ 186,129 of bad debt recovery . no adjustments were made in 2010 to the company 's reserve for doubtful accounts . provision ( benefit ) for income taxes the 2010 provision for income taxes was $ 4,901,000 based on a pre-tax income of $ 16,320,690 , as compared to a benefit for income taxes of $ 2,568,000 in 2009 , based on a pre-tax loss of $ 4,973,021. the provision for income taxes increased in 2010 by $ 7,469,000 , the result of a $ 21,293,711 increase in income ( loss ) before provision ( benefit ) for income taxes in 2010 , compared to 2009 , partially offset by the removal of the $ 278,000 valuation allowance on oklahoma nols . the effective tax rate for 2010 was 30 % , whereas the effective tax benefit rate for 2009 was 52 % .
| drilling activity increased during the last quarter of 2010 and continued at a much higher rate throughout 2011 , as compared to the first nine months of fiscal 2010. this increase in drilling activity resulted in 2011 production volumes ( on an mcfe basis ) that were flat compared to those of 2010 , thus reversing the decrease in production volumes that occurred in 2010 , as compared to 2009. the increased drilling activity is primarily on the company 's mineral acreage in the arkansas fayetteville shale and in the oil and natural gas liquids-rich plays such as the anadarko ( cana ) woodford shale , horizontal granite wash , hogshooter wash , cleveland , marmaton , tonkawa and other similar plays in western oklahoma . as of september 30 , 2011 , the company owned an average 2.6 % net revenue interest in 48 wells that were drilling or testing . production by quarter for 2011 and 2010 was as follows : replace_table_token_13_th lease bonus and rentals lease bonus and rentals decreased $ 767,917 for 2011 , as compared to 2010. lease bonus and rental revenues in 2010 included lease bonuses of approximately $ 723,000 from certain of the company 's arkansas mineral acreage , whereas there were no large leases of company acreage in 2011 . ( 26 ) gains ( losses ) on derivative contracts realized and unrealized gains and losses are scheduled below : replace_table_token_14_th the company 's natural gas fixed price swap contracts had expiration dates of october 2011 ; the oil costless collar contracts have expiration dates of december 2011 ; the natural gas basis protection swaps have expiration dates of december 2011 and december 2012. lease operating expenses ( loe ) and production taxes loe increased $ 248,435 or 3 % in 2011. loe costs per mcfe of production increased from $ .92 in 2010 to $ .95 in 2011. the total loe increase and the loe per mcfe increase are primarily related to increased field operating costs of approximately $ 276,000 in 2011 compared to 2010. field operating costs were $ .44 per mcfe in 2011
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upon the consummation of the share exchange , we engage in the business of developing and operating membership-based social network , dating and mobile gaming , and interactive live broadcast platforms . we are currently devoting our efforts to develop mobile applications and online platforms servicing the asia market . conversion of debenture and issuance on april 25 , 2018 , pursuant to a securities purchase agreement ( the “ debenture purchase agreement ” ) entered into on april 19 , 2017 , in which the company agrees to issue and sell in a private placement to a non-u.s. person ( the “ purchaser ” ) a series a convertible debenture in an aggregate principal amount of $ 150,000 ( the “ debenture ” ) with an 8 % annual interest convertible into shares of common stock , par value $ .0001 per share ( the “ conversion share ( s ) ” ) at price of $ 0.15 per share to the purchaser , the purchaser converted the debenture with 8 % annual interest into 1,080,000 conversion shares . cure of over-issuance in connection with the closing of the share exchange closed on march 20 , 2018 ( “ sea ” ) , the company over-issued 3,585 shares of common stock to golden fish , one of the two shareholders of cx cayman immediately prior to the closing of the sea . on june 25 , 2018 , the company filed amendment to its articles of incorporation with the secretary of state of nevada to increase its authorized common shares from 20,000,000 to 40,000,000 and issued shares to debt holder subsequently cured the over-issuance of 3,585 shares of common stock to golden fish . on july 19 , 2018 , golden fish entered into an agreement with the company to waive any legal claim or indemnification rights it may have under the sea or as permitted under applicable law in connection with the over-issuance of 3,585 shares of common from march 20 , 2018 until june 25 , 2018. on the same day , the company entered into a waiver agreement with the holder of debenture pursuant to which the holder agrees to waive any legal claim or indemnification rights it may have under the debenture agreement and debenture or as permitted under applicable law in connection with the insufficiency in reservation of underlying common shares in its then authorized capital from march 20 , 2018 until june 25 , 2018 . 17 foreign operations substantially all of our business operations are conducted in mainland china . accordingly , our results of operations , financial condition and prospects are subject to a significant degree to economic , political and legal developments in the prc . we also have operations in hong kong . operating in foreign countries involves substantial risk . for example , our business activities subject us to a number of chinese laws and regulations , such as anti-corruption laws , tax laws , foreign exchange controls and cash repatriation restrictions , data privacy and security requirements , labor laws , intellectual property laws , privacy laws , and anti-competition regulations , which have uncertainties . any failure to comply with the prc laws and regulations could subject us to fines and penalties , make it more difficult or impossible to do business in china and harm our reputation . operating in foreign countries also subjects us to risk from currency fluctuations . our primary exposure to movements in foreign currency exchange rates relates to non-u.s. dollar denominated sales and operating expenses . the weakening of foreign currencies relative to the u.s. dollar adversely affects the u.s. dollar value of our foreign currency-denominated sales and earnings . this could either reduce the u.s. dollar value of our prices or , if we raise prices in the local currency , it could reduce the overall demand for our offerings . either could adversely affect our revenue . conversely , a rise in the price of local currencies relative to the u.s. dollar could adversely impact our profitability because it would increase our costs denominated in those currencies , thus adversely affecting gross margins . historical activities acquisition of ding king training institute , inc. on october 31 , 2013 , mlgt acquired all of the issued and outstanding capital stock of the ding king training institute , inc. ( “ ding king ” ) , an entity controlled by todd sudeck ( “ sudeck ” ) , our then sole officer and director pursuant to an agreement of exchange and sale of stock dated october 31 , 2013. upon closing of the transactions underlying the exchange agreement , the company acquired ding king and ding king became a wholly-owned subsidiary of the company . securities purchase agreement mr. huibin su , mr. jiyin li and chaoran zhang on march 31 , 2017 , todd sudeck entered into a securities purchase agreement ( the “ spa ” ) with mr. huibin su , mr. jiyin li , mr. chaoran zhang ( each a “ purchaser ” and together , the “ purchasers ” ) and mlgt pursuant to which the purchasers acquired an aggregate of 12,000,000 shares of common stock ( the “ spa shares ” ) from todd sudeck for an aggregate purchase price of $ 325,000. the transaction contemplated in the spa closed on the same day ( the “ spa closing ” ) . the spa shares represented approximately 87.17 % of then issued and outstanding common stock of mlgt . in connection with the spa closing , todd sudeck , resigned from all his positions with the company as the president , chief executive officer , chief financial officer , secretary and the sole member of the board of directors . story_separator_special_tag simultaneously with the spa closing , mr. huibin su was appointed as the company 's chief executive officer , chief financial officer and a director of the board , mr. jiyin li was appointed as the chairman of the board , and mr. zizhong huang was appointed as the company 's chief operating officer , all effective immediately upon spa closing . disposition of our wholly-owned subsidiary , ding king on march 31 , 2017 , mlgt entered into a spin-off with ding king , an entity controlled by sudeck , our then sole officer and director , and sudeck ( the “ spin-off agreement ” ) . pursuant to the spin-off agreement , sudeck received all of the issued and outstanding capital stock of ding king in exchange for approximately 166,667 shares of common stock of the company owned by sudeck . immediately upon and after the closing of the spin-off agreement , sudeck became the sole equity owner of ding king and mlgt no long held any equity interest in ding king . name change , domicile change and reverse split on july 11 , 2017 , mlgt merged with and into cxkj ( the “ merger ” ) , with cxkj as the surviving corporation that operates under the name “ cx network group , inc. ” ( the “ name change ” ) , pursuant to an agreement and plan of merger ( the “ merger agreement ” ) dated july 3 , 2017. pursuant to the merger agreement , immediately after the effective time of the merger , the company 's corporate existence is governed by the laws of the state of nevada and the articles of incorporation and bylaws of cxkj ( the “ domicile change ” ) , and each outstanding share of mlgt 's common stock , par value $ 0.0001 per share was converted into 0.0667 outstanding share of common stock of cxkj , par value $ 0.0001 per share at a one-for-fifteen reverse split ratio . the name change , merger and reverse split was approved by the financial industry regulatory authority ( “ finra ” ) on july 11 , 2017 and such corporation actions took effect at the open of business on july 12 , 2017. immediately prior to the effectiveness of the reverse split , we had 217,300,000 shares of common stock of mlgt issued and outstanding . immediately upon the effectiveness of the reverse stock split , we have 14,486,670 shares of common stock of cxkj issued and outstanding . 18 on august 11 , 2017 , the company was notified by finra department of market operations ( the “ department ” ) that they did not process the reverse split because they believed that the documentation provided by the company did not support the company 's request to process a reverse split . in the same letter , the department notified the company that they processed the company 's request of the merger , the mechanism the company used to consummate the corporate actions mentioned above . also in that letter , the department mentioned that it announced the reverse split on july 11 , 2017 but subsequently revised the announcement on july 28 , 2017. on august 14 , 2017 , the company received a notice from the department that they did not process the symbol change because “ there is currently no symbol assigned to the company. ” on august 16 , 2017 , the company appealed the decisions made by the department as mentioned herein above in connection with reverse stock split , name change and domicile change ( for more information about the corporate actions , refer to the current report on form 8-k the company filed on july 12 , 2017 ) . on october 3 , 2017 , a subcommittee of finra 's uniform practice code committee decided to remand the case to the department for further review . subsequently , the department granted the company 's application for a symbol change . on november 3 , 2017 , the trading symbol for the company was changed to “ cxkj ” , effective immediately . the new cusip number is 12672t 108. story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0 ; text-align : justify '' > critical accounting policies and estimates going concern in assessing the company 's liquidity , the company monitors and analyzes its cash and cash equivalents and its operating and capital expenditure commitments . the company 's liquidity needs are to meet its working capital requirements , operating expenses and capital expenditure obligations . as of september 30 , 2018 , the company 's current liabilities exceeded the current assets , its accumulated deficit was approximately $ 2,095,000 and the company has incurred losses since inception . none of the company 's stockholders , officers or directors , or third parties , are under any obligation to advance us funds , or to invest in us . accordingly , we may not be able to obtain additional financing . if we are unable to raise additional capital , we may be required to take additional measures to conserve liquidity , which could include , but not necessarily be limited to , curtailing operations , suspending the pursuit of our business plan , and reducing overhead expenses . in the coming years , the company plans to develop business in oversea markets to increase its revenues to meet its future cash flow requirements . however , the company can not provide any assurance on the successful development of the company 's contemplated plan of operations or the financing that will be available to us on commercially acceptable terms , if at all . these conditions raise substantial doubt about our ability to continue as a going concern . the financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the company be unable to continue as a going concern .
| general and administrative expenses for the years ended september 30 , 2018 and 2017 , general and administrative expenses amounted to $ 626,826 and $ 428,220 , respectively . the increase of general and administrative expenses in the amount of $ 198,606 or 46 % was primarily attributable to the increase of salary expense , professional fees , lease expense , and the start-up cost of guangzhou and dongguan branches of shenzhen cx . research and development expenses for the years ended september 30 , 2018 and 2017 , research and development expenses amounted to $ 359,775 and $ 293,209 , respectively . the increase of research and development expenses in the amount of $ 66,566 or 23 % during the year ended september 30 , 2018 was primarily attributable to the increased activities in developing new games and applications . other income ( expenses ) for the year ended september 30 , 2018 , total other income ( expense ) was $ 85,785 as compared to $ ( 147,176 ) for the year ended september 30 , 2017. the increase in other income is primarily attributable to the rmb 1,000,000 ( approximately $ 150,000 ) forfeited deposit by guangzhou investment co. ( defined herein below ) under the cooperative agreement ( defined herein below ) , partially offset by amortization of convertible debt discount around $ 13,000 , and loss on disposal of property and equipment and loss on rent deposit totally around $ 56,000. in july 2017 , shenzhen cx signed an investment cooperative agreement ( the “ cooperative agreement ” ) with an investment management company in guangzhou , china ( the “ guangzhou investment co. ” ) . pursuant to the cooperative agreement , the guangzhou investment co. obtained the right to form a private equity fund for the purposes of raising rmb 40,000,000 ( approximately $ 6,011,000 ) to invest in shenzhen cx and obtain 12.12 % of the ownership of shenzhen cx . guangzhou investment co. paid shenzhen cx rmb 1,000,000 ( approximately $ 150,000 ) as a deposit under the cooperative agreement and the deposit would be forfeited if
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our contract revenue in a particular period is dependent upon when we enter into a contract , the value of the contracts we have entered into , and the availability of technical resources to perform work on the contracts . we recognize contract revenue either at a point in time , or over time , depending upon the characteristics of the individual contract . if control of the deliverable ( s ) occur over time , the revenue is recognized in proportion to the transfer of control . if control passes to the customer only upon completion and transfer of the asset , revenue is recognized at the completion of the contract . in contracts that include significant customer acceptance provisions , we recognize revenue only upon acceptance of the deliverable ( s ) . 15 we identify each performance obligation in our development contracts at contract inception . the contracts generally include product development and customization specified by the customer . in contracts with multiple performance obligations , we identify each performance obligation and evaluate whether the performance obligations are distinct within the context of the contract . determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment . performance obligations that are not distinct at contract inception are combined . if we identify multiple distinct performance obligations , we evaluate each performance obligation to determine if there is a stand-alone selling price . in instances where stand-alone selling price is not directly observable , such as when we do not sell the product or service separately , we determine the stand-alone selling price using information that may include market conditions and other observable inputs . judgment is required to determine the stand-alone selling price for each distinct performance obligation . our development contracts are primarily fixed-fee contracts . if control of deliverables occurs over time , we recognize revenue on fixed fee contracts on the proportion of total cost expended ( under topic 606 , the ` input method ' ) to the total cost expected to complete the contract performance obligation . for contracts that require the input method for revenue recognition , the determination of the total cost expected to complete the performance obligations on fixed fee contracts involves significant judgment . we incorporate revisions to hour and cost estimates when the causal facts become known . inventory valuation inventory is computed using the first-in , first-out ( fifo ) method and is stated at the lower of cost and net realizable value . we make judgments and estimates to value our inventory and make adjustments to its carrying value . we review several factors in determining the market value of our inventory including : evaluating the replacement cost of the raw materials , the net realizable value of the finished goods , and the likelihood of obsolescence . if we do not achieve our targeted sales prices , if market conditions for our components or products were to decline , or if we do not achieve our sales forecast , additional reductions in the carrying value of the inventory would be required . share-based compensation we issue share-based compensation to employees in the form of stock options and restricted stock units ( rsus ) , and performance stock units ( psus ) . we account for the share-based awards by recognizing the fair value of share-based compensation expense on a straight-line basis over the service period of the award , net of estimated forfeitures . the fair value of stock options is estimated on the grant date using the black-scholes option pricing model . the fair value of rsus is determined by the closing price of our common stock on the grant date . the psus are valued using a binomial option pricing model using the following inputs : stock price , volatility , and risk-free interest rates . changes in estimated inputs or using other option valuation methods may result in materially different option values and share-based compensation expense . leases significant judgment may be required when determining whether a contract contains a lease , the length of the lease term , the allocation of the consideration in a contract between lease and non-lease components , and the determination of the discount rate included in our office lease . we review the underlying objective of each contract , the terms of the contract , and consider our current and future business conditions when making these judgments . income taxes significant judgment is required in evaluating our tax position and in determining our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . we record a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized . based on our history of losses since inception , the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets . our actual tax exposure may differ from our estimates and any such differences may impact income our tax expense in the period in which such determination is made . 16 the key accounting policies described above are not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles , with no need for us to apply judgment or make estimates . there are also areas in which our judgment in selecting any available alternative would not produce a materially different result to our consolidated financial statements . additional information about our accounting policies , and other disclosures required by generally accepted accounting principles , are set forth in the notes to our consolidated financial statements . inflation has not had a material impact on our revenues or income from continuing operations over the three most recent fiscal years . story_separator_special_tag story_separator_special_tag align= '' right '' > cost of product revenue $ 6,692 125.2 $ 5,468 - $ 1,224 22.4 cost of product revenue includes the direct and allocated indirect costs of products sold to customers . direct costs include labor , materials , reserves for estimated warranty expenses , and other costs incurred directly , or charged to us by our contract manufacturers , in the manufacture of these products . indirect costs include labor , manufacturing overhead , and other costs associated with operating our manufacturing capabilities and capacity . manufacturing overhead includes the costs of procuring , inspecting and storing material , facility and other costs , and is allocated to cost of product revenue based on the proportion of indirect labor which supported production activities . cost of product revenue can fluctuate significantly from period to period , depending on the product mix and volume , the level of manufacturing overhead expense and the volume of direct material purchased . the increase during the year ended december 31 , 2019 compared to the same period in 2018 was attributed primarily to product shipments to a major technology company . inventory write-downs of $ 2.2 million and $ 4.4 million were recorded in 2019 and 2018 , respectively . cost of contract revenue replace_table_token_4_th cost of contract revenue includes both the direct and allocated indirect costs of performing on contracts and producing prototype units and evaluation kits . direct costs include labor , materials and other costs incurred directly in producing prototype units and evaluation kits or performing on a contract . indirect costs include labor and other costs associated with operating our research and development department and building our technical capabilities and capacity . cost of contract revenue is determined by the level of direct and indirect costs incurred , which can fluctuate substantially from period to period . 18 the decrease in the cost of contract revenue during the year ended december 31 , 2019 compared to the same period in 2018 was attributed to reduced activity on the april 2017 development contract . research and development expense 2019 2018 $ change % change ( in thousands ) research and development expense $ 18,661 $ 24,666 $ ( 6,005 ) ( 24.3 ) research and development expense consists of compensation related costs of employees and contractors engaged in internal research and product development activities , direct material to support development programs , laboratory operations , outsourced development and processing work , and other operating expenses . we assign our research and development resources based on the business opportunity of the available projects , the skill mix of the resources available and the contractual commitments we have made to our customers . we believe that a substantial level of continuing research and development expense will be required to further develop our scanning technology . the decrease in research and development expense during the year ended december 31 , 2019 compared to the same period in 2018 was attributable to lower subcontractor costs and personnel-related compensation and benefits expenses offset by higher allocation of resources to internal research and development activities that were previously allocated to a commercial contract and higher direct materials costs related to our lbs module development . sales , marketing , general and administrative expense 2019 2018 $ change % change ( in thousands ) sales , marketing , general and administrative expense $ 8,133 $ 9,523 $ ( 1,390 ) ( 14.6 ) sales , marketing , general and administrative expense includes compensation and support costs for marketing , sales , management and administrative staff , and for other general and administrative costs , including legal and accounting services , consultants and other operating expenses . the decrease in sales , marketing , general and administrative expense during the year ended december 31 , 2019 compared to the same period in 2018 was attributed to lower personnel- related compensation and benefits expenses and lower professional and outside services costs . income taxes no provision for income taxes has been recorded because we have experienced net losses from inception through december 31 , 2019. at december 31 , 2019 , we had net operating loss carryforwards of approximately $ 405.8 million for federal income tax reporting purposes . in addition , we have research and development tax credits of $ 9.0 million . during 2019 , $ 17.1 million federal net operating losses expired unused . a majority of the net operating loss carryforwards and research and development credits available to offset future taxable income , if any , will expire in varying amounts from 2020 to 2039 , if not previously used . in certain circumstances , as specified in the internal revenue code , a 50 % or more ownership change by certain combinations of our shareholders during any three year period would result in a limitation on our ability to use a portion of our net operating loss carryforwards . we recognize interest accrued and penalties related to unrecognized tax benefits in tax expense . we did not have any unrecognized tax benefits at december 31 , 2019 or at december 31 , 2018. liquidity and capital resources we have incurred significant losses since inception . we have funded operations to date primarily through the sale of common stock , convertible preferred stock , warrants , the issuance of convertible debt and , to a lesser extent , from development contract revenues , product sales , and licensing activities . at december 31 , 2019 , we had $ 5.8 million in cash and cash equivalents . based on our current operating plan that includes anticipated future proceeds from the sale of shares under our existing purchase agreement with lincoln park , we anticipate that we have sufficient cash and cash equivalents to fund our operations into the second quarter of 2020. we will require additional capital to fund our operating plan past that time .
| we recognize revenue on upfront license fees at a point in time if the nature of the license granted is a right-to-use license , representing functional intellectual property with significant standalone functionality . if the nature of the license granted is a right-to-access license , representing symbolic intellectual property , which excludes significant standalone functionality , we recognize revenue over the period of time we have ongoing obligations under the agreement . we will recognize revenue from sales-based royalties based on information received by our customers . if such information is not received , we will estimate the number of royalty-bearing products consumed by our customers each quarter . in may 2018 , we signed a five-year license agreement with a customer granting them exclusive license to our lbs technology for display-only applications . the license represents functional intellectual property which derives a substantial portion of its utility from its significant standalone functionality . the intellectual property is not expected to substantially change during the license period , nor are we contractually or practically required to use updated intellectual property during the license life . during the year ended december 31 , 2018 we completed the performance obligations required by the contract . as a result , we recognized all of the $ 10.0 million in up-front license payments in license revenue during the year ended december 31 , 2018 . 17 contract revenue replace_table_token_3_th contract revenue includes revenue from performance on development contracts and the sale of prototype units and evaluation kits based on our picop® scanning module . our contract revenue in a particular period is dependent upon when we enter into a contract , the value of the contracts we have entered into , and the availability of technical resources to perform work on the contracts . we recognize contract revenue either at a point in time , or over time , depending upon the characteristics of the individual contract . if control of the deliverable ( s ) occur over time , the revenue is recognized in proportion to the transfer of
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incentives offered to our listeners from our advertisers ; talent fees for voice-overs or custom endorsements from our on-air personalities and production services , and lease income for studios , towers or office space . our principal sources of digital media revenue include : the sale of digital banner advertisements on our websites and mobile applications ; the sale of digital streaming advertisements on websites and mobile applications ; the support and promotion to stream third-party content on our websites ; the sale of advertisements included in digital newsletters ; the digital delivery of newsletters to subscribers ; and the number of video and graphic downloads . our principal sources of publishing revenue include : the sale of books and e-books ; publishing fees from authors ; the sale of digital advertising on our magazine websites and digital newsletters ; subscription fees for our print magazine ; and the sale of print magazine advertising . in each of our operating segments , the rates we can 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 ; the number of impressions delivered ; 28 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 annual 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 monthly 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 . we subscribe to nielsen audio for ratings services in 7 of our broadcast markets . as is typical in the 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 an 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 airtime 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 . story_separator_special_tag the terms of these barter agreements permit us to preempt the barter airtime or digital campaign in favor of customers who purchase the airtime 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 . during each of the years ended december 31 , 2019 and 2018 , 97 % of our broadcast revenue was sold for cash . broadcast operating expenses include : ( i ) employee salaries , commissions and related employee benefits and taxes , ( ii ) facility expenses such as lease expense 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 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 easter 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 lease expense 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 , self-publishing services through salem author services and singing news magazine . 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 lease expense 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 from what we believe to be 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 advertising from our los angeles and dallas markets , which generated 11.6 % and 10.1 % , respectively , of our net broadcast revenue during the year ended december 31 , 2019. during the year ending december 31 , 2019 , we closed on the sale of 16 radio stations and had one sale pending at year end . these sales were pursued to generate cash flows from underperforming stations that was used to pay down outstanding debt . the sold stations generated $ 4.3 million of revenue during the year ended december 31 , 2019 while incurring operating expenses of $ 5.6 million . we expect the station sales to have a favorable impact on our net operating results in future years .
| we adjusted the pre-tax loss by $ 0.5 million to $ 9.4 million upon closing in the fourth quarter of 2019 based on the actual closing costs incurred and a reconciliation of total station assets to assets included in the sale . on september 27 , 2019 , we closed on the exchange of radio station kkol-am , in seattle , washington for kpam-am in portland , oregon . no cash was exchanged for the assets . we recognized a non-cash pre-tax loss of $ 1.3 million on the exchange based on the estimated fair value of kpam-am as compared to the carrying value of kkol-am and the closing costs . on september 26 , 2019 , we closed on the sale of four radio stations , wwmi-am and wlcc-am in tampa , florida and wzab-am and wocn-am ( formerly wkat-am ) in miami , florida for $ 8.2 million in cash . we recognized a pre-tax loss of $ 4.7 million , which reflects the sales price as compared to the carrying value of the assets of the radio stations and the closing costs . we received $ 0.4 million in cash upon closing and the remaining $ 7.8 million in cash upon finalization of the assignment applications with the fcc . on september 18 , 2019 , we sold radio station wdyz-am ( formerly worl-am ) in orlando , florida for $ 0.9 million in cash . we recognized a pre-tax loss of $ 1.6 million , which reflects the sales price as compared to the carrying value of the radio station assets and the closing costs . we received $ 0.8 million in cash upon closing . the remaining $ 0.1 million is payable in four installments with the final payment due december 18 , 2020. on august 15 , 2019 we closed on the exchange of fm translator w276cr , in bradenton , fl for fm translator w262cp in bayonet point , fl . no cash was exchanged for the assets . on july 25 , 2019 , we acquired the journeyboxmedia.com website and related assets for $ 0.5 million in cash . on july 10 , 2019 we acquired certain assets including a digital content library
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replace_table_token_6_th under cost-reimbursable contracts , there is limited financial risk , because we are reimbursed for all allowable direct and indirect costs . however , profit margins on this type of contract tend to be lower than on time-and-materials and fixed-price contracts , and as a result of the shift in our contract mix , our profits have been impacted . cost of services cost of services primarily includes direct costs incurred to provide our services and solutions to customers . the most significant portion of these costs are direct labor costs , including salaries and wages , plus associated fringe benefits of our employees directly serving customers , in addition to the related management , facilities and infrastructure costs . cost of services also includes other direct costs , such as the costs of subcontractors and outside consultants and third-party materials , including hardware or software that we purchase and provide to the customer as part of an integrated solution . changes in the mix of services and equipment provided under our contracts can result in variability in our contract margins . since we earn higher profits on our own labor services , we expect the ratio of cost of services as a percent of revenues to decline when our labor services mix increases relative to subcontracted labor or third-party materials . conversely , as subcontracted labor or third-party material purchases for customers increase relative to our own labor services , we expect the ratio of cost of services as a percent of revenues to increase . the proportion that costs of services bears to revenues varies in part based on our mix of revenues by contract type . in general , cost-reimbursable contracts are the least profitable of our government contracts but offer the lowest risk of loss . under time-and-materials contracts , to the extent that our actual labor costs are higher or lower than the billing rates under the contract , our profit under the contract may either be greater or less than we anticipated or we may suffer a loss under the contract . in general , we realize a higher profit margin on work performed under time-material contracts than cost-reimbursable contracts . fixed-price contracts generally offer higher profit margins opportunities but involve great financial risk because we bear impact of cost overruns in return for the full benefit of any cost savings . general and administrative expenses general and administrative expenses include the salaries and wages , plus associated fringe benefits of our employees not performing work directly for customers , and associated facilities costs . among the functions covered by these costs are corporate business development , bid and proposal , contracts administration , finance and accounting , legal , corporate governance and executive and senior management . in addition , we included stock-based compensation , as well as depreciation and amortization expense related to the general and administrative function . depreciation and amortization expenses include the depreciation of computers , furniture and other equipment , the amortization of third party software we use internally , leasehold improvements and intangible assets . intangible assets include customer relationships and contract backlogs acquired in business combinations , and are amortized over their estimated useful lives . interest expense interest expense is primarily related to interest expense incurred or accrued under our outstanding borrowings on our 7.25 % senior secured notes and deferred financing charges . 30 interest income interest income is primarily from cash on hand and notes receivable . story_separator_special_tag general and administrative expense was primarily due our acquisitions and facility related costs from newly leased office space . other income ( expense ) , net the decrease in other income ( expense ) , net was due to the sale of our investment in netwitness in april 2011 , which resulted in a gain of $ 3.7 million for the year ended december 31 , 2011 . 33 provision for income taxes our effective income tax rates were 38.7 % and 38.1 % for the years ended december 31 , 2012 and 2011 , respectively . our tax rate is affected by recurring items , such as tax rates and the relative amount of income we earn in jurisdictions , which we expect to be fairly consistent in the near term . it is also affected by discrete items that may occur in any given year , but are not consistent from year to year . the difference between our statutory u.s. federal income tax rate of 35.0 % and our effective tax rate is state income taxes and non-deductible compensation . net income the decrease was due to lower revenues , increased general and administrative expense and margin pressure on our contracts , both from the shift in contract type to cost-reimbursable and increased competitive market place . non-gaap financial measures item 10 ( e ) of regulation s-k and other provisions of the securities laws regulate the use of financial measures that are not prepared in accordance with generally accepted accounting principles in the united states ( gaap ) . we are providing certain non-gaap financial measures in this annual report on form 10-k because we believe these non-gaap measures provide important supplemental information to the gaap financial measures contained in our consolidated financial statements . we believe these non-gaap measures , which exclude the impact of the non-cash goodwill impairment charge taken in the fourth quarter of fiscal year 2013 , provide useful information to our investors to better evaluate period-to-period comparisons of our operating results . similarly , management uses these non-gaap measures to gain a better understanding of our comparative operating performance from period-to-period and as a basis for forecasting future periods . story_separator_special_tag the following table is a reconciliation of our unaudited non-gaap financial measures ( in thousands , except per share data ) : replace_table_token_9_th backlog for the years ended december 31 , 2013 , 2012 and 2011 our backlog was $ 3.9 billion , $ 6.5 billion and $ 4.7 billion , respectively , of which $ 1.1 billion , $ 1.8 billion and $ 1.3 billion , respectively , was funded backlog . the decrease in our backlog is primarily due to reduced demand on oco contracts resulting from the accelerated withdrawal from afghanistan . backlog represents estimates that we calculate on a consistent basis . for additional information on how we compute backlog , see “ backlog ” in item 1 “ business. ” 34 liquidity and capital resources historically , our primary liquidity needs have been the financing of acquisitions , working capital , payment under our cash dividend program and capital expenditures . our primary sources of liquidity are cash provided by operations and our revolving credit facility . on december 31 , 2013 , our cash and cash equivalents balance was $ 269.0 million . there were no outstanding borrowings under our revolving credit facility at december 31 , 2013 . at december 31 , 2013 , we were contingently liable under letters of credit totaling $ 0.2 million , which reduces our ability to borrow under our revolving credit facility by that amount . the maximum available borrowings under our revolving credit facility at december 31 , 2013 was $ 499.8 million . at december 31 , 2013 , we had $ 200.0 million outstanding of our 7.25 % senior unsecured notes . for additional information concerning our revolving credit facility and 7.25 % senior unsecured notes , see note 8 to our consolidated financial statements in item 8. generally , cash provided by operating activities is adequate to fund our operations , including payments under our regular cash dividend program . due to fluctuations in our cash flows and level of operations , it may become necessary from time-to-time to increase borrowings under our revolving credit facility to meet cash demands . cash flows from operating activities our operating cash flow is primarily affected by our ability to invoice and collect from our clients in a timely manner , our ability to manage our vendor payments and the overall profitability of our contracts . we bill most of our customers monthly after services are rendered . our accounts receivable days sales outstanding ( dso ) was 84 and 79 for the years ended december 31 , 2013 and 2012 . for the years ended december 31 , 2013 , 2012 and 2011 , our net cash flows from operating activities were $ 188.3 million , $ 126.3 million and $ 221.4 million , respectively . the increase in net cash flows from operating activities during the year ended december 31 , 2013 when compared to the same period in 2012 was primarily due to the collection of accounts receivable and the timing of payments to our vendors and employees . the decrease in net cash flows from operating activities during the year ended december 31 , 2012 compared to the same period in 2011 was primarily due to decreased billings in excess of revenue earned , lower net income , and the timing of payments under incentive compensation plans . cash flows from investing activities our cash flow from investing activities consists primarily of business combinations , purchases of property and equipment and investments in capitalized software for internal use . for the year ended december 31 , 2013 , 2012 and 2011 our net cash outflows from investing activities were were $ 24.8 million , $ 76.0 million and $ 165.5 million , respectively . for the year ended december 31 , 2013 , our net cash outflows from investing activities were primarily due to the acquisition of alta systems , inc. and capital expenditures . for the year ended december 31 , 2012 , our net cash outflows from investing activities were due to the acquisition of hbgary , inc. and evolvent technologies , inc. and capital expenditures . for the year ended december 31 , 2011 , our net cash outflows from investing activities were due to the purchase of property and equipment primarily related to a mobile telecommunication network built for use on one of our contracts in afghanistan and the acquisition of wins and trantech . cash flows from financing activities for the years ended december 31 , 2013 , 2012 and 2011 , our net cash outflows from financing activities were $ 29.4 million , $ 29.8 million and $ 26.2 million , respectively . for the years ended december 31 , 2013 , 2012 and 2011 , our net cash outflows from financing activities resulted primarily from dividends paid . revolving credit facility we maintain a credit agreement with a syndicate of lenders led by bank of america , n.a. , as administrative agent . the credit agreement provides for a $ 500.0 million revolving credit facility , with a $ 25.0 million letter of credit sublimit and a $ 30.0 million swing line loan sublimit . the credit agreement also contains an accordion feature that permits the company to arrange with the lenders for the provision of up to $ 250.0 million in additional commitments . the maturity date for this agreement is october 12 , 2016. borrowings under our credit agreement are collateralized by substantially all the assets of mantech and its material subsidiaries ( as defined in the credit agreement ) and bear interest at one of the following variable rates as selected by the company at the time of borrowing : a london interbank offer rate ( libor ) based rate plus market-rate spreads ( 1.25 % to 2.25 % based on our consolidated total leverage ratio ) or bank of america 's base rate plus market spreads ( 0.25 % to 1.25 % based on our consolidated total leverage ratio ) .
| 31 general and administrative expenses the decrease in general and administrative expense was due to cost reduction initiatives , including reductions in indirect support staff and lower stock based compensation expense . as a percentage of revenues , general and administrative expense was slightly lower for the year ended december 31 , 2013 when compared to the same period in 2012 . we expect general and administrative expenses as a percentage of revenues to remain relatively stable in 2014 . goodwill impairment during the fourth quarter of 2013 , multiple events and circumstances indicated a significant reduction in the operating performance outlook of one of our reporting units . these events included being awarded fewer contracts than anticipated on several competitive opportunities , changing mission priorities of the u.s. government in relation to certain of our c4isr contracts and oco-related work ( primarily on maintenance and sustainment of mrap vehicles ) , continued delays in our customers ' procurement cycle due , in part , to the u.s. government shutdown , and continued margin pressure on some of our contracts . the culmination of these events led us to conduct an interim impairment analysis on the impacted reporting unit . as a result of this analysis , we recorded a non-cash impairment charge of $ 118.4 million for the period ending december 31 , 2013. for additional information , see `` critical accounting estimates and policies - accounting for business combinations , goodwill and other intangible assets '' and note 7 to our consolidated financial statements in item 8. provision for income taxes our effective tax rate is affected by recurring items , such as tax rates and the relative amount of income we earn in various taxing jurisdictions . it is also affected by discrete items that may occur in any given year , but are not consistent from year to year . our effective income tax rates were 208.0 % and 38.7 % for the years ended december 31 , 2013 and 2012 , respectively .
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of the airline industry or changes in fleet size by one or more of our commercial airline partners or ba fractional ownership customers ; the economic environment and other trends that affect both business and leisure travel ; the extent of passengers ' , airline partners ' and other aircraft owners ' and operators ' adoption of our products and services , which is affected by , among other things , willingness to pay for the services that we provide , changes in technology and competition from current competitors and new market entrants ; our ability to enter into and maintain long-term connectivity arrangements with airline partners , which depends on numerous factors including the real or perceived availability , quality and price of our services and product offerings as compared to those offered by our competitors ; continued demand for connectivity and proliferation of wi-fi enabled devices , including smartphones , tablets and laptops ; changes in domestic or foreign laws , regulations or policies resulting from the 2016 elections that affect our business or the business of our customers and suppliers ; changes in laws , regulations and interpretations affecting telecommunications services , including those affecting our ability to maintain our licenses for atg spectrum in the united states , obtain sufficient rights to use additional atg spectrum and or other sources of broadband connectivity to deliver our services , and expand our service offerings ; and changes in laws , regulations and interpretations affecting aviation , including , in particular , changes that impact the design of our equipment and our ability to obtain required certifications for our equipment . 59 summary financial information consolidated revenue was $ 596.6 million , $ 500.9 million and $ 408.5 million , respectively , for the years ended december 31 , 2016 , 2015 and 2014. as of december 31 , 2016 , the ca-na segment had 2,676 commercial aircraft online as compared with 2,387 as of december 31 , 2015. as of december 31 , 2016 , the ba segment had 5,500 aircraft online with satellite systems and 4,172 atg systems online as compared with 5,454 and 3,477 , respectively , as of december 31 , 2015. as of december 31 , 2016 , the ca-row segment had 267 aircraft online as compared with 202 aircraft online as of december 31 , 2015. key business metrics our management regularly reviews financial and operating metrics , including the following key operating metrics for the ca-na , ca-row and ba segments , to evaluate the performance of our business and our success in executing our business plan , make decisions regarding resource allocation and corporate strategies , and evaluate forward-looking projections . replace_table_token_4_th replace_table_token_5_th aircraft online . we define aircraft online as the total number of commercial aircraft on which our equipment is installed and service has been made commercially available as of the last day of each period presented . we assign aircraft to ca-na or ca-row at the time of contract signing as follows : ( i ) all aircraft operated by north american airlines and under contract for atg or atg-4 service are assigned to ca-na , ( ii ) all aircraft operated by north american airlines and under a contract for satellite service are assigned to ca-na or ca-row based on whether the routes flown by such aircraft under the contract are anticipated to be predominantly within or outside of north america at the time the contract is signed , and ( iii ) all aircraft operated by non-north american airlines and under contract are assigned to ca-row . aircraft equivalents . we define aircraft equivalents for a segment as the total number of commercial aircraft online ( as defined above ) multiplied by the percentage of flights flown within the scope of that segment , rounded to the nearest whole aircraft and expressed as an average of the month end figures for each month in such period . this methodology takes into account the fact that during a particular period certain aircraft may fly routes outside the scope of the segment to which they are assigned for purposes of the calculation of aircraft online . average monthly service revenue per aircraft equivalent ( arpa ) . we define arpa for a segment as the aggregate service revenue plus monthly service fees included as a reduction to cost of service revenue for that segment for the period divided by the number of months in the period , divided by the number of aircraft equivalents ( as defined above ) for that segment during the period . prior to 2016 , 60 aircraft online were used as the denominator to calculate arpa . beginning in 2016 , arpa is calculated by using aircraft equivalents as the denominator . we believe the revised arpa methodology more accurately reflects arpa by segment because it better reflects the number of aircraft that actually generated the revenue while flying within the scope of each segment during a specific period . arpa for the ca-na segment during the year ended december 31 , 2015 was originally reported as $ 11,387 and has been revised to $ 11,304 to reflect the change in methodology . we did not adjust arpa for the year ended december 31 , 2014 as the number of aircraft online equaled the number of aircraft equivalents . gross passenger opportunity ( gpo ) . we define gpo as the aggregate number of passengers who board commercial aircraft on which gogo service has been available during the period presented . when available directly from our airline partners , we aggregate actual passenger counts across flights on gogo-equipped aircraft . when not available directly from our airline partners , we estimate gpo . estimated gpo is calculated by first estimating the number of flights occurring on each gogo-equipped aircraft , then multiplying by the number of seats on that aircraft , and finally multiplying by a seat factor that is determined from historical information provided to us in arrears by our airline partners . story_separator_special_tag the estimated number of flights is derived from real-time flight information provided to our front-end systems by air radio inc. ( arinc ) , direct airline feeds and supplementary third-party data sources . these aircraft-level estimates are then aggregated with actual airline-provided passenger counts to obtain total gpo . total average revenue per session ( arps ) . we define arps as revenue from passenger connectivity , excluding non-session related revenue , divided by the total number of sessions during the period . a session , or a use of passenger connectivity , is defined as the use by a unique passenger of passenger connectivity on a flight segment . multiple logins or purchases under the same user name during one flight segment count as only one session . connectivity take rate . we define connectivity take rate as the number of sessions during the period expressed as a percentage of gpo . included in our connectivity take-rate calculation are sessions for which we did not receive revenue , including those provided pursuant to free promotional campaigns and , to a lesser extent , as a result of complimentary passes distributed by our customer service representatives for unforeseen technical issues . for the periods listed above , the number of sessions for which we did not receive revenue was not material . replace_table_token_6_th satellite aircraft online . we define satellite aircraft online as the total number of business aircraft for which we provide satellite services as of the last day of each period presented . atg aircraft online . we define atg aircraft online as the total number of business aircraft for which we provide atg services as of the last day of each period presented . 61 average monthly service revenue per satellite aircraft online . we define average monthly service revenue per satellite aircraft online as the aggregate satellite service revenue for the period divided by the number of months in the period , divided by the number of satellite aircraft online during the period ( expressed as an average of the month end figures for each month in such period ) . average monthly service revenue per atg aircraft online . we define average monthly service revenue per atg aircraft online as the aggregate atg service revenue for the period divided by the number of months in the period , divided by the number of atg aircraft online during the period ( expressed as an average of the month end figures for each month in such period ) . units sold . we define units sold as the number of satellite or atg units for which we recognized revenue during the period . the total number of atg units shipped was 808 for the year ended december 31 , 2016 as compared with 923 for the prior year . due to the commencement of a new sales program and resulting orders , we deferred the recognition of 71 atg units shipped for the year ended december 31 , 2016 , as not all revenue recognition criteria were met . we had no such deferrals on our atg unit shipments for the years ended december 31 , 2015 and 2014 , or in any period on satellite equipment shipments . average equipment revenue per satellite unit sold . we define average equipment revenue per satellite unit sold as the aggregate equipment revenue earned from all satellite units sold during the period , divided by the number of satellite units sold . average equipment revenue per atg unit sold . we define average equipment revenue per atg unit sold as the aggregate equipment revenue from all atg units sold during the period , divided by the number of atg units sold . key components of consolidated statements of operations the following briefly describes certain key components of revenue and expenses for the ca-na , ba and ca-row segments , as presented in our consolidated statements of operations . revenue : we generate two types of revenue through each of our operating segments : service revenue and equipment revenue . commercial aviation north america and rest of world : service revenue . service revenue , which currently represents substantially all of the ca-na 's and ca-row 's segment revenue , is derived from passenger connectivity , passenger entertainment and connected aircraft services ( cas ) related revenue . passenger connectivity revenue includes connectivity services paid for by passengers , airlines and third parties . passenger paid revenue represents purchases of individual sessions ( which may be flight or time-based and include multiple individual session packages ) and monthly and annual subscriptions . airline paid revenue includes sponsorship revenue ( passenger connectivity sold to airlines who sponsor free or discounted access to passengers ) and our wholesale channel ( passenger connectivity sold to airlines who in turn make passenger connectivity available through customer loyalty programs or as incentives directly to their customers ) . airline paid revenue also includes passenger connectivity purchased for the use of airline pilots and flight crews and connectivity sold directly to the airlines for their passengers ' use . 62 third party paid revenue includes sponsorship revenue ( passenger connectivity sold to third parties who sponsor free or discounted access to passengers ) and our wholesale channel ( passenger connectivity sold to third parties who in turn make passenger connectivity available through customer loyalty programs or as incentives directly to their customers ) . third party paid revenue also includes revenue generated through our enterprise channel ( such as passenger connectivity sold through travel management companies ) , our roaming channel ( passenger connectivity sold to ground based wi-fi internet providers or gateways who resell to their customers ) , advertising fees and e-commerce revenue share arrangements . passenger entertainment offerings include business-to-consumer and business-to-business models . under the business-to-consumer model , we provide our entertainment service directly to airline passengers . for the business-to-customer model , we determine pricing , charge the passenger directly and remit a share of the revenue to the airlines .
| passenger connectivity sessions totaled 26.4 million for the year ended december 31 , 2016 as compared with 21.7 million for the prior year . arps decreased to $ 12.31 for the year ended december 31 , 2016 as compared with $ 12.74 for the prior year , due to shifts in product mix and third party-paid promotions . arpa increased slightly to $ 11,392 for the year ended december 31 , 2016 as compared with $ 11,304 for the prior year . arpa increased an estimated 10 % for the year ended december 31 , 2016 , as compared with the prior year period , excluding aircraft added since the beginning of 2015 , which primarily include regional jets and aircraft operated by new airline partners . a summary of the components of ca-na 's service revenue for the years ended december 31 , 2016 and 2015 is as follows ( in thousands , except for percent change ) : replace_table_token_9_th ( 1 ) includes non-session related revenue of $ 15.7 million and $ 18.1 million for the years ended december 31 , 2016 and 2015 , respectively , primarily included within third party paid revenue . 68 ca-na passenger connectivity revenue increased to $ 341.1 million for the year ended december 31 , 2016 as compared with $ 294.2 million for the prior year due to increases in passenger-paid , third party-paid and airline-paid revenue . passenger-paid revenue increased due to increases in both individual sessions and subscriptions . third party-paid revenue increased primarily due to increases in roaming and enterprise revenue . our airline-paid revenue increased due to new agreements with certain airline partners under which the airlines pay us for data usage , including data used by passengers and by airline pilots and crew members using connectivity services while in flight . the increase in passenger entertainment and cas revenue to $ 16.1 million for the year ended december 31 , 2016 as compared with $ 14.1 million for the prior year was driven
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the investment , which is contingent on the finalization of various incentive packages , is expected to bring approximately 600 jobs to the san antonio area . 25 in august 2019 , we opened a parts distribution center in olive branch , mississippi , to help respond to the growing demand for parts and quicker maintenance turnaround times . this is our seventh parts distribution center in the u.s. and tenth in north america . our centralized location and proximity to the fedex world hub in memphis , tennessee enables us to deliver parts the next day to over 95 % of our dealers ' service locations . we are committed to uptime to enhance customer value . 2019 financial summary continuing operations results continuing operations results — consolidated net sales and revenues were $ 11.3 billion in 2019 , an increase of 10 % compared to 2018 . the increase primarily reflects higher volumes in our core markets . in 2019 , we earned income from continuing operations before income taxes of $ 262 million compared to $ 420 million in 2018 . our gross margin increased by $ 73 million primarily due to the impact of higher volumes . in 2019 , we recognized income tax expense from continuing operations of $ 19 million , compared to income tax expense of $ 52 million in the prior year . the decrease to income tax expense is primarily due to a $ 38 million benefit associated with a group annuity contract purchase for certain retired pension plan participants in canada , recorded in the first quarter of 2019. other differences for the year include the impact of earnings , geographical mix and certain discrete items . in 2019 , after income taxes , income from continuing operations attributable to nic was $ 221 million , or $ 2.22 per diluted share , compared to income of $ 340 million , or $ 3.41 per diluted share , in 2018 . in 2019 , consolidated net income from continuing operations attributable to nic , before manufacturing interest , taxes , depreciation and amortization expenses ( “ ebitda ” ) was $ 640 million , compared to ebitda of $ 838 million in 2018 . excluding certain net adjustments of $ 242 million and $ 12 million in 2019 and 2018 , respectively , adjusted ebitda was $ 882 million in 2019 compared to $ 826 million in 2018 . in 2019 , adjusted consolidated net income attributable to nic , excluding certain net impacts ( `` adjusted net income '' ) , was $ 423 million compared to $ 327 million in 2018. ebitda , adjusted ebitda , and adjusted net income are not determined in accordance with gaap , nor are they presented as alternatives to gaap measures . for more information regarding this non-gaap financial information , see non-gaap financial performance measures . we ended 2019 with $ 1,370 million of consolidated cash , cash equivalents and marketable securities , compared to $ 1,421 million as of october 31 , 2018. the decrease in consolidated cash , cash equivalents and marketable securities was primarily attributable to increases in finance receivables and other current assets , decreases in accounts payable and other noncurrent liabilities , capital expenditures , purchases of equipment leased to others , the repayment on our convertible notes and dividends paid with respect to non-controlling interests partially offset by net income , decreases in accounts receivable and inventories , an increase in other current liabilities , proceeds from financed lease obligations and proceeds from the sales of a majority interest in our former defense business , navistar defense and the sale of our joint venture in china with jac . business outlook and key trends we continually look for ways to improve the efficiency and performance of our operations , and our focus is on improving our core businesses . certain trends have affected our results of operations for 2019 as compared to 2018 . these trends , as well as the key trends that we expect will impact our future results of operations , are as follows : engine strategy and emissions standards compliance —we are focused on new product introductions , enhancements of current products , quality improvements and continuous material cost-reductions across our truck and bus product lines . we have shifted our investment focus to develop more driver-centric designs . we are also expanding our powertrain offerings with a mix of proprietary engines and cummins engines . we have incurred significant research and development and tooling costs to design and produce our product lines to meet the epa and carb on-highway hdd emissions standards , including obd requirements . ghg phase 2 regulations will further increase significant investments in product development by us and our competitors . carb also continues to advocate for stricter emission standards , obd requirements and in-use oversight . these emissions standards have and will continue to result in significant increases in the costs of our products . traton group alliance —we and traton group have a similar vision for the role of technology , including the importance of driver-focused open architecture solutions . we expect the alliance will be a source of powertrain options and other high-value technologies , including advanced driver assistance systems , connected vehicle solutions and autonomous technologies , electric vehicles , and cab and chassis subsystems . we expect to have a fully integrated proprietary powertrain and launch an electric medium-duty truck and electric school bus based on traton group 's technology . in addition , our procurement jv framework agreement with traton group will deliver further material cost savings in the years to come . 26 core truck market —the core market in which we compete is cyclical in nature and strongly influenced by macroeconomic factors such as industrial production , consumer spending , demand for durable goods , construction spending , business investment , and state and local government spending . story_separator_special_tag during the past two years , truck customers in the u.s. and canada have significantly replaced and expanded their fleets and truck sales have reached cyclical peaks . however , over the past year , economic momentum has softened and freight volume and rates have eased , which may continue to negatively impact class 8 truck demand . the medium truck market is expected to ease from its currently elevated level , but solid consumer spending may continue to support medium truck demand . the school bus market is expected to be solid since school-age population increases slowly , but steadily . we anticipate that our core market retail industry deliveries will range between 335,000 to 365,000 units for 2020. used truck inventory —our gross used truck inventory increased to approximately $ 200 million at october 31 , 2019 from $ 154 million at october 31 , 2018 , offset by reserves of $ 37 million and $ 31 million , respectively . during 2019 , additions to our used truck reserves were $ 69 million , compared to $ 50 million in 2018 . the increase was primarily due to higher trade-ins from strong new truck sales including an increase in other oem used trucks related to market share gains , largely offset by used truck sales . parts —the parts business remains a significant source of revenue and profit . we are focusing on retail customer segmentation and improving dealer-lead generation . our private label brands help provide all-make parts to customers , attract incremental price sensitive customers , and offset the decline in late-in-lifecycle products . we are leveraging technology such as ecommerce to attract and retain new customers , to expand our existing customers ' portfolio of products , and to improve the ease of doing business . we have embraced improving uptime via parts availability , dedicated same-day deliveries and expanded hours at our parts distribution centers . warranty costs —warranty expense continues to reflect our current product portfolio and our commitment to quality and customer uptime . warranty expense as a percentage of manufacturing revenue declined to 1.4 % from 1.7 % a year ago . we recognized a charge for adjustments to pre-existing warranties of $ 3 million in 2019 , and a benefit for adjustments to pre-existing warranties of $ 9 million in 2018 . pre-existing warranties during the period were primarily driven by proactive campaign actions on units built in prior years and was partially offset by a favorable warranty experience on trucks and engines sold prior to fiscal year 2019. for more information , see note 1 , summary of significant accounting policies , to the accompanying consolidated financial statements . income taxes —at october 31 , 2019 , we had $ 2.2 billion of u.s. federal net operating loss carryforwards and $ 179 million of federal tax credit carryforwards . we expect our cash payments of u.s. taxes will be minimal for as long as we are able to offset our u.s. taxable income by these u.s. net operating losses and tax credits , which have carryforward periods of up to 20 years . we also have state and foreign net operating losses that are available to reduce cash payments of state and foreign taxes in future periods . we maintain valuation allowances on our u.s. and certain foreign deferred tax assets because it is more likely than not that those deferred tax assets will not be realized . it is reasonably possible within the next twelve months that additional valuation allowances may be required on certain foreign deferred tax assets . for more information , see note 12 , income taxes , to the accompanying consolidated financial statements . business evaluation —we are focused on improving our truck and parts businesses in our core markets . we are working to fix , divest or close under-performing and non-strategic areas and expect to realize incremental benefits from these actions . while we are making investments in our manufacturing footprint to expand our capabilities , we continue to rationalize our manufacturing operations in an effort to optimize our cost structure . this effort is ongoing and may lead to additional divestitures of businesses or discontinuing programs that are outside of our core operations or are not performing to our expectations . as a result of these evaluations , we ceased production at our mwm motores engine facility in jesus maria , argentina in october 2019. we sold a majority interest in our former defense business , navistar defense , and our former joint venture in china with jac in december 2018. we ceased engine production at our melrose park facility in may 2018. we also completed the sale of our former railcar business in cherokee , alabama in february 2018. north and latin american economy —u.s . economic growth has softened over the past year . slower global growth , rising trade tensions , and ongoing policy uncertainty will likely continue to soften economic momentum . however , with a tight labor market , the consumer sector provides a solid base for growth . in addition , the u.s. federal reserve board is expected to maintain its current monetary policy to support a moderate economic expansion . with domestic fundamental weakness , the canadian economy is expected to continue growing at a modest pace . expansion in latin america , including brazil , chile , colombia , and peru , is projected to slow since the growth trajectory continues to be challenged by country-specific factors and global headwinds . the mexican economy has decelerated significantly over the past year due to the deterioration of business conditions , but economic activity is expected to slowly rebound in the next year . 27 during 2019 , we identified a triggering event related to continued economic weakness in brazil and the initiation of strategic cost reduction actions in the brazilian asset group , which is included in the global operations segment .
| 29 in 2019 , our parts segment net sales decreased by $ 162 million , or 7 % , primarily due to the impact of the new revenue standard as certain elements of core component transactions are no longer recognized within revenue and also as we are now an agent in certain direct shipment transactions that are recorded on a net basis , and lower bdp sales , partially offset by higher sales in our north american markets . in 2019 , our global operations segment net sales decreased by $ 17 million , or 5 % , primarily driven by the depreciation of the brazilian real against the u.s. dollar as the average conversion rate weakened by 9 % compared with the prior year , partially offset by higher volumes in our south america operations . in 2019 , our financial services segment net revenues increased by $ 40 million or 16 % . the increase was primarily driven by higher average finance receivable balances in the u.s. and higher operating lease balances in the u.s. and mexico . the increase was partially offset by a reduction in finance fees charged to the manufacturing operations . costs of products sold in 2019 , costs of products sold increased by $ 928 million compared to the prior year primarily driven by the impact of higher volumes in our core markets . the increase is partially offset by the impact of the new revenue standard as we are now an agent in certain direct shipment transactions that are recorded on a net basis and also due to certain elements of core component transactions that are no longer recognized within revenue . in 2019 , we recognized charges for adjustments to pre-existing warranties of $ 3 million compared to a benefit of $ 9 million in 2018. pre-existing warranty expense during the period was primarily driven by proactive campaign actions on units built in prior years and was partially offset by a favorable warranty experience on both trucks and engines sold prior to fiscal year 2019. restructuring charges in 2019 , restructuring charges
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td group did not offer any shares of its common stock for sale in the public offerings and td group did not receive any of the proceeds from the sale of such shares by the selling stockholders . as a result of the initial public offering , td group 's common stock is publicly traded on the new york stock exchange under the ticker symbol tdg. certain acquisitions and divestitures schneller holdings acquisition on august 31 , 2011 , transdigm inc. acquired all of the outstanding equity interests in schneller holdings llc ( schneller ) for approximately $ 288.5 million in cash , subject to adjustments based on the level of working capital as of the closing date of the acquisition . schneller designs and manufactures proprietary , highly engineered laminates , thermoplastics , and non-textile flooring for use primarily on side walls , lavatories , galleys , bulkheads and cabin floors for commercial aircraft . these products fit well with transdigm 's overall business direction . the company is in the process of obtaining information to value certain tangible and intangible assets of schneller , and therefore the consolidated financial statements at september 30 , 2011 reflect a preliminary purchase price allocation for the business . 28 talley actuation acquisition on december 31 , 2010 , aerocontrolex group , inc. , a wholly owned subsidiary of transdigm inc. , acquired the actuation business of telair international inc. ( talley actuation ) , a wholly-owned subsidiary of teleflex incorporated , for approximately $ 93.6 million in cash , which includes a purchase price adjustment of $ 0.3 million received in the third quarter of fiscal 2011. talley actuation manufactures proprietary , highly engineered electro-mechanical products and other components for commercial and military aircraft . these products fit well with transdigm 's overall business direction . mckechnie aerospace holdings , inc. acquisition on december 6 , 2010 , transdigm inc. acquired all of the outstanding stock of mckechnie aerospace holdings inc. ( mckechnie aerospace ) , for approximately $ 1.27 billion in cash , which includes a purchase price adjustment of $ 0.3 million paid in the third quarter of fiscal 2011. mckechnie aerospace , through its subsidiaries , is a leading global designer , producer and supplier of aerospace components , assemblies and subsystems for commercial aircraft , regional/business jets , military fixed wing and rotorcraft . some of the businesses acquired as part of mckechnie aerospace have since been divested ( see below ) . the remaining products fit well with transdigm 's overall business direction . semco instruments acquisition on september 3 , 2010 , transdigm inc. acquired all of the outstanding capital stock of semco instruments , inc. ( semco ) for approximately $ 73.6 million in cash , which includes a purchase price adjustment of $ 3.0 million paid in the first quarter of fiscal 2011. semco is a designer and manufacturer of proprietary , highly engineered components for all major turbo-prop , turbo-fan , and turbo-shaft engines , which are primarily used on helicopters , business jets and selected regional airplanes . these products fit well with transdigm 's overall business direction . dukes aerospace acquisition on december 2 , 2009 , dukes aerospace , inc. , a wholly owned subsidiary of transdigm inc. , acquired substantially all of the aerospace-related assets of dukes , inc. and gst industries , inc. ( collectively dukes aerospace ) for approximately $ 95.5 million in cash , which includes a purchase price adjustment of $ 0.2 million received in the third quarter of fiscal 2011. dukes aerospace is a supplier of proprietary , highly engineered components primarily to the business jet , regional jet , and military aerospace markets , along with commercial and military helicopter markets . the products are comprised primarily of highly engineered valves and certain pumps , solenoids and related components . these products fit well with transdigm 's overall business direction . woodward hrt product line acquisition on august 10 , 2009 , aerocontrolex group , inc. , a wholly owned subsidiary of transdigm inc. , acquired certain product line assets of woodward hrt , inc. , a subsidiary of woodward governor company ( woodward hrt product line ) for approximately $ 48.7 million in cash , which includes a purchase price adjustment of $ 0.7 million paid in the second quarter of fiscal 2010. the product line comprises a range of highly engineered fuel and pneumatic valves and surge suppressors , the majority of which are used on military rotary and fixed wing aircraft , all of which fit well with transdigm 's overall business direction . woodward governor had recently acquired this business as part of its acquisition of hr textron , inc. acme aerospace acquisition on july 24 , 2009 , transdigm inc. acquired all of the outstanding capital stock of acme aerospace , inc. ( acme ) for approximately $ 40.9 million in cash , which includes a purchase price adjustment of $ 0.2 million paid in the first quarter of fiscal 2010. acme is a designer and manufacturer of proprietary , highly engineered components to the commercial aerospace industry , comprising primarily fibrous nickel cadmium main ship batteries , battery chargers , battery back-up systems and power conversion equipment . these products fit well with transdigm 's overall business direction . 29 aircraft parts corporation acquisition on december 16 , 2008 , transdigm inc. acquired all of the outstanding capital stock of aircraft parts corporation ( apc ) for approximately $ 66.9 million in cash , net of a purchase price adjustment of $ 0.7 million received in the first quarter of fiscal 2010. apc is a designer and manufacturer of starter generators , generator control units and related components for turbine engines , all of which fit well with transdigm 's overall business direction . story_separator_special_tag aero quality sales divestiture on april 7 , 2011 , the company completed the divestiture of aero quality sales ( aqs ) to satair a/s for approximately $ 31.8 million in cash , which includes a $ 1.8 million working capital adjustment received in the third quarter of fiscal 2011. aqs , which was acquired as part of the mckechnie aerospace acquisition , is a distributor and service center of aircraft batteries and battery support equipment . the company 's chairman and chief executive officer , w. nicholas howley was a director of satair a/s from 2006 through october 2011. mr. howley discussed his relationship to satair a/s to the company 's board of directors and abstained from the related vote . fastener business divestiture on march 9 , 2011 , the company completed the divestiture of its fastener business for approximately $ 239.6 million in cash , subject to adjustments based on the level of working capital as of the closing date . this business , which was acquired as part of the mckechnie aerospace acquisition , is made up of valley-todeco , inc. and linread ltd. the business designs and manufactures fasteners , fastening systems and bearings for commercial , military and general aviation aircraft . recent development agreement to acquire harco laboratories on november 8 , 2011 , the company entered into a definitive agreement to acquire harco laboratories , incorporated ( harco ) for approximately $ 84 million in cash . the acquisition , which is subject to review under the hart-scott-rodino act and other customary closing conditions , is expected to close during the first quarter of fiscal 2012. harco designs and manufactures highly engineered thermocouples , sensors , engine cable assemblies and related products primarily for major commercial aircraft . ebitda and ebitda as defined the following table sets forth a reconciliation of net income to ebitda and ebitda as defined : replace_table_token_10_th 30 ( 1 ) ebitda represents earnings from continuing operations before interest , taxes , depreciation and amortization . ebitda as defined represents ebitda plus , as applicable for each relevant period , certain adjustments as set forth in the reconciliation of net income to ebitda and ebitda as defined . see non-gaap financial measures for additional information and limitations regarding these non-gaap financial measures . ( 2 ) represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold . ( 3 ) represents costs incurred to integrate acquired businesses and product lines into td group 's operations , facility relocation costs and other acquisition-related costs . ( 4 ) represents transaction-related costs comprising deal fees ; legal , financial and tax due diligence expenses ; and valuation costs that are required to be expensed as incurred . ( 5 ) represents the compensation expense recognized by td group under our stock option plans . ( 6 ) represents the reversal of a portion of the earn-out liability related to the dukes aerospace acquisition based on lower growth projections relative to the required growth targets for the last three years of the four-year earn-out arrangement . ( 7 ) represents costs incurred in connection with the refinancing in december 2010 , including the premium paid to redeem our 7 3 / 4 % senior subordinated notes due 2014 , the write off of debt issue costs and unamortized note premium and discount and settlement of the interest rate swap agreement and other expenses . the following table sets forth a reconciliation of net cash provided by operating activities to ebitda and ebitda as defined : replace_table_token_11_th ( 1 ) represents interest expense excluding the amortization of debt issue costs and note premium and discount . ( 2 ) represents the compensation expense recognized by td group under its stock plans . ( 3 ) represents costs incurred in connection with the refinancing in december 2010 , including the premium paid to redeem our 7 3 / 4 % senior subordinated notes due 2014 , the write off of debt issue costs and unamortized note premium and discount and settlement of the interest rate swap agreement and other expenses . 31 ( 4 ) ebitda represents earnings before interest , taxes , depreciation and amortization . ebitda as defined represents ebitda plus , as applicable for each relevant period , certain adjustments as set forth in the reconciliation of net cash provided by operating activities to ebitda and ebitda as defined . see non-gaap financial measures for additional information and limitations regarding these non-gaap financial measures . ( 5 ) represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold . ( 6 ) represents costs incurred to integrate acquired businesses and product lines into td group 's operations , facility relocation costs and other acquisition-related costs . ( 7 ) represents transaction-related costs comprising deal fees ; legal , financial and tax due diligence expenses ; and valuation costs that are required to be expensed as incurred . ( 8 ) represents the compensation expense recognized by td group under our stock option plans . ( 9 ) represents the reversal of a portion of the earn-out liability related to the dukes aerospace acquisition based on lower growth projections relative to the required growth targets for the last three years of the four-year earn-out arrangement . trend information we predominantly serve customers in the commercial , regional , business jet and general aviation aftermarket , which accounts for approximately 40 % of total sales ; the commercial aerospace oem market , comprising large commercial transport manufacturers and regional and business jet manufacturers , which accounts for approximately 28 % of total sales ; and the defense market , which accounts for approximately 29 % of total sales . non-aerospace sales comprise approximately 3 % of our total sales .
| million for fiscal 2010. the increase in the amount of gross profit was primarily due to the following items : sales of $ 276.2 million from the acquisitions indicated above contributed gross profit of approximately $ 110 million for fiscal 2011 , which includes the acquisition-related costs ( inventory purchase accounting adjustments and acquisition integration costs ) incurred in connection with those acquisitions amounting to $ 26.2 million . these acquisitions diluted gross profit as a percentage of sales for fiscal 2011 by approximately 4 percentage points . organic sales growth described above , favorable product mix and favorable product pricing on our proprietary products resulted in increased gross profit of approximately $ 78 million for fiscal 2011. selling and administrative expenses . selling and administrative expenses increased by $ 38.8 million to $ 133.7 million , or 11.1 % of sales , for fiscal 2011 from $ 94.9 million , or 11.5 % of sales , for the fiscal 2010. the increase is primarily due to higher selling and administrative expenses relating to recent acquisitions of approximately $ 28 million and non-cash stock compensation expense of approximately $ 5 million . amortization of intangibles . amortization of intangibles increased to $ 40.3 million for fiscal 2011 from $ 15.1 million for fiscal 2010. the net increase of $ 25.2 million was primarily due to amortization expense related to the additional identifiable intangible assets recognized in connection with acquisitions during the last twelve months . refinancing costs . refinancing costs were recorded as a result of the refinancing of transdigm 's entire debt structure in december 2010. the charge of $ 72.5 million consisted of the premium of $ 41.9 million paid to redeem our 7 3 / 4 % senior subordinated notes , the write-off of debt issue costs and unamortized note premium and discount of $ 25.7 million , and the settlement of the interest rate swap agreement and other expenses of $ 4.9 million . interest
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new business wins and client losses occur due to a variety of factors . the two most significant factors are ( i ) our clients ' desire to change marketing communication firms , and ( ii ) the creative product that our partner firms offer . a client may choose to change marketing communication firms for a number of reasons , such as a change in top management and the new management wants to retain an agency that it may have previously worked with . in addition , if the client is merged or acquired by another company , the marketing communication firm is often changed . further , global clients are trending to consolidate the use of numerous marketing communication firms to just one or two . another factor in a client changing firms is the agency 's campaign or work product is not providing results and they feel a change is in order to generate additional revenues . 17 clients will generally reduce or increase their spending or outsourcing needs based on their current business trends and profitability . acquisitions and dispositions . our strategy includes acquiring ownership stakes in well-managed businesses with strong reputations in the industry . we engaged in a number of acquisition and disposal transactions during the 2011 to 2015 period , which affected revenues , expenses , operating income and net income . additional information regarding material acquisitions is provided in note 4 and information on dispositions is provided in note 10 in the notes to the consolidated financial statements included herein . foreign exchange fluctuation . our financial results and competitive position are affected by fluctuations in the exchange rate between the us dollar and non-us dollar , primarily the canadian dollar . see also “ item 7a - quantitative and qualitative disclosures about market risk - foreign exchange ” . seasonality . historically , with some exceptions , we generate the highest quarterly revenues during the fourth quarter in each year . the fourth quarter has historically been the period in the year in which the highest volumes of media placements and retail related consumer marketing occur . story_separator_special_tag servicing clients as well as in administrative rolls , in order to support partner firm growth . this increase was primarily attributable to headcount expansion . in addition , severance costs increased approximately $ 6.0 million from 2014 to 2015. deferred acquisition consideration expense increased on a year-over-year basis . the aggregate out performance of certain partner firms as compared to forecasted expectations was at a higher magnitude as compared to the 2014 aggregate out performance as compared to forecasted expectations . direct costs increased by $ 2.5 million , or 1.3 % and as a percentage of revenue declined from 15.8 % to 14.7 % as pass-through costs incurred on the clients ' behalf decreased , most notably in the promotions and experiential businesses in conjunction with their revenue decline . stock-based compensation increased by $ 3.0 million but was consistent at approximately 1.0 % of revenue . depreciation and amortization expense increased by $ 5.1 million primarily due to the impact of acquisitions . corporate group the change in operating expenses for the years ended december 31 , 2015 and 2014 was as follows : replace_table_token_11_th ( 1 ) excludes stock-based compensation . total operating expenses related to the corporate group 's operations decreased by $ 2.9 million to $ 65.2 million in 2015 , compared to $ 68.1 million in 2014 . 22 first , the increase in staff costs was due to a one-time charge of $ 5.8 million for the balance of the prior year cash bonus awards that were previously paid to the company 's former ceo and former cao , but will not be recovered pursuant to the repayment terms of the applicable separation agreements . this one-time charge was offset by a general reduction of staff costs of $ 1.3 million in 2015 , and a reduction in stock-based compensation expense of $ 2.9 million in 2015 , each as compared to 2014. second , there was a meaningful decrease in administrative costs of $ 4.5 million in 2015 , which was due to the following cost reductions as compared to 2014 : ( i ) travel and entertainment expenses of $ 2.8 million , ( ii ) advertising and promotional expenses of $ 2.5 million , ( iii ) legal expenses of $ 1.1 million ( excluding legal fees related to the ongoing sec inquiry ) , and ( iv ) various other administrative expenses of $ 0.6 million . the foregoing reductions in administrative costs were impacted by other one-time items , including the following : ( a ) a reduction in administrative costs of $ 11.3 million as a result of repayments the company received from the company 's former ceo ; ( b ) incurrence of $ 12.7 million of legal fees related to the ongoing sec inquiry ( net of $ 1.0 million insurance proceeds ) ; and ( c ) the write off of certain assets related to the termination of the former ceo and former cao of $ 1.1 million . other income , net other income , net , increased by $ 6.5 million from income of $ 0.7 million in 2014 to income of $ 7.2 million in 2015 . the increase related to the 2015 gain on sale of certain equity and cost method investments . foreign exchange the foreign exchange loss was $ 39.3 million for 2015 , compared to a loss of $ 18.5 million recorded in 2014. this unrealized loss was due primarily to the fluctuation in the us dollar during 2015 and 2014 compared to the canadian dollar relating to the company 's us dollar denominated intercompany balances with its canadian subsidiaries . story_separator_special_tag interest expense and finance charges , net interest expense and finance charges , net for 2015 were $ 57.4 million , an increase of $ 2.6 million over the $ 54.8 million of interest expense and finance charges , net incurred during 2014. the increase in interest expense in 2015 was due to the issuance of the additional $ 75 million in principal amount of the 6.75 % notes in april 2014 and borrowings on the revolver . income tax expense income tax expense in 2015 was $ 5.7 million compared to $ 12.4 million for 2014. the company 's effective rate was substantially higher than the statutory rate in 2015 , primarily due to non-deductible stock-based compensation , an increase in the valuation allowance , and the effect of the difference in the us and foreign federal rates compared to the canadian statutory rate , offset in part by noncontrolling interest charges . the company 's effective tax rate was substantially higher than the statutory rate in 2014 due to non-deductible stock-based compensation , an increase in the company 's valuation allowance , and the effect of the differences in the us and foreign federal rates compared to the canadian statutory rate , offset in part by noncontrolling interest charges . the company 's us operating units are generally structured as limited liability companies , which are treated as partnerships for tax purposes . the company is only taxed on its share of profits , while noncontrolling holders are responsible for taxes on their share of the profits . equity in affiliates equity in affiliates represents the income attributable to equity-accounted affiliate operations . in 2015 , the company recorded income of $ 1.1 million compared to income of $ 1.4 million in 2014. noncontrolling interests the effects of noncontrolling interest was $ 9.1 million in 2015 , an increase of $ 2.2 million from the $ 6.9 million during 2014. this increase related to the overall increase in profits in partner firms where there are noncontrolling shareholders . discontinued operations the loss net of taxes from discontinued operations for 2015 was $ 6.3 million , compared to a loss of $ 21.3 million in 2014. the decrease in the loss from discontinued operations was due to a goodwill write off of $ 15.6 million in 2014 that was included in the loss from discontinued operations as a result of the company 's decision to strategically sell the net assets of accent . net loss attributable to mdc partners inc. as a result of the foregoing , the net loss attributable to mdc partners inc. for 2015 was $ 37.4 million or a loss of $ 0.75 per diluted share , compared to a net loss of $ 24.1 million or $ 0.49 per diluted share reported for 2014 . 23 year ended december 31 , 2014 compared to year ended december 31 , 2013 revenue was $ 1.2 billion for the year ended 2014 , representing an increase of $ 161.0 million , or 15.2 % , compared to revenue of $ 1.1 billion for the year ended 2013. this increase related primarily to an increase in organic revenue of $ 115.0 million and acquisition growth of $ 54.6 million . a strengthening of the us dollar , primarily versus the canadian dollar during the year ended december 31 , 2013 , resulted in a decrease of $ 8.6 million . operating income for the year ended 2014 was $ 87.7 million , compared to a loss of $ 34.6 million in 2013. operating profit increased by $ 46.0 million in the advertising and communications segment and corporate operating expenses decreased by $ 76.3 million in 2014. income from continuing operations was $ 4.1 million in 2014 , compared to a loss of $ 133.2 million in 2013. this increase of $ 137.3 million was primarily attributable to an increase in operating profits of $ 122.3 million , primarily due to increased revenue and a decrease in stock-based compensation of $ 82.7 million , and a decrease in net interest expense equal to $ 45.4 million , offset by an increase in tax expense of $ 16.8 million . the decrease in net interest expense was primarily due to the company 's redemption of its 11 % notes in march 2013 and related premium , fees , and expenses of $ 55.6 million offset by higher overall debt outstanding . these amounts were also impacted by an increase in foreign exchange losses of $ 12.9 million in 2014 and a decrease in other income , net , of $ 1.9 million . advertising and communications segment the components of the change in revenues by geography for the year ended december 31 , 2014 were as follows : replace_table_token_12_th the geographic mix in revenues for the years ended december 31 , 2014 and 2013 was as follows : replace_table_token_13_th revenue was $ 1.2 billion for the year ended december 31 , 2014 , representing an increase of $ 161.0 million , or 15.2 % , compared to 2013. this increase was comprised of organic revenue growth of $ 115.0 million , or 10.8 % , and the effect of acquisitions of $ 54.6 million , or 5.1 % , partially offset by adverse changes in foreign exchange rates resulting in a reduction of revenue of $ 8.6 million , or 0.8 % . our revenue increase was across all of our geographic regions , attributable to new client wins and increased spend by existing clients . there was broad strength across most disciplines , with growth led by our integrated advertising agencies , and our emerging media buying and planning platform , offset by a decline in our promotions business .
| this increase related primarily to an increase in organic revenue of $ 86.7 million and acquisition growth of $ 46.3 million . a strengthening of the us dollar , primarily versus the canadian dollar during the year ended december 31 , 2015 , resulted in a decrease of $ 30.2 million . operating profit for the year ended 2015 was $ 72.1 million , compared to $ 87.7 million in 2014 . operating profit decreased by $ 18.5 million in the advertising and communications segment . corporate operating expenses decreased by $ 2.9 million in 2015 . loss from continuing operations was $ 22.0 million in 2015 , compared to income of $ 4.1 million in 2014. this decrease of $ 26.1 million was primarily attributable to ( 1 ) a decrease in operating profits of $ 15.6 million , primarily due to increased deferred acquisition expense of $ 19.9 million , ( 2 ) an increase in foreign exchange loss of $ 20.8 million , ( 3 ) an increase in net interest expense of $ 2.6 million , ( 4 ) offset by a decrease in income tax expense of $ 6.7 million and ( 5 ) an increase in other income , net , of $ 6.5 million . advertising and communications segment the components of the change in revenues by geography for the year ended december 31 , 2015 are as follows : replace_table_token_7_th 20 the geographic mix in revenues for the years ended december 31 , 2015 and 2014 are as follows : replace_table_token_8_th revenue was $ 1.3 billion for the year ended 2015 , representing an increase of $ 102.7 million , or 8.4 % , compared to 2014. this increase was comprised of organic revenue growth of $ 86.7 million , or 7.1 % , and the effect of acquisitions of $ 46.3 million , or 3.8 % , partially offset by adverse changes in foreign exchange rates resulting in a reduction of revenue of
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the rent structure under the master lease includes a fixed component , a portion of which is subject to an annual 2 % escalator if certain rent coverage ratio thresholds are met , and a component that is based on the performance of the facilities , which is adjusted , subject to certain floors ( i ) every five years by an amount equal to 4 % of the average change to net revenues of all facilities under the master lease ( other than hollywood casino columbus and hollywood casino toledo ) during the preceding five years , and ( ii ) monthly by an amount equal to 20 % of the change in net revenues of hollywood casino columbus and hollywood casino toledo during the preceding month . in addition to rent , the tenant is required to pay the following : ( 1 ) all facility maintenance , ( 2 ) all insurance required in connection with the leased properties and the business conducted on the leased properties , ( 3 ) taxes levied on or with respect to the leased properties ( other than taxes on the income of the lessor ) and ( 4 ) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties . the casino queen property is leased back to a third party operator on a `` triple net '' basis , with an initial term of 15 years , followed by four 5 year renewal options . the terms and conditions are similar to the master lease . additionally , in accordance with asc 605 , `` revenue recognition '' ( `` asc 605 '' ) , the company records revenue for the real estate taxes paid by its tenants on the leased properties with an offsetting expense in general and administrative expense within the consolidated statement of income as the company has concluded it is the primary obligor . gaming revenue generated by our trs properties is derived primarily from video lottery gaming revenue and to a lesser extent , table game and poker revenue , which is highly dependent upon the volume and spending levels of customers at our trs properties . other trs revenues are derived from our dining , retail , and certain other ancillary activities . our competitive strengths we believe the following competitive strengths will contribute significantly to our success : geographically diverse property portfolio as of december 31 , 2014 , our portfolio consisted of 21 gaming and related facilities . our portfolio comprises approximately 7.2 million of property square footage and approximately 3,245 acres of owned and leased land and is broadly diversified by location across 12 states . our geographic diversification will limit the effect of a decline in any one regional market on our overall performance . financially secure tenants as of december 31 , 2014 , substantially all of the company 's real estate properties were leased to a wholly-owned subsidiary of penn , and the majority of the company 's rental revenues were derived from the master lease . penn is a leading , diversified , multi-jurisdictional owner and manager of gaming and pari-mutuel properties , and an established gaming provider with strong financial performance . penn is a publicly traded company that is subject to the informational filing requirements of 34 the securities exchange act of 1934 , as amended , and is required to file periodic reports on form 10-k and form 10-q with the securities and exchange commission . penn 's net revenues were $ 2.6 billion for the year ended december 31 , 2014 , and $ 2.9 billion for the years ended december 31 , 2013 and 2012. long-term , triple-net lease structure our real estate properties are leased under `` triple-net '' operating leases guaranteed by our tenants with initial terms of 15 years ( in addition to four 5 year renewals at the tenants ' option ) , pursuant to which the tenant is responsible for all facility maintenance , insurance required in connection with the leased properties and the business conducted on the leased properties , taxes levied on or with respect to the leased properties and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties . flexible upreit structure we have the flexibility to operate through an umbrella partnership , commonly referred to as an upreit structure , in which substantially all of our properties and assets are held by glp capital or by subsidiaries of glp capital . conducting business through glp capital allows us flexibility in the manner in which we structure and acquire properties . in particular , an upreit structure enables us to acquire additional properties from sellers in exchange for limited partnership units , which provides property owners the opportunity to defer the tax consequences that would otherwise arise from a sale of their real properties and other assets to us . as a result , this structure potentially may facilitate our acquisition of assets in a more efficient manner and may allow us to acquire assets that the owner would otherwise be unwilling to sell because of tax considerations . we believe that this flexibility will provide us an advantage in seeking future acquisitions . experienced and committed management team although our management team has limited experience in operating a reit , it has extensive gaming and real estate experience . peter m. carlino , chief executive officer of glpi , has more than 30 years of experience in the acquisition and development of gaming facilities and other real estate projects . william j. clifford , chief financial officer of glpi , is a finance professional with more than 30 years of experience in the gaming industry , including four years of gaming regulatory experience , sixteen years of casino property operations , and thirteen years of corporate experience . story_separator_special_tag through years of public company experience , our management team also has extensive experience accessing both debt and equity capital markets to fund growth and maintain a flexible capital structure . segment information consistent with how our chief operating decision maker reviews and assesses our financial performance , we have two reportable segments , glp capital and the trs properties . the glp capital reportable segment consists of the leased real property and represents the majority of our business . the trs properties reportable segment consists of hollywood casino perryville and hollywood casino baton rouge . executive summary when reviewing the company 's financial results it should be noted that financial results for the company 's 2014 fiscal year reflect a full year of operations for both operating segments , whereas financial results for the company 's 2013 fiscal year reflect a full year of operations for the businesses in the taxable reit subsidiaries and a partial year from november 1 , 2013 to december 31 , 2013 for the real estate entity . financial results for the company 's 2012 fiscal year reflect only the operations of the company 's taxable reit subsidiaries . story_separator_special_tag july 2014 , as the result of a ruling of the iowa racing and gaming commission ( `` irgc '' ) . penn challenged the denial of its gaming license renewal by the irgc but was ultimately ordered to cease operations by the iowa supreme court . the closure of the sioux city property resulted in reduced rental revenue of $ 2.6 million for the year ended december 31 , 2014 and will result in reduced rental revenue of $ 6.2 million on an annual go forward basis . the real property assets associated with the sioux city property were fully depreciated at the closure date and were subsequently sold to a third party . on december 9 , 2013 , glpi announced that it had entered into an agreement to acquire the real estate assets associated with the casino queen in east st. louis , illinois . the casino and adjacent land cover approximately 67 acres and include a 157 room hotel and a 38,000 square foot casino . the transaction closed in january 2014. see note 5 to the consolidated financial statements for further details . trs properties hollywood casino perryville continued to face additional competition , led by the august 26 , 2014 opening of the horseshoe casino baltimore , located in downtown baltimore . in addition maryland live ! , at the arundel mills mall in anne arundel , maryland , which opened on june 6 , 2012 , added table games on april 11 , 2013 , and a 52 table poker room in late august 2013. further , in early 2015 , horseshoe casino baltimore and maryland live ! received approval to add additional table games . both facilities have and will continue to negatively impact hollywood casino perryville 's results of operations . furthermore , in november 2012 , voters approved legislation authorizing a sixth casino in prince george 's county and the ability to add table games to maryland 's existing and planned casinos . the new law also changes the tax rate casino operators pay the state , varying from casino to casino , allows all casinos in maryland to be open 24 hours per day for the entire year , and permits casinos to directly purchase slot machines in exchange for gaming tax reductions . table games were opened at our perryville , maryland facility on march 5 , 2013. we expect hollywood casino perryville 's tax rate to decrease from 67 to 61 percent when the facility directly purchases its slot machines in april 2015. the option for an additional 5 percent tax reduction is possible in 2019 if an independent commission agrees . in december 2013 , the license for the sixth casino in prince george 's county was granted . the proposed $ 1.2 billion casino resort , which is expected to open in the second half of 2016 will adversely impact hollywood casino perryville 's financial results . in louisiana , a new riverboat casino and hotel opened on september 1 , 2012 in baton rouge . the opening of this riverboat casino has and will continue to have an adverse effect on the financial results of hollywood casino baton rouge . critical accounting estimates we make certain judgments and use certain estimates and assumptions when applying accounting principles in the preparation of our consolidated financial statements . the nature of the estimates and assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain factors or the susceptibility of such factors to change . we have identified the accounting for income taxes , real estate investments , and goodwill and other intangible assets as critical accounting estimates , as they are the most important to our financial statement presentation and require difficult , subjective and complex judgments . we believe the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate . however , if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse 37 effect on our consolidated results of operations and , in certain situations , could have a material adverse effect on our consolidated financial condition . the development and selection of the critical accounting estimates , and the related disclosures , have been reviewed with the audit committee of our board of directors .
| general and administrative expenses increased $ 37.6 million for the year ended december 31 , 2014 , primarily resulting from $ 56.9 million of general and administrative expenses for our glp capital segment for the year ended december 31 , 2014 , up from $ 19.7 million in the prior year as a result of a full year of operations in 2014. general and administrative expenses for our glp capital segment included compensation expense of $ 10.6 million , stock based compensation charges of $ 30.9 million , rent expense for those leases assigned to glpi as part of the spin-off of $ 2.8 million , and fees for outside services , including transition services and legal of $ 9.3 million for the year ended december 31 , 2014. stock-based compensation charges for our glp capital segment for the year ended december 31 , 2014 include approximately $ 2.4 million of expense related to the $ 0.40 one-time dividend discussed below . increased depreciation expense of $ 77.9 million for the year ended december 31 , 2014 , compared to the prior year , primarily due to a full year of depreciation expense on the real property assets transferred to glpi as part of the spin-off . we also recorded depreciation expense of approximately $ 2.9 million related to the assets acquired in the january 2014 casino queen transaction . increased interest expense of $ 97.8 million for the year ended december 31 , 2014 , compared to the prior year . the increase in interest expense related to our fixed and variable rate borrowings entered into in connection with the spin-off and additional variable rate borrowings during the year ended december 31 , 2014. net income increased by $ 165.6 million for the year ended december 31 , 2014 , as compared to the prior year , primarily due to the variances explained above . recent developments on december 19 , 2014 , the company made a one-time distribution of $ 0.40 per common share to ensure the company appropriately allocated its historical earnings and profits relative to the separation from penn , in response to the pre-filing agreement requested from the irs and to ensure the company distributed 100 % of its taxable income for the 2014 year . segment developments the following are recent developments that have had or will have an impact on us by segment : glp capital on may 14 , 2014 , the company announced that it entered into an agreement with ccr to acquire the meadows racetrack and casino located in washington , pennsylvania ,
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accordingly , the operations of taag were classified as discontinued operations and comparative information for prior periods has been restated to segregate the assets , liabilities , revenue , expenses , and cash flows related to taag as discontinued operations . further , the board of directors of the company authorized the disposal of story_separator_special_tag cautionary notice regarding forward-looking statements the following discussion and analysis of our financial condition and results of operations for the years ended june 30 , 2016 and 2015 should be read in conjunction with our consolidated financial statements and related notes to those financial statements that are included elsewhere in this report . our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under “ risk factors ” and elsewhere in this report . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions to identify forward-looking statements . all forward-looking statements included in this report are based on information available to us on the date hereof and , except as required by law , we assume no obligation to update any such forward-looking statements . overview research solutions was incorporated in the state of nevada on november 2 , 2006 , and in november 2006 entered into a share exchange agreement with reprints desk . at the closing of the transaction contemplated by the share exchange agreement , research solutions acquired all of the outstanding shares of reprints desk from its stockholders and issued 8,000,003 shares of common stock to the former stockholders of reprints desk . following completion of the exchange transaction , reprints desk became a wholly-owned subsidiary of research solutions . reprints desk provides article galaxy and reprint and eprint services . on july 24 , 2012 , we formed reprints desk latin america to provide operational and administrative support services to reprints desk . on march 4 , 2013 , we consummated a merger with dysc subsidiary corporation , our wholly-owned subsidiary , pursuant to which we , in connection with such merger , amended our articles of incorporation to change our name to research solutions , inc. ( formerly derycz scientific , inc. ) . on february 28 , 2007 , we entered into an agreement with pools press , inc. , an illinois corporation ( “ pools ” ) , pursuant to which we acquired 75 % of the issued and outstanding common stock of pools for consideration of $ 616,080. we purchased the remaining interest in pools that we did not already own on august 31 , 2010. the results of pools ' operations have been included in our consolidated financial statements since march 1 , 2007. on january 1 , 2012 , pools merged with and into reprints desk . pools provided printing services , specializing in reprints , until operations were discontinued in june 2013. on march 31 , 2011 , we entered into an agreement with fimmotaag , s.p.a. ( “ fimmotaag ” ) , a privately held company domiciled in france , pursuant to which we acquired 100 % of the issued and outstanding common stock of taag in exchange for 336,921 shares of our common stock in addition to future payments payable at the option of fimmotaag in cash or our common stock under the terms of the purchase agreement . on march 28 , 2013 , we entered into a settlement agreement with fimmotaag and its two principal owners ( the “ settlement agreement ” ) , pursuant to which fimmotaag agreed to return 336,921 shares of our common stock to us and to forego future payments payable to fimmotaag by us pursuant to the terms of the agreement under which we acquired taag from fimmotaag . on august 18 , 2014 , our board of directors authorized the immediate disposal of our former subsidiary taag at a reasonable price in relation to its current fair value , and in the event such sale was not consummated by september 10 , 2014 , that management proceed with an insolvency filing by taag under french law . on september 15 , 2014 , the french tribunal de commerce appointed an administrator for taag following a declaration of insolvency by our legal representative , and on october 6 , 2014 taag entered into a judicial liquidation procedure . as a result , effective september 15 , 2014 , we relinquished control of taag to the tribunal and taag ceased to be our subsidiary and was deconsolidated from our financial statements . in accordance with consolidation guidance we derecognized the assets , liabilities and other comprehensive income of taag with a resulting non-cash gain on deconsolidation of $ 1,711,748 recorded on the consolidated statements of operations for the year ended june 30 , 2015. in addition , comparative information for prior periods have been restated to segregate the assets , liabilities , revenue , expenses , and cash flows related to taag as discontinued operations . story_separator_special_tag we have determined based on discussions with french counsel that it is remote that we will be liable for the unsatisfied liabilities of taag as a result of the insolvency process in france , and as a result , we have eliminated any respective liability as of june 30 , 2015. we provide a cloud based software-as-a-service ( “ saas ” ) research intelligence platform that allows on-demand access to scientific , technical , and medical ( “ stm ” ) information for life science companies , academic institutions , and other research-intensive organizations . we provide three service offerings to our customers : article galaxy saas platforms , article galaxy transactions , and reprints and eprints . 16 article galaxy saas platforms article galaxy is our cloud-based saas solution ( “ article galaxy ” ) , which consists of proprietary software and internet-based interfaces that allow customers to initiate orders , manage transactions , obtain reporting , automate authentication , improve seamless connectivity to corporate intranets , and enhance the information resources they already own , or have access to via subscriptions or internal libraries , as well as organize workgroups to collaborate around scientific and technical information . as a cloud-based saas solution , article galaxy is deployed as a single system across our entire customer base . customers access article galaxy securely through online web interfaces and via web service apis , which enable customers to leverage article galaxy features and functionality from within proprietary and other 3rd party software systems . article galaxy can also be configured to satisfy a customer 's individual preferences in areas such as user experience , business processes , and spend management . as a saas solution , article galaxy benefits from efficiencies in scalability , stability and development costs , resulting in significant advantages versus multiple instance or installed desktop software alternatives . we leverage these technical efficiencies to fuel rapid innovation and competitive advantage . we are continually improving the functionality of the platform to further differentiate it from potential competition . article galaxy transactions article galaxy provides our customers with a single source to the universe of published stm content without the limitations of a fixed catalog , and includes over seventy million existing stm articles and over one million newly published stm articles each year . article galaxy allows customers to find and download in digital format stm articles that are critical to their research . in addition , article galaxy facilitates customers ' compliance with applicable copyright laws . researchers and regulatory personnel in life science and other research-intensive organizations generally require single copies of published stm journal articles for use in their research activities . they place orders with us for the articles they need and we source and electronically deliver the requested content to them generally in under an hour . this service is known in the industry as single article delivery or “ document delivery ” . we also obtain the necessary permissions from the content publisher so that our customer 's use complies with applicable copyright laws . we have arrangements with numerous content publishers that allow us to distribute their content . the majority of these publishers provide us with electronic access to their content , which allows us to electronically deliver single articles to our customers often in a matter of minutes . even though single article delivery services are charged on a transactional basis , customer order volume tends to be consistent from month to month in part due to consistent orders of larger customers that require the implementation of our services into their work flow , subject to fluctuations due to the addition or loss of customers . reprints and eprints marketing departments in life science and other research-intensive organizations generally require large quantities of printed copies of published stm journal articles called medical reprints or “ reprints ” that are distributed to physicians and at conferences . we obtain the necessary permissions from the content publisher so that our customer 's use complies with applicable copyright laws . the majority of content publishers print their content in-house and prohibit others from printing their content ; however , when not prohibited by the content publisher , we use third parties to print reprint orders . electronic copies , called “ eprints ” , are also used for distribution through the internet and other electronic mechanisms . we have developed proprietary eprint software that increases the efficiency of our customers ' content purchases by transitioning from paper reprints to electronic eprints , and by improving compliance with applicable copyright laws and promotional regulations within the life science industry . reprints and eprints are charged on a transactional basis and order volume typically fluctuates from month to month based on customer marketing budgets and the existence of stm journal articles that fit customer requirements . critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the united states , or gaap , requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . when making these estimates and assumptions , we consider our historical experience , our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances . actual results may differ under different estimates and assumptions . 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 .
| cost of revenue replace_table_token_7_th replace_table_token_8_th * the difference between current and prior period cost of revenue as a percentage of revenue total cost of revenue as a percentage of revenue increased 0.5 % , from 80.6 % for the previous year to 81.1 % , for the year ended june 30 , 2016 , due to the following : category impact as percentage of revenue key drivers article galaxy saas platforms i 2.3 % decreased due to the increased scalability of fixed cost . article galaxy transactions h 1.6 % increased primarily due to a reduction in average service fee revenue per transaction on new customer accounts . reprints and eprints h 0.6 % increased primarily due to increased content acquisition costs . gross profit replace_table_token_9_th 21 replace_table_token_10_th * the difference between current and prior period gross profit as a percentage of revenue operating expenses replace_table_token_11_th category impact key drivers selling , general and administrative h $ 548,305 increased due to sales and marketing , and administrative compensation and consulting fees . depreciation and amortization i $ 83,973 decreased primarily due to a decrease in the amortization of customer list . interest expense for the year ended june 30 , 2016 , interest expense was $ 17,382 , compared to $ 18,056 for the prior year , a decrease of $ 674. provision for income taxes during the years ended june 30 , 2016 and 2015 , we recorded a provision for income taxes of $ 28,162 and $ 30,892 , respectively , a decrease of $ 2,730. net income ( loss ) replace_table_token_12_th loss from continuing operations decreased $ 44,327 or 8.2 % , for the year ended june 30 , 2016 compared to the prior year , primarily due to increased gross profit , partially offset by increased operating expenses as described above . total net loss increased $ 1,272,077 or 164.3 % , for the year ended june 30 , 2016 compared to the prior year , primarily due to a one time net gain of $ 1,316,404 from the deconsolidation of our former french subsidiary during the year ended june 30 , 2015. liquidity and capital resources replace_table_token_13_th 22 liquidity since our inception , we have funded our operations primarily through private sales of equity securities and the exercise of warrants , which have provided aggregate net cash proceeds to date of approximately $ 15,972,000. as of june 30 , 2016 ,
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accordingly , the company has revised its provision for income taxes and has reversed $ 4.1 million of the original provision recorded previously . income tax expense decreased to approximately $ 9,000 for the year ended march 31 , 2015 from approximately $ 3.6 million for the year ended march 31 , 2014. as discussed above , the irs has revised its audit report of the company 's returns for the years 2008 through 2010 and has reduced its proposed adjustments from $ 12.3 million to $ 4.5 million of additional tax liabilities for the years 2008 through 2010. the company plans to continue to challenge most of the remaining proposed adjustments as set forth in the revised report and is in the process of appealing the proposed adjustments with the irs . the company had federal and california state tax liabilities in the aggregate amount of $ 5.4 million and $ 5.3 million including interest and penalty as of march 31 , 2015 and 2014 , respectively . loss from disposal of excalibur the company recorded a loss of approximately $ 2,623,000 in the year ended march 31 , 2015 due to the approximately $ 9.7 million loss arising from the write-off of the company 's total receivable from excalibur international marine corporation , “ excalibur ” , a company in which the company previously had a 48.81 % equity interest . the loss was offset by an approximately $ 7 million gain resulting from the deconsolidation of excalibur arising from the company 's loss of its shareholding rights in excalibur . excalibur was deconsolidated from the company 's consolidated accounts effective october 1 , 2014. capital resources and liquidity the following table reflects the company 's sources / uses of cash for the two years ended march 31 , 2015 and 2014. replace_table_token_2_th operating activities : during the year ended march 31 , 2015 , net cash used in operating activities was $ 1,527,356. this was primarily due to a net loss of $ 2,713,545 adjusted to exclude losses from the discontinued operations of excalibur . the net loss was further adjusted by non-cash related expenses that included depreciation expense of $ 186,948 , a provision for inventory obsolescence of $ 130,787 , cash used to purchase inventory of $ 184,351 and $ 581,000 for prepaid insurance . 16 during the year ended march 31 , 2014 , net cash used in operating activities was $ 4,213,411. this was primarily due to a net loss of $ 19,741,003 adjusted to exclude losses from the discontinued operations of excalibur . the net loss was further adjusted by non-cash related expenses that included depreciation of $ 271,489 , provision of inventory obsolescence of $ 888,320 , recorded impairment losses of approximately $ 8,966,000 , and a decrease in working capital related to recording of additional provision for income taxes for 2008 to 2010 of $ 4,375,949 , which was partially offset by gains realized from the sales of securities available for sale of $ 51,069. investing activities : net cash provided by investing activities for the year ended march 31 , 2015 was $ 2,560,447 primarily due to proceeds from the sale of corporate bonds of $ 5,862,107 and proceeds from the disposal of fixed assets of $ 19,952 , which were partially offset by the purchase of $ 3,321,612 of corporate bonds . net cash provided by investing activities for the year ended march 31 , 2014 was $ 5,015,698 , primarily due to proceeds from the sales of corporate bonds of $ 6,705,450 and proceeds from the disposal of fixed assets of $ 1,471,028 , which were partially offset by the purchase of $ 3,154,172 of corporate bonds and the acquisition of fixed assets of $ 6,608. financing activities : net cash used in financing activities for the years ended march 31 , 2015 and 2014 , was $ 541,205 and $ 575,700 , respectively , due to the repayment of a short-term loan for financing the company 's directors ' and officers ' liability insurance policy . for more information please see note 13 to the consolidated financial statements in this report . working capital : replace_table_token_3_th historically , cash and cash equivalents and securities available for sale have been the company 's primary sources of liquidity . the company believes its existing cash and cash equivalents will not be sufficient to meet its working capital requirements for the next 12-month period should the company fail to successfully appeal the proposed adjustments with the irs amounting to $ 3.6 million plus accrued interest and penalties . there is no assurance that the company will be able to obtain further funds required for its continued working capital requirements . the ability of the company to meet its financial obligations and commitments will depend primarily upon the continued financial support of its directors and shareholders , the continued issuance of equity to new shareholders , and its ability to achieve and maintain profitable operations . there is substantial doubt about the company 's ability to continue as a going concern as the continuation of the company 's business is dependent upon obtaining further long-term financing , successfully appealing the proposed adjustment of $ 3.6 million with the irs , collection of the company 's prepayment on development in progress of $ 20.7 million and achieving a profitable level of operations . the issuance of additional equity securities by the company could result in a significant dilution of the equity interests of its curr ent shareholders . obtaining commercial loans , assuming those loans would be available , will increase the company 's liabilities and future cash commitments . balance sheet items material changes in the company 's balance sheet items between march 31 , 2015 and march 31 , 2014 are discussed below : securities available for sale securities available for sale decreased to $ 2,132,397 for the year ended march 31 , 2015 compared to $ 4,662,020 for the year ended march 31 , 2014 , as the company sold certain securities to fund operations . story_separator_special_tag 17 inventories inventory decreased to $ 303,848 at march 31 , 2015 compared to $ 618,919 at march 31 , 2014 due to the sale of overstocked or products nearing expiration during the year to third parties , since the company only orders products on an “ as needed ” basis to avoid overstocking and lower inventory levels are adequate to meet the current demand . in addition , the company recorded a $ 130,787 mark-down allowance on inventory during the year ended march 31 , 2015. property and equipment property and equipment decreased to $ 894,129 for the year ended march 31 , 2015 compared to $ 1,098,308 for the year ended march 31 , 2014 , as a result of scheduled depreciation expense being recorded . prepayment on development in progress the company 's wholly-owned subsidiary , eft investment co. ltd , entered into two sets of agreements with the seller of the office building on may 31 , 2011 to secure what its former general manager represented to be an option to purchase an office building , located in taipei , taiwan . as of march 31 , 2014 , option payments of ntd600 million , equivalent to approximately $ 20.8 million , have been made to the sellers . as required by u.s. gaap , the company performed an impairment analysis related to the prepayment on the development in progress asset and recorded impairment of approximately $ 8,966,000 and $ 11,227,000 related to this asset based on the analysis for the years ended march 31 , 2014 and 2013 , respectively . see notes 8 and 18 to the consolidated financial statements included as part of this report for more information . accounts payable accounts payable slightly decreased to $ 1,073,795 at march 31 , 2015 compared to $ 1,189,494 at march 31 , 2014 , as a result of marketing expenses paid during the year . commission payable commission payable slightly decreased to $ 3,785,004 at march 31 , 2015 compared to $ 3,884,774 at march 31 , 2014 due to lower commissions earned by affiliates this year compared to last year . contingent liabilities contingent liabilities increased to $ 214,019 at march 31 , 2015 compared to $ 213,674 at march 31 , 2014 mainly due to the effect of exchange rate changes . other liabilities other liabilities increased to $ 5,874,187 at march 31 , 2015 compared to $ 5,729,073 at march 31 , 2014. the increase of $ 145,114 is due to the accrual of interest associated with the $ 4,527,000 tax liability accrued in the previous year . unearned revenue unearned revenue slightly decreased to $ 3,198,776 at march 31 , 2015 compared to $ 3,268,916 at march 31 , 2014. the recording of unearned revenue results from temporary delays associated with the recognition of revenue related to the sale of products or services to affiliates . non-controlling interest non-controlling interest changed from $ 6,742,016 at march 31 , 2014 to $ 49,522 at march 31 , 2015 due to the loss recorded by digital during the year ended march 31 , 2015 and the deconsolidation of excalibur . investment the company lent $ 5,000,000 to ctx virtual technologies inc. , “ ctx , ” in july 2010. the loan to ctx was unsecured , bore interest at 8 % per year and had a term of one year to july 26 , 2011. at any time during the one-year term , the company could , at its option , convert the loan into 8,474,576 units , with each unit consisting of one share of ctx 's common stock and one warrant , to be increased by 25 % to 10,593,220 units if ctx common stock was not listed on any of the american stock exchange , the otc bulletin board or nasdaq by february 28 , 2011. on march 12 , 2011 , ctx elected to convert the full amount of $ 5,000,000 into 10,593,220 units and paid the company in full for all accrued and unpaid interest that it owed to the company . 18 from may 2011 , the company 's taiwan subsidiary eft investment entered into agreements to secure an option to invest in a real estate project in taiwan . as of march 31 , 2014 , option payments of ntd600 million , or approximately us $ 20.8 million , have been made to the property developers . as required by u.s. gaap , the company performed an impairment analysis related to the prepayment on development in progress asset and recorded an impairment of approximately $ 8,966,000 related to this asset based on this analysis for the year ended march 31 , 2014. the company performed a similar analysis for the year ended march 31 , 2013 and recorded an impairment of approximately $ 11,227,000. the company also bought securities available for sale to earn interest , and has invested $ 2.1 million in such securities at march 31 , 2015. the unused cash and cash equivalents of $ 2.3 million at march 31 , 2015 will be used in the company 's daily operations . the company has no unused lines of credit or other borrowing facilities . commitments for capital expenditures except as otherwise disclosed herein , the company does not have any commitments for any material capital expenditures . the company does not have any commitments or arrangements from any person to provide it with any additional capital . except as disclosed in item 1a or this item 7 , the company does not know of any trends or demands that affected , or are reasonably likely to affect , its capital resources or liquidity . off-balance sheet arrangements the company does not have any off-balance sheet arrangements that have , or are reasonably likely to have , a current or future effect on its financial condition .
| despite the items that were sold at discounted prices , cost of goods sold as a percentage of gross sales for the year ended march 31 , 2015 was 20 % , higher than last year by 2 % , which is mainly due to vendor price increases during the year . shipping costs shipping costs consist of freight charges from the u.s. warehouse and or vendors to the company 's logistic facility in china . shipping costs decreased to approximately $ 42,000 for the year ended march 31 , 2015 from approximately $ 45,000 for the year ended march 31 , 2014 , mainly attributable to reduction in gross sales during the year . gross profit gross profit decreased to approximately $ 611,000 for the year ended march 31 , 2015 compared to $ 1,264,000 for the year ended march 31 , 2014. gross profit , as a percentage of total revenue , was 63 % during the year ended march 31 , 2015 compared with 68 % during the year ended march 31 , 2014. the decrease in gross profit was partly due to a reduction in gross sales and the sale of promotional products at cost during the current year . selling , general and administrative expenses selling , general and administrative expenses decreased to approximately $ 5,205,000 for the year ended march 31 , 2015 compared to approximately $ 6,621,000 for the year ended march 31 , 2014 , mainly due to lower legal fees , computer service fees , rental charges , wages and depreciation expense in the current year compared with last year . inventory obsolescence inventory obsolescence decreased to approximately $ 131,000 for the year ended march 31 , 2015 as compared to $ 888,000 for the year ended march 31 , 2014 , mainly due to significantly lower amounts of inventory either at or nearing obsolescence in the current year as compared to last year . royalty expenses royalty expenses for both years ended march 31 ,
| 12,900 |
none of our clients individually accounted for 10.0 % or more of our operating revenues for the year ended december 31 , 2018 . one of our clients , bank of america , accounted for 11.1 % of our operating revenues for the year ended december 31 , 2017 , and two of our clients , wells fargo and bank of america , accounted for 14.0 % and 11.5 % , respectively , of our operating revenues for the year ended december 31 , 2016 . although both of our business segments report revenue from these clients , on a relative basis , uws has higher customer concentrations . recent company developments business exits & transformation in december 2018 , we announced the intent to exit a loan origination software unit and its remaining legacy default management related platforms over the next 24 months , as well as accelerate our appraisal management company transformation program . we believe these actions will expand our overall profit margins and provide for enhanced long-term organic growth trends . we will assess and may incur cash and non-cash charges associated with these actions . acquisitions during 2018 , we completed the acquisitions of etech , a la mode , homevisit and symbility for total net cash of approximately $ 219.6 million , which were paid with available cash and additional borrowings on our revolving facility . see note 17 - acquisitions for further discussion . during 2018 , we borrowed $ 191.2 million under the revolving facility . we also paid down $ 157.5 million , of which $ 90.0 million were advance payments , under the term facility . see note 8 - long term debt of the notes to consolidated financial statements included in item 8 - financial statements and supplementary data of this annual report on form 10-k for further discussion . technology transformation in september 2018 , we announced the adoption of the gcp as a foundational element of our ongoing technology transformation program to further expand infrastructure capabilities and drive efficiencies . we expect to complete the initial deployment of gcp over the next 24 months . once implemented , corelogic plans to leverage the capabilities of the cloud platform to achieve best-in-class system performance and reliability and to facilitate the deployment of unique business insights fueled by gold-standard data , information and analytics . additionally , we expect to realize significant cost efficiencies and enhanced security . productivity & cost management in line with our on-going commitment to operational excellence and margin expansion , we achieved our cost reduction target of $ 15.0 million in 2018. savings were realized through the reduction of operating costs , selling , general and administrative costs , outsourcing certain business process functions , consolidation of facilities and other operational improvements . unless otherwise indicated , the management 's discussion and analysis of financial condition and results of operations in this annual report on form 10-k relate solely to the discussion of our continuing operations . 23 consolidated results of operations year ended december 31 , 2018 compared to year ended december 31 , 2017 operating revenues our consolidated operating revenues were $ 1.8 billion for the year ended december 31 , 2018 , a decrease of $ 62.7 million when compared to 2017 , and consisted of the following : replace_table_token_1_th our pirm segment revenues increased by $ 2.3 million , or 0.3 % , when compared to 2017 . acquisition activity contributed $ 21.8 million in 2018 . excluding acquisition activity , the decrease of $ 19.5 million was primarily due to lower property insights of $ 6.5 million from lower volumes , lower insurance & spatial solutions of $ 6.9 million from lower weather event-related revenues , the impact of unfavorable foreign exchange translation of $ 3.5 million within property insights and lower other revenues of $ 2.6 million . our uws segment revenues decreased by $ 63.6 million , or 5.5 % , when compared to 2017 . acquisition activity contributed $ 37.7 million in 2018 . excluding acquisition activity , the decrease of $ 101.3 million was primarily due to lower valuation solutions of $ 85.9 million , credit solutions of $ 9.6 million , flood data services of $ 4.2 million and other revenues of $ 1.6 million , mainly driven by lower mortgage market unit volumes and the impact of planned vendor diversification from key appraisal management clients . we also recorded the benefit of accelerated revenue recognition of approximately $ 23.7 million resulting from the amendment of a long-term contract in property tax solutions , which was entirely offset by lower mortgage market unit volumes . our corporate and eliminations revenues were comprised of intercompany revenue eliminations between our operating segments . cost of services ( exclusive of depreciation and amortization ) our consolidated cost of services was $ 921.4 million for the year ended december 31 , 2018 , a decrease of $ 53.4 million , or 5.5 % , when compared to 2017 . acquisition activity contributed $ 22.3 million of additional cost in 2018 . excluding acquisition activity , the decrease of $ 75.7 million was primarily due to lower operating revenues . selling , general and administrative expense our consolidated selling , general and administrative expenses were $ 444.6 million for the year ended december 31 , 2018 , a decrease of $ 15.2 million , or 3.3 % , when compared to 2017 . acquisition activity contributed an increase of $ 25.4 million in 2018 . excluding acquisition activity , the decrease of $ 40.6 million was primarily related to our ongoing operational efficiency programs , which reduced our personnel-related expenses by $ 36.0 million . in addition , we incurred lower legal settlement costs of $ 14.0 million and other expenses of $ 11.5 million . the decrease was partially offset by higher outsourced services of $ 20.9 million for initiatives and investments on data and technology capabilities . story_separator_special_tag depreciation and amortization our consolidated depreciation and amortization expense was $ 199.7 million for the year ended december 31 , 2018 , an increase of $ 21.9 million , or 12.3 % , when compared to 2017 , primarily due to acquisitions which contributed $ 12.5 million of additional expense . in addition , there was higher impairment charges on capitalized software of $ 7.7 million in the current year . 24 operating income our consolidated operating income was $ 222.6 million for the year ended december 31 , 2018 , a decrease of $ 16.0 million , or 6.7 % , when compared to 2017 , and consisted of the following : replace_table_token_2_th our pirm segment operating income decreased by $ 2.3 million , or 2.6 % , when compared to 2017 . acquisition activity lowered operating income by $ 6.7 million in 2018 primarily due to investments on data and technology capabilities , and the amortization of acquisition-related intangible assets . excluding acquisition activity , operating income increased by $ 4.4 million and operating margins increased 101 basis points primarily due to lower legal settlement costs of $ 14.0 million , partially offset by lower operating revenues . our uws segment operating income increased by $ 5.9 million , or 2.5 % , when compared to 2017 . excluding acquisition-related activity of $ 6.1 million , operating income decreased $ 0.2 million primarily due to lower mortgage market unit volumes , unfavorable product mix and higher impairment charges on capitalized software of $ 7.7 million . the decrease was partially offset by the benefit of accelerated revenue recognition resulting from the amendment of a long-term contract in our property tax solutions operations . operating margins increased 197 basis points compared to 2017. corporate and eliminations had an unfavorable variance of $ 19.5 million , or 23.3 % , primarily due to higher investments on data and technology capabilities . total interest expense , net our consolidated total interest expense , net was $ 74.0 million for the year ended december 31 , 2018 , an increase of $ 12.2 million , or 19.7 % , when compared to 2017 . the increase was primarily due to a higher average outstanding principal balance and higher interest rates . loss on early extinguishment of debt our consolidated loss on early extinguishment of debt decreased $ 1.8 million when compared to 2017 . for the year ended december 31 , 2017 , we wrote-off unamortized debt issuance costs of $ 1.8 million due to financing activities in august 2017. impairment loss on investment in affiliates our consolidated impairment loss on investment in affiliates was $ 3.8 million for the year ended december 31 , 2017 , representing other-than-temporary losses in value in investments , due to our expected inability to recover the carrying amount of the investments . gain/ ( loss ) on investments and other , net our consolidated gain on investments and other , net was $ 18.0 million for the year ended december 31 , 2018 , a favorable variance of $ 20.3 million when compared to 2017 . the variance is primarily due to higher gains of $ 15.3 million largely due to the current year purchase of the remaining interest of an equity-method investment , a current year gain of $ 3.3 million from a long-term investment , and a gain of $ 1.7 million from the sale of a non-core business . provision for income taxes our consolidated provision for income taxes from continuing operations was $ 45.7 million and $ 18.2 million for the years ended december 31 , 2018 and 2017 , respectively . our effective income tax rate was 27.4 % and 10.8 % for the years ended december 31 , 2018 and 2017 , respectively . the increase in the effective income tax rate was primarily due to the 25 enactment of the tax cuts and jobs act ( `` tcja '' ) , which resulted in the one-time charge for the transition tax in 2018 of $ 12.5 million and the 2017 provisional benefit of $ 38.0 million for remeasuring our deferred taxes . the increase was partially offset by the lower income tax rate in effect under tcja . loss from discontinued operations , net of tax our consolidated loss from discontinued operations , net of tax was $ 0.6 million for the year ended december 31 , 2018 , an unfavorable variance of $ 2.9 million , when compared to 2017 , due primarily to a legal settlement gain in the prior year . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; text-decoration : underline ; '' > impairment loss on investment in affiliates 27 our consolidated impairment loss on investment in affiliates was $ 3.8 million for the year ended december 31 , 2017 , a decrease of $ 19.6 million , or 83.7 % . such write-downs are due to other-than-temporary losses in value in investments , reflecting our expected inability to recover the carrying amount of the investments . loss on investments and other , net our consolidated loss on investments and other , net was $ 2.3 million for the year ended december 31 , 2017 , an unfavorable variance of $ 22.1 million when compared to 2016 . the variance is primarily due to the prior year gain of $ 8.0 million on the fair value adjustment of the contingent consideration related to the acquisition of fnc , inc. ( `` fnc '' ) in april 2016 , prior year gain of $ 11.4 million from the sale of investments , prior year losses of $ 2.0 million related to supplemental benefit plans , 2017 losses of $ 5.1 million from the final settlement of a previously terminated pension plan , as well as net losses of $ 1.9 million in connection with the purchase of mercury network llc ( `` mercury '' ) , partially offset by higher realized gains on investments of $ 2.3 million .
| excluding acquisition activity , the decrease of $ 87.7 million was primarily due to lower revenues and our on-going operational efficiency programs . selling , general and administrative expense our consolidated selling , general and administrative expenses was $ 459.8 million for the year ended december 31 , 2017 , an increase of $ 1.7 million , or 0.4 % , when compared to 2016 . acquisition activity contributed an increase of $ 7.2 million in 2017 . excluding acquisition activity , the decrease of $ 5.5 million was primarily due to lower personnel-related expenses of $ 59.8 million largely from lower variable compensation and the favorable impact of our ongoing operational efficiency programs . these programs also lowered real estate facility costs by $ 2.3 million , travel and communication costs by $ 2.4 million and other costs by $ 9.4 million , partially offset by higher legal settlement costs of $ 14.0 million , higher external 26 services costs of $ 32.4 million ( including investments in technology , innovation and compliance-related capabilities ) and higher professional fees of $ 22.0 million . depreciation and amortization our consolidated depreciation and amortization expense was $ 177.8 million for the year ended december 31 , 2017 , an increase of $ 5.2 million , or 3.0 % , when compared to 2016 . acquisition activity contributed $ 10.4 million in 2017 . excluding acquisition activity , the decrease of $ 5.2 million was primarily due to assets that were fully depreciated in the prior year , primarily in the uws segment . operating income our consolidated operating income was $ 238.6 million for the year ended december 31 , 2017 , a decrease of $ 39.3 million , or 14.1 % , when compared to 2016 , and consisted of the following : replace_table_token_4_th our pirm segment operating income decreased by $ 12.6 million , or 12.4 % , when compared to 2016 . acquisition-related activity contributed $ 3.2 million to operating income
| 12,901 |
preferred series b will have liquidation rites , an amount equal to $ 1.00 per share , plus any declared but unpaid dividends for each share held . each share will have 10 votes . each share of series b preferred stock shall be convertible into common shares , at any time , and or from time to time , into the number of shares of the corporation 's common stock , par value $ 0.00001 per share , equal to the price of the series b preferred stock , divided by the par value of the common stock , subject to adjustment as may be determined by the board of directors from time to time ( the “ conversion rate ” ) . the september 17 , 2014 amended to the company 's articles of incorporation modified the terms of the preferred series a conversion exchange to common stock . because of this modification , the company did not have sufficient common shares to settle both the preferred series a and preferred series b share conversions . consequently , the requirement for extinguishment accounting was triggered . under the terms of extinguishment accounting , the company is required to determine a fair value the preferred series a. sec guidelines request that the company use fair value as determined by an arm 's length transaction with an unrelated third party and that there are no unstated rights or privileges . the preferred series a was deemed to have a fair value of $ 13,741,679 based upon the converted valuation approach as the primary driver of value in the instrument , its common stock equivalency . the preferred series a were to be classified as mezzanine equity . on july 28 , 2016 , the company eliminated the rights of the preferred series a to convert into common stock . consequently , the requirement for extinguishment accounting has been removed . as a result of the july 28 , 2016 amendment , the company now has sufficient shares to settle preferred series a and preferred series b and accordingly has reclassed the share to permanent equity from mezzanine equity . at december 31 , 2016 and december 31 , 2015 there was 1 share of series a convertible preferred stock issued and outstanding . at december 31 , 2016 and december 31 , 2015 there were 116 and 76,105 shares of series b convertible preferred stock issued and outstanding , respectively . options and warrants there are no warrants or options outstanding to acquire any additional shares of common stock of the company . note 7. related party transactions notes payable in support of the company 's efforts and cash requirements , it has relied on advances from related parties until such time that the company can support its operations or attains adequate financing through sales of its equity or traditional debt financing . there is no formal written commitment for continued support by these related parties . amounts represent advances or amounts paid in satisfaction of liabilities of the company . the advances are considered temporary in nature and have not been formalized by a promissory note . f-15 north america frac sand , inc. notes to audited consolidated financial statements as of december 31 , 2016 , david alexander had advanced to the company $ nil ( $ 67,582 -2015 ) with no stated interest rate , payment terms and is due on demand . on may 18 , 2011 david cupp loaned the company $ 100 with no stated interest rate , payment terms and is due on demand . additionally , payments were made on behalf of the company in satisfaction of liabilities , totaling $ 27,541 . the total amount due to mr. cupp , $ 27,641 , was forgiven in 2015 and recognized as a contribution to capital . no amount was due to mr. cupp as of december 31 , 2016 or 2015. as of the year ending december 31 , 2016 , mr. david alexander accrued and unpaid consulting fees of $ 14,000 ( $ 9,000 – 2015 ) . amounts due to related parties at december 31 , 2016 and december 31 , 2015 totaled $ 90,582 and $ 12,590 , respectively . other the officers and directors of the company are involved in other business activities and may , in the future , become involved in other business opportunities that become available . they may face a conflict in selecting between the company and other business interests . the company has not formulated a policy for the resolution of such conflicts . the company does not own or lease property or lease office space . the company has been provided office space by a member of the board of directors at no cost . the above amounts are not necessarily indicative of the amounts that would have been incurred had comparable transactions been entered into with independent parties . note 8. commitments and contingencies from time to time the company may be a party to litigation matters involving claims against the company . management believes that there are no current matters that would have a material effect on the company 's financial position or results of operations . note 9. subsequent events on march 30 , 2017 , the company received a letter from the lawyers representing canadian sandtech inc. disputing the legality of the acquisition of north america frac sand ( ca ) ltd. from them by the company . the company has retained lawyers and is disputing this allegation with the full extent of the law . it is our lawyers and the company 's opinion that this letter is without merit . f-16 story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including story_separator_special_tag preferred series b will have liquidation rites , an amount equal to $ 1.00 per share , plus any declared but unpaid dividends for each share held . each share will have 10 votes . each share of series b preferred stock shall be convertible into common shares , at any time , and or from time to time , into the number of shares of the corporation 's common stock , par value $ 0.00001 per share , equal to the price of the series b preferred stock , divided by the par value of the common stock , subject to adjustment as may be determined by the board of directors from time to time ( the “ conversion rate ” ) . the september 17 , 2014 amended to the company 's articles of incorporation modified the terms of the preferred series a conversion exchange to common stock . because of this modification , the company did not have sufficient common shares to settle both the preferred series a and preferred series b share conversions . consequently , the requirement for extinguishment accounting was triggered . under the terms of extinguishment accounting , the company is required to determine a fair value the preferred series a. sec guidelines request that the company use fair value as determined by an arm 's length transaction with an unrelated third party and that there are no unstated rights or privileges . the preferred series a was deemed to have a fair value of $ 13,741,679 based upon the converted valuation approach as the primary driver of value in the instrument , its common stock equivalency . the preferred series a were to be classified as mezzanine equity . on july 28 , 2016 , the company eliminated the rights of the preferred series a to convert into common stock . consequently , the requirement for extinguishment accounting has been removed . as a result of the july 28 , 2016 amendment , the company now has sufficient shares to settle preferred series a and preferred series b and accordingly has reclassed the share to permanent equity from mezzanine equity . at december 31 , 2016 and december 31 , 2015 there was 1 share of series a convertible preferred stock issued and outstanding . at december 31 , 2016 and december 31 , 2015 there were 116 and 76,105 shares of series b convertible preferred stock issued and outstanding , respectively . options and warrants there are no warrants or options outstanding to acquire any additional shares of common stock of the company . note 7. related party transactions notes payable in support of the company 's efforts and cash requirements , it has relied on advances from related parties until such time that the company can support its operations or attains adequate financing through sales of its equity or traditional debt financing . there is no formal written commitment for continued support by these related parties . amounts represent advances or amounts paid in satisfaction of liabilities of the company . the advances are considered temporary in nature and have not been formalized by a promissory note . f-15 north america frac sand , inc. notes to audited consolidated financial statements as of december 31 , 2016 , david alexander had advanced to the company $ nil ( $ 67,582 -2015 ) with no stated interest rate , payment terms and is due on demand . on may 18 , 2011 david cupp loaned the company $ 100 with no stated interest rate , payment terms and is due on demand . additionally , payments were made on behalf of the company in satisfaction of liabilities , totaling $ 27,541 . the total amount due to mr. cupp , $ 27,641 , was forgiven in 2015 and recognized as a contribution to capital . no amount was due to mr. cupp as of december 31 , 2016 or 2015. as of the year ending december 31 , 2016 , mr. david alexander accrued and unpaid consulting fees of $ 14,000 ( $ 9,000 – 2015 ) . amounts due to related parties at december 31 , 2016 and december 31 , 2015 totaled $ 90,582 and $ 12,590 , respectively . other the officers and directors of the company are involved in other business activities and may , in the future , become involved in other business opportunities that become available . they may face a conflict in selecting between the company and other business interests . the company has not formulated a policy for the resolution of such conflicts . the company does not own or lease property or lease office space . the company has been provided office space by a member of the board of directors at no cost . the above amounts are not necessarily indicative of the amounts that would have been incurred had comparable transactions been entered into with independent parties . note 8. commitments and contingencies from time to time the company may be a party to litigation matters involving claims against the company . management believes that there are no current matters that would have a material effect on the company 's financial position or results of operations . note 9. subsequent events on march 30 , 2017 , the company received a letter from the lawyers representing canadian sandtech inc. disputing the legality of the acquisition of north america frac sand ( ca ) ltd. from them by the company . the company has retained lawyers and is disputing this allegation with the full extent of the law . it is our lawyers and the company 's opinion that this letter is without merit . f-16 story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including
| on september 9 , 2014 , the company changed its name from innovate building systems inc. to xterra building systems inc. on july 10 , 2015 , the company entered into a share purchase agreement to acquire the issued and outstanding shares of north america frac sand ( ca ) ltd. ( “ nafs-ca ” ) . where the company would issue 37,800,000 shares of common stock in the company in exchange for the issued and outstanding shares of nafs-ca . in accordance with the agreement , the company changed its name from xterra building systems , inc. to north america frac sand , inc. the final release of the shares held in escrow is subject to the completion the audit of nafs-ca and the requisite filings . critical accounting policies we prepare our financial statements in conformity with gaap , which requires management to make certain estimates and assumptions and apply judgments . we base our estimates and judgments on historical experience , current trends and other factors that management believes to be important at the time the financial statements are prepared and actual results could differ from our estimates and such differences could be material . we have identified below the critical accounting policies which are assumptions made by management about matters that are highly uncertain and that are of critical importance in the presentation of our financial position , results of operations and cash flows . on a regular basis , we review our accounting policies and how they are applied and disclosed in our financial statements . 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . 12 results of operations for the year ended december 31 , 2016 and december 31 , 2015 2016 expenses are $ 239,238 higher than 2015 due to the increase of business activities . financial condition total assets . total assets at december 31 , 2016 and 2015 were $ nil and $
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for example , since january 1 , 2015 , a variety of prospective and existing customers , seeking new or expanded relationships with suppliers that have available manufacturing capacity , have toured our operating plants in kentucky , north carolina and mexico as part of their due diligence efforts in connection with a number of potential projects in the commercial vehicle , agricultural equipment and off-highway vehicle component markets . these markets are generally experiencing strong current demand and limited available manufacturing capacity . as a result , the company is aggressively targeting these new opportunities to utilize our excess capacity for future growth . however , there can be no assurance that our plans to mitigate the loss and to effectively manage our costs during the transition will be successful . see “ risk factors – customer contracts may not be renewed on acceptable terms or at all . our largest customer dana has repudiated our supply relationship. ” in part i , item 1a of this annual report on form 10-k. see also note 2 “ loss of a key customer and management 's recovery plans ” to the consolidated financial statements in this form 10-k. electronics group outlook we continue to face challenges within the electronics group , such as the conclusion of several u.s. department of defense programs that the company supported as a subcontractor , the loss of a key commercial space customer who decided to begin insourcing programs that had been previously outsourced to the electronics group , the uncertainty in the worldwide macroeconomic climate and its impact on aerospace and defense spending patterns globally , the emergence of new competitors to our product and service offerings , as well as federal government spending uncertainties in the u.s. and the allocation of funds by the u.s. department of defense . the electronics group 's revenue has declined year-over-year since 2009 primarily due to our inability to replace the declining demand for certain legacy products and services with competitive new offerings . while we have begun to generate revenue from the ramp-up of new electronic manufacturing services and other technical service programs , the process of fully replacing our legacy programs will continue through 2015 and 2016. the company is continuing to develop new products and pursuing new programs to attempt to replenish its revenue stream within the electronics group . the u.s. government 's continued focus on addressing federal budget deficits and the growing national debt exacerbates this challenging environment for the electronics group . it is likely that u.s. government discretionary spending levels for fiscal year 2016 and beyond will continue to be subject to significant pressure , including risk of future sequestration cuts . significant uncertainty also continues with respect to program-level appropriations for the u.s. department of defense ( u.s. dod ) and other government agencies within the overall budgetary framework described above . future budget cuts , including cuts mandated by sequestration , or future procurement decisions associated with the authorization and appropriations process could result in reductions , cancellations and or delays of existing contracts or programs . congress and the administration continue to debate these long and short-term funding issues , but reductions in u.s. dod spending could materially and adversely affect the results of our electronics group , and we expect that certain military and defense programs will experience delays while the receipt of government approvals remain pending . as a result , the company expects ongoing uncertainty within this segment for at least the next twelve months . for the longer term , we are continuing to evaluate new investments in products and programs to further improve the attractiveness of our business portfolio , with a specific emphasis on trusted solutions for identity management , cryptographic key distribution and cyber analytics . there can be no assurance that the company 's investment in and efforts to introduce new products and services will result in new business or revenue . in addition , while the company continues to evaluate and implement cost reduction measures in this segment , the company 's currently contemplated cost reduction measures may not be able to reduce its cost structure to offset the impact of lower revenues . should revenues fail to increase in future periods , the company is considering further cost reductions or other downsizing measures , which could be costly and adversely impact our financial performance . critical accounting policies and estimates the preparation of the consolidated financial statements and accompanying notes in conformity with u.s. generally accepted accounting principles requires that we make estimates and assumptions that affect the amounts reported . changes in facts and circumstances could have a significant impact on the resulting estimated amounts included in our consolidated financial statements . we believe the following critical accounting policies affect our more complex judgments and estimates . we also have other policies that we consider to be key accounting policies , such as our policies for revenue recognition in the industrial group , including cost of sales ; however , these policies do not meet the definition of critical accounting policies because they do not generally require us to make estimates or judgments that are difficult or subjective . 22 allowance for doubtful accounts . we establish reserves for uncollectible accounts receivable based on overall receivable aging levels , a specific evaluation of accounts for customers with known financial difficulties and evaluation of customer chargebacks , if any . these reserves and corresponding write-offs could significantly increase if our customers experience deteriorating financial results or in the event we receive a significant chargeback , which is deemed uncollectible . goodwill . goodwill is tested for impairment annually as of december 31 or more frequently if impairment indicators arise . if impairment indicators arise , a step one assessment is performed to identify any possible goodwill impairment in the period in which the indicator is identified . story_separator_special_tag beginning in march 2013 , we noted certain indicators relating to our electronics group reporting unit that were significant enough to conclude that an impairment indicator existed as of march 31 , 2013. specifically , the company experienced emerging uncertainty regarding certain key programs within the electronics group 's space business beginning in the latter part of the first quarter of 2013 , as one key customer communicated its strategic sourcing decision to begin insourcing programs that had been previously outsourced to the electronics group . as a result , the electronics group 's short term revenue forecasts were materially affected . further , the company experienced a decline in the market value of its equity subsequent to march 31 , 2013. as a result of the analysis , the electronics group 's goodwill was deemed to be impaired as of march 31 , 2013 , resulting in a non-cash impairment charge of $ 6.9 million , representing the segment 's entire goodwill balance . net revenue and cost of sales . net revenue of products and services under commercial terms and conditions are recorded upon delivery and passage of title , or when services are rendered . related shipping and handling costs , if any , are included in costs of sales . net revenue on fixed-price contracts is recognized as services are performed . revenue is deferred until all of the following have occurred : ( 1 ) there is a contract in place , ( 2 ) delivery has occurred , ( 3 ) the price is fixed or determinable , and ( 4 ) collectability is reasonably assured . contract profits are taken into earnings based on actual cost of sales for units shipped . amounts representing contract change orders or claims are included in revenue when such costs are invoiced to the customer . the company periodically enters into research and development contracts with customers related primarily to key encryption products . when the contracts provide for milestone or other interim payments , the company will recognize revenue under the milestone method in accordance with accounting standards codification ( “ asc ” ) 605-28 , revenue recognition – milestone method . the company had one contract in process as of december 31 , 2014 being accounted for under the milestone method . the milestone method requires the company to deem all milestone payments within each contract as either substantive or non-substantive . that conclusion is determined based upon a thorough review of each contract and the deliverables to which the company has committed to in each contract . for substantive milestones , the company concludes that upon achievement of each milestone , the amount of the corresponding defined payment is commensurate with the effort required to achieve such milestone or the value of the delivered item . the payment associated with each milestone relates solely to past performance and is deemed reasonable upon consideration of the deliverables and the payment terms within the contract . milestones may include , for example , the successful completion of design review or technical review , the submission and acceptance of technical drawings , delivery of hardware , software or regulatory agency certifications . all milestones under the contract in process as of december 31 , 2014 were deemed substantive . revenue recognized through the achievement of multiple milestones during 2014 and 2013 amounted to $ 3.1 million and $ 0.7 million , respectively . there are no performance , cancellation , termination or refund provisions in the arrangement that contain material financial consequences to the company . long-lived asset impairment . we perform periodic impairment analysis on our long-lived amortizable assets whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable . when indicators are present , we compare the estimated future undiscounted net cash flows of the operations to which the assets relate to their carrying amount . if the operations are unable to recover the carrying amount of their assets , the long-lived assets are written down to their estimated fair value . fair value is determined based on discounted cash flows , third party appraisals or other methods that provide appropriate estimates of value . a considerable amount of management judgment and assumptions are required in performing the impairment test , principally in determining whether an adverse event or circumstance has triggered the need for an impairment review . 23 the industrial group performed an asset recoverability test for one of its asset groups totaling approximately $ 33.1 million as of december 31 , 2014. the company concluded that the undiscounted sum of estimated future cash flows exceeded the carrying value for such asset group , and accordingly , no impairment was recognized . while we believe our judgments and assumptions were reasonable , changes in assumptions underlying these estimates could result in a material impact to our consolidated financial statements in any given period . pension plan funded status . the calculation of pension assets and liabilities involve complex estimation processes dependent on assumptions developed by us in consultation with our outside advisors , including actuaries . the assumptions used , including discount rates and return on plan assets , have a significant impact on plan expenses and obligations . changes in these rates could significantly impact the actuarially determined amounts recorded in the consolidated balance sheets . if actual experience differs from expectations , our financial position and results of operations in future periods could be affected . a change in the assumed pension discount rate of 100 basis points would result in a change in our pension obligation as of december 31 , 2014 of $ 4.8 million . a change in the assumed rate of return on plan assets of 100 basis points would result in a $ 0.1 million change in the estimated 2015 pension expense . discount rates are based upon the construction of a theoretical bond portfolio , adjusted according to the timing of expected cash flows for the future obligations .
| net revenue in the industrial group increased $ 46.1 million from the prior year to $ 322.3 million in 2014. increased volumes accounted for $ 44.5 million of the increase in revenue for the year ended december 31 , 2014 , while pricing accounted for $ 1.7 million . the increases in volumes are primarily attributable to the overall improvement in the class 5-8 north american commercial vehicle market and increased demand for components for the trailer and light truck markets . the electronics group derives its revenue from product sales and technical outsourced services . net revenue in the electronics group decreased $ 2.1 million to $ 32.5 million in 2014 , primarily due to a decrease in sales of certain encryption products and data systems products . the electronics group is currently developing new products and pursuing new programs in an attempt to replenish its revenue stream ; however , commercializing the new products and programs is costly and has been slower than anticipated . additionally , the electronics group 's outlook continues to be negatively affected by budgetary and funding uncertainty within the u.s. department of defense and other factors . for information about the budgetary and funding uncertainty , see “ risk factors – congressional budgetary constraints or reallocations could reduce our government sales ” in part i , item 1a of this annual report on form 10-k. gross profit . the industrial group 's gross profit increased $ 10.4 million to $ 42.0 million in 2014 as compared to $ 31.6 million in the prior year . the net increase in sales volumes and pricing resulted in increased gross profit of approximately $ 8.8 million and $ 1.6 million , respectively for the year ended december 31 , 2014 and depreciation expense declined $ 1.8 million . partially offsetting this was approximately $ 1.8 million of additional costs for increased maintenance and repair on manufacturing equipment , overtime charges and other labor inefficiencies and increased supplies , scrap and other expenses . the electronics group 's gross profit decreased $ 1.6 million to a loss of $ 3.2 million in 2014. the decrease is primarily the result of lower revenues and an unfavorable mix in sales of lower margin products and services . although
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to further this key strategy , we seek opportunities to deepen our existing customer relationships and to establish our brand in areas of the community where we are not yet well recognized . our board of directors has also recently adopted a strategic plan to increase our net interest income by growing our loan portfolio through a combination of our origination efforts and through the acquisition of loan pools from other sources . to meet our internal growth assumptions we have developed a referral sources to help us meet our multi-family real estate production goals . the strategic plan also includes a reduction in non-interest expense primarily compensation expense through salary adjustments for senior officers and changes in staffing through realignment of positions and the elimination of a vacant opening . while we believe that the additional capital raised in the conversion will allow us to refocus our lending efforts and grow our loan portfolio , it may take a significant amount of time for us to accomplish our goals . the board of directors recognizes that continuing to decrease asset size in order to maintain capital levels is not a viable business strategy and that the bank needs to increase asset size through the increase in the loan portfolio in order to reach and sustain profitability . based on the above , we do not anticipate net income until we experience significant growth in our earning assets base pursuant to our business plan . assuming the successful execution of our business plan , we expect that we will return to profitability for the year ending december 31 , 2018. there can be no assurances , however , that we will successfully execute on our business plan and be able to return to profitability in the timeframe we expect or at all . critical accounting policies we consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have , or could have , a material impact on the carrying value of certain assets or on income , to be critical accounting policies . we qualify as an emerging growth company under the jumpstart our business startups act of 2012. as an emerging growth company , we can choose to delay adopting new or revised accounting standards until such time as those standards apply to private companies . we have elected to use the extended transition period to delay adoption of new or revised accounting standards applicable to public companies until such standards are made applicable to private companies . accordingly , our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards . we consider the following to be our critical accounting policies : allowance for loan losses . our allowance for loan losses is the estimated amount considered necessary to absorb probable incurred credit losses in the loan portfolio at the balance sheet date . the allowance is established through the provision for loan losses which is charged against income . in determining the allowance for loan losses , management makes significant estimates and has identified this policy as one of the most critical for ben franklin bank . the methodology for determining the allowance for loan losses is considered a critical accounting policy by management due to the high degree of judgment involved , the subjectivity of the current factors assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses . as a substantial amount of our loan portfolio is collateralized by real estate , appraisals of the underlying value of property securing loans and discounted cash flow valuations of properties are critical in determining the amount of the allowance required for specific loans . assumptions for appraisals and discounted cash flow valuations are instrumental in determining the collateral value of properties . overly optimistic assumptions or negative changes to assumptions could significantly impact the valuation of a property securing a loan . the assumptions supporting such appraisals and discounted cash flow valuations are reviewed by management to determine that the resulting values reasonably reflect amounts realizable on the related loans . 51 management performs a quarterly evaluation of the allowance for loan losses . the allowance of loan losses has two components : specific and general . the specific component relates to loans that are individually classified as impaired . the allowance related to impaired loans is measured by determining the present value of expected future cash flows or , for collateral-dependent loans , the fair value of the collateral adjusted for market conditions and estimated selling expenses . the general portion of the allowance is determined by historical loss experience and consideration of a variety of current factors including , but not limited to ; levels of and trends in delinquencies and impaired loans ; levels of and trends in charge-offs and recoveries ; trends in volume and terms of loans ; effects of any changes in risk selection and underwriting standards ; other changes in lending policies , procedures , and practices ; experience , ability , and depth of lending management and other relevant staff ; national and local economic trends and conditions ; industry conditions ; and effects of changes in credit concentrations . this evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision based on new information as it becomes known . actual loan losses may be significantly more than the allowance for loan losses we have established which could have a material negative effect on our financial results . deferred income taxes . we use the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis measured using enacted tax rates . story_separator_special_tag if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance is established . these judgments and estimates are reviewed on a continual basis as regulatory and business factors change . we have established a full valuation allowance for our deferred tax assets . our assessment of our ability to realize the deferred tax asset was primarily based on our net losses during recent years . comparison of financial condition at december 31 , 2015 and december 31 , 2014 assets . total assets at december 31 , 2015 were $ 84.1 million compared to $ 89.5 million at december 31 , 2014 , a decrease of $ 5.4 million or 6.0 % . this decrease was primarily due to the $ 9.7 million decrease in our cash and cash equivalents , the $ 2.9 million decrease in our loan portfolio , and the $ 1.2 million decrease in our other assets , partially offset by the $ 4.6 million increase in our certificates of deposit in other financial institutions and the $ 3.8 million increase in the balance of our securities available for sale . during the year ended december 31 , 2015 , our home equity line of credit loan portfolio decreased $ 2.8 million , our multi-family loan portfolio decreased $ 2.2 million , our one- to- four family residential portfolio decreased $ 1.1 million , and our automobile loan portfolio decreased $ 603,000. these decreases were partially offset by the $ 3.6 million increase in our commercial real estate loan portfolio and the $ 286,000 increase in our commercial business loan portfolio . the decreases were primarily due to the repayments from existing loans exceeding the $ 10.6 million of new loans originated and purchased and $ 1.5 million of new equity line-of-credit commitments during 2015. at december 31 , 2015 our allowance for loan losses was $ 991,000 or 1.69 % of total loans compared to $ 1.2 million or 1.96 % of total loans at december 31 , 2014. our allowance reflected $ 313,000 of loans charged-off for the year ended december 31 , 2015 partially offset by $ 138,000 of recoveries primarily due to the discounted payoff settlement of a non-performing loan , resulting in a recovery of $ 117,000 , and a credit for loan losses of $ 40,000. our loans classified as substandard or doubtful increased to $ 1.4 million or 2.5 % of total loans at december 31 , 2015 compared to $ 1.3 million or 2.1 % of total loans at december 31 , 2014. our loans classified as troubled debt restructurings ( tdrs ) totaled $ 2.0 million at december 31 , 2015 of which $ 1.9 million were accruing compared to $ 3.7 million of tdrs at december 31 , 2014 of which $ 3.2 million were accruing . our allowance for loan losses reflects the improving credit quality of our loan portfolio , the decreasing historical losses , and the continued recoveries of prior charge-offs . our securities portfolio increased $ 3.8 million or 58.0 % to $ 10.5 million at december 31 , 2015 primarily due to the purchase of $ 13.0 million of callable government sponsored entities notes to increase interest income earned on our excess liquidity until loan origination volume begins to increase . these increases were primarily offset by the call of $ 9.0 million government sponsored entity note and repayments on mortgage-backed securities . our cash and cash equivalents decreased $ 9.7 million to $ 8.3 million at december 31 , 2015 primarily due to the purchase of securities and $ 4.6 million of certificates of deposit in other financial institutions . 52 our repossessed assets decreased $ 28,000 for the twelve months ended december 31 , 2015 primarily due the sale of three automobiles with a recorded value of $ 24,000 , a $ 14,000 partial write-down of land , and the sale of two repossessed residential properties with a recorded value of $ 340,000 , partially offset by the transfer of two residential loans totaling $ 340,000 and two automobile loans totaling $ 11,000 into repossessed assets . the sales of repossessed assets resulted in a net gain of $ 175,000 for the twelve months ended december 31 , 2015. our other assets decreased $ 1.2 million during the year ended december 31 , 2015 primarily due to $ 812,000 of costs incurred for the company 's stock offering in 2014. these costs were netted against the gross proceeds of the stock offering which increase the capital of the company . at the close on january 22 , 2015 , the stock offering resulted in gross proceeds of $ 3.9 million , through the sale of 390,474 shares of common stock at a price of $ 10.00 per share . expenses related to the offering were approximately $ 1.4 million . net proceeds of the offering were approximately $ 2.5 million . liabilities . our total liabilities decreased $ 6.6 million or 8.2 % to $ 74.7 million at december 31 , 2015. our deposits decreased by $ 6.4 million or 8.0 % to $ 73.6 million at december 31 , 2015 compared to $ 80.0 million at december 31 , 2014. the decrease was primarily due to the $ 5.4 million or 13.4 % decrease in our certificate of deposit accounts to $ 35.2 million and the $ 1.2 million or 7.8 % decrease in our demand accounts . the $ 1.4 million decrease in our non-interest bearing demand deposits was primarily due to the $ 2.9 million of funds deposited for the company 's stock offering that , net of conversion costs , constituted the additional capital of the company at the closing of the offering in january of 2015. management has elected to not aggressively price deposits resulting in some deposit run-off to help manage the company 's capital and liquidity position over the past several years . stockholders ' equity .
| interest income from securities was $ 131,000 for the year ended december 31 , 2015 compared to $ 74,000 the prior year period . the average balance of our securities portfolio increased $ 5.3 million to $ 10.1 million for the year ended december 31 , 2015 compared to the prior year period primarily due to the purchase of $ 13.0 million of government sponsored entity notes during 2015 partially offset by the call of $ 9.0 million of government sponsored entity notes and repayments on mortgage-backed securities . the average yield on securities for the year ended december 31 , 2015 was 1.30 % compared to 1.55 % for the prior year period due to the lower yields on new purchases and the repayments on higher yielding mortgage-backed securities . interest income from interest earning deposits increased to $ 53,000 for the year ended december 31 , 2015 compared to $ 31,000 the prior year period . the average balance of our interest earning deposits decreased $ 1.4 million to $ 17.7 million for the year ended december 31 , 2015 compared to the prior year period primarily due to the increase in our securities portfolio . 53 interest expense . interest expense for the year ended december 31 , 2015 was $ 366,000 , a decrease of $ 67,000 or 15.5 % from the prior year period due to the decrease in interest expense on deposits . the average cost of deposits decreased to 0.51 % for the year ended december 31 , 2015 compared to 0.55 % for the prior year period as the average cost of our certificate of deposit accounts decreased to 0.85 % for the year ended december 31 , 2015 compared to 0.88 % for the prior year period due to the general low market interest rates . the average balance of our certificate of deposit accounts decreased $ 6.1 million to $ 38.3 million for 2015. we have not aggressively priced our certificate of deposit accounts to stabilize the decline , given our high
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as a percentage of net sales , selling , general and administrative expenses increased from 12.2 % to 12.4 % for the year ended december 31 , 2019 versus the same period in 2018. for the year ended december 31 , 2019 , net restructuring , impairment and other charges of $ 135.3 million primarily included a non-cash charge of $ 98.5 million to recognize the impairment of goodwill in the logistics reporting unit within the business services segment , $ 22.3 million for employee termination costs and $ 16.6 million for other restructuring charges . there were no goodwill impairment charges in 2018. see note 4 , restructuring , impairment and other charges , to the consolidated financial statements for further discussion . 23 depreciation and amortization decreased $ 12.2 million to $ 169.2 million for the year ended december 31 , 2019 versus the same period in 2018 , primarily due to lower capital spending in recent years compared t o historical levels . other operating expense for the year ended december 31 , 2019 was $ 11.6 million compared to other operating income of $ 3.8 million for the same period in 2018. the expense in 2019 was primarily related to the ongoing sec and doj investigations , an increase in reserves for an unfavorable state sales tax matter and expenses related to the ongoing bankruptcy liquidation of rrd brazil , partially offset by the gains from business dispositions . the prior year amount primarily included a $ 3.6 million pre-tax gain on the sale of the print logistics business in july 2018. income from operations for the year ended december 31 , 2019 declined $ 110.0 million from 2018 to $ 98.6 million as a result of the factors discussed above . replace_table_token_5_th net interest expense decreased by $ 17.7 million for the year ended december 31 , 2019 versus the same period in 2018 , primarily due to lower average borrowings and interest rates during the year ended december 31 , 2019. investment and other income , net for the years ended december 31 , 2019 and 2018 was $ 16.7 million and $ 20.4 million , respectively , and principally comprised of net pension and opeb income . loss on debt extinguishment for the year ended december 31 , 2019 was $ 0.8 million which related to the repurchase of senior notes and debentures . loss on debt extinguishment for the year ended december 31 , 2018 was $ 32.4 million which primarily related to premiums paid in connection with tenders , unamortized debt issuance costs and other expenses associated with the october 2018 tender offer . see note 11 , debt , to the consolidated financial statements for further discussion . replace_table_token_6_th the effective income tax rate for the year ended december 31 , 2019 was an expense of 156.8 % and is primarily driven by limitations on the interest expense deduction as a result of the tax act . non-deductible interest expense will be carried forward ; however it is more likely than not that the benefit of such deferred tax asset will not be fully realized and full valuation allowance was recorded in 2019. the income tax expense also reflects a non-deductible goodwill impairment charge . the effective income tax rate for the year ended december 31 , 2018 was an expense of 133.9 % and is primarily driven by limitations on the interest expense deduction as a result of the tax act . non-deductible interest expense will be carried forward ; however , it is more likely than not that the benefit of such deferred tax asset will not be fully realized and a valuation allowance of $ 23.9 million was recorded in 2018. the income tax expense also reflects final adjustments associated with the enactment of the tax act of $ 4.2 million to the one-time transition tax on foreign earnings , as well as $ 1.5 million to net deferred tax assets for the reduced corporate income tax rate . additionally , the income tax expense reflects the inability to recognize a tax benefit on certain losses . income attributable to noncontrolling interests was $ 0.5 million and $ 1.4 million for the years ended december 31 , 2019 and 2018 , respectively . net loss for the year ended december 31 , 2019 was $ 92.7 million compared to $ 9.6 million for the year ended december 31 , 2018 . 24 information by segment business services replace_table_token_7_th net sales for the business services segment for the year ended december 31 , 2019 were $ 4,995.7 million , a decrease of $ 623.4 million , or 11.1 % , compared to 2018. net sales decreased $ 307.3 million due to business dispositions , primarily the print logistics business , and $ 54.9 million due to changes in foreign exchange rates . the remaining decrease in net sales was primarily due to lower volume in commercial print due to ongoing secular pressure , continued planned reductions in low margin sales , lower volume in the remaining logistics business and price pressures . the following table summarizes net sales by products and services in the business services segment : replace_table_token_8_th business services segment income from operations decreased $ 109.6 million for the year ended december 31 , 2019 compared to the same period in 2018 , primarily due to a charge of $ 98.5 million recognized for the impairment of goodwill , as well as lower volume , price pressures and cost inflation , partially offset by changes in foreign exchange rates , lower depreciation and amortization expense and cost control initiatives . marketing solutions replace_table_token_9_th net sales for the marketing solutions segment for the year ended december 31 , 2019 were $ 1,280.5 million , an increase of $ 99.4 million , or 8.4 % , compared to 2018. net sales increased primarily due to higher volume in direct marketing primarily attributable to the 2020 census contract . story_separator_special_tag the following table summarizes net sales by products and services in the marketing solutions segment : replace_table_token_10_th marketing solutions segment income from operations increased $ 12.4 million for the year ended december 31 , 2019 compared to the same period in 2018 , primarily due to higher volume in direct marketing . 25 corporate corporate operating expenses in the year ended december 31 , 2019 were $ 101.1 million , an increase of $ 12.8 million compared to the same period in 2018. the increase was primarily driven by higher other operating expense which related to the ongoing sec and doj investigations , an increase in reserves for an unfavorable state sales tax matter and expenses related to the ongoing bankruptcy liquidation of rrd brazil , partially offset by the gains from business dispositions . the following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as corporate : replace_table_token_11_th 2018 compared with 2017 our comparison of 2018 results to 2017 results is included in our annual report on form 10-k for the fiscal year ended december 31 , 2018 , under part ii item 7 , management 's discussion and analysis of financial condition and results of operations . liquidity and capital resources we believe that we have sufficient liquidity to support our ongoing operations and to invest in future growth to create value for our stockholders . our operating cash flows , existing cash balances and available capacity under our asset-based senior secured revolving credit facility ( the “ abl credit facility ” ) are our primary sources of liquidity and are expected to be used for , among other things , capital expenditures necessary to support productivity improvement and growth , completion of restructuring programs , acquisitions , payment of interest and principal on our long-term debt obligations , and distributions to stockholders that require approval by the board of directors . the following describes our cash flows for the years ended december 31 , 2019 , 2018 and 2017. replace_table_token_12_th operating cash inflows are largely attributable to sales of our products and services . operating cash outflows are largely attributable to recurring expenditures for raw materials , labor , rent , interest , taxes and other operating activities . net cash provided by operating activities in 2019 was $ 64.2 million lower than in 2018 , primarily due to higher tax and restructuring payments , partially offset by lower interest payments . included in net cash provided by operating activities were the following operating cash ( outflows ) inflows : replace_table_token_13_th 26 significant cash ( outflows ) inflows included in investing and financing activities for each period were as follows : replace_table_token_14_th capital expenditures in 2019 were $ 34.4 million and $ 30.3 million higher than in 2018 and 2017 , respectively , primarily due to investments associated with building a new facility following the expected sale and relocation of a printing facility in shenzhen , china and additional investments related to the 2020 census contract . proceeds from disposition of businesses in 2019 reflect the sale of the gds and r & d businesses , and in 2018 reflect the sale of the print logistics business . proceeds from sale of investments and other assets in 2019 primarily included $ 53.6 million cash received as deposits for the expected sale of a printing facility in shenzhen , china and cash proceeds from the sale of restructured facilities of $ 9.9 million . proceeds from sale of investments and other assets in 2018 primarily included $ 32.1 million cash received as a deposit for the expected sale of a printing facility in shenzhen , china and cash proceeds from the sale of investments and other assets of $ 17.8 million . proceeds from issuance of long-term debt in 2018 reflect the proceeds from the term loan , which we used to repay current maturities and long-term debt . dividends on january 15 , 2020 , our board of directors declared a quarterly cash dividend of $ 0.03 per common share , payable on march 2 , 2020 to stockholders of record on february 14 , 2020. each of our abl credit agreement and term loan credit agreement limit availability to make dividend payments , subject to specified exceptions . our board of directors must review and approve future dividend payments and will determine whether to declare additional dividends based on our operating performance , expected future cash flows , debt levels , liquidity needs and investment opportunities . contractual cash obligations and other commitments and contingencies the following table quantifies our future contractual obligations as of december 31 , 2019 : replace_table_token_15_th 27 ( a ) excludes unamortized debt issuance costs of $ 12.8 million and a discount of $ 4.7 million which do not represent contractual commitments with a fixed amount or maturity date . ( b ) includes scheduled interest payments , net of $ 2.5 million estimated cash receipts from interest rate swap agreements entered into in 2019 . ( c ) excludes variable costs in connection with leased properties . ( d ) includes the low-end of the estimated range for 2020 pension plan contributions and does not include the obligations for subsequent periods , as we are unable to reasonably estimate the ultimate amounts . ( e ) excludes deferred compensation plans that are funded with investments . ( f ) represents contractual obligations for purchases of property , plant and equipment of $ 26.0 million and employee restructuring-related severance payments of $ 3.5 million . excluded from the table are $ 22.9 million of uncertain tax liabilities , as we are unable to reasonably estimate the ultimate amount or timing of settlement or other resolution . liquidity cash and cash equivalents were $ 190.8 million as of december 31 , 2019 , a decrease of $ 179.8 million compared to december 31 , 2018. included in cash and cash equivalents at december 31 , 2019 were $ 38.2 million of short-term investments , which primarily consisted of short-term deposits and money market funds .
| outlook vision and strategy we work with our clients to create , manage , deliver and optimize their multichannel communications strategies . we have and will continue to develop our creative and design , content management , digital and print production , supply chain management and distribution services to address our clients ' evolving needs . our global platform provides differentiated solutions for our clients through our broad range of complementary communications services and innovative leadership in both conventional print and digital technologies . this platform has enabled rrd to develop strong client relationships , and we are focused on expanding these relationships to a broader range of our offerings . the flexibility of our platforms enhances the value we deliver to our clients and we intend to expand our capabilities in order to make it easier for clients to manage their full range of communication needs . we believe productivity improvements and cost reductions are critical to our competitiveness . we continue to implement strategic initiatives across each of our segments to reduce our overall cost structure and enhance productivity primarily through restructuring which includes consolidations , reorganizations and integrations of operations and streamlining of administrative and support activities . we seek to deploy our capital using a balanced approach in order to ensure financial flexibility and provide returns to stockholders . priorities for capital deployment , over time , include capital expenditures , principal and interest payments on debt obligations , distributions to stockholders and targeted acquisitions . we believe that a strong financial condition is important to clients focused on establishing or growing long-term relationships . we also expect to make targeted acquisitions that extend our capabilities , drive cost savings and reduce future capital spending needs . 21 we use several key indicators to gauge progress toward achieving these objectives . these indicators include organic sales growth , operating margins , cash f low from operations and capital expenditures . we target long-term net sales growth , while managing operating margins by achieving productivity improvements that
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selling , general and administrative expenses increased by $ 101 million in 2012 to $ 3,335 million as compared to 2011. the increase was due to increases from acquisitions , overhead inflation and higher costs to support the sales volume growth offset partially by the reduction in costs due to the impact of currency translation and the benefit of our restructuring actions . these expenses remained relatively flat as a percent of sales at 21.9 % in 2012 and 21.7 % in 2011 reflecting the benefits of our continuing effort to aggressively manage our costs even as our sales volume increases . the business restructuring charge of $ 208 million in 2012 represents the costs associated with a restructuring plan focused on further reducing ppg 's global cost structure . the actions included in the restructuring plan delivered pretax cost savings in the second half of 2012 of approximately $ 50 million and an additional savings of $ 80 million expected in 2013. the savings are expected to grow to an annual run rate of about $ 140 million following completion of these actions in 2013. other charges increased to $ 232 million in 2012 as compared to $ 73 million in 2011 , due largely to the $ 159 million environmental remediation charge recorded in the first quarter of 2012 related primarily to costs at a former chromium manufacturing plant and associated sites in jersey city , new jersey . other earnings decreased to $ 149 million in 2012 as compared to $ 177 million in 2011. this decrease was primarily due to $ 26 million of lower equity earnings , primarily from our asian fiber glass joint ventures , reflecting demand decline in the consumer electronics market . the effective tax rate on pretax earnings was approximately 24 % in 2012 and 2011. the effective tax rate for the year ended december 31 , 2012 includes tax benefits of $ 60 million or approximately 38 % on the $ 159 million charge for environmental remediation costs , $ 45 million or approximately 21 % on the $ 208 million business restructuring charge , $ 2 million or approximately 29 % for expenses of $ 6 million stemming from the acquisition of dyrup a/s in europe and colpisa in latin america , and $ 3 million or 11 % on certain business separation and acquisition related costs of $ 26 million . the 2011 rate includes a benefit of $ 12 million resulting from a favorable tax audit settlement . the 2011 rate also includes the impact of the non-taxable bargain purchase gain resulting from the equa-chlor acquisition . the effective tax rate on the remaining pre-tax earnings was 25 % in 2012 and 2011. diluted earnings-per-share for 2012 were $ 6.06. excluding the charges related to business restructuring and environmental remediation , acquisition-related costs and the costs related to the separation and merger transaction , adjusted diluted earnings-per share for 2012 were $ 7.94. this compares to the 2011 diluted earnings-per-share of $ 6.87. the increase in diluted earnings-per-share resulted primarily from higher adjusted income before income taxes and a reduction in the shares outstanding as a result of share repurchases in the second half of 2011 and first quarter of 2012. average shares used to calculate earnings per share – assuming dilution were 155.1 million in 2012 and 159.3 million in 2011. regulation g reconciliation - results from operations ppg industries believes investors ' understanding of the company 's operating performance is enhanced by the disclosure of income before income taxes , net income and earnings per diluted share adjusted for nonrecurring charges . ppg 's management considers this information useful in providing insight into the company 's ongoing operating performance because it excludes the impact of items that can not reasonably be expected to recur on an ongoing basis . income before income taxes , net income and earnings per diluted share adjusted for these items are not recognized financial measures determined in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) and should not be considered a substitute for income before income taxes , net income or earnings per diluted share or other financial measures as computed in accordance with u.s. gaap . in addition , adjusted income before income taxes , adjusted net income and adjusted earnings per diluted share may not be comparable to similarly titled measures as reported by other companies . 2012 ppg annual report and form 10-k 19 income before income taxes is reconciled to adjusted income before income taxes below : year-ended december 31 , 2012 income before income taxes ( millions , except per share amounts ) income before income taxes $ 1,402 income before income taxes includes : pretax charges related to business restructuring 208 pretax charges related to environmental remediation 159 pretax charges related to the business separation- and acquisition-related costs 26 pretax charges related to the acquisition of dyrup and colpisa 6 adjusted income before income taxes $ 1,801 net income ( attributable to ppg ) and earnings per share – assuming dilution ( attributable to ppg ) are reconciled to adjusted net income ( attributable to ppg ) and adjusted earnings per share – assuming dilution below : replace_table_token_2_th results of reportable business segments replace_table_token_3_th for performance coatings , 2012 sales were $ 4.8 billion , $ 126 million , or 3 % , higher than 2011. the sales increase was comprised of 4 % due to price , partially offset by a 2 % decline due to the impact of foreign currency translation . sales from acquired businesses contributed 1 % to growth . higher pricing was achieved by all the businesses in the segment reflecting continuing efforts to offset significant inflationary impacts over the past two years . year-over-year segment sales volumes were nearly flat in 2012 with aerospace and architectural coatings business volume growth being offset by automotive refinish and protective and marine coatings business volume declines . story_separator_special_tag sales volume in the aerospace business continued to benefit from excellent end-use market growth despite increasingly difficult prior year comparable periods . u.s. architectural coatings were aided by early signs of a construction market recovery in the u.s. and mild weather early in 2012 , offset by the absence of elevated sales in the prior year from the introduction of a new product in the national account channel . volumes declined in the automotive refinish coatings business , particularly in europe , and in the protective and marine coatings business as lower marine new build volume was somewhat offset by higher volume in protective coatings . segment earnings grew to $ 744 million , a $ 71 million , or 11 % , improvement over prior year . earnings improved as lower costs , relating to benefits from ppg 's restructuring and other cost management actions , coupled with the effect from the higher sales were partly offset by inflation , higher selling costs and the negative impact of foreign currency . looking ahead to the first quarter 2013 , aerospace sales growth is expected to continue , despite more difficult comparison periods due to consecutive years of good industry growth . challenging marine new-build conditions remain , and favorable weather conditions during the first quarter 2012 present a difficult comparable period for u.s. architectural coatings . lastly , the segment is expected to benefit from incremental savings from the previously announced restructuring program and currency-translation impacts are expected to be minimal given current exchange rates . the industrial coatings segment 's sales increased to $ 4.4 billion , up 5 % from the prior year . the sales increase was comprised of 3 % due to price and 4 % due to volume offset by a 3 % decrease due to currency translation . sales from acquisitions contributed 1 % to the increase . the segment sales volume growth of 4 % was driven by automotive oem coatings growth especially in north america , due in part to the recovery from the 2011 japanese tsunami as well as continued strength in china , offset by european economic weakness . the current year volume gains by our automotive oem coatings business outpaced industry growth . industrial and packaging coatings volumes were mixed by region . europe was weaker in both businesses . u.s. industrial coatings improved while emerging region demand varied by end-use with markets aligned with construction activity being down in asia and argentina being impacted by import restrictions . the consumer electronics market in asia was slower , but packaging volumes in asia improved . emerging region sales were supplemented by sales from acquired businesses and the reorganization of our joint venture in india . segment earnings of $ 590 million increased $ 152 million as the impact of higher pricing , sales volume growth and manufacturing cost savings overcame the adverse impact of inflation and higher overhead costs incurred to support growth . restructuring related cost savings also aided earnings in 2012. looking ahead to the first quarter 2013 , higher year-over-year general industrial activity is expected globally , aided by modest anticipated improvement in asia . global automotive oem vehicle production is expected to be flat versus robust 2012 results , reflecting less global inventory build and a more severe negative impact from lower european auto builds . however , ppg share gains are expected to continue in this business . ongoing ppg cost-management actions are expected to continue , including incremental benefits from the 2012 restructuring program . lastly , currency translation impact is expected to be muted based on current exchange rates . architectural coatings – emea segment sales were $ 2,147 million in 2012 , up $ 43 million , or 2 % , versus 2011. the 20 2012 ppg annual report and form 10-k acquisition of dyrup in january 2012 contributed 8 % sales growth ; however , sales were negatively impacted by 7 % due to the impact of foreign currency translation . pricing increased sales mid-single digit percents which was substantially offset by volume declines due to market weakness throughout the region . segment earnings increased $ 22 million , to $ 145 million , due to lower costs stemming from aggressive ongoing cost management and supplemented by the cost benefits from ppg 's restructuring actions and higher pricing . these earnings improvements were reduced by the impact of lower sales volumes and cost inflation . in addition , negative currency translation impact of $ 13 million was largely offset by the absence of a $ 9 million charge in the prior year related to a customer bankruptcy . looking ahead , we expect overall market conditions to remain challenging in the region as we begin 2013. implementation of previously announced restructuring actions continues , with expanded benefits expected in the first quarter and full year 2013. currency translation impacts , which have been a significant headwind for the segment , are expected to be minimal in the first quarter . optical and specialty materials segment 2012 sales were $ 1.2 billion , essentially flat with sales in 2011. a 3 % unfavorable impact of foreign currency translation was offset by a 1 % price increase and 2 % volume growth . optical products achieved sales volume growth with the majority due to higher transitions® lens market penetration . volumes were also aided by the absence of the prior year negative impacts from extensive thailand flooding that disrupted optical customers and supply chains in the fourth quarter 2011. silicas volumes were down modestly year over year . segment earnings grew by 7 % to $ 348 million as earnings improved in both businesses . the increase in earnings is primarily due to higher sales volumes , overhead and manufacturing cost improvements , including restructuring cost savings , and higher pricing . earnings were reduced by the negative impact of foreign currency translation and inflation .
| the sales increase was comprised of 5 % due to volume , 4 % due to price and 3 % due to currency . segment income improved 16 % versus 2010 to $ 438 million in 2011. this increase was primarily due to increased volumes , lower manufacturing costs and currency , partially offset by the negative impact of inflation net of increases in selling prices and growth-driven increases in overhead costs . segment volume grew by 5 % on solid global industrial demand , with positive results in all three business units . growth rates were robust in asia as a result of continued growth in the region for all three businesses . the automotive oem business delivered strong single-digit percentage growth reflecting high growth rates due to the automotive industry recovery with continued growth in north america , asia pacific and latin america , and low growth in europe where volumes were positive for the full year but weakened in the second half of the year . global volumes in the industrial and packaging businesses were also favorable with asia pacific the strongest region delivering the majority of the growth , with somewhat lower or even declining 24 2012 ppg annual report and form 10-k volumes in europe and north america due , in part , to late year customer destocking . architectural coatings - emea sales increased $ 230 million , or 12 % , to $ 2,104 million in 2011. the sales increase was comprised of 5 % due to the positive impact of foreign currency translation , a 1 % increase from acquired business and the remainder from an increase in selling prices and volume gains . segment earnings were up $ 10 million compared to the prior year . positive year-over-year earnings resulted from the earnings impact of volume growth and currency translation . earnings in 2011 were reduced by a $ 9 million charge related to a u.k.-based retail do-it-yourself customer who filed for bankruptcy during the second quarter of 2011 and the adverse impact of inflation net of
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90 given the numerous potential therapeutic applications for crispr/cas9 , we have partnered strategically to broaden the indications we can pursue and accelerate development of programs by accessing specific technologies and or disease-area expertise . we maintain three broad strategic partnerships to develop gene editing - based therapeutics in specific disease areas . vertex . we established our initial collaboration agreement in 2015 with vertex , which focused on tdt , scd , cystic fibrosis and select additional indications . in december 2017 , we entered into a joint development and commercialization agreement with vertex to co-develop and co-commercialize ctx001 as part of that collaboration . in june 2019 , we expanded our collaboration and entered into a strategic collaboration and license agreement for the development and commercialization of products for the treatment of dmd and dm1 . viacyte . we entered into the viacyte collaboration agreement in september 2018 with viacyte to pursue the discovery , development and commercialization of gene-edited allogeneic stem cell therapies for the treatment of diabetes . the combination of viacyte 's stem cell capabilities and our gene editing capabilities has the potential to enable a beta-cell replacement product that may deliver durable benefit to patients without the need for immune suppression . bayer . in the fourth quarter of 2019 , we entered into a series of transactions , or the bayer transaction , pursuant to which we and bayer terminated our 2015 agreement , which created the joint venture , casebia , to discover , develop and commercialize crispr/cas9 gene-editing therapeutics to treat the genetic causes of bleeding disorders , autoimmune disease , blindness , hearing loss and heart disease . in connection thereto , casebia became a wholly-owned subsidiary of ours . we and bayer also entered into a new option agreement pursuant to which bayer has an option to co-develop and co-commercialize two products for the diagnosis , treatment or prevention of certain autoimmune disorders , eye disorders , or hemophilia a disorders for a specified period of time , or , under certain circumstances , exclusively license such optioned products . refer to note 7 of the notes to our consolidated financial statements included in this annual report on form 10-k for a description of the key terms of our arrangements with vertex , viacyte and bayer . since our inception in october 2013 , we have devoted substantially all of our resources to our research and development efforts , identifying potential product candidates , undertaking drug discovery and preclinical development activities , building and protecting our intellectual property estate , organizing and staffing our company , business planning , raising capital and providing general and administrative support for these operations . to date , we have primarily financed our operations through private placements of our preferred shares , common share issuances , convertible loans and collaboration agreements with strategic partners . all of our revenue to date has been collaboration revenue . we were profitable for the year ended december 31 , 2019 due to collaboration revenue from vertex and casebia , but we do not expect to sustain our profitability in future years . with the exception of the year ended december 31 , 2019 , we have incurred significant net operating losses each year since our inception and expect to continue to incur net operating losses for the foreseeable future . as of december 31 , 2019 , we had $ 943.8 million in cash and cash equivalents and an accumulated deficit of $ 224.7 million . we expect to continue to incur significant expenses and increasing operating losses for the next several years . our net losses may fluctuate significantly from quarter to quarter and year to year . we anticipate that our expenses will increase significantly as we continue our current research programs and development activities ; seek to identify additional research programs and additional product candidates ; conduct initial drug application supporting preclinical studies and initiate clinical trials for our product candidates ; initiate preclinical testing and clinical trials for any other product candidates we identify and develop ; maintain , expand and protect our intellectual property estate ; further develop our gene editing platform ; hire additional research , clinical and scientific personnel ; and incur additional costs associated with operating as a public company . financial overview revenue recognition we have not generated any revenue to date from product sales and do not expect to do so in the near future . during the years ended december 31 , 2019 , 2018 and 2017 , we recognized $ 289.6 million , $ 3.1 million and $ 41.0 million , respectively , of revenue related to our collaboration agreements with vertex , as well as certain arrangements with casebia prior to the bayer transaction . for additional information about our revenue recognition policy , see the “ critical accounting policies and estimates — revenue . ” research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our product discovery efforts and the development of our product candidates , which include : employee-related expenses , including salaries , benefits and equity-based compensation expense ; costs of services performed by third parties that conduct research and development and preclinical activities on our behalf ; costs of purchasing lab supplies and non-capital equipment used in our preclinical activities and in manufacturing preclinical study materials ; 91 consultant fees ; facility costs , including rent , depreciation and maintenance expenses ; and fees and other payments related to acquiring and maintaining licenses under our third-party licensing agreements . r esearch and development costs are expensed as incurred . nonrefundable advance payments for research and development goods or services to be received in the future are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are performed . story_separator_special_tag at this time , we can not reasonably estimate or know the nature , timing or estimated costs of the efforts that will be necessary to complete the development of any product candidates we may identify and develop . this is due to the numerous risks and uncertainties associated with developing such product candidates , including the uncertainty of : successful completion of preclinical studies and ind-enabling studies ; successful enrollment in , and completion of , clinical trials ; receipt of marketing approvals from applicable regulatory authorities ; establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers ; obtaining and maintaining patent and trade secret protection and non-patent exclusivity ; launching commercial sales of the product , if and when approved , whether alone or in collaboration with others ; acceptance of the product , if and when approved , by patients , the medical community and third-party payors ; effectively competing with other therapies and treatment options ; a continued acceptable safety profile following approval ; enforcing and defending intellectual property and proprietary rights and claims ; and achieving desirable medicinal properties for the intended indications . a change in the outcome of any of these variables with respect to the development of any product candidates or the subsequent commercialization of any product candidates we may successfully develop could significantly change the costs , timing and viability associated with the development of that product candidate . except for activities we perform in connection with our collaborations with vertex , as well as certain arrangements with casebia prior to the bayer transaction , we do not track research and development costs on a program-by-program basis . research and development activities are central to our business model . we expect our research and development costs to increase significantly for the foreseeable future as our current development programs progress , new programs are added and as we continue to prepare regulatory filings . these increases will likely include the costs related to the implementation and expansion of clinical trial sites and related patient enrollment , monitoring , program management and manufacturing expenses for current and future clinical trials . in addition , we expect that our research and development expenses will increase in future periods as we incur additional costs in connection with research and development activities under our collaboration with viacyte . general and administrative expenses general and administrative expenses consist primarily of employee related expenses , including salaries , benefits and equity-based compensation , for personnel in executive , finance , accounting , business development and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , legal fees relating to patent and corporate matters and fees for accounting and consulting services . we anticipate that our general and administrative expenses will increase in the future to support continued research and development activities , potential commercialization of our product candidates and increased costs of operating as a public company . in addition , we anticipate increased expenses related to the reimbursements of third-party patent related expenses in connection with certain of our in-licensed intellectual property . other income ( expense ) , net other income ( expense ) , net consists primarily of interest income earned on investments , the gain resulting from the consolidation of casebia following the bayer transaction and the loss from equity method investment from stock-based compensation awards granted to employees of casebia , prior to consolidation . 92 critical accounting policies and significant judgments and estimates this 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 . we believe that several accounting policies are important to understanding our historical and future performance . we refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate , and different estimates—which also would have been reasonable—could have been used . on an ongoing basis , we evaluate our estimates and judgments , including those described in greater detail below . we base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this annual report on form 10-k , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations . revenue effective january 1 , 2018 , we adopted accounting standards codification topic 606 , revenue from contracts with customers , or asc 606 , using the modified retrospective transition method . the adoption of this guidance did not have a significant impact on our consolidated financial statements . asc 606 applies to all contracts with customers , except for contracts that are within the scope of other standards , such as leases and collaboration arrangements . to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , the entity performs the following five steps : 1 ) identify the contract with the customer a contract with a customer exists when ( i ) we enter into an enforceable contract with a customer that defines each party 's rights regarding the goods or services to be transferred and identifies the related payment terms , ( ii ) the contract has commercial substance and ( iii ) we determine that collection of substantially all consideration for goods and services that are transferred is probable based on the customer 's intent and ability to pay the promised consideration .
| 96 general and administrative expense s general and administrative expenses were $ 63.5 million for the year ended december 31 , 2019 , compared to $ 48.3 million for the year ended december 31 , 2018. the increase of $ 15.2 million was primarily attributable to the following : $ 8.2 million of increased employee compensation , benefit and other headcount related expenses , of which $ 3.4 million is increased stock-based compensation expense , primarily due to an increase in headcount to support overall growth ; $ 2.2 million of increased intellectual property costs ; $ 2.2 million of increased professional services costs ; and , $ 1.6 million of increased facility-related expenses . other income ( expense ) , net other income , net , was $ 20.6 million for the year ended december 31 , 2019 , compared to $ 5.5 million in other expense , net , for the year ended december 31 , 2018. other income , net for the year ended december 31 , 2019 consisted of interest income of $ 10.1 million , a $ 16.0 million gain resulting from the consolidation of casebia following the bayer transaction , offset by $ 5.5 million in l osses from equity method investment from stock-based compensation awards granted to employees of casebia prior to the bayer transaction . other expense , net , for the year ended december 31 , 2018 consisted of interest income of $ 0.2 million , offset by $ 2.5 million of losses from equity method investment from stock-based compensation awards granted to employees of casebia and $ 1.2 million related to the change in fair value of the derivative liability issued under the viacyte collaboration agreement . comparison of years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 , together with the dollar change in those items : replace_table_token_4_th collaboration revenue collaboration revenue for the year ended december 31 , 2018 was $ 3.1 million , compared to $ 41.0 million for the year ended december 31 , 2017. the decrease of $ 37.9 million was primarily due to recognition of $ 30.3 million in revenue in 2017 as a result of the delivery of the co-exclusive licenses to develop and commercialize various hemoglobinopathy targets under the collaboration agreement with vertex as well as a decrease in research and development service revenue from the collaboration with vertex . research and development expenses research and development
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in forward-looking statements as a result of various factors including , but not limited to , those described above and in the risk factors section of this annual report on form 10-k. we can not assure you that we have identified all the factors that create uncertainties . moreover , new risks emerge from time to time and it is not possible for our management to predict all risks , nor can we assess the impact of all risks on our business or the extent to which any risk , or combination of risks , may cause actual results to differ from those contained in any forward-looking statements . readers should not place undue reliance on forward-looking statements . we undertake no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events . 34 index to financial statements results of operations from the years ended december 31 , 2016 and 2015 research and development expense replace_table_token_2_th we generally categorize research and development expenses as either direct external expenses , comprised of amounts paid to third party vendors for services , or all other research and development expenses , comprised of employee payroll and general overhead allocable to research and development . we consider a clinical program to have begun upon acceptance by the fda , or similar agency outside of the united states , to commence a clinical trial in humans , at which time we begin tracking expenditures by the product candidate . clinical program expenses comprise payments to vendors related to preparation for , and conduct of , all phases of the clinical trial , including costs for drug manufacture , patient dosing and monitoring , data collection and management , oversight of the trials and reports of results . pre-clinical expenses comprise all research and development amounts incurred before human trials begin , including payments to vendors for services related to product experiments and discovery , toxicology , pharmacology , metabolism and efficacy studies , as well as manufacturing process development for a drug candidate . we have two product candidates , gr-md-02 and gm-ct-01 ; however only gr-md-02 is in active development . we filed for an ind for gr-md-02 in january 2013 and in february 2013 we entered into an agreement with cti to conduct a phase 1 clinical trial of gr-md-02 . in march 2013 , the fda indicated we could proceed with a phase 1 human clinical trial of gr-md-02 , and we began enrolling patients in the third quarter of 2013. in january 2014 , we completed the enrollment of the first cohort of patients in the phase 1 trial with no serious adverse events being reported . we reported initial safety and tolerability results from the first cohort of patients on march 31 , 2014. the second cohort of this phase 1 trial began and enrollment was completed in april 2014. in july 2014 , we reported the results from the second cohort of patients . enrollment of the third cohort of phase 1 began in july 2014 with interim results presented in november 2014 with the final report on cohort 3 presented in january 2015. the results of the phase 1 study demonstrate that ( i ) gr-md-02 was safe and well tolerated by patients with advanced nash liver fibrosis after iv administration of four doses of 2 mg/kg , 4 mg/kg and 8mg/kg lean body weight , ( ii ) pharmacokinetics revealed drug exposure in humans at the 8 mg/kg dose that was equivalent to the upper range of the targeted therapeutic dose determined from effective doses in nash animal models , ( iii ) disease serum marker effect showed there was a statistically significant , dose-dependent reduction in fibrotest ® scores due to a statistically significant reduction in alpha-2 macroglobulin ( a2m ) serum levels , and ( iv ) liver stiffness effect , as measured by fibroscan ® showed that there was a signal of reduced liver stiffness in patients receiving gr-md-02 . the reduction seen in a2m does not necessarily mean fibrosis got better in this short study , but does suggest changes in the fibrogenic process that might lead to an improvement in fibrosis with longer-term therapy . these phase 1 results in nash patients with advanced fibrosis provide a firm foundation for entry into a phase 2 development program . the company held an end of phase 1 meeting with the fda and , amongst other things , received guidance on the primary endpoints for a phase 2 trial . our phase 2 program in fibrotic disease consists of two separate human clinical trials . the first clinical trial is the phase 2b nash-cx study for patients with nash with cirrhosis , which began enrolling in june 2015. this study is the primary focus of our program and is a randomized , placebo-controlled , double-blind , parallel-group phase 2 trial to evaluate the safety and efficacy of gr-md-02 for the treatment of liver fibrosis and resultant portal hypertension in patients with nash cirrhosis . enrollment in this trial was completed in september 2016 , and a total of 162 patients at 36 sites in the united states were be randomized to receive either 2 mg/kg of gr-md-02 , 8 mg/kg of gr-md-02 or placebo , with approximately 54 patients in each group . the primary endpoint is a reduction in change in hepatic venous pressure gradient ( hvpg ) . patients are receiving an infusion every other week for one year , total of 26 infusions , 35 index to financial statements and will be evaluated to determine the change in hvpg as compared with placebo . story_separator_special_tag hvpg will be correlated with secondary endpoints of fibrosis on liver biopsy as well as with measurement of liver stiffness ( fibroscan ( r ) ) and assessment of liver metabolism ( 13 c-methacetin breath test , exalenz ) , which are non-invasive measures of the liver that may be used in future studies . data readout is expected in early december 2017. the second trial , our phase 2a pilot trial nash-fx for patients with nash advanced fibrosis which explored use of three non-invasive imaging technologies , is now complete . it was a shorter , four-month trial in 30 nash patients with advanced fibrosis , but not cirrhosis , randomized 1:1 to either 9 bi-weekly doses of 8 mg/kg of gr-md-02 or placebo . the trial did not meet its primary biomarker endpoint as measured using multi-parametric magnetic resonance imaging ( livermultiscan ( r ) , perspectum diagnostics ) . the trial also did not meet secondary endpoints that measure liver stiffness as a surrogate for fibrosis using , magnetic resonance-elastography and fibroscan score . we , and many experts in the field , now believe that a four month treatment period is not sufficient to show efficacy results . this small study was not powered for the secondary endpoints and thus , not surprisingly did not meet the secondary endpoints . in the trial , gr-md-02 was found to be safe and well tolerated among the patient population with no serious adverse events . although there was no apparent improvement in the three non-invasive tests for assessment of liver fibrosis in the four-month nash-fx trial , the principal investigator of the nash-fx trial has stated that the inhibition of galectin-3 with gr-md-02 remains promising for the treatment of nash fibrosis . of note is that gr-md-02 has demonstrated an improved clinical effect in moderate-to-severe psoriasis , suggesting the compound has activity in a human disease that can occur in association with nash . we believe our drug candidate provides a promising new approach for the therapy of fibrotic diseases , and liver fibrosis in particular . fibrosis is the formation of excess connective tissue ( collagen and other proteins plus cellular elements such as myofibroblasts ) in response to damage , inflammation or repair . when the fibrotic tissue becomes confluent , it obliterates the cellular architecture , leading to scarring and dysfunction of the underlying organ . given galectin-3 's broad biological functionality , it has been demonstrated to be involved in cancer , inflammation and fibrosis , heart disease , renal disease and stroke . we have further demonstrated the broad applicability of the actions of our galectin-3 inhibitor 's biological effect in ameliorating fibrosis involving lung , kidney and cardiac tissues in a variety of animal models . the focus and goal of the therapeutic program is to stop the progression of and reverse the fibrosis in the liver and , thereby improve liver function and prevent the development of complications of fibrosis/cirrhosis and liver-related mortality in patients . additionally , during the phase 1 clinical trial , there appeared to be a potential beneficial effect on at least one patient 's moderate to severe psoriasis . this serendipitous finding , combined with galectin-3 protein being markedly upregulated in the capillary epithelia ( small blood vessels ) of the psoriatic dermis ( plaque lesions ) , led to a phase 2a trial in patients with moderate to severe plaque psoriasis . gr-md-02 inhibition of galectin-3 may attenuate capillary changes in the psoriatic dermis and inflammatory recruitment , perhaps explaining the improvements observed in the nash fibrosis trial patient . in this open-label , unblinded trial ( no placebo , all patients knowingly receive active drug ) , 4 patients with moderate to severe plaque psoriasis were administered gr-md-02 every two weeks for 12 weeks . in may 2016 , we reported positive results on the first four patients after 12 weeks of therapy . based on these results , we modified the trial to include 24 weeks of therapy . in august 2016 , we reported on four patients after 24 weeks of therapy and one patient after 12 weeks of therapy . the four patients who received 24 weeks of therapy experienced an average of 48 % improvement in their plaque psoriasis . however , there are existing drugs on the market in this disease that produce 75 % and higher improvements . while we are encouraged that this study has demonstrated clinically meaningful results in a human disease with gr-md-02 , we do not expect to conduct further trials in this area absent a strategic partnership . an open label drug-drug interaction study was completed with gr-md-02 and it showed that with 8 mg/kg dose of gr-md-02 and 2 mg/kg dose of midazolam there was no drug-drug interaction and no serious adverse events or drug-related adverse events were observed . this study was required by the fda and the primary 36 index to financial statements objective was to determine if single or multiple intravenous ( iv ) doses of gr-md-02 affect the pharmacokinetics ( pk ) of midazolam . the secondary objective was to assess the safety and tolerability of gr-md-02 when administered concomitantly with midazolam . the lack of a drug interaction in this study enables galectin to expand the number of patients eligible for its phase 2 clinical trial . in addition , should gr-md-02 be approved for marketing , the success of this study supports a broader patient population for the drug label . based on guidance from fda and in furtherance of its understanding of the gr-md-02 molecule , we continue to enhance its chemistry , manufacturing and control procedures on gr-md-02 active pharmaceutical ingredient ( api ) as well as on the finished , sterile , pharmaceutical dosage form .
| the primary reasons for the decrease for the year ended december 31 , 2015 as compared to the same period for 2014 are due to , decreased legal expenses of $ 340,000 , decreased stock based compensation of $ 457,000 offset by increases in investor relations activities of $ 278,000 and increases in insurance of $ 194,000. other income and expense during the year ended december 31 , 2015 , other income and expense consisted of interest income . liquidity and capital resources as described above in the overview and elsewhere in this annual report on form 10-k , we are in the development stage and have not generated any revenues to date . since our inception on july 10 , 2000 , we have financed our operations from proceeds of public and private offerings of debt and equity . as of december 31 , 2016 , we raised a net total of $ 128.4 million from these offerings . at december 31 , 2016 , the company had $ 15.4 of unrestricted cash and cash equivalents available to fund future operations . additionally , from january 1 , 2017 through march 1 , 2017 , the company raised $ 1,247,000 in net proceeds from the issuance of common stock under its at the market sales arrangement . on february 28 , 2017 , the company closed a transactions with individual investors through private placements of common stock and warrants . in total , the company issued 102,368 shares of common stock for proceeds of $ 200,000. the company also issued , to the investors , warrants to purchase 76,776 shares of common stock at $ 5.00 per share . the company believes there is sufficient cash to fund currently planned operations through december 31 , 2017. we will require more cash to fund our operations after december 31 , 2017 and believe we will be able to obtain additional financing . however , there can be no assurance that we will be successful in obtaining such new financing or , if available , that such financing will be on terms favorable to us . if we are unsuccessful
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due to the terms of the contract , timing of payments and the sale recognition criteria of gaap , no profit was recognized in 2013. the construction and sale were completed in january 2014 , at which time the development profit was recognized . dispositions during the year ended december 31 , 2013 , we sold 51 operating properties , totaling approximately 6.8 million square feet , to third-parties for combined gross proceeds of approximately $ 265.8 million . this included the disposition of dct 's entire portfolio of mexico assets consisting of 15 buildings totaling 1.7 million square feet , for gross proceeds of approximately $ 82.7 million . we recognized gains of approximately $ 33.6 million on the disposition of 36 operating properties and recognized an impairment loss of approximately $ 13.3 million on the disposition of a portfolio in dallas . significant activity with joint ventures during may 2013 , we purchased the remaining 96.4 % interest in seven properties from trt-dct jv i for additional consideration of $ 82.8 million . additionally , we sold one of the properties during 2013 and the remaining six properties were consolidated as of december 31 , 2013 . 35 debt activity during february 2013 , we entered into an amendment with our syndicated bank group whereby we extended and increased our existing $ 175.0 million senior unsecured term loan to $ 225.0 million for a period of five years , extended our existing $ 300.0 million senior unsecured line of credit for a period of four years and received a commitment for an additional $ 175.0 million senior unsecured term loan with a term of two years . we closed on the additional $ 175.0 million in march 2013 , which was used to refinance a scheduled june 2013 maturity of $ 175.0 million of other senior unsecured debt . during october 2013 , the operating partnership issued $ 275.0 million aggregate principal amount of 4.50 % senior notes due 2023 at 99.038 % of face value in a private placement for net proceeds of approximately $ 269.6 million after offering costs . we primarily used the net proceeds to repay a $ 15.9 million mortgage note that was scheduled to mature in october 2013 , a $ 50.0 million senior unsecured note that was scheduled to mature in january of 2014 and our $ 175.0 million senior unsecured term loan that was scheduled to mature in february 2015 , which were pre-payable without prepayment penalties . equity activity on may 29 , 2013 , we registered a third continuous equity offering program , to replace our continuous equity offering program previously registered on november 20 , 2012. pursuant to this offering , we may sell up to 20 million shares of common stock from time-to-time through may 29 , 2016 in at-the-market offerings or certain other transactions . during the year ended december 31 , 2013 , we issued approximately 13.8 million shares through the second and third continuous equity offering programs at an average price of $ 7.37 per share for proceeds of $ 100.4 million , net of offering expenses . the proceeds from the sale of shares were used for general corporate purposes , including funding acquisitions and repaying debt . as of december 31 , 2013 , 16.6 million shares remain available to be issued under the current offering . on august 13 , 2013 , we issued 23.0 million shares of common stock in a public offering at a price of $ 7.20 per share for proceeds of $ 158.2 million , net of offering expenses . critical accounting policies and estimates general 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 united states generally accepted accounting principles ( gaap ) . the preparation of these 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 financial statements and the reported amounts of revenues and expenses during the reporting periods . we evaluate our assumptions and estimates on an on-going 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 . the following discussion pertains to accounting policies management believes are most critical to the portrayal of our financial condition and results of operations that require management 's most difficult , subjective or complex estimates . revenue recognition we record rental revenues on a straight-line basis under which contractual rent increases are recognized evenly over the lease term . certain properties have leases that provide for customer occupancy during periods where no rent is due or where minimum rent payments change during the term of the lease . accordingly , we record receivables from customers that we expect to collect over the remaining lease term , which are recorded as a straight-line rent receivable . when we acquire a property , the terms of existing leases are considered to commence as of the acquisition date for the purposes of this calculation . 36 tenant recovery income includes payments and amounts due from customers pursuant to their leases for real estate taxes , insurance and other recoverable property operating expenses and is recognized as rental revenues during the same period the related expenses are incurred . we maintain an allowance for estimated losses that may result from the inability of our customers to make required payments . this estimate requires significant judgment related to the lessees ability to fulfill their obligations under the leases . story_separator_special_tag if a customer is insolvent or files for bankruptcy protection and fails to make contractual payments beyond any allowance , we may recognize additional bad debt expense in future periods equal to the net outstanding balances , which include amounts recognized as straight-line revenue not realizable until future periods . in connection with property acquisitions qualifying as business combinations , we may acquire leases with rental rates above or below the market rental rates . such differences are recorded as an intangible lease asset or liability and amortized to rental revenues over the reasonably assured term of the related leases . the unamortized balances of these assets and liabilities associated with the early termination of leases are fully amortized to their respective revenue line items in our consolidated statements of operations over the shorter of the expected life of such assets and liabilities or the remaining lease term . capitalization of costs we capitalize costs directly related to the development , pre-development , redevelopment or improvement of our investment in real estate , referred to as capital projects and other activities included within this paragraph . costs associated with our capital projects are capitalized as incurred . if the project is abandoned , these costs are expensed during the period in which the project is abandoned . costs considered for capitalization include , but are not limited to , construction costs , interest , real estate taxes and insurance , if appropriate . we capitalize indirect costs such as personnel , office , and administrative expenses that are directly related to our development projects based on an estimate of the time spent on the construction and development activities . these costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use . we determine when the capitalization period begins and ends through communication with project and other managers responsible for the tracking and oversight of individual projects . in the event that the activities to ready the asset for its intended use are suspended , the capitalization period will cease until such activities are resumed . in addition , we capitalize initial direct costs incurred for successful origination of new leases . costs incurred for maintaining and repairing our properties , which do not extend their useful lives , are expensed as incurred . interest is capitalized based on actual capital expenditures from the period when development or redevelopment commences until the asset is ready for its intended use , at the weighted average borrowing rates in effect during the period . we also capitalize interest on our qualifying investments in unconsolidated joint ventures based on the average capital invested in a venture during the period when the venture has activities in progress necessary to commence its planned principal operations , at our weighted average borrowing rate during the period . a qualifying investment is an investment in an unconsolidated joint venture provided that our investee 's activities include the use of funds to acquire qualifying assets , such as development or predevelopment activities , and planned principal operations have not commenced . investment in properties we record the assets , liabilities and noncontrolling interests associated with property acquisitions which qualify as business combinations at their respective acquisition date fair values which are derived using a market , income or replacement cost approach , or a combination thereof . acquisition related costs associated with business combinations are expensed as incurred . as defined by gaap , a business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends , lower costs or other economic benefits directly to investors or other owners , members or participants . we generally do not consider acquisitions of land or unoccupied buildings to be business combinations . rather , these transactions are treated as asset acquisitions and recorded at cost . 37 the fair value of identifiable tangible assets such as land , building , building and land improvements and tenant improvements is determined on an as-if-vacant basis which requires significant judgment by management . management considers estimates such as the replacement cost of such assets , appraisals , property condition reports , comparable market rental data and other related information in determining the fair value of the tangible assets . the recorded fair value of intangible lease assets or liabilities includes the value associated with leasing commissions , legal and other costs , as well as the estimated period necessary to lease such property and lease commencement . an intangible asset or liability resulting from in-place leases that are above or below the market rental rates are valued based upon management 's estimates of prevailing market rates for similar leases . intangible lease assets or liabilities are amortized over the reasonably assured lease term of the remaining in-place leases as an adjustment to rental revenues or real estate related depreciation and amortization depending on the nature of the intangible . the difference between the fair value and the face value of debt assumed in connection with an acquisition is recorded as a premium or discount and amortized to interest expense over the life of the debt assumed . the valuation of assumed liabilities is based on our estimate of the current market rates for similar liabilities in effect at the acquisition date . we have certain properties which we have acquired or removed from service with the intention to redevelop the property . buildings under redevelopment require significant construction activities prior to being placed back into service . we generally do not depreciate properties classified as redevelopment until the date that the redevelopment properties are ready for their intended use .
| 40 rental revenues and leasing activity rental revenues , which are comprised of base rent , straight-line rent , amortization of above and below market rent intangibles , tenant recovery income , other rental revenues and early lease termination fees , increased $ 49.4 million for the year ended december 31 , 2013 compared to the same period in 2012 , primarily due to the following changes : $ 43.1 million increase in our non-same store rental revenues including development and redevelopment properties , primarily as a result of an increase in the number of properties and an increase in average occupancy year over year . since december 31 , 2012 , we acquired 38 operating properties , six properties for development and completed development of five properties . $ 6.3 million increase in total revenue in our same store portfolio due primarily to the following : $ 6.7 million increase in base rent primarily resulting from increased rental rates and a 100 basis point increase in average occupancy year over year ; $ 3.2 million increase in operating expense recoveries related to a higher average occupancy ; and $ 1.3 million increase in other rental revenues primarily related to increases in amortization of below market rent and other rents ; which was partially offset by $ 5.0 million decrease in straight-line rental revenue as a result of fewer rent concessions . the following table illustrates the components of our consolidated rental revenues for the years ended december 31 , 2013 and 2012 ( in thousands ) : replace_table_token_16_th the following table provides a summary of our leasing activity for the year ended december 31 , 2013 : replace_table_token_17_th ( 1 ) excludes month to month leases . ( 2 ) net effective rent is the average base rent calculated in accordance with gaap , over the term of the lease . ( 3 ) gaap basis rent growth is an annual ratio of the change in net effective rent ( including straight-line rent adjustments as required by gaap ) compared to the
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the black-scholes model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award . compensation cost for restricted stock is measured using the fair value of the company 's common stock at the date the common stock is granted . the fair value of stock-based awards is amortized over the service period of the awards . stock-based compensation that relates to contract performance is amortized over the term of the corresponding contract . for stock-based awards that vest based on performance conditions ( e.g . achievement of certain milestones ) , expense is recognized when it is probable that the condition will be met . in addition , the calculation of compensation costs requires that the company estimate the number of awards that will be forfeited during the vesting period . fair value of contingent obligations management continues to analyze and quantify contingent obligations ( expected earn-out payments ) over the applicable pay-out period . management will assess no less frequently than each reporting period the fair value of contingent obligations . any change in the expected obligation will result in an expense or income recognized in the period in which it is determined the fair market value of the obligation has changed . income taxes income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities . deferred income taxes are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted rates in effect during the year in which the differences are expected to reverse . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . asc topic 740 , accounting for income taxes clarifies the accounting for uncertainty in income taxes recognized in an enterprise 's financial statements . tax positions shall initially be recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities . such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that has a probability of fifty percent ( 50 % ) or greater of being realized upon ultimate settlement with the tax authority , assuming full knowledge of the position and all relevant facts . 34 recently issued accounting standards in july 2012 , the fasb issued asu 2012-02 , “ intangibles—goodwill and other ( topic 350 ) : testing indefinite-lived intangible assets for impairment. ” asu 2012-02 simplifies the guidance for testing the decline in the realizable value ( impairment ) of indefinite-lived intangible assets other than goodwill . examples of intangible assets subject to the guidance include indefinite-lived trademarks , licenses , and distribution rights . the standard applies to all public , private , and not-for-profit organizations . the amendments in this update are effective for annual and interim impairment tests performed for fiscal years beginning after september 15 , 2012 , with early adoption permitted . the company did early adopt this asu 2012-02. the adoption of asu no . 2012-02 did not have a material impact on the company 's results of operations or the company 's consolidated financial position . in july 2013 , the fasb issued asu 2013-11 , “ income taxes. ” ( topic 740 ) : presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit carryforward exists . this asu 's objective is to eliminate diversity in practice resulting from a lack of guidance on this topic in current u.s. gaap . this asu provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss ( nol ) carryforward , a similar tax loss , or a tax credit carryforward exists . this asu applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date and is effective for periods beginning after december 31 , 2013. the company does not have unrecognized tax benefits as of december 31 , 2013 and therefore the adoption of asu no . 2013-11 is not expected to have a material impact on the company 's results of operations or the company 's consolidated financial position . management does not believe that any other recently issued , but not yet effective , accounting pronouncements , if currently adopted , would have a material effect on the company 's consolidated financial statements . story_separator_special_tag border-bottom : black 1pt solid '' > 36 design and licensing segment - operating income for the current year decreased approximately $ 3.49 million to $ 2.20 million from $ 5.69 million for the prior year . this is primarily driven by the net decrease in other expenses ( income ) of ( $ 2.95 ) million . after accounting for the change in other expenses ( income ) , the resulting comparable operating income decreased by approximately $ 0.54 million , attributable to an increase in operating expenses of $ 1.01 million and offset by an increase in net revenues of $ 0.47 million . retail segment – operating income ( loss ) for the current year was ( $ 0.34 ) million . the loss was primarily the result of the retail business launch in the current year which includes scaling retail operations and fixed overhead associated with our retail business . interest and finance costs . interest and finance costs for the current year decreased by approximately $ 0.45 million to $ 1.73 million compared to $ 2.18 million in the prior year . this is primarily driven by the decrease in term loan interest of $ 0.27 million and a decrease in the amortization of discounted debt and deferred finance costs of $ 0.18 million provision for income taxes . the effective income tax rate for the current year was approximately ( 1,077.7 % ) resulting in a $ 1,402,000 income tax benefit . story_separator_special_tag the effective income tax rate for the prior year was ( 22 % ) which resulted in $ 766,000 of income tax benefit . the current year 's income tax provision has been adjusted by ( 1,251 % ) to account for a permanent tax difference related to the gain on reduction of contingent obligations and an additional 198 % adjustment related to other permanent differences , deferred tax adjustments and other miscellaneous adjustments . net income . our net income was $ 1.53 million in the current year , compared to net income of $ 4.28 million in the prior year , as a result of the factors discussed above . adjusted ebitda . adjusted ebitda for the current year decreased approximately $ 0.56 million to $ 3.94 million from $ 4.50 million for the prior year . the decrease was attributable to a decrease in non-recurring fee income of $ 0.98 million and a net retail loss of $ 0.34 million , partly offset by an increase in net licensing and design ( recurring ) revenues of $ 1.44 million less an increase in operating expenses of $ 0.68 million . adjusted ebitda is a non- gaap , unaudited term , defined as net income before interest expense and other financing costs ( including gain ( loss ) on extinguishment of debt ) , income taxes , other state and local franchise taxes , depreciation and amortization , non-cash compensation and other non-cash income and ( expenses ) ( including gain on reduction of contingent obligations ) . management uses adjusted ebitda as a measure of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to the company 's results of operations . the following table is a reconciliation of net income to adjusted ebitda replace_table_token_3_th 37 liquidity and capital resources liquidity our principal capital requirements have been to fund working capital needs , and to a lesser extent , capital expenditures . at december 31 , 2013 and 2012 our unrestricted cash and cash equivalents were $ 7.46 million and $ 3.93 million , respectively . we expect that existing cash and operating cash flows will be adequate to meet our operating needs , debt service obligations and capital expenditure needs including the debt service under our term loan facilities for the next twelve months . we are dependent on our licensees for most of our revenues , and there is no assurance that the licensees will perform as projected . our design and licensing segment does not require significant capital expenditures . however , we opened our first retail store in june 2013 for which $ 0.14 million of capital expenditures were incurred . we opened our second , store located in atlanta , ga , in march 2014 , incurring approximately $ 0.06 million of capital expenditures during the current year . we expect the total capital expenditures for this store to be similar to our first store . aside from these two locations , we currently have no commitments to open additional retail stores , but we are evaluating retail opportunities . we are planning to launch an e-commerce platform during 2014 , which we incurred $ 0.03 million of capital expenditures in the current year and do n't expect additional capital expenditures to be significant . if we expand the retail business , we would be limited to the number of stores we could open without the consent of our lender . in accordance with the terms of the new loan , we are limited each year to $ 1.0 million of capital expenditures which is subject to increase by 10 % of licensing revenues over $ 15 million . the company 's contingent obligations ( see note 5 , debt in the consolidated financial statements ) are payable in stock and or cash , at the company 's discretion . payment of these obligations in stock would not affect the company 's liquidity . the seller note ( see note 5 , debt in the consolidated financial statements ) is payable in cash up to $ 1.5 million beginning in 2015 , of which $ 1.0 million of the cash payment is subject to bhi 's approval . the principal portion of the seller note not paid in cash is payable with stock and or cash , at the company 's discretion . payment of these obligations in stock would not affect the company 's liquidity . the company made a cash principal payment in the current year of $ 1.5 million . changes in working capital at december 31 , 2013 and december 31 , 2012 , the working capital ratio ( current assets to current liabilities ) was 4.79 to 1.00 and 2.45 to 1.00 , respectively . commentary on components of our cash flows for the current year as compared to the prior year is set forth below : operating activities net cash provided by operating activities was approximately $ 2.38 million and $ 2.59 million in the current year and prior year , respectively . the current year 's cash provided by operating activities is primarily due to net income of $ 1.53 million , adjusted for stock-based compensation of $ 4.81 million , depreciation and amortization of $ 0.89 million , non-cash interest and other finance costs of $ 0.80 million , loss on extinguishment of debt of $ 1.35 million , gain on reduction of contingent obligations of ( $ 5.12 ) million , deferred income tax benefit of ( $ 1.26 ) million , and partially offset by net change in operating assets and liabilities of ( $ 0.65 ) million .
| there are no comparative results for the prior year . gross profit . gross profit for the current year was $ 13.28 million compared to $ 12.70 million for the prior year . design and licensing segment – design and licensing gross profit was $ 13.17 million compared to $ 12.70 million for the prior year , the same amount as our net revenues . retail segment – gross profit was $ 0.11 million , approximately 54 % of net retail sales in the current year . there are no comparative results for the prior year . operating expenses . operating expenses totaled $ 15.19 million for the current year compared to $ 13.73 million for the prior year , an increase of $ 1.46 million . design and licensing segment - operating expenses totaled $ 14.74 million for the current year compared to $ 13.73 million for the prior . this increase of approximately $ 1.01 million was primarily related to an increase in compensation expense , including stock-based compensation of $ 1.09 million , and partly off-set by a decrease in other operating expenses of $ 0.08 million . the increase in compensation was primarily due to salary increases in accordance with employment agreements and operating growth . retail segment – operating expenses were $ 0.45 million for the current year . the new york store opened for business in mid-june 2013 and had its first operations in the current year . during the current year , the company began activities for its second retail store , located in in atlanta , ga , that opened during march 2014 and is scheduled to launch an e-commerce platform later this year . the company 's retail operating expenses were all attributable to the start and development of the retail business . there were no comparative results for the prior year . other expenses ( income ) . total other expenses ( income ) was ( $ 3.77 ) million
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30 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 $ 1.5 million , $ 1.5 million and $ 0.9 million for the years ended december 31 , 2011 , 2012 and 2013 , respectively . we expect to continue to incur increasing expenses as we seek to 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 . in recent years , economic conditions around the world deteriorated , and the outlook for 2014 and beyond remains uncertain . this slowing of the economy , both in the united states and globally , reduced the financial capacities of some of our customers and potential customers , thereby slowing spending on the products and services we provide . furthermore , reductions in government spending may impact the availability of new program awards in 2014. for example , the budget control act commits the u.s. government to reduce the federal deficit by $ 1.2 trillion over ten years through a combination of automatic , across-the-board spending cuts and caps on discretionary spending ( “ sequestration ” ) . automatic across-the-board cuts required by sequestration could have a material adverse effect on our technology development revenue and , consequently , our results of operations . while the exact manner in which sequestration will impact our business is unclear , funding for programs in which we participate could be reduced , delayed or canceled . our ability to obtain new contract awards also could be negatively affected . on january 21 , 2014 , we sold our assets associated with the development of fiber optic shape sensing and localization for the medical field to affiliates of intuitive , for total cash consideration of up to $ 30 million , including $ 6 million received at closing , $ 6 million to be received in april 2014 and up to $ 18 million that we may receive in the future based on the achievement of certain technical milestones and royalties on system sales if any . our revenues recognized related to fiber optic shape sensing in medical applications were $ 3.8 million , $ 3.3 million and $ 2.7 million for the years ended december 31 , 2011 , 2012 , and $ 2013 , respectively . our sales of scc in 2013 and our medical shape sensing business , in 2014 are expected to result in lower revenues until we can increase revenues significantly , primarily from product sales . as a result , we may incur greater net losses than we have in prior years . description of our revenues , costs and expenses revenues we generate revenues from technology development , product sales and commercial product development and licensing activities . we derive technology development revenues from providing research and development services to third parties , including government entities , academic institutions and corporations , and from achieving milestones established by some of these contracts and in collaboration agreements . in general , we complete contracted research over periods ranging from six months to three years , and recognize these revenues over the life of the contract as costs are incurred or upon the achievement of certain milestones built into the contracts . our technology development revenues represented approximately 54 % , 57 % and 52 % of our total revenues for the years ended december 31 , 2011 , 2012 and 2013 , respectively . our products and licensing revenues reflect amounts that we receive from sales of our products or development of products for third parties , as well as fees paid to us in connection with licenses or sub-licenses of certain patents and other intellectual property , and represented approximately 46 % , 43 % and 48 % of our total revenues for the years ended december 31 , 2011 , 2012 and 2013 , respectively . within product and licensing revenues , revenues from our medical shape sensing business , sold to intuitive in january 2014 , represented approximately $ 3.8 million , $ 3.3 million and $ 2.7 million , respectively , for the years ended december 31 , 2011 , 2012 and 2013 . 31 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 . story_separator_special_tag cost of revenues associated with product sales and license revenues consists of license fees for use of certain technologies ; product manufacturing costs including all direct material and direct labor costs ; amounts paid to our contract manufacturers ; manufacturing , shipping and handling ; provisions for product warranties ; and inventory obsolescence , as well as overhead allocated to each of these activities . operating expense operating expense consists of selling , general and administrative expenses , as well as expenses related to research , development and engineering , depreciation of fixed assets and amortization of intangible assets . these expenses also include compensation for employees in executive and operational functions including certain non-cash charges related to expenses from option grants , facilities costs , professional fees , salaries , commissions , travel expense and related benefits of personnel engaged in sales , product management and marketing activities ; costs of marketing programs and promotional materials ; salaries , bonuses and related benefits of personnel engaged in our own research and development beyond the scope and activities of our technology development segment ; product development activities not provided under contracts with third parties ; and overhead costs related to these activities . interest expense , net in february 2010 , we entered into a new line of credit facility with silicon valley bank , or svb , with a borrowing capacity of $ 5.0 million . in may 2011 , we entered into a loan modification agreement with svb under which we repaid the outstanding balance under the prior line of credit and obtained a term loan in the amount of $ 6.0 million , along with a new $ 1.0 million line of credit . in may 2012 , we entered into another loan modification agreement with svb under which we extended the maturity date of the line of credit to may 2014 and adjusted certain covenants . on march 21 , 2013 , we entered into another loan modification agreement with svb under which we replaced the previous financial covenants with a single covenant that we maintain a minimum cash balance of $ 5.0 million . at december 31 , 2013 , we had $ 2.1 million outstanding on the term loan and no amounts outstanding on the line of credit . effective on january 21 , 2014 , this minimum cash balance covenant was modified to reduce the required minimum balance to $ 3.5 million . during the years 2011 , 2012 and 2013 , interest expense included interest accrued on our outstanding bank credit facilities , and interest incurred with respect to our capital lease obligations . during 2011 , interest expense also included interest incurred with respect to amounts owed to hansen medical under a promissory note , until such amounts were paid in full in may 2011. 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 . 32 fixed price contracts may include either a product delivery or specific service performance throughout a period . for fixed price contracts that are based on the proportional performance method and involve a specified number of deliverables , we recognize revenue based on the proportion of the cost of the deliverables compared to the cost of all deliverables included in the contract as this method more accurately measures performance under these arrangements . for fixed price contracts that provide for the development and delivery of a specific prototype or product , revenue is recognized based upon the percentage of completion method . our contracts with agencies of the u.s. government are subject to periodic funding by the respective contracting agency . funding for a contract may be provided in full at inception of the contract or ratably throughout the contract as the services are provided . in evaluating the probability of funding for purposes of assessing collectability of the contract price , we consider our previous experience with our customers , communication with our customers regarding funding status and our knowledge of available funding for the contract or program . if funding is not assessed as probable , revenue recognition is deferred until realization is reasonably assured . contract revenue recognition inherently involves estimation , including the contemplated level of effort to accomplish the tasks under the contract , the cost of the effort and an ongoing assessment of progress toward completing the contract . from time to time , as part of normal management processes , facts may change , causing revisions to estimated total costs or revenues expected . the cumulative impact of any revisions to estimates and the full impact of anticipated losses on any type of contract are recognized in the period in which they become known .
| 35 operating expense replace_table_token_6_th selling , general and administrative expenses increased by $ 0.7 million , or 7.0 % , to $ 11.0 million for the year ended december 31 , 2013 , as compared to $ 10.2 million for the year ended december 31 , 2012. this increase was due to costs recognized of $ 0.8 million in 2013 in connection with the sale of our shape sensing business in the medical field to intuitive , which transaction was closed in january 2014. research , development , and engineering expenses increased $ 0.2 million , or 8.3 % , from $ 2.5 million for 2012 to $ 2.7 million for 2013. this increase was partially attributable to a $ 0.2 million increase in engineering expenses in our products and licensing segment during the first three months ended march 31 , 2013 , during which our engineering resources were more heavily directed toward internal development programs rather than third-party funded product development activities . interest expense and other income our net interest expense was approximately $ 208,000 for the year ended december 31 , 2013 compared to approximately $ 312,000 for the year ended december 31 , 2012. during 2012 and 2013 , our primary outstanding borrowing was the term loan provided by svb . the average monthly loan balance for the year ended december 31 , 2013 was $ 2.9 million as compared to $ 4.4 million for the year ended december 31 , 2012 , resulting in a decrease in interest expense . other income was approximately $ 347,000 for the year ended december 31 , 2013 and $ 108,000 for the year ended december 31 , 2012. during the year ended december 31 , 2013 , we received approximately $ 48,000 from an insurance policy profit share and $ 265,000 in rent income from a sublease of office space . we also recognized additional income from the amortization of the discount we received on prepayment of the hansen note of approximately $ 38,000 , which was fully amortized during the second quarter of 2013. other income for 2012
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in addition , if janssen does not perform in the manner we expect or fulfill its responsibilities in a timely manner , including with respect to conducting future additional or further data reviews of imbark or imerge , or at all , the clinical development , manufacturing , regulatory approval and or commercialization of imetelstat could be delayed or terminated , and it could become necessary for us to assume responsibility for the clinical development , manufacturing , regulatory approval and or commercialization of imetelstat at our own expense . in any event , imetelstat will require significant additional clinical testing prior to possible regulatory approval in the united states and other countries , and we do not expect imetelstat to be commercially available for many years , if at all . critical accounting policies and estimates our financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses . note 1 of notes to financial statements describes the significant accounting policies used in the preparation of our financial statements . certain of these significant accounting policies are considered to be critical accounting policies , as defined below . a critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult , subjective or complex judgments that could have a material effect on our financial condition and results of operations . specifically , critical accounting estimates have the following attributes : ( i ) we are required to make assumptions about matters that are highly uncertain at the time of the estimate ; and ( ii ) different estimates we could reasonably have used , or changes in the estimate that are reasonably likely to occur , would have a material effect on our financial condition or results of operations . estimates and assumptions about future events and their effects can not be determined with certainty . we base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances . these estimates may change as new events occur , as additional information is obtained and as our operating environment changes . these changes historically have been minor and have been included in the financial statements as soon as they became known . based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies , management believes that our financial statements are stated fairly in accordance with accounting principles generally accepted in the united states , and meaningfully present our financial condition and results of operations . 71 we believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements : fair value of financial instruments we categorize financial instruments recorded at fair value on our balance sheets based upon the level of judgment associated with inputs used to measure their fair value . the categories are as follows : level 1inputs are unadjusted , quoted prices in active markets for identical assets or liabilities at the measurement date . an active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis . level 2inputs ( other than quoted market prices included in level 1 ) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument 's anticipated life . level 3inputs reflect management 's best estimate of what market participants would use in pricing the asset or liability at the measurement date . consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model . a financial instrument 's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement . following is a description of the valuation methodologies used for financial instruments measured at fair value on our balance sheets , including the category for such financial instruments . financial instruments classified as level 1 include money market funds and certificates of deposit , representing 9 % of our total financial instruments classified as assets measured at fair value as of december 31 , 2016. financial instruments classified as level 2 include u.s. government-sponsored enterprise securities , commercial paper and corporate notes , representing 91 % of our total financial instruments classified as assets measured at fair value as of december 31 , 2016. the price for each security at the measurement date is derived from various sources . periodically , we assess the reasonableness of these sourced prices by comparing them to the prices provided by our portfolio managers from broker quotes as well as reviewing the pricing methodologies used by our portfolio managers . historically , we have not experienced significant deviation between the sourced prices and our portfolio managers ' prices . for a further discussion regarding fair value measurements , see note 2 on fair value measurements in notes to financial statements of this annual report on form 10-k. revenue recognition we recognize revenue for each unit of accounting when all of the following criteria have been met : ( a ) persuasive evidence of an arrangement exists , ( b ) delivery has occurred or services have been rendered , ( c ) the seller 's price to the buyer is fixed or determinable , and ( d ) collectability is reasonably assured . amounts received prior to satisfying these revenue recognition criteria are recorded as deferred revenue . amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current deferred revenue . story_separator_special_tag amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as noncurrent deferred revenue . since our inception , substantially all of our revenues have been generated from license and collaboration agreements . economic terms in these agreements may include non-refundable upfront license payments in cash or equity securities , option payments in cash or equity securities , cost reimbursements , cost-sharing arrangements , milestone payments , royalties on future sales of products , 72 or any combination of these items . in applying the appropriate revenue recognition guidance related to these agreements , we first assess whether the arrangement contains multiple elements . in this evaluation , we consider : ( i ) the deliverables included in the arrangement and ( ii ) whether the individual deliverables represent separate units of accounting or whether they must be accounted for as a combined unit of accounting . this evaluation involves subjective determinations and requires us to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship . deliverables are considered separate units of accounting provided that : ( i ) the delivered item ( s ) has value to the customer on a standalone basis , and ( ii ) if the arrangement includes a general right of return relative to the delivered item ( s ) , delivery or performance of the undelivered item ( s ) is considered probable and substantially in our control . in assessing whether an item has standalone value , we consider factors such as the research , manufacturing and commercialization capabilities of the collaboration partner or licensee and the availability of the associated expertise in the general marketplace . in addition , we consider whether the collaboration partner or licensee can use the other deliverable ( s ) for their intended purpose without the receipt of the remaining element ( s ) , whether the value of the deliverable is dependent on the undelivered item ( s ) and whether there are other vendors that can provide the undelivered element ( s ) . arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method . we then apply the applicable revenue recognition criteria noted above to each of the separate units of accounting in determining the appropriate period and pattern of recognition . we determine how to allocate arrangement consideration to identified units of accounting based on the selling price hierarchy provided under relevant accounting guidance . the estimated fair value of deliverables under the arrangement may be derived using a best estimate of selling price if vendor-specific-objective evidence and third-party evidence are not available . upfront non-refundable signing , license or non-exclusive option fees are recognized as revenue : ( i ) when rights to use the intellectual property have been delivered , if the license has standalone value from the other deliverables to be provided under the agreement , or ( ii ) over the term of the agreement if we have continuing performance obligations , as the arrangement would be accounted for as a single unit of accounting . when payments are received in equity securities , we do not recognize any revenue unless such securities are determined to be realizable in cash . at the inception of an arrangement that includes milestone payments , we assess whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone . this evaluation includes an assessment of whether : ( i ) the consideration is commensurate with either the performance to achieve the milestone or the enhancement of the value of the delivered item ( s ) as a result of a specific outcome resulting from the performance to achieve the milestone , ( ii ) the consideration relates solely to past performance and ( iii ) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement . we consider various factors , such as the scientific , clinical , regulatory , commercial and other risks that must be overcome to achieve the respective milestone and the level of effort and investment required to achieve the respective milestone , in making this assessment . there is considerable judgment involved in determining whether a milestone satisfies all of the criteria required to conclude that a milestone is substantive . milestone payments for milestones that are considered substantive would be recognized as revenue in their entirety upon successful accomplishment of the milestone , assuming all other revenue recognition criteria are met . milestone payments for milestones that are not considered substantive would be recognized as revenue over the remaining period of performance , assuming all other revenue recognition criteria are met . royalties are recognized as earned in accordance with contract terms when royalties from licensees can be reasonably estimated and collectability is reasonably assured . if royalties can not be reasonably estimated or collectability of a royalty amount is not reasonably assured , royalties are recognized as revenue when the cash is received . revenue from commercial milestone payments is accounted for as royalties and recorded as revenue upon achievement of the milestone , assuming all other revenue recognition criteria are met . 73 cost-sharing expenses are recorded as earned or owed based on the performance requirements by both parties under the respective contracts . for arrangements in which we and our collaboration partner in the agreement are exposed to significant risks and rewards depending on the commercial success of the activity , we recognize payments between the parties on a net basis and record such amounts as a reduction or addition to research and development expense .
| in order for imetelstat to be commercialized , we are wholly dependent on janssen to conduct preclinical tests and clinical trials to demonstrate the safety and efficacy of imetelstat , obtain regulatory approvals or clearances and enter into manufacturing , distribution and marketing 75 arrangements , as well as obtain market acceptance . we do not expect to receive royalties based on sales of imetelstat for many years , if at all . revenues collaboration revenue upon the effectiveness of the collaboration agreement with janssen in december 2014 , we received $ 35 million as an upfront payment , which we classified as deferred revenue upon receipt . we determined delivery of the imetelstat license rights granted by us to janssen , together with our performance of the technology transfer-related activities outlined in the collaboration agreement , represented the sole non-contingent deliverable associated with the upfront payment . therefore , we accounted for our delivery of the imetelstat license rights and our performance of the technology transfer-related activities as a single unit of accounting . during the third quarter of 2015 , we completed performance of the technology transfer-related activities to janssen as outlined under the collaboration agreement . combining this performance with the delivery of the imetelstat license rights , we fully recognized the $ 35 million upfront payment from janssen as collaboration revenue on our statements of operations during the third quarter of 2015. no further payments have been made by janssen to us in 2016. any future collaboration revenue is substantially dependent on janssen 's ability to successfully develop and commercialize imetelstat in accordance with the collaboration agreement . see further discussion of revenue recognition for the collaboration agreement in note 4 on license agreements in notes to financial statements of this annual report on form 10-k. license fees and royalties in addition to the collaboration agreement with janssen for imetelstat , we have entered into several license or collaboration agreements with companies involved with oncology , diagnostics , research tools and biologics production , whereby we have granted certain rights to our non-imetelstat related technologies . in connection with these agreements , we are eligible to receive license fees , option fees , milestone payments
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the consolidated liabilities include the senior notes issued by nftf of $ 177.3 million net of the $ 2.7 million discount and $ 2.9 million accrued interest expense on the senior notes . our consolidated statements of income for the year ended december 31 , 2014 includes $ 6.1 million of interest income on the time deposit and amortization of the discounts on the u.s. treasuries and $ 6.6 million of interest expense for the senior notes , amortization of the discount and issuance costs related to the buyer spe and nftf . rivertown sale on april 2 , 2014 , we completed our previously announced sale to an affiliate of mattamy ( jacksonville ) partnership d/b/a mattamy homes ( “ mattamy ” ) of approximately 4,057 acres of real property , which constitutes the rivertown community in st. johns county , florida , along with all of the company 's related development or developer rights , founder 's rights and certain tangible and intangible personal property in exchange for ( 1 ) $ 24.0 million in cash , ( 2 ) $ 19.6 million in the form of a purchase money note ( the “ rivertown note ” ) , ( 3 ) the assumption of our rivers edge community development district ( “ rivers edge cdd ” ) assessments and ( 4 ) the obligation to purchase certain rivertown community related impact fee credits from us as the rivertown community is developed ( the “ rivertown sale ” ) . the rivertown note bears interest at 5.25 % per annum , matures on june 30 , 2015 and is payable as follows : ( i ) accrued interest was paid on september 30 , 2014 , ( ii ) accrued interest plus $ 1.0 million of principal is due on march 30 , 2015 and ( iii ) all accrued interest and remaining principal is due on june 30 , 2015. the rivertown note is secured by a mortgage imposing a first priority security lien on the real property included the rivertown sale . based on mattamy 's current development plans and st. johns county 's current costs for impact fees , we may receive approximately $ 20 million to $ 26 million for the impact fees over the five-year period following the closing ( most of which , we expect to receive at the end of that five-year period ) . however , the actual additional consideration received for the impact fees , will be based on mattamy 's actual development of the rivertown community , the timing of mattamy 's development of the rivertown community and the impact fee rates at the time of such development ( as determined by st. johns county 's then current impact fee rate schedule ) , which are all factors beyond our control . we can not provide any assurance as to the amount or timing of any payments it may receive for the impact fees . during 2014 , we received $ 0.1 million for these impact fees . we recorded net earnings of $ 26.0 million before income taxes for the rivertown sale during the second quarter of 2014. mattamy also assumed our total outstanding rivers edge cdd assessments , which were $ 11.0 million , of which $ 5.4 million was recorded on our consolidated balance sheets as of march 31 , 2014 . 31 segments as of december 31 , 2014 , we have the following four operating segments : 1 ) residential real estate , 2 ) commercial real estate , 3 ) resorts , leisure and leasing operations and 4 ) forestry . the table below sets forth the relative contribution of these operating segments to our consolidated operating revenues , excluding revenues of $ 570.9 million related to the agreserves sale and revenues of $ 43.6 million related to the rivertown sale during 2014 : replace_table_token_4_th residential real estate our residential real estate segment typically plans and develops mixed-use resort , primary and seasonal residential communities of various sizes , primarily on our existing land . our residential real estate segment generates revenues primarily from : the sale of developed homesites ; the sale of parcels of entitled , undeveloped lots ; a lot residual on homebuilder sales that provides us a percentage of the sale price of the completed home if the home price exceeds a negotiated threshold ; the sale of impact fee credits ; and other fees on certain transactions . our residential real estate segment incurs cost of revenues primarily from costs directly associated with the land , development and construction of real estate sold and indirect costs such as development overhead , capitalized interest , marketing , project administration , and selling costs . commercial real estate in our commercial real estate segment we plan , develop and entitle our land holdings for a variety of uses including a broad range of retail , office , hotel and industrial uses . we sell land for commercial and light industrial uses . from time to time , our commercial real estate segment also sells certain resorts , leisure and operating properties . our commercial real estate segment generates revenues from the sale of developed and undeveloped land for retail , office , hotel and industrial uses , from the sale of undeveloped land or land with limited development and easements and the sale of commercial operating properties . our commercial real estate segment incurs costs of revenues from costs directly associated with the land , development , construction and selling costs . 32 resorts , leisure and leasing operations our resorts , leisure and leasing operations segment generates revenues from our recurring revenue streams , which primarily include the watercolor inn and vacation rentals , golf courses , marinas and leasing operations . resort and leisure business watercolor inn and vacation rentals – our resorts and leisure operations generate revenues from the watercolor inn and resort , the watersound beach club , our restaurants and our vacation rental businesses . story_separator_special_tag the watercolor inn incurs expenses from the cost of services and goods provided , personnel costs and third party management fees . our vacation rental business generates revenues from the rental of private homes and other services , which includes the entire rental fee collected from the customer , including the homeowner 's potion . a percentage of the fee is remitted to the homeowner and presented in cost of resorts , leisure and leasing operations . the vacation rental business also incurs expenses from marketing , personnel and general maintenance for the homeowner . clubs and resorts – our clubs and resorts include our golf courses and resort facilities that generate revenues from memberships , daily play at those golf courses that are not part of our st. joe club & resorts , merchandise sales and food and beverage sales and incur expenses from the services provided , maintenance of the golf course facilities , personnel costs and third party management fees . st. joe club & resorts is our private membership club that provides participating homeowners and their rental guests access to our clubs . we launched st. joe club & resorts in january 2014 , and as a result of this initiative , certain of our clubs are no longer available to the public . while we expect revenues generated from these facilities to decline , we expect that revenues from our vacation rental business will increase in the future as we believe that the st. joe club & resorts will provide us a competitive advantage in this business . in addition , in may 2014 , st. joe club & resorts began managing the pearl hotel , a fifty-five room resort hotel in northwest , florida . revenues generated for our management services of the pearl hotel include a management fee , fifty percent of certain resort fees and a percentage of the pearl hotel 's gross operating profit . expenses include primarily internal administrative costs . marinas – our marinas generate revenues from boat slip rentals and fuel sales , and incur expenses from cost of services provided , maintenance of the marina facilities , personnel costs and third party management fees . leasing operations leasing operations – our leasing operations generate revenues from leasing retail and commercial property , including properties located in our consolidated joint venture at pier park north and our industrial park , venture crossings , and incur expenses primarily from maintenance of these properties and personnel costs . our pier park north joint venture also incurs interest and financing expenses related to its construction loan . 33 forestry our forestry segment focuses on the management of our timber holdings in northwest florida . we grow and sell sawtimber , wood fiber and forest products and provide land management services for conservation properties . subsequent to the agreserves sale , we have sold and plan to continue to sell product on site without the associated delivery costs . our forestry segment generates revenues from the sale of wood fiber , sawtimber , standing timber and forest products and conservation land management services . our forestry segment incurs costs of revenues from internal costs of forestry management and property taxes . our forestry segment may also generate revenues from the sale of our timber holdings , undeveloped land or land with limited development and easements . costs incurred as part of a sale of these lands may include the cost of timber , land , minimal development costs and selling costs . prior to the agreserves sale , a significant portion of the revenue from our forestry segment was generated pursuant to our rocktenn supply agreement , under which we sold delivered wood ( trees that we cut and deliver ) . as part of the agreserves sale , the rocktenn supply agreement was assumed by agreserves . subsequent to the agreserves sale , revenue from our forestry segment has decreased substantially and is primarily generated from open market sales of timber . critical accounting estimates the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . we base these estimates on historical experience , available current market information and on various other assumptions that management believes are reasonable under the circumstances . additionally , we evaluate the results of these estimates on an on-going basis . management 's estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions , and our accounting estimates are subject to change . investment in real estate and cost of real estate sales . costs associated with a specific real estate project are capitalized during the development period . we capitalize costs directly associated with development and construction of identified real estate projects . indirect costs that clearly relate to a specific project under development , such as project administration , may also be capitalized . we capitalize interest ( up to total interest expense ) based on the amount of underlying expenditures and real estate taxes on real estate projects under development . real estate development costs also include land and common development costs ( such as roads , sewers and amenities ) , capitalized property taxes , capitalized interest and certain indirect costs . a portion of real estate development costs and estimates for costs to complete are allocated to each unit based on the relative sales value of each unit as compared to the estimated sales value of the total project .
| see note 5 , real estate sales , included in the notes to the consolidated financial statements included in item 15 of this form 10-k for further discussion on our special purpose entities . during 2014 , capital expenditures incurred by our pier park north joint venture were $ 22.6 million and capital expenditures for other property and equipment were $ 2.5 million , which were primarily for our resorts , leisure and leasing operations segment . in addition , we received $ 3.0 million in proceeds from the sale of our fifty percent ownership interest in our east san marco real estate joint venture during 2014. cash flows from financing activities net cash from financing activities was $ 200.3 million for 2014 . this includes $ 25.2 million of borrowings on the pier park north joint venture construction loan , and nftf 's issuance of senior notes for $ 175.7 million net of the discount and deferred issuance costs partially offset by payments related to our cdd assessments of $ 0.6 million . off-balance sheet arrangements in february 2013 , the pier park north joint venture entered into a construction loan agreement for $ 41.0 million that matures in february 2016 at which time there is an option for a two year extension . as of december 31 , 2014 , $ 31.6 million was outstanding on the construction loan . pursuant to the construction loan we have provided the following : ( i ) a completion guarantee until substantial completion ; ( ii ) a principal repayment guarantee limited to 33 % of the outstanding balance of the loan ; ( iii ) a guarantee covering , among other things , operating deficits and accrued and unpaid interest ; and ( iv ) customary non-recourse covenants covering items like misrepresentations , misappropriation of funds and fraud . in addition , pursuant to the construction loan we have agreed to maintain minimum liquidity of $ 25 million
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much of this merchandise is sourced on an import basis , which allows us to maintain our competitive pricing . additionally , our seasonal category offers a mix of departments and products that surprise and delight by complementing her outdoor experience and holiday decorating desires . we continue to work with our vendors to expand the product assortment in our seasonal category to respond to jennifer 's evolving wants and needs . our soft home category complements our furniture and seasonal categories in making our stores a destination for a broader range of home needs . over the past several years , we have enhanced our assortment in soft home by allocating more selling space to the category to support a wider range of replenishable , fashion-based products . we believe that we have a competitive advantage in soft home as a result of our trend-right , focused assortment with improved quality and perceived value , and our ability to furnish jennifer 's home with décor that complements an in-store furniture purchase . we have worked to develop a “ solutions ” approach to complete a room through our cross-merchandising efforts , particularly color palette coordination , when combining our soft home offerings with our furniture and seasonal categories . we believe that this approach helps jennifer envision how the product can work in her home and enhances our brand image . we consider food , consumables , hard home , and electronics , toys , & accessories as convenience categories : our food and consumables categories focus primarily on catering to jennifer 's daily essentials by providing reliable value , consistency , and convenience of product offerings . we believe we possess a competitive advantage in the food and consumables categories based on our sourcing capabilities for closeout merchandise . manufacturers and vendors have closeout merchandise for a variety of different reasons , including other retailers canceling orders or going out of business , production overruns , or marketing or packaging changes . we believe our vendor relationships , along with our size and financial strength , afford us these opportunities . to supplement our closeout business , we have focused on improving and expanding our brand name , “ never out ” product assortment to provide more consistency in those areas where jennifer desires consistently available product offerings , such as over-the-counter medications . we believe that we have added top brands to our “ never out ” programs in consumables and that our assortment and value proposition will continue to differentiate us in this highly competitive industry . in 2020 , we reallocated space from the food category to the consumables category through our “ pantry optimization ” initiative , which right-sized our food assortment , including reducing our refrigerated foods , and allowed us to expand the “ never out ” consumables assortment that jennifer has told us she loves . we believe that our hard home and electronics , toys , & accessories categories serve as convenient adjacencies to our other merchandise categories . over the past several years , with the exception of apparel , we have intentionally narrowed our assortments in these categories and reallocated space from these categories to our home categories . these categories focus on value , and savings in comparison to competitors , in areas such as food prep , table top , home maintenance , small appliances , electronics , and apparel . in 2020 , we expanded our apparel assortment to include graphic tees following a successful test during 2019. these graphic tees are primarily displayed in the lot , but also appear in other sections of our store . additionally , during 2020 , we took advantage of several well-received closeout opportunities to expand our apparel offering and we intend to continue seeking apparel closeouts going forward . our merchandising management team is aligned with our merchandise categories , and their primary goal is to increase our total company comparable sales ( “ comp ” or “ comps ” ) , which includes stores open at least fifteen months , plus our e-commerce operations . our review of the performance of the members of our merchandise management team focuses on comps by merchandise category , as we believe it is the key metric that will drive our long-term net sales . by focusing on strengthening our home offerings , and managing our convenience categories , we believe our merchandise management team can effectively address the changing shopping behaviors of our customers and implement more focused offerings within each merchandise category , which we believe will lead to continued comp growth . 23 table of conten ts marketing the top priority of our marketing activities is to increase our net sales and comps by developing our brand identity as ( 1 ) the authority on price and value for jennifer and ( 2 ) a source of surprise and delight . over the past few years , we have reviewed our brand identity to gain further insights into jennifer 's perception of us and how best to improve the overall effectiveness of our marketing efforts . our research has affirmed that jennifer is deal-driven , enjoys a “ treasure hunt , ” comes to us for our value-priced merchandise assortment , and appreciates our ability to assist her in fashioning and furnishing her home so that she can feel empowered to enjoy the space with family and friends . we believe our strong price value perception and the surprise and delight factor in our stores enhances our ability to effectively connect with jennifer in a way that lets her understand when shopping at big lots , she can afford to live big , while saving lots . in an effort to align our messaging with the positive aspects of jennifer 's perception of our brand , we have focused our marketing efforts on driving our value proposition in every season and category . story_separator_special_tag we continue to increase our use of social and digital media outlets , including conducting entire campaigns through these outlets ( specifically on facebook ® , instagram ® , pinterest ® , twitter ® , and youtube ® ) , to drive an increased understanding of our value proposition with our core customer and to communicate that message to new potential customers . these outlets enable us to deliver our message directly to jennifer and provide her with the opportunity to share direct feedback with us , which can enhance our understanding of what is most important to her and how we can improve the shopping experience in our stores . given our customer 's proficiency with mobile devices and digital media , we focus on communicating with her through those channels . our big rewards program allows us to more effectively incentivize our loyal customers and encourage new membership by highlighting the significant features and benefits . our loyalty program rewards jennifer with a coupon after every third purchase , a birthday reward offer , and special rewards after large-ticket furniture purchases . research has shown there is a direct correlation between loyal , frequent shoppers and a larger basket . we believe that growing the membership base of the big rewards program will provide more opportunities to understand and leverage customer behavior through segmentation . we leverage our rewards program database to gain insights into shopping behaviors , reengage lapsed members , and tailor our assortment and promotions to jennifer 's desires . at january 30 , 2021 , our big rewards program had nearly 21 million active members ( defined as having made a purchase in the last 12 months ) and we are focused on continuing to grow the membership base of our big rewards program in 2021. in addition to electronic , social and digital media , our marketing communication efforts involve a mix of television advertising , printed ad circulars , and in-store signage . the primary goals of our television advertising are to promote our brand and , from time to time , promote products or special discounts in our stores . we have also shifted towards using more digital streaming media in concentrated markets , which allows us to connect more deeply and frequently with jennifer . our printed advertising circulars and our in-store signage initiatives focus on promoting our value proposition on our unique merchandise offerings . shopping experience one of the core objectives of operation north star is to responsibly invest in store presentation initiatives that create an easy shopping experience for our customers . from 2017 through 2019 , we invested heavily in a presentation initiative we called “ store of the future , ” which moved our furniture department to the front center of the store with seasonal and soft home on either side and moved food and consumables to the back of the store , while keeping them visible with clear sight lines from the entrance of the store . additionally , the store of the future concept included improved lighting and new flooring . prior to 2020 , we intended to expand the store of the future concept to our entire chain of stores . in 2020 , we reevaluated our investment in the store of the future concept and chose to shift our focus to smaller scale initiatives , such as the lot and queue line initiatives discussed below , that we believe will have a higher return on our investment . therefore , we do not plan to invest in the store of the future concept going forward . in 2020 , we implemented a presentation solution we call “ the lot ” in approximately 50 % of our stores . we designed the lot to add incremental selling space to our store layout and display items from various merchandise categories placed in vignettes to promote life 's occasions , such as fall tailgating . the lot offers surprise and delight to jennifer by demonstrating the breadth and value of products that we offer in one convenient experience . our expectation is to re-introduce jennifer to the “ treasure ” that we offer , while removing the challenges of the “ hunt ” from the experience . in 2021 , we plan to expand the lot to approximately 550 additional stores . 24 table of conten ts also in 2020 , we implemented a streamlined checkout experience in approximately 50 % of our stores that we call the “ queue line , ” which features a reconfigured checkout design . the queue line both enhances the customer experience and builds a bigger basket as our customers walk by new and expanded convenience offerings as they check out . furthermore , the queue line creates additional selling space for our furniture merchandise category . in 2021 , we plan to expand the queue line to approximately 550 additional stores . as discussed above in “ merchandising , ” in 2020 , we reallocated space from the food category to the consumables category as part of our pantry optimization project . this project streamlined our food assortment and added more staple consumables offerings to provide the consistency that drives our customers to keep coming back to our stores . we believe this initiative has resonated well with our customers and we are continuing to refine our assortments to meet her needs . in addition to our efforts to improve the in-store shopping experience , operation north star is focused on improving our e-commerce shopping experience and growing e-commerce net sales . our efforts are centered around removing barriers , creating a fun and easy experience , and expanding the items available for purchase online . over the last few years , we have made a concerted effort to increase our “ extended aisle ” assortments on our e-commerce platform , which offer additional fabric and color options on products in our furniture and seasonal categories , including items only available online .
| the following table compares components of our consolidated statements of operations as a percentage of net sales : replace_table_token_11_th 20 table of conten ts see the discussion below under the caption “ 2020 compared to 2019 ” for additional details regarding the specific components of our operating results . see our item 7. management 's discussion and analysis of financial condition and results of operations included in our form 10-k for the year ended february 1 , 2020 for a comparison of operating results for 2019 to operating results for 2018. in 2020 , we recognized a gain on sale of distribution centers of $ 463.1 million related to the sale and leaseback of four distribution centers . additionally , our selling and administrative expenses include $ 4.0 million of consulting and other costs associated with the sale and leaseback transactions . the combined gain on sale of distribution centers and associated consulting and other expenses increased our operating profit by $ 459.1 million and increased our diluted earnings per share by approximately $ 8.75 per share . see note 10 to the accompanying consolidated financial statements for additional information on the sale and leaseback transactions . in 2019 , our cost of sales includes a $ 6.0 million charge for impairment of inventory in our greeting cards department , which we chose to exit in the first quarter of 2019. additionally , our selling and administrative expenses include $ 38.3 million of costs associated with our transformational restructuring initiative , which we refer to as “ operation north star ” , announced in the first quarter of 2019 and $ 7.3 million in estimated costs associated with employee wage and hour claims brought against us in the state of california . we also recognized a gain on sale of distribution center of $ 178.5 million related to the sale of our rancho cucamonga , ca distribution center which increased our 2019 operating profit by $ 178.5 million and increased our diluted earnings per share by approximately $ 3.47 per share . see note 10 to
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the $ 1.4 million , or 11.4 % , increase in 2001 was primarily the result of increases in employee compensation and benefits , fixed asset expense , and increased litigation expense . employee compensation and benefits increased from $ 6.8 million in 2000 to $ 7.6 million in 2001 , an increase of $ 801,000 or 11.8 % . this increase was due to an increase in full time equivalent employees from 192 at december 31 , 2000 to 199 at december 31 , 2001 , an increase in incentive compensation , and normal salary adjustments . legal and professional fees increased $ 227,000 or 40.7 % primarily due to litigation involving the lawsuit settlement with guaranty federal . the increase in total noninterest expense for 2000 over 1999 of $ 1.9 million , or 18.3 % , was primarily the result of additional operating expenses incurred in connection with the addition of the sulphur springs and commerce locations acquired from first american in september 1999. the company 's efficiency ratios , calculated by dividing total noninterest expense ( excluding securities gains and losses ) by net interest income plus noninterest income , were 70.10 % in 2001 , 75.72 % in 2000 , and 71.12 % in 1999 . - 23 - the following table presents for the periods indicated the major categories of noninterest expense : replace_table_token_9_th income taxes federal income tax is reported as income tax expense and is influenced by the amount of taxable income , the amount of tax-exempt income , the amount of non-deductible interest expense and the amount of other non-deductible expense . the company utilized tax benefits on leveraged lease transactions in the amounts of $ 763,000 , $ 650,000 and $ 423,000 for the years ended december 31 , 2001 , 2000 and 1999 , respectively . the effective tax rates for the years ended december 31 , 2001 , 2000 and 1999 were 31.39 % , 23.14 % and 19.27 % , respectively . income taxes for financial purposes in the consolidated statements of earnings differ from the amount computed by applying the statutory income tax rate of 35 % to earnings before income taxes . the difference in the statutory rate is primarily due to the tax benefits on the leveraged lease transactions and non-taxable income . additionally , the state of texas imposes a texas franchise tax . taxable income for the income tax component of the texas franchise tax is the federal pre-tax income , plus certain officers ' salaries , less interest income from federal securities . total franchise tax expense was $ 50,000 in 2001 , $ 56,000 in 2000 and $ 40,000 in 1999 for each of the twelve month periods ended december 31. such expense was included as a part of other noninterest expense . impact of inflation the effects of inflation on the local economy and on the company 's operating results have been relatively modest for the past several years . since substantially all of the company 's assets and liabilities are monetary in nature , such as cash , securities , loans and deposits , their values are less sensitive to the effects of inflation than to changing interest rates , which do not necessarily change in accordance with inflation rates . the company tries to control the impact of interest rate fluctuations by managing the relationship between its interest rate sensitive assets and liabilities . see quantitative and qualitative disclosures about market risk below . financial condition loan portfolio the company provides a broad range of commercial , real estate and consumer loan products to small and medium-sized businesses and individuals . the company aggressively pursues qualified lending customers in both the commercial and consumer sectors , providing customers with direct access to lending personnel and prompt , professional service . the 86.4 % loan to deposit ratio as of december 31 , 2001 , reflects the company 's commitment as an active lender in the local communities it serves . total loans were $ 331.3 million at december 31 , 2001 , an increase of $ 43.9 million or 15.3 % compared with $ 287.3 million at december 31 , 2000. in 2000 , total loans increased by $ 32.1 million or 12.6 % to $ 287.3 million from $ 255.2 million at december 31 , 1999. in 1999 , total loans increased by $ 69.3 million or 37.3 % from $ 185.9 million at december 31 , 1998. the growth in loans reflects the stable local economy , an aggressive advertising campaign , the company 's pro-lending reputation and the solicitation of new companies and individuals entering the company 's market areas . - 24 - the following table summarizes the loan portfolio of the company by type of loan as of the dates indicated : replace_table_token_10_th the primary lending focus of the company is on loans to small and medium-sized businesses and one-to- four family residential mortgage loans . the company 's commercial lending products include business loans , commercial real estate loans , equipment loans , working capital loans , term loans , revolving lines of credit and letters of credit . most commercial loans are collateralized and on payment programs . the purpose of a particular loan generally determines its structure . in almost all cases , the company requires personal guarantees on commercial loans to help assure repayment . the company 's commercial mortgage loans are generally secured by first liens on real estate , typically have fixed interest rates and amortize over a 10 to 15 year period with balloon payments due at the end of one to five years . in underwriting commercial mortgage loans , consideration is given to the property 's operating history , future operating projections , current and projected occupancy , location and physical condition . the underwriting analysis also includes credit checks , appraisals and a review of the financial condition of the borrower . the company makes loans to finance the construction of residential and , to a limited extent , nonresidential properties . story_separator_special_tag construction loans generally are secured by first liens on real estate . the company conducts periodic inspections , either directly or through an agent , prior to approval of periodic draws on these loans . underwriting guidelines similar to those described above are also used in the company 's construction lending activities . in keeping with the community-oriented nature of its customer base , the company also provides construction and permanent financing for churches located within its market areas . the company rarely makes loans at its legal lending limit . lending officers are assigned various levels of loan approval authority based upon their respective levels of experience and expertise . all loans above $ 600,000 are evaluated and acted upon by the executive committee , which meets weekly . all new and renewed loans greater than $ 25,000 are reported to the board of directors all new and renewed loans less than $ 25,000 are reported weekly at the executive committee . the company 's strategy for approving or disapproving loans is to follow conservative loan policies and underwriting practices which include : ( i ) granting loans on a sound and collectible basis ; ( ii ) investing funds properly for the benefit of shareholders and the protection of depositors ; ( iii ) serving the legitimate needs of the community and the company 's general market area while obtaining a balance between maximum yield and minimum risk ; ( iv ) ensuring that primary and secondary sources of repayment are adequate in relation to the amount of the loan ; ( v ) developing and maintaining adequate diversification of the loan portfolio as a whole and of the loans within each category ; and ( vi ) ensuring that each loan is properly documented and , if appropriate , insurance coverage is adequate . the company 's loan review and compliance personnel interact daily with commercial and consumer lenders to identify potential underwriting or technical exception variances . in addition , the company has placed increased emphasis on the early identification of problem loans to aggressively seek resolution of the situations and thereby keep loan losses at a minimum . the company 's loans collateralized by one-to-four family residential real estate generally are originated in amounts of no more than 90 % of the lower of cost or appraised value . the company requires mortgage title insurance and hazard insurance in the amount of the loan . of the mortgages originated , the company generally retains mortgage loans with short terms or variable rates and sells longer-term fixed-rate loans that do not meet the company 's credit underwriting standards . prior to the acquisition of first american , the company sold such loans to texas independent bank mortgage company ; however , since the first american acquisition , the company sells these loans directly into the secondary market . - 25 - as of december 31 , 2001 , the company 's one-to-four family residential real estate loan portfolio was $ 126.1 million . of this amount , $ 40.5 million is repriceable in one year or less and an additional $ 66.2 million is repriceable from one year to five years . these high percentages in short-term real estate loans reflect the company 's commitment to reducing interest rate risk . the company provides a wide variety of consumer loans including motor vehicle , watercraft , education loans , personal loans ( collateralized and uncollateralized ) and deposit account collateralized loans . the terms of these loans typically range from 12 to 72 months and vary based upon the nature of collateral and size of loan . as of december 31 , 2001 , the company had no indirect consumer loans , indicating a preference to maintain personal banking relationships and strict underwriting standards . during the last several years , management has placed tighter controls on consumer credit due to record high personal bankruptcy filings nationwide . the contractual maturity ranges of the commercial , industrial and real estate construction loan portfolio and the amount of such loans with predetermined interest rates in each maturity range as of december 31 , 2001 , are summarized in the following table : replace_table_token_11_th nonperforming assets the company has several procedures in place to assist it in maintaining the overall quality of its loan portfolio . the company has established underwriting guidelines to be followed by its officers and also monitors its delinquency levels for any negative or adverse trends . there can be no assurance , however , that the company 's loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions . nonperforming assets at december 31 , 2001 , increased $ 1.2 million or 24.8 % to $ 6.2 million compared with $ 5.0 million at december 31 , 2000. this increase was primarily due to the addition of one loan in the amount of $ 1.0 million . a specific reserve has been assigned to this loan in an amount equal to the company 's estimated loss exposure . nonperforming assets were $ 1.1 million at december 31 , 1999. this resulted in ratios of nonperforming assets to total loans plus other real estate of 1.87 % , 1.73 % and 0.43 % for the years ended december 31 , 2001 , 2000 and 1999 , respectively . the company generally places a loan on nonaccrual status and ceases to accrue interest when loan payment performance is deemed unsatisfactory . loans where the interest payments jeopardize the collection of principal are placed on nonaccrual status , unless the loan is both well secured and in the process of collection . cash payments received while a loan is classified as nonaccrual are recorded as a reduction of principal as long as doubt exists as to collection . if interest on nonaccrual loans had been accrued , such income would have been approximately $ 251,000 and $ 113,000 for 2001 and 2000 , respectively .
| 2000 versus 1999. net interest income increased from $ 11.1 million in 1999 to $ 12.3 million in 2000 , an increase of $ 1.2 million or 11.0 % , primarily due to a growth in interest income of $ 7.4 million , or 34.5 % , offset by an increase in interest expense of $ 6.2 million , or 59.4 % . this resulted in net interest margins of 3.44 % and 3.93 % and net interest spreads of 2.72 % and 3.12 % for the years ended december 31 , 2000 and 1999 , respectively . the increase in total interest income for 2000 was primarily due to growth in average loans of $ 54.3 million or 25.4 % and growth in average investment securities of $ 26.6 million or 45.7 % , which contributed $ 5.7 million and $ 2.0 million , respectively , to the increase in total interest income . total interest income was negatively affected by lower yields on both loans and securities . the increase in interest expense was due primarily to an increase in average interest-bearing deposits of $ 64.0 million or 28.2 % , along with an increase in cost of funds from 4.55 % in 2000 to 5.42 % in 2000. for the year ended december 31 , 2000 the company also had an increase in average other borrowed funds and long-term debt of $ 8.5 million and $ 5.4 million , respectively . - 20 - the following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resultant yields , as well as the interest expense on average interest-bearing liabilities , expressed both in dollars and rates . no tax equivalent adjustments were made and all average balances are yearly average balances . nonaccruing loans have been included in the tables as loans carrying a zero yield . replace_table_token_6_th - 21 - the following schedule presents the dollar amount of changes in interest income and interest expense for the major components of interest-earning assets and interest-bearing liabilities and distinguishes between the increase related to higher outstanding balances and the volatility of interest rates . for purposes of this table , changes attributable
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most of our long-term contracts contain an evergreen provision , which allows the contracts to be extended for periods primarily up to one year in length an indefinite number of times following the specified contract term and until terminated generally by either us or the customer . interruptible transportation and storage agreements provide for a volumetric charge based on actual commodity transportation or storage utilized in the period in which those services are provided , and the contracts are generally limited to one-month periods or less . our performance obligations related to our interstate natural gas pipeline businesses include the following : firm transportation or storage under firm transportation and storage contracts—an integrated package of services typically constituting a single performance obligation , which includes standing ready to provide such services and receiving , transporting or storing ( as applicable ) , and redelivering commodities ; 82 the williams companies , inc. notes to consolidated financial statements – ( continued ) interruptible transportation or storage under interruptible transportation and storage contracts—an integrated package of services typically constituting a single performance obligation once scheduled , which includes receiving , transporting or storing ( as applicable ) , and redelivering commodities . in situations where , in our judgment , we consider the integrated package of services as a single performance obligation , which represents a majority of our interstate natural gas pipeline contracts with customers , we do not consider there to be multiple performance obligations because the nature of the overall promise in the contract is to stand ready ( with regard to firm transportation and storage contracts ) , receive , transport or store , and redeliver natural gas to the customer ; therefore , revenue is recognized over time upon satisfaction of our daily stand ready performance obligation . we recognize revenues for reservation charges over the performance obligation period , which is the contract term , regardless of the volume of natural gas that is transported or stored . revenues for commodity charges from both firm and interruptible transportation services and storage services are recognized when natural gas is delivered at the agreed upon delivery point or when natural gas is injected or withdrawn from the storage facility because they specifically relate to our efforts to provide these distinct services . generally , reservation charges and commodity charges in our interstate natural gas pipeline businesses are recognized as revenue in the same period they are invoiced to our customers . as a result of the ratemaking process , certain amounts collected by us may be subject to story_separator_special_tag story_separator_special_tag style= '' padding:0 1pt '' > senior unsecured debt rating s & p global ratings stable bbb moody 's investors service positive baa3 fitch ratings stable bbb in november 2020 , fitch ratings upgraded our credit rating from bbb- to bbb . in january 2021 , moody 's changed our outlook from stable to positive . these credit ratings are included for informational purposes and are not recommendations to buy , sell , or hold our securities , and each rating should be evaluated independently of any other rating . no assurance can be given that the credit rating agencies will continue to assign us investment-grade ratings even if we meet or exceed their current 62 criteria for investment-grade ratios . a downgrade of our credit ratings might increase our future cost of borrowing and would require us to provide additional collateral to third parties , negatively impacting our available liquidity . sources ( uses ) of cash the following table summarizes the sources ( uses ) of cash and cash equivalents for each of the periods presented ( see notes to consolidated financial statements for the notes referenced in the table ) : replace_table_token_19_th operating activities the factors that determine operating activities are largely the same as those that affect net income ( loss ) , with the exception of noncash items such as depreciation and amortization , provision ( benefit ) for deferred income taxes , equity ( earnings ) losses , gain on disposition of equity-method investments , ( gain ) on sale of certain assets and businesses , ( gain ) loss on deconsolidation of businesses , impairment of goodwill , impairment of equity-method investments , and impairment of certain assets . our net cash provided ( used ) by operating activities in 2020 decreased from 2019 primarily due to the net unfavorable changes in net operating working capital in 2020 , including the payment of transco 's rate refunds in 2020 and the decrease in the income tax refund that was received in 2020 compared to that received in 2019 , partially offset by higher operating income ( excluding noncash items as previously discussed ) in 2020. our net cash provided ( used ) by operating activities in 2019 increased from 2018 primarily due to the net favorable changes in operating working capital in 2019 , including the collection of transco 's filed rates subject to refund and the receipt of an income tax refund , as well as higher operating income ( excluding noncash items as previously discussed ) in 2019 , partially offset by the impact of decreased distributions from unconsolidated affiliates in 2019 . 63 environmental we are a participant in certain environmental activities in various stages including assessment studies , cleanup operations , and or remedial processes at certain sites , some of which we currently do not own ( see note 19 – contingent liabilities and commitments of notes to consolidated financial statements ) . we are monitoring these sites in a coordinated effort with other potentially responsible parties , the epa , or other governmental authorities . we are jointly and severally liable along with unrelated third parties in some of these activities and solely responsible in others . current estimates of the most likely costs of such activities are approximately $ 33 million , all of which are included in accrued liabilities and regulatory liabilities , story_separator_special_tag most of our long-term contracts contain an evergreen provision , which allows the contracts to be extended for periods primarily up to one year in length an indefinite number of times following the specified contract term and until terminated generally by either us or the customer . interruptible transportation and storage agreements provide for a volumetric charge based on actual commodity transportation or storage utilized in the period in which those services are provided , and the contracts are generally limited to one-month periods or less . our performance obligations related to our interstate natural gas pipeline businesses include the following : firm transportation or storage under firm transportation and storage contracts—an integrated package of services typically constituting a single performance obligation , which includes standing ready to provide such services and receiving , transporting or storing ( as applicable ) , and redelivering commodities ; 82 the williams companies , inc. notes to consolidated financial statements – ( continued ) interruptible transportation or storage under interruptible transportation and storage contracts—an integrated package of services typically constituting a single performance obligation once scheduled , which includes receiving , transporting or storing ( as applicable ) , and redelivering commodities . in situations where , in our judgment , we consider the integrated package of services as a single performance obligation , which represents a majority of our interstate natural gas pipeline contracts with customers , we do not consider there to be multiple performance obligations because the nature of the overall promise in the contract is to stand ready ( with regard to firm transportation and storage contracts ) , receive , transport or store , and redeliver natural gas to the customer ; therefore , revenue is recognized over time upon satisfaction of our daily stand ready performance obligation . we recognize revenues for reservation charges over the performance obligation period , which is the contract term , regardless of the volume of natural gas that is transported or stored . revenues for commodity charges from both firm and interruptible transportation services and storage services are recognized when natural gas is delivered at the agreed upon delivery point or when natural gas is injected or withdrawn from the storage facility because they specifically relate to our efforts to provide these distinct services . generally , reservation charges and commodity charges in our interstate natural gas pipeline businesses are recognized as revenue in the same period they are invoiced to our customers . as a result of the ratemaking process , certain amounts collected by us may be subject to story_separator_special_tag story_separator_special_tag style= '' padding:0 1pt '' > senior unsecured debt rating s & p global ratings stable bbb moody 's investors service positive baa3 fitch ratings stable bbb in november 2020 , fitch ratings upgraded our credit rating from bbb- to bbb . in january 2021 , moody 's changed our outlook from stable to positive . these credit ratings are included for informational purposes and are not recommendations to buy , sell , or hold our securities , and each rating should be evaluated independently of any other rating . no assurance can be given that the credit rating agencies will continue to assign us investment-grade ratings even if we meet or exceed their current 62 criteria for investment-grade ratios . a downgrade of our credit ratings might increase our future cost of borrowing and would require us to provide additional collateral to third parties , negatively impacting our available liquidity . sources ( uses ) of cash the following table summarizes the sources ( uses ) of cash and cash equivalents for each of the periods presented ( see notes to consolidated financial statements for the notes referenced in the table ) : replace_table_token_19_th operating activities the factors that determine operating activities are largely the same as those that affect net income ( loss ) , with the exception of noncash items such as depreciation and amortization , provision ( benefit ) for deferred income taxes , equity ( earnings ) losses , gain on disposition of equity-method investments , ( gain ) on sale of certain assets and businesses , ( gain ) loss on deconsolidation of businesses , impairment of goodwill , impairment of equity-method investments , and impairment of certain assets . our net cash provided ( used ) by operating activities in 2020 decreased from 2019 primarily due to the net unfavorable changes in net operating working capital in 2020 , including the payment of transco 's rate refunds in 2020 and the decrease in the income tax refund that was received in 2020 compared to that received in 2019 , partially offset by higher operating income ( excluding noncash items as previously discussed ) in 2020. our net cash provided ( used ) by operating activities in 2019 increased from 2018 primarily due to the net favorable changes in operating working capital in 2019 , including the collection of transco 's filed rates subject to refund and the receipt of an income tax refund , as well as higher operating income ( excluding noncash items as previously discussed ) in 2019 , partially offset by the impact of decreased distributions from unconsolidated affiliates in 2019 . 63 environmental we are a participant in certain environmental activities in various stages including assessment studies , cleanup operations , and or remedial processes at certain sites , some of which we currently do not own ( see note 19 – contingent liabilities and commitments of notes to consolidated financial statements ) . we are monitoring these sites in a coordinated effort with other potentially responsible parties , the epa , or other governmental authorities . we are jointly and severally liable along with unrelated third parties in some of these activities and solely responsible in others . current estimates of the most likely costs of such activities are approximately $ 33 million , all of which are included in accrued liabilities and regulatory liabilities ,
| liquidity based on our forecasted levels of cash flow from operations and other sources of liquidity , we expect to have sufficient liquidity to manage our businesses in 2021. our potential material internal and external sources and uses of liquidity are as follows : sources : cash and cash equivalents on hand cash generated from operations distributions from our equity-method investees utilization of our credit facility and or commercial paper program cash proceeds from issuance of debt and or equity securities proceeds from asset monetizations uses : working capital requirements capital and investment expenditures product costs other operating costs including human capital expenses quarterly dividends to our shareholders debt service payments , including payments of long-term debt distributions to noncontrolling interests as of december 31 , 2020 , we have approximately $ 21.5 billion of long-term debt due after one year . see note 14 – debt and banking arrangements of notes to consolidated financial statements for the aggregate maturities over the next five years . our potential sources of liquidity available to address these maturities include cash generated from operations , proceeds from refinancing at attractive long-term rates or from our credit facility , as well as proceeds from asset monetizations . 61 potential risks associated with our planned levels of liquidity discussed above include those previously discussed in company outlook . as of december 31 , 2020 , we had a working capital deficit of $ 890 million , including cash and cash equivalents and long-term debt due within one year . our available liquidity is as follows : available liquidity december 31 , 2020 ( millions ) cash and cash equivalents $ 142 capacity available under our $ 4.5 billion credit facility , less amounts outstanding under our $ 4 billion commercial paper program ( 1 ) 4,500 $ 4,642 ( 1 ) in managing our available liquidity , we do not expect a maximum outstanding amount in excess of the capacity of our credit facility inclusive of any outstanding
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our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business , results of operations , and financial condition . basis of presentation revenue our ability to generate revenues from product sales , which we do not expect will occur before 2019 , at the earliest , will depend heavily on our obtaining marketing approval from the fda for , and , subsequent to that , our successful commercialization of , lipo-202 . if we fail to complete the development of lipo-202 in a timely manner or to obtain regulatory approval , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . research and development expenses our research and development expenses consist primarily of : · fees paid to clinical consultants , clinical trial sites and vendors , including cros in conjunction with implementing and monitoring our preclinical and clinical trials and acquiring and evaluating preclinical and clinical trial data , including all related fees , such as for investigator grants , patient screening fees , laboratory work and statistical compilation and analysis ; · expenses related to preclinical studies , clinical trials and related clinical manufacturing , materials and supplies ; · expenses related to compliance with drug development regulatory requirements in the united states and other foreign jurisdictions ; and · personnel costs , including cash compensation , benefits and share-based compensation expense . 62 we expense both internal and external rese arch and development costs in the periods in which they are incurred . to date , substantially all our research and development expenses have related to the development of lipo-202 . for the years ended december 31 , 2015 , 2014 and 2013 , we incurred costs of $ 34.4 million , $ 5.2 million and $ 11.4 million respectively , on research and development expenses . we do not allocate compensation expense to individual product candidates , as we are organized and record expense by functional department and our employees may allocate time to more than one development project . we do not utilize a formal time allocation system to capture expenses on a project-by-project basis . conducting significant research and development is central to our business and strategy . 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 greater duration of late stage clinical trials as compared to earlier clinical and preclinical development . due to the inherently unpredictable nature of clinical development and given our current stage of development for our product candidate , we can not determine and are unable to estimate the timelines we will require and the costs we will incur for the development of lipo-202 . see “ risk factors — risks related to our business — clinical drug development involves a lengthy and expensive process with an uncertain outcome , and results of earlier studies and trials may not be predictive of future trial results . ” general and administrative expenses our general and administrative expenses primarily consist of personnel costs , including cash compensation , benefits and share-based compensation expense , associated with our executive , accounting and finance departments . other general and administrative expenses include costs in connection with patent filing , prosecution and defense , facility , director and officer insurance premiums , to support our operations as a public company , information technology costs and professional fees for legal , consulting , marketing , audit and tax services . we expect our general and administrative expenses will increase in the future as we increase continue our research and development activities , maintain compliance with exchange listing and sec requirements and continue to operate as a public company . interest income our interest income consists primarily of interest received or earned on our cash and cash equivalents . we expect interest income to vary each reporting period depending on our average cash and cash equivalents and marketable securities balances during the period and applicable interest rates . to date , our interest income has not been significant in any individual period . interest expense our interest expense consists of cash and noncash interest costs related to our borrowings . the noncash interest costs consist of the amortization of the fair value of warrants that were issued in connection with our borrowings , with the initial fair value of the warrants being amortized to interest expense over the term of the governing agreements , and the amortization of other debt issuance costs , primarily legal and banker fees , over the period the related convertible notes were outstanding . we expect interest expense to vary each reporting period depending on our average debt outstanding during the period , as well as applicable interest rates . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements as well as the reported revenues and expenses during the reported periods . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses and share-based compensation . 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 apparent from other sources . actual results may differ materially from these estimates . story_separator_special_tag to the extent that there are material differences between these estimates and actual results , our future financial statement presentation , financial condition , results of operations and cash flows will be affected . while our significant accounting policies are described in the notes to our financial statements appearing elsewhere in this document we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results . accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing contracts and purchase orders , reviewing the terms of our vendor agreements , communicating with our applicable personnel to identify services that have been performed on our behalf , and estimating the level of service performed and the 63 associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost . the majority of our service providers invoice us monthly in arrears for services performed . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . examples of estimated accrued research and development expenses include : · fees paid to cros in connection with clinical trials ; · fees paid to investigative sites in connection with clinical trials ; · fees paid to vendors in connection with preclinical development activities ; and · fees paid to vendors related to product manufacturing , development and distribution of clinical supplies . we base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and 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 and expense recognition . payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in accruing 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 accordingly . our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period . through december 31 , 2015 , there have been no material adjustments to our prior period estimates of accrued expenses for clinical trials . nonrefundable advance payments for goods and services , including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities , are deferred and recognized as expense in the period that the related goods are consumed or services are performed . share-based compensation we account for all share-based compensation payments using an option pricing model for estimating fair value . accordingly , share-based compensation expense for employees and directors is measured based on the estimated fair value of the awards on the date of grant , net of estimated forfeitures . compensation expense is recognized for the portion that is ultimately expected to vest over the period during which the recipient renders the required services to us using the straight-line single option method . in accordance with authoritative guidance , the fair value of non-employee share-based awards is remeasured as the awards vest , and the resulting change in value , if any , is recognized as expense during the period the related services are rendered . we estimate the fair value of our share-based awards using the black-scholes option pricing model . the black-scholes model requires the use of subjective and complex assumptions , including ( a ) the expected stock price volatility , ( b ) the calculation of the expected term of the award , ( c ) the risk free interest rate and ( d ) the expected dividend yield , which determine the fair value of share-based awards . we will continue to use judgment in evaluating the fair value of the underlying common stock and expected term and expected volatility , related to our share-based compensation on a prospective basis . as we continue to accumulate additional data related to our common stock , we may make refinements to the estimates of our expected term and expected volatility , which could materially impact our future share-based compensation expense . story_separator_special_tag utilized in our clinical trials . interest expense . interest expense increased by approximately $ 318,000 , to approximately $ 375,000 for the year ended december 31 , 2014 , from $ 57,000 for the year ended december 31 , 2013. the increase resulted from an increase in our average debt outstanding during the year ended december 31 , 2014 , as compared to the same period in the prior year , due to the total $ 10.0 million drawn in 2014 under the loan agreement we entered into in june 2014. loss on change in fair value of convertible preferred stock warrants .
| our general legal fees increased by approximately $ 697,000 due to an increase in general business activities and publicly traded company requirements . in addition , share-based compensation increased by approximately $ 598,000 as a result of options granted and directors ' and officers ' insurance increased by $ 428,000. interest expense . interest expense increased by approximately $ 759,000 to approximately $ 1.1 million for the year ended december 31 , 2015 , from $ 375,000 for the year ended december 31 , 2014. the increase resulted from an increase in our average debt outstanding during the year ended december 31 , 2015 , as compared to the same period in the prior year , due to the total $ 10.0 million drawn in 2014 under the loan agreement we entered into in june 2014. loss on change in fair value of convertible preferred stock warrants . there was no loss on the change in fair value of convertible preferred stock warrants for the twelve months ended december 31 , 2015. upon completion of the ipo in november 2014 , all convertible preferred stock warrants were converted to common stock warrants and are no longer subject to remeasurement . the loss of approximately $ 861,000 for the twelve months ended december 31 , 2014 , was as a result of an increase in the fair value of the warrants through the date of the ipo . comparison of years ended december 31 , 2014 and 2013. replace_table_token_8_th research and development expenses . research and development expenses decreased by $ 6.2 million to $ 5.2 million for the year ended december 31 , 2014 , from $ 11.4 million for the year ended december 31 , 2013. the decrease was primarily due to a decrease in clinical trial costs of $ 8.2 million attributable to our u.s. phase 2 clinical trials , which were completed during 2013 , offset by an increase of approximately $ 522,000 associated with start-up costs and manufacturing of our clinical trial materials for our phase
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we entered into an agreement to provide professional lab services for barnabas health , new jersey 's largest not-for-profit integrated healthcare delivery system . we announced a partnership with inovalon to deliver our data diagnostics solutions offering , as part of our new quanum solutions suite , which generates further value from our information assets by delivering real time insights to physicians at the point of service . our cost excellence program , invigorate , delivered realized savings of more than $ 200 million in 2015. we closed on our q 2 solutions joint venture with quintiles transnational holdings inc. ( `` quintiles '' ) , which is an important element of our growth strategy along with our other equity method investees . we completed a $ 1.2 billion senior notes offering and used the proceeds to retire over $ 1.2 billion in outstanding senior notes resulting in reduced future interest expense and an improved maturity profile . we repurchased approximately $ 224 million of our common stock as part of our share repurchase program and paid dividends to our shareholders of $ 212 million . on january 28 , 2016 , we announced that our board of directors authorized a 5 % increase in our quarterly dividend from $ 0.38 per share to $ 0.40 per share , or $ 1.60 annually , commencing with the dividend payable in april 2016. for additional information on our five-point strategy , see item 1 : `` our strategy and strengths . '' outlook and trends the healthcare system in the united states is evolving ; significant change is taking place in the system . we expect that the evolution of the healthcare industry will continue , and that industry change is likely to be extensive . there are a number of key trends that are having , and that we expect will continue to have , a significant impact on the diagnostic information services business in the united states and on our business . these trends present both opportunities and risks . however , because diagnostic information services is an essential healthcare service and because of the key trends discussed below , we believe that the industry will continue to grow over the long term and that we are well positioned to benefit from the long-term growth expected in the industry . we expect to see a stable business environment in 2016 , and we expect reimbursement pressure for our dis business will be moderate through 2017. however , healthcare market participants in the united states , including governments , are focused on controlling healthcare costs through means including but not limited to shifting from fee for service to capitation , changing medical coverage policies ( e.g. , healthcare benefit design ) , pre-authorization of lab testing , requiring co-pays , introducing lab spend management utilities and payment and patient care innovations such as acos and patient-centered medical homes . as health plans and government programs require greater levels of patient cost-sharing , our patient collections could be negatively impacted and adversely impact our bad debt expense . as previously mentioned , there could be a shift to capitation arrangements where we agree to a predetermined monthly reimbursement rate for each member enrolled in a restricted plan , generally regardless of the number or cost of services provided by us . in 2015 and 2014 , we derived approximately 11 % of our testing volume and 4 % and 3 % , respectively , of our dis revenues from capitated payment arrangements . historically , the medicare clinical laboratory fee schedule and the medicare physician fee schedule established under part b of the medicare program have been subject to change , including each year . in addition , pursuant to the federal protecting access to medicare act of 2014 ( `` pama '' ) , it is expected that the centers for medicare and medicaid services will revise reimbursement schedules for clinical laboratory testing services provided under medicare . we expect the revised reimbursement schedules as a result of pama to become effective as early as 2017. in 2015 , approximately 12 % of our consolidated net revenues were reimbursed by medicare under the clinical laboratory fee schedule and approximately 2 % were reimbursed by medicare under the physician fee schedule . the fda has announced guidance initiatives that may impact the clinical laboratory testing business , including by increasing regulation of laboratory-developed tests . in addition , the trend of consolidating , converging and diversifying among 53 our customers and payers has continued . consolidation is increasing price transparency and bargaining power , and encouraging internalization of clinical testing . for additional information on our key trends , see item 1 : `` the united states clinical testing industry . '' operational excellence invigorate program the clinical testing industry is labor intensive . employee compensation and benefits constitute approximately one-half of our total costs and expenses . in addition , performing clinical testing involves significant fixed costs for facilities and other infrastructure required to obtain , transport and test specimens . therefore , relatively small changes in volume can have a significant impact on profitability in the short-term . we are engaged in a multi-year program called invigorate , which is designed to reduce our cost structure . we delivered more than $ 700 million in run-rate savings as we exited 2014. in november 2014 , we announced our goal to deliver an additional $ 600 million in run-rate savings as we exit 2017. achieving this goal would bring the total savings from the invigorate program to $ 1.3 billion in run-rate savings , compared to 2011. in 2015 , we delivered realized savings of more than $ 200 million and believe we are on track to achieve our $ 1.3 billion run-rate savings goal by the end of 2017. invigorate has consisted of several flagship programs , with structured plans in each , to drive savings and improve performance across the customer value chain . story_separator_special_tag these flagship programs include : organization excellence ; information technology excellence ; procurement excellence ; service excellence ; lab excellence ; and billing excellence . in addition to these programs , we identified new key opportunities to change how we operate in order to meet our goal of delivering the additional $ 600 million in run-rate savings as we exit 2017. these new key opportunities include : standardizing our processes , information technology systems , equipment and data ; enhancing electronic enabling services ; and enhancing reimbursement for work we perform . we believe that our efforts to standardize our information technology systems , equipment and data also will foster our efforts to restore growth and support the value creation initiatives of our clinical franchises by enhancing our operational flexibility , empowering and enhancing the customer experience , facilitating the delivery of actionable insights and bolstering our large data platform . in january 2015 , we adopted a course of action related to this multi-year program . we developed a high-level estimate of the total pre-tax charges expected to be incurred in 2015 through 2017 in connection with the course of action for the program : $ 300 million . in february 2016 , we developed high-level estimates of the pre-tax charges expected to be incurred in connection with the course of action for 2016 totaling $ 80 million to $ 100 million , consisting of up to $ 10 million of employee separation costs and $ 80 million to $ 90 million of systems conversion and integration costs . as detailed plans to implement the course of action are approved and executed , it will result in charges to earnings . principally all of the total estimated pre-tax charges expected to be incurred in 2016 are anticipated to result in cash expenditures . the actual charges incurred in connection with the course of action in 2016 could be materially different from these estimates . from 2012 through 2014 , the cumulative charges recorded in connection with the invigorate program were $ 266 million , including $ 178 million of cumulative pre-tax employee separation costs and other restructuring related costs . during 2015 , the cumulative charges recorded in connection with the 2015 course of action were $ 89 million , including $ 39 million of cumulative pre-tax employee separation costs and other restructuring related costs . for further details regarding restructuring costs related to the invigorate program , see note 4 to the consolidated financial statements . recent transactions acquisitions in 2015 , we acquired memorialcare health system 's laboratory outreach business and the business assets of superior mobile medics , a national provider of paramedical and health data collection services to the life insurance and employer health and wellness industries . for details regarding our acquisitions , see note 5 to the consolidated financial statements . 54 in november 2015 , we announced that we entered into a definitive agreement to acquire the outreach laboratory service business of clinical laboratory partners ( `` clp '' ) , a wholly-owned subsidiary of hartford healthcare . clp provides clinical lab testing to physicians in connecticut . the acquisition is expected to be completed in the first quarter of 2016 , subject to customary regulatory closing conditions . contribution of clinical trials business on july 1 , 2015 , we closed on our joint venture with quintiles to form a global clinical trials central laboratory services joint venture , q 2 solutions . in connection with the transaction , we contributed certain assets of our clinical trials testing business to the newly formed joint venture in exchange for a non-controlling , 40 % ownership interest ( `` clinical trials contribution '' ) . as a result of the transaction , we recognized a non-cash pre-tax gain of $ 334 million . the clinical trials contribution is consistent with our five-point strategy . consolidated net revenues and operating costs and expenses include the operating results of our clinical trials testing business prior to closing . subsequent to closing , our ownership interest in the operating results of the joint venture is being accounted for under the equity method of accounting and recorded within a single line item , equity in earnings of equity method investees , net of taxes , on the consolidated statements of operations . assets held for sale during the third quarter of 2015 , certain non-core assets of our ds businesses were reclassified to assets held for sale . for further details regarding our dispositions and assets held for sale , see note 6 to the consolidated financial statements . senior notes offering in march 2015 , we completed a $ 1.2 billion senior notes offering ( the `` 2015 senior notes '' ) that was sold in three tranches : ( a ) $ 300 million aggregate principal amount of 2.50 % senior notes due march 2020 , issued at a discount of $ 1 million ; ( b ) $ 600 million aggregate principal amount of 3.50 % senior notes due march 2025 ; and ( c ) $ 300 million aggregate principal amount of 4.70 % senior notes due march 2045. a portion of the proceeds from the 2015 senior notes were used to fund the cash tender offer ( the `` tender offer '' ) in march 2015 in which we purchased $ 176 million of our 6.95 % senior notes due july 2037 and $ 74 million of our 5.75 % senior notes due january 2040. the remaining proceeds from the 2015 senior notes , together with borrowing under our existing credit facilities , were used in april 2015 to redeem all of our $ 500 million 5.45 % senior notes due november 2015 , $ 150 million , or 50 % , of our 3.2 % senior notes due april 2016 and all of our $ 375 million 6.4 % senior notes due july 2017 ( the `` redemption '' ) .
| charges incurred by q 2 solutions . results for the year ended december 31 , 2014 were affected by certain items that reduced earnings per diluted share by a net $ 0.32 as follows : pre-tax charges of $ 121 million , or $ 0.53 per diluted share , related to restructuring costs primarily associated with workforce reductions , integration costs associated with acquisitions and professional fees associated with the further restructuring and integrating our business ( $ 50 million in cost of services , $ 69 million in selling , general and administrative expenses and $ 2 million in other operating expense ( income ) , net ) ; a discrete tax benefit of $ 44 million , or $ 0.30 per diluted share , associated with the favorable resolution of certain tax contingencies ; and net pre-tax costs of $ 15 million , or $ 0.09 per diluted share , primarily associated with costs related to legal matters , partially offset by a pre-tax gain of $ 9 million associated with a decrease in the fair value of the contingent 62 consideration accrual associated with our summit health acquisition ( $ 24 million of costs in selling , general and administrative expenses and a pre-tax gain of $ 9 million in other operating expense ( income ) , net ) . results for the year ended december 31 , 2013 were affected by certain items that benefited earnings per diluted share by a net $ 1.31 as follows : a pre-tax gain of $ 474 million , or $ 1.95 per diluted share , associated with the sale of future royalty rights of ibrutinib ( `` ibrutinib sale '' ) ; pre-tax charges of $ 115 million , or $ 0.47 per diluted share , related to restructuring costs primarily associated with workforce reductions , integration costs and professional fees associated with further restructuring and integrating our business ( $ 43 million in cost of services and $ 72 million in selling , general and administrative expenses ) ;
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our other subscription and services-based products include website hosting and domain name registration services , gift cards , square appointments , customer engagement , employee management , payroll , and other subscription and services-based products . instant deposit is a functionality within the cash app and our managed payment solutions that enables customer to instantly deposit funds into their bank accounts . we charge a per transaction fee which we recognize as revenue when customers instantly deposit funds to their bank account . revenue for caviar , a food ordering service for pickup , delivery , and catering , is derived from seller fees charged to restaurants , delivery fees and service fees from consumers , and fees charged to corporate customers for catered meals . square capital facilitates loans to sellers that are offered through a partnership bank and are generally repaid through withholding a percentage of the collections of the seller 's receivables processed by us . the loans are originated by a bank partner , from whom we purchase the loans obtaining all rights , title , and interest . our intention is to sell the rights , title , and interest in these loans to third-party investors for an upfront fee when the loans are sold . we are retained by the third-party investors to service the loans and earn a servicing fee for facilitating the repayment of these receivables through our payments solutions . cash card offers cash app customers the ability use their stored funds via cash card , a visa prepaid card that is linked to the balance the customer stores in cash app .. we charge a per transaction fee which we recognize as revenue when customers use their cash card to make a purchase . hardware revenue . hardware revenue includes revenue from sales of contactless and chip readers , square stand , square register , square terminal , and third-party peripherals . third-party peripherals include cash drawers , receipt printers , and barcode scanners , all of which can be integrated with square stand , square register , or square terminal to provide a comprehensive point-of-sale solution . bitcoin revenue . during the fourth quarter of 2017 , the company started offering its cash app customers the ability to purchase bitcoin , a cryptocurrency denominated asset , from the company . we recognize revenue when customers purchase bitcoin and it is transferred to the customer 's account . cost of revenue and gross margin transaction-based costs . transaction-based costs consist primarily of interchange and assessment fees , processing fees , and bank settlement fees paid to third-party payment processors and financial institutions . subscription and services-based costs . subscription and services-based costs consist primarily of costs related to caviar , cash card and instant deposit . hardware costs . hardware costs consist primarily of product costs associated with contactless and chip readers , square stand , square register , square terminal , and third-party peripherals . product costs include manufacturing-related overhead and personnel costs , certain royalties , packaging , and fulfillment costs . hardware is sold primarily as a means to grow our transaction- 51 based revenue and , as a result , generating positive gross margins from hardware sales is not the primary goal of the hardware business . bitcoin costs . bitcoin cost of revenue is comprised of the amounts we pay to purchase bitcoin , which will fluctuate in line with the price of bitcoin in the market . amortization of acquired technology . these costs consist of amortization related to technologies acquired through acquisitions that have the capability of producing revenue . operating expenses operating expenses consist of product development , sales and marketing , general and administrative expenses , transaction , loan and advance losses , and amortization of acquired customer assets . for product development and general and administrative expenses , the largest single component is personnel-related expenses , including salaries , commissions and bonuses , employee benefit costs , and share-based compensation . in the case of sales and marketing expenses , a significant portion is related to paid advertising expenses in addition to personnel-related expenses . operating expenses also include allocated overhead costs for facilities , human resources , and it . product development . product development expenses currently represent the largest component of our operating expenses and consist primarily of expenses related to our engineering , data science , and design personnel ; fees and supply costs related to maintenance and capacity expansion at third-party data center facilities ; hardware related development and tooling costs ; and fees for software licenses , consulting , legal , and other services that are directly related to growing and maintaining our portfolio of products and services . additionally , product development expenses include the depreciation of product-related infrastructure and tools , including data center equipment , internally developed software , and computer equipment . we continue to focus our product development efforts on adding new features and apps , and on enhancing the functionality and ease of use of our offerings . our ability to realize returns on these investments is substantially dependent upon our ability to successfully address current and emerging requirements of sellers and buyers through the development and introduction of these new products and services . sales and marketing . sales and marketing expenses consist primarily of three components . the first component includes costs associated with free cash app peer-to-peer transactions and cash card issuance costs . the second component is comprised of costs incurred to acquire new sellers through various paid advertising channels , including online search , online display , direct mail , direct response television , mobile advertising , affiliates , and referrals , all of which are expensed as incurred . the third component includes expenses related to our direct sales , account management , local and product marketing , retail and ecommerce , partnerships , and communications personnel . general and administrative . story_separator_special_tag general and administrative expenses consist primarily of expenses related to our support , finance , legal , square capital operations , caviar operations , risk operations , human resources , and administrative personnel . general and administrative expenses also include costs related to fees paid for professional services , including legal , tax , and accounting services . transaction , loan and advance losses . we are exposed to transaction losses due to chargebacks as a result of fraud or uncollectibility . examples of transaction losses include chargebacks for unauthorized credit card use and inability to collect on disputes between buyers and sellers over the delivery of goods or services . this also includes transaction losses on cash app activity related to peer-to-peer payments sent from a credit card , cash for business , and cash card . we base our reserve estimates on prior chargeback history and current period data points indicative of transaction loss . we reflect additions to the reserve in current operating results , while realized losses are offset against the reserve . the establishment of appropriate reserves is an inherently uncertain process , and ultimate losses may vary from the current estimates . we regularly update our reserve estimates as new facts become known and events occur that may affect the settlement or recovery of losses . for the period from january 1 , 2016 through december 31 , 2018 , our transaction losses accounted for approximately 0.1 % of total aggregate gpv for the same period . loan losses related to loans that have been retained by the company are recorded whenever the amortized cost of a loan exceeds its fair value , as determined at the individual loan level , with such charges being reversed for subsequent increases in fair value but only to the extent that such reversals do not result in the amortized cost of a loan exceeding its fair value . to 52 determine the fair value of loans , the company utilizes industry standard modeling , such as discounted cash flow models , to arrive at an estimate of fair value . amortization of acquired customer assets . amortization of acquired customer assets includes customer relationships , restaurant relationships , courier relationships , subscriber relationships , and partner relationships . interest and other income and expense , net interest and other income and expense , net consists primarily of gains or losses arising from marking to market of an equity investment , interest expense related to our long-term debt , interest income on our investment in marketable debt securities , and foreign currency-related gains and losses . provision for income taxes the provision for income taxes consists primarily of federal , state , local , and foreign tax . our effective tax rate fluctuates from period to period due to changes in the mix of income and losses in jurisdictions with a wide range of tax rates , the effect of acquisitions , changes resulting from the amount of recorded valuation allowance , permanent differences between u.s. generally accepted accounting principles and local tax laws , certain one-time items , and changes in tax contingencies . 53 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > year ended december 31 , 2017 . the increase in hardware costs reflects growth in our sales of square register , square stand , third-party peripherals , and contactless and chip readers and the introduction of square terminal , as described above . additionally , the adoption of asc 606 resulted in an increase of $ 5.5 million in hardware costs for the year ended december 31 , 2018 , primarily related to earlier recognition of costs of hardware sold through retail distribution channels and hardware installment sales in line with the revenue recognition for such sales under asc 606. hardware costs increased to a lesser extent than hardware revenue mainly due to a manufacturing cost reduction for square stand as a result of an improvement in production efficiencies . bitcoin costs for the year ended december 31 , 2018 , increased by $ 164.8 million compared to the year ended december 31 , 2017 . bitcoin cost of revenue comprises of the amounts we pay to purchase bitcoin , which will fluctuate in line with revenue . 55 amortization of acquired technology assets for the year ended december 31 , 2018 , increased by $ 0.5 million compared to the year ended december 31 , 2017 , as a result of additional customer assets acquired through business combinations in the second quarter of 2018 , offset in part by certain customer assets reaching end of life . comparison of years ended december 31 , 2017 and 2016 total cost of revenue for the year ended december 31 , 2017 , increased by $ 242.3 million , or 21 % , compared to the year ended december 31 , 2016. transaction-based costs for the year ended december 31 , 2017 , increased by $ 287.1 million , or 30 % , compared to the year ended december 31 , 2016. this increase was attributable to growth in gpv processed of $ 15.7 billion , or 32 % . transaction-based costs increased to a lesser extent than transaction-based revenue primarily as a result of growth in invoices , virtual terminal , and e-commerce api payments , which have higher margins than our card-present transactions , as well as improvements in our transaction cost profile , partially offset by the impact of custom pricing for certain larger sellers . transaction-based margin as a percentage of gpv was 1.06 % for the year ended december 31 , 2017 , up from 1.03 % for the year ended december 31 , 2016. as noted above , starbucks completed its previously announced transition to another payments solution provider . accordingly , we did not record any starbucks transaction-based costs in the year ended december 31 , 2017 , and we do not expect starbucks transaction-based costs in the future .
| hardware revenue for the year ended december 31 , 2018 , increased by $ 27.1 million , or 65 % , compared to the year ended december 31 , 2017 . the increase primarily reflects growth in shipments of square register following its launch in the fourth quarter of 2017 and , to a lesser extent , the launch of square terminal during the fourth quarter of 2018. the increase was also driven by continued growth in sales of our contactless and chip readers , as well as growth in sales of our square stand and third-party peripherals driven primarily by new features and product offerings . additionally , the adoption of asc 606 resulted in an increase of $ 5.9 million in hardware revenue for the year ended december 31 , 2018 primarily related to the earlier revenue recognition of hardware sold through retail distribution channels and hardware installment sales , which were previously recorded upon sell through to the end user customer . bitcoin revenue for the year ended december 31 , 2018 , increased by $ 166.5 million compared to the year ended december 31 , 2017 . during the fourth quarter of 2017 , we started offering our cash app customers the ability to purchase bitcoin from us . bitcoin revenue comprises the total sale amount we receive from bitcoin sales to customers and is recorded upon transfer of bitcoin to the customer 's account . the sale amount generally includes a small margin added to the price we pay to purchase bitcoin and accordingly , the amount of bitcoin revenue will fluctuate depending on the volatility of market bitcoin prices and customer demand . comparison of years ended december 31 , 2017 and 2016 total net revenue for the year ended december 31 , 2017 , increased by $ 505.5 million , or 30 % , compared to the year ended december 31 , 2016. transaction-based revenue for the year ended december 31 , 2017 , increased by $ 464.0 million , or 32 % , compared to the year ended december 31 , 2016. this increase was attributable to growth in gpv processed of $
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our warehouse and other related costs include labor , rent , product shipments from our third party manufacturer and other related costs . 54 we expect our overall gross margin , which is calculated as net sales less cost of goods sold for a given period divided by net sales , to fluctuate in future periods primarily as a result of manufacturing price increases , the changing mix of products sold with different gross margins and targeted pricing programs . sales and marketing expenses our sales and marketing expenses primarily consist of salaries , bonuses , benefits , incentive compensation and travel for our sales , marketing and customer support personnel . our sales and marketing expenses also include expenses for tradeshows , our no-charge customer shipping program and product evaluation , as well as educational , promotional and marketing activities , including direct and online marketing . we expect our sales and marketing expenses to increase in absolute dollars as we increase our headcount and expand our marketing programs . research and development expenses our research and development , or r & d , expenses , primarily consist of clinical expenses , regulatory expenses , product development , consulting services , outside research activities , quality control and other costs associated with the development of our products and compliance with good clinical practices , or cgcp , requirements . r & d expenses also include related personnel and consultant compensation and stock-based compensation expense . we expense r & d costs as they are incurred . we expect our r & d expenses to vary as different development projects are initiated and completed , including improvements to our existing products , expansions of our existing product lines , new product acquisitions and our fda-required pma and post-approval studies of our breast implants . however , we generally expect these costs will increase in absolute terms over time as we continue to expand our product portfolio and add related personnel . general and administrative expenses our general and administrative , or g & a , expenses primarily consist of salaries , bonuses , benefits and stock-based compensation for our executive , financial , legal , business development and administrative functions . other g & a expenses include outside legal counsel and litigation expenses , independent auditors and other outside consultants , insurance , benefits , facilities and information technologies expenses . beginning in 2013 , g & a expenses also include the federal excise tax on the sale of medical devices in the united states . in 2012 , mentor filed one lawsuit against us and one of our employees , in addition to thirteen lawsuits against fifteen of our employees who were all former mentor employees , which we refer to as the mentor litigation . in general , these lawsuits alleged that the former employees of mentor breached their confidentiality and non-compete agreements when they resigned in favor of employment with us , misappropriated confidential mentor information and trade secrets , and breached their respective duties of loyalty . although not a party to thirteen of the lawsuits , we provided for the defense of our employees . in those lawsuits , all of mentor 's claims for preliminary injunctive relief were denied and , following that , each of those lawsuits was dismissed . in the sole lawsuit against us and our employee , we prevailed at trial with verdicts of `` no liability '' rendered by the jury and judge on all claims . final judgment in this case was entered on october 3 , 2013 with mentor ordered to reimburse us for certain court costs , and in 2014 , mentor waived its right to appeal . for the years ended december 31 , 2014 , 2013 and 2012 , we incurred $ 0.1 million , $ 10.2 million and $ 3.0 million , respectively , of g & a expenses related to the mentor litigation , net of mentor 's reimbursement for certain court costs and preliminary insurance recoveries . in addition , for the years ended december 31 , 2014 , 2013 and 2012 , we incurred $ 0.0 million , $ 1.2 million and $ 0.3 million , respectively , of g & a expenses related to the grader street arbitration . 55 excluding the historic litigation and arbitration expenses described above , we expect future g & a expenses to increase as we build our finance , legal , information technology , human resources and other general administration resources to continue to advance the commercialization of our products . in addition , we expect to incur increased g & a expenses in connection with becoming a public company , which may increase further when we are no longer able to rely on the `` emerging growth company '' exemption we are afforded under the jumpstart our business startups act , or the jobs act . other ( expense ) income , net other ( expense ) income , net primarily consists of interest expense and amortization of debt discount associated with our term loans and insurance recoveries . critical accounting policies and significant judgments and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , net sales and expenses and the disclosure of contingent assets and liabilities in our financial statements . we evaluate our estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about our financial condition and results of operations that are not readily apparent from other sources . actual results may differ from these estimates . story_separator_special_tag while our significant accounting policies are more fully described in note 2 to our financial statements , we believe that the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements . revenue recognition we sell our products directly to customers in markets where we have regulatory approval . we offer a six-month return policy ; and we recognize revenue , net of sales discounts and returns , in accordance with the financial accounting standards board , or fasb , accounting standards codification 605 , revenue recognition ( asc 605 ) . asc 605 requires that six basic criteria must be met before revenue can be recognized when a right of return exists : the seller 's price to the buyer is substantially fixed or determinable at the date of sale ; the buyer has paid the seller , or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product ; the buyer 's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product ; the buyer acquiring the product for resale has economic substance apart from that provided by the seller ; the seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer ; and the amount of future returns can be reasonably estimated . appropriate reserves are established for anticipated sales returns based on historical experience , recent gross sales and any notification of pending returns . the company recognizes revenue when title to the product and risk of loss transfer to customers , provided there are no remaining performance obligations required of the company or any written matters requiring customer acceptance . the company 56 allows for the return of product from customers within six months after the original sale and records estimated sales returns as a reduction of sales in the same period revenue is recognized . sales return provisions are calculated based upon historical experience with actual returns . actual sales returns in any future period are inherently uncertain and thus may differ from the estimates . if actual sales returns differ significantly from the estimates , an adjustment to revenue in the current or subsequent period would be recorded . the company has established an allowance for sales returns of $ 10.0 million and $ 8.3 million as of december 31 , 2014 and 2013 , respectively , recorded net against accounts receivable in the balance sheet . a portion of the company 's revenue is generated from consigned inventory of breast implants maintained at doctor , hospital , and clinic locations . the customer is contractually obligated to maintain a specific level of inventory and to notify the company upon use . for these products , revenue is recognized at the time the company is notified by the customer that the product has been implanted . notification is usually through the replenishing of the inventory and the company periodically reviews consignment inventories to confirm accuracy of customer reporting . fda regulations require tracking the sales of all implanted products . warranty reserve we offer a limited warranty and a lifetime product replacement program for our silicone gel breast implants . under the limited warranty program , we will reimburse patients for certain out-of-pocket costs related to revision surgeries performed within ten years from the date of implantation in a covered event . under the lifetime product replacement program , we provide no-charge replacement breast implants under a covered event . the programs are available to all patients implanted with our silicone breast implants after april 1 , 2012 and are subject to the terms , conditions , claim procedures , limitations and exclusions . timely completion of a device tracking and warranty enrollment form by the patient 's plastic surgeon is required to activate the programs and for the patient to be able to receive benefits under either program . we accrued for warranties issued in 2014 , 2013 and 2012 in the amounts of $ 0.5 million , $ 0.4 million and $ 0.1 million , respectively . as of december 31 , 2014 and 2013 , we held total warranty liabilities of $ 1.0 million , $ 0.5 million , respectively . stock-based compensation stock-based compensation cost is measured at the date of grant based on the estimated fair value of the award , net of estimated forfeitures . we estimate the fair value of our stock-based awards to employees and directors using the black- scholes option pricing model . the grant date fair value of a stock-based award is recognized as an expense over the requisite service period of the award on a straight-line basis . we recorded total non-cash stock-based compensation expense of $ 0.6 million , $ 0.3 million and $ 0.4 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . as of december 31 , 2014 and 2013 , we had total unrecognized compensation costs of $ 1.9 million and $ 0.7 million , respectively , related to these stock options . as of december 31 , 2014 , these costs are expected to be recognized over a weighted average period of 2.84 years . the black-scholes model requires the input of subjective assumptions , including the risk-free interest rate , expected dividend yield , expected volatility and expected term , among other inputs . these estimates involve inherent uncertainties and the application of management 's judgment . if factors change and different assumptions are used , our stock-based compensation expense could be materially different in the future . these assumptions are estimated as follows : risk-free interest rate the risk-free interest rate is based on the yields of u.s. treasury securities with maturities similar to the expected term of the options for each option group . 57 dividend yield we have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future .
| % , to $ 4.7 million for the year ended december 31 , 2014 , as compared to $ 4.5 million for the year ended december 31 , 2013. this was primarily due to an increase in employee related expenses and costs associated with our post-approval study . general and administrative expenses g & a expenses decreased $ 7.4 million , or 40.7 % , to $ 10.7 million for the year ended december 31 , 2014 , as compared to $ 18.1 million for the year ended december 31 , 2013. this decrease was primarily due to the $ 10.1 million decrease in litigation expenses related to the mentor litigation partially offset by an increase in expenses related to accounting related costs and federal excise tax . other ( expense ) income , net total other ( expense ) income , net for the year ended december 31 , 2014 was primarily associated with interest expense on our term loans of $ 2.2 million and income from recovery of costs associated with the mentor litigation of $ 2.4 million . total other ( expense ) income , net for the year ended december 31 , 2013 was primarily associated with interest expense on our term loans of $ 0.9 million . 60 comparison of the years ended december 31 , 2013 and 2012 the following table sets forth our results of operations for the years ended december 31 , 2013 and 2012. replace_table_token_5_th net sales we commenced sales of our breast implants in the united states in may 2012. our net sales increased $ 24.7 million , or 236.7 % , to $ 35.2 million for the year ended december 31 , 2013 , as compared to $ 10.4 million for the year ended december 31 , 2012. as there was no material change in pricing , this increase was primarily due to having a full year of sales in 2013 , as compared to less than eight months of sales in 2012. we also began commercialization activities
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” the company is under examination by the internal revenue service ( “ irs ” ) for the calendar years 2008 and 2009. in august 2012 , the company received a notice of proposed assessment ( “ nopa ” ) related to the disallowance of the deductibility of a $ 380.9 million foreign currency loss incurred in calendar year 2008. in september 2012 , the company responded to the nopa indicating its formal disagreement and subsequently received an examination report which includes the proposed disallowance . the largest potential adjustment for this matter could , if the irs were to prevail , increase the company 's potential federal tax expense and cash outflow by approximately $ 134.0 million plus interest and penalties , if any . the company filed a formal protest to the proposed adjustment during the fourth quarter of 2012. the company plans to pursue all administrative and , if necessary , judicial remedies with respect to resolving this matter . however , there can be no assurance that this matter will be resolved in the company 's favor . the irs also examined and proposed adjustments to the research and development credit generated in 2009 ; the company also formally disagreed with the adjustments . the company regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves . as of december 31 , 2012 , the company believes that it is more-likely-than-not that the tax positions it has taken will be sustained upon the resolution of its audits resulting in no material impact on its consolidated financial position and the results of operations and cash flows . however , the final determination with respect to any tax audits , and any related litigation , could be materially different from the company 's estimates and or from its historical income tax provisions and accruals and could have a material effect on operating results and or cash flows in the periods for which that determination is 28 made . in addition , future period earnings may be adversely impacted by litigation costs , settlements , penalties , and or interest assessments . earnings ( loss ) from discontinued operations replace_table_token_19_th * measure not meaningful the results from discontinued operations were earnings of $ 0.3 million and a loss of $ 3.4 million , net of income taxes , for the years ended december 31 , 2012 and 2011 , respectively . the earnings from discontinued operations relates primarily to the jackson business which was classified as discontinued operations in the fourth quarter of 2012 , partially offset by a loss in the kysor/warren business that was sold on january 14 , 2011. see additional discussion at note 4 , “ discontinued operations. ” net loss attributable to noncontrolling interest replace_table_token_20_th for the year ended december 31 , 2012 , a net loss attributable to a noncontrolling interest of $ 9.1 million was recorded in relation to the minority partners ' portion of the full year loss from our chinese affiliate joint venture , manitowoc dongyue heavy machinery co. , ltd. ( manitowoc dongyue ) . there was a net loss of $ 6.5 million attributable to the minority partner in connection with manitowoc dongyue for the same period of 2011 . year ended december 31 , 2011 compared to 2010 net sales ( in millions ) 2011 2010 change net sales $ 3,619.2 $ 3,111.5 16.3 % consolidated net sales increased 16.3 % in 2011 to $ 3.6 billion from $ 3.1 billion in 2010. the increase was the result of year-over-year increases in both the crane and foodservice segments . crane segment sales increased in all regions and in all product lines from 2010 due to modest economic recoveries in the americas region and in certain emerging markets . crane segment sales increased 23.8 % for the year ended december 31 , 2011 compared to 2010. foodservice sales increased in all regions from 2010 due to continued penetration of global chains with whom we partner and modest economic improvements . foodservice sales increased 6.7 % for the year ended december 31 , 2011 compared to 2010. weaker foreign currencies as compared to the u.s. dollar had a favorable impact on consolidated net sales of $ 55.1 million , or 1.8 % , for the year ended december 31 , 2011 compared with the year ended december 31 , 2010. further analysis of the changes in sales by segment is presented in the `` sales and operating earnings by segment '' section below . gross profit replace_table_token_21_th gross profit for the year ended december 31 , 2011 increased to $ 826.7 million compared to $ 759.4 million million for the year ended december 31 , 2010 , an increase of 8.9 % . gross margin decreased in 2011 to 22.8 % from 24.4 % in 2010. the increase in consolidated gross profit was attributable to sales volume increases in both the crane and foodservice segments in all regions . crane segment gross profit increases were partially offset by increases in material costs , labor costs and additional provisions for warranty and excess and obsolete inventory . foodservice segment gross profit increases were offset by higher material and other manufacturing costs . the decrease in gross margin was due to higher material and labor costs in both segments . engineering , selling and administrative expenses replace_table_token_22_th 29 engineering , selling and administrative ( es & a ) expenses for the year ended december 31 , 2011 increased $ 56.5 million to $ 565.4 million compared to $ 508.9 million for the year ended december 31 , 2010. crane segment es & a increased $ 35.1 million or 16.5 % for the year ended december 31 , 2011 compared to the same period in 2010. this increase was driven by increased employee compensation and benefit costs , increased marketing expenses and increased levels of research and development . story_separator_special_tag foodservice es & a increased $ 1.6 million or 0.6 % for the year ended december 31 , 2011 compared to the same period in 2010. this increase was driven by increased employee compensation and benefit costs , partially offset by cost reduction activities . amortization expense replace_table_token_23_th amortization expense for the year ended december 31 , 2011 was $ 37.9 million compared to $ 37.4 million for 2010. see further detail related to intangible assets at note 9 , “ goodwill and other intangible assets. ” restructuring expense replace_table_token_24_th restructuring expenses for the year ended december 31 , 2011 totaled $ 5.5 million compared to $ 3.8 million in 2010. crane segment restructuring expenses totaled $ 3.2 million for the year ended december 31 , 2011. these expenses primarily related to the consolidation of certain european operations . foodservice segment restructuring expenses totaled $ 2.3 million for the year ended december 31 , 2011. these expenses primarily related to plant consolidation efforts in the united states and europe . see further detail at note 19 , “ restructuring. ” interest expense & amortization of deferred financing fees replace_table_token_25_th interest expenses for the year ended december 31 , 2011 totaled $ 146.7 million versus $ 175.0 million for the year ended december 31 , 2010. the decrease in interest expense of $ 28.3 million for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 was due to refinancing of our senior credit facility during the second quarter of 2011 , which lowered the associated interest rate paid , and debt reductions in 2011 and 2010. amortization expense for deferred financing fees was $ 10.4 million for the year ended december 31 , 2011 as compared to $ 22.0 million in 2010. the decrease in amortization expense for deferred financing fees of $ 11.6 million was attributable to the write-off of a portion of the deferred financing fees associated with the refinancing in the second quarter of 2011 , partially offset by the amortization of new fees associated with the new senior credit facility . see further detail at note 11 , “ debt. ” loss on debt extinguishment replace_table_token_26_th loss on debt extinguishment for the year ended december 31 , 2011 totaled $ 29.7 million compared to $ 44.0 million in 2010. the loss on debt extinguishment in 2011 was attributable to the write-off of a portion of the deferred financing fees associated with the amendment to the senior credit facility in the second quarter of 2011. the loss on debt extinguishment in 2010 was attributable to the accelerated paydown of term loans a and b associated with the senior credit facility . see further detail at note 11 , “ debt. ” other income ( expense ) - net replace_table_token_27_th * measure not meaningful 30 other income ( expense ) , net for the year ended december 31 , 2011 was income of $ 2.3 million versus a loss of $ 9.0 million for the prior year . the increase of $ 11.3 million in other income for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 was due to foreign currency losses in 2010 that did not reoccur at the same level in 2011. other income in 2011 consisted of interest income and gains from asset sales offset by bank fees and currency losses . income taxes replace_table_token_28_th * measure not meaningful the effective tax rate for the year ended december 31 , 2011 was 40.1 % compared to negative 60.9 % for the year ended december 31 , 2010. as the company posted pre-tax losses in 2010 , the negative effective tax rate was an expense to the consolidated statement of operations . the effective tax rate in 2010 was unfavorably impacted by the full valuation allowance of $ 45.6 million on the net deferred tax asset in france . the 2011 and 2010 effective tax rates were favorably impacted by income earned in jurisdictions where the statutory rate was less than 35 % . tax expense for the year ended december 31 , 2011 was unfavorably impacted by valuation allowance adjustments on deferred tax assets totaling $ 12.3 million compared to $ 52.0 million in 2010. the company recorded a full valuation allowance of $ 45.6 million on the net deferred tax asset for net operating loss carryforwards in france during the fourth quarter of 2010. during 2011 , the company continued to record valuation allowances on the deferred tax assets in france and certain other jurisdictions , as it remained more-likely-than-not that they would not be utilized . see further detail at note 13 , “ income taxes. ” loss from discontinued operations replace_table_token_29_th the results from discontinued operations were a loss of $ ( 3.4 ) million and a loss of $ ( 8.1 ) million , net of income taxes , for the years ended december 31 , 2011 and 2010 , respectively . the loss from discontinued operations related primarily to the kysor/warren business that was sold on january 14 , 2011. see additional discussion at note 4 , “ discontinued operations. ” net loss attributable to noncontrolling interest replace_table_token_30_th * measure not meaningful for the year ended december 31 , 2011 , a net loss attributable to a noncontrolling interest of $ 6.5 million was recorded in relation to the minority partners ' portion of the full year loss from our chinese joint venture manitowoc dongyue heavy machinery co. , ltd. ( manitowoc dongyue ) . there was a net loss of $ 2.7 million attributable to the minority partner in connection with manitowoc dongyue for the same period of 2010. sales and operating earnings by segment cranes and related products segment replace_table_token_31_th year ended december 31 , 2012 compared to 2011 crane segment net sales for the year ended december 31 , 2012 increased to $ 2.4 billion versus $ 2.2 billion for the year ended december 31 , 2011 , which was primarily the result of volume increases and pricing actions .
| crane segment gross profit increases were partially offset by increases in manufacturing costs . the increase in gross margin was primarily due to pricing actions , cost reduction and lean actions slightly offset by investment in optimizing global footprint . engineering , selling and administrative expenses replace_table_token_12_th engineering , selling and administrative ( es & a ) expenses for the year ended december 31 , 2012 increased $ 38.1 million to $ 603.5 million compared to $ 565.4 million for the year ended december 31 , 2011 . crane segment es & a increased $ 38.3 million , or 15.4 % , for the year ended december 31 , 2012 compared to the same period in 2011 . this increase was driven by increased employee compensation and benefit costs , increased levels of engineering expenses , recognition of reserves for a small number of discrete customer financing issues and enterprise resource planning system implementation costs . foodservice es & a decreased $ 2.8 million , or 1.1 % , for the year ended december 31 , 2012 compared to the same period in 2011 . this decrease was driven by reduction in sales related costs , favorable foreign exchange impact , and reduced employee costs . amortization expense replace_table_token_13_th amortization expense for the year ended december 31 , 2012 was $ 37.1 million compared to $ 37.9 million for 2011 . see further detail related to intangible assets at note 9 , “ goodwill and other intangible assets. ” restructuring expense replace_table_token_14_th * measure not meaningful restructuring expenses for the year ended december 31 , 2012 totaled $ 9.5 million compared to $ 5.5 million in 2011 . crane segment restructuring expenses totaled $ 7.2 million for the year ended december 31 , 2012 . these expenses primarily related to workforce reductions at our france operations . foodservice segment restructuring expenses totaled $ 2.3 million for the year ended december 31 , 2012 . these expenses primarily related to plant consolidation efforts in the americas
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these systems simplify the way people interact with technology by enabling the use of natural body gestures , like the wave of a hand , to control a product or application . emerging applications for this technology include in-cabin tracking in cars , self-navigating robotics and drones in industrial applications and 3-d capture of objects coupled with 3-d printing . our opcomms customers include alcatel-lucent international , ciena corporation , cisco systems , inc. , coriant gmbh , fujitsu network communications , inc. , google inc. , huawei technologies co ltd. , microsoft corporation , and nokia networks . lasers our lasers products serve our customers in markets and applications such as manufacturing , biotechnology , graphics and imaging , remote sensing , and precision machining such as drilling in printed circuit boards , wafer singulation and solar cell scribing . our lasers products are used in a variety of oem applications . oem applications use our products including diode-pumped solid-state , fiber , diode , direct-diode and gas lasers such as argon-ion and helium-neon lasers . diode-pumped solid-state and fiber lasers provide excellent beam quality , low noise and exceptional reliability and are used in biotechnology , graphics and imaging , remote sensing , materials processing and precision machining applications . diode and direct-diode lasers address a wide variety of applications , including laser pumping , thermal exposure , illumination , ophthalmology , image recording , printing , plastic welding and selective soldering . gas lasers such as argon-ion and helium-neon lasers provide a stable , low-cost and reliable solution over a wide range of operating conditions , making them well suited for complex , high-resolution oem applications such as flow cytometry , dna sequencing , graphics and imaging and semiconductor inspection . during the third quarter of fiscal 2014 , viavi acquired time-bandwidth , a provider of high-powered and ultrafast lasers for the industrial and scientific markets and whose assets and liabilities we succeeded to in the separation . manufacturers use high-power , ultrafast lasers to create micro parts for consumer electronics and to process semiconductor chips . use of ultrafast lasers for micromachining applications is being driven primarily by the increasing use of consumer electronics and connected devices globally . our lasers customers include amada co. , ltd. , asml holding n.v. , beckman coulter , inc. , becton , dickinson and company , disco corporation , electro scientific industries , inc. , eo technics co. , ltd. and kla-tencor corporation . critical accounting policies and estimates the preparation of our combined financial statements in conformity with accounting principles generally accepted in the united states requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , net revenue and expenses , and the related disclosures . we base our estimates on historical experience , our knowledge of economic and market factors and various other assumptions that we believe to be reasonable under the circumstances . estimates and judgments used in the preparation of our financial statements are , by their nature , uncertain and unpredictable , and depend upon , among other things , many factors outside of our control , such as demand for our products and economic conditions . accordingly , our estimates and judgments may prove to be incorrect and actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies are affected by significant estimates , assumptions and judgments used in the preparation of our combined financial statements : 31 revenue recognition we recognize revenue when all four revenue recognition criteria have been met : ( i ) persuasive evidence of an arrangement exists , ( ii ) the product has been delivered or the service has been rendered , ( iii ) the price is fixed or determinable and ( iv ) collection is reasonably assured . revenue from product sales is recorded when all of the foregoing conditions are met and risk of loss and title passes to the customer . our products typically include a warranty and the estimated cost of product warranty claims , based on historical experience , is recorded at the time the sale is recognized . sales to customers are generally not subject to price protection or return rights . the majority of our sales are made to oems , distributors , resellers and end-users . these sales do not require installation of the products by us and are not subject to other post-delivery obligations . additionally , our sales to distributors , resellers and end-user customers typically do not have customer acceptance provisions . inventory valuation we assess the value of our inventory on a quarterly basis and write down those inventories which are obsolete or in excess of our forecasted usage to their estimated realizable value . our estimates of realizable value are based upon our analysis and assumptions including , but not limited to , forecasted sales levels by product , expected product lifecycle , product development plans and future demand requirements . our product line management personnel play a key role in our excess review process by providing updated sales forecasts , managing product transitions and working with manufacturing to maximize recovery of excess inventory . if actual market conditions are less favorable than our forecasts or actual demand from our customers is lower than our estimates , we may be required to record additional inventory write-downs . if actual market conditions are more favorable than anticipated , inventory previously written down may be sold , resulting in lower cost of sales and higher income from operations than expected in that period . allocations viavi has allocated certain expenses that arise from shared services and infrastructure provided by viavi to us prior to the separation such as the costs of information technology , human resources , accounting , legal , real estate and facilities , corporate marketing , insurance , treasury and other corporate and infrastructure services . story_separator_special_tag in addition , other costs allocated to us include restructuring and stock-based compensation related to viavi 's corporate and shared services employees . these expenses are allocated to us using estimates that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by our business . the allocation methods include revenue , headcount , square footage , actual consumption and usage of services and others . stock-based compensation our employees have historically participated in viavi 's stock-based benefit plans and continued participating until consummation of the separation . stock-based compensation has been allocated to us based on the equity awards granted to our employees as well as the allocation of expenses from viavi 's employees in corporate and shared services functions . stock-based compensation is measured at grant date , based on the fair value of the award , and recognized as compensation over the requisite service period . the fair value of the time-based rsus is based on the closing market price of viavi common stock on the grant date of the award . we use the monte carlo simulation to estimate the fair value of rsus with market conditions ( `` msus '' ) . we estimate the fair value of employee stock purchase plan ( `` espp '' ) shares using the black-scholes merton option-pricing model . these valuation models require the input of highly subjective assumptions , including the award 's expected life , the price volatility of the underlying stock and the average volatility of peer companies . we estimate the expected forfeiture rate and recognize only expense for those shares expected to vest . when estimating forfeitures , we consider historical forfeiture experiences as well as our expectation about future terminations and workforce reduction programs . estimated forfeiture is trued up to actual forfeiture as the equity awards vest . the total fair value of the equity awards , net of forfeiture , is recorded on a straight-line basis over the requisite service periods of the awards , which is generally the vesting period , except for msus which are amortized on a graded vesting basis . goodwill valuation we test goodwill for possible impairment on an annual basis in our fourth quarter and at any other time if events occur or circumstances indicate that the carrying amount of goodwill may not be recoverable . circumstances that could trigger an impairment 32 test include , but are not limited to : a significant adverse change in the business climate or legal factors , an adverse action or assessment by a regulator , changes in customers , target markets and strategy , unanticipated competition , loss of key personnel , or the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed . an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test . if an entity determines that as a result of the qualitative assessment that it is more likely than not ( i.e. , greater than 50 % likelihood ) that the fair value of a reporting unit is less than its carrying amount , then the quantitative test is required . otherwise , no further testing is required . the two-step quantitative goodwill impairment test requires us to estimate the fair value of our reporting units . if the carrying value of a reporting unit exceeds its fair value , the goodwill of that reporting unit is potentially impaired and we proceed to step two of the impairment analysis . in step two of the analysis , we measure and record an impairment loss equal to the excess of the carrying value of the reporting unit 's goodwill over its implied fair value , if any . application of the goodwill impairment test requires judgments , including : identification of the reporting units , assigning assets and liabilities to reporting units , assigning goodwill to reporting units , a qualitative assessment to determine whether there are any impairment indicators , and determining the fair value of each reporting unit . we historically estimated the fair value of a reporting unit using the market approach , which estimates the fair value based on comparable market prices . significant estimates in the market approach include : identifying similar companies with comparable business factors such as size , growth , profitability , risk and return on investment , and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit . we base our estimates on historical experience and on various assumptions about the future that we believe are reasonable based on available information . unanticipated events and circumstances may occur that affect the accuracy of our assumptions , estimates and judgments . for example , if the price of our common stock were to significantly decrease combined with other adverse changes in market conditions , thus indicating that the underlying fair value of our reporting units may have decreased , we might be required to reassess the value of our goodwill in the period such circumstances were identified . long-lived asset valuation ( property , plant and equipment and intangible assets subject to amortization ) we test long-lived assets for recoverability , at the asset group level , when events or changes in circumstances indicate that their carrying amounts may not be recoverable . circumstances which could trigger a review include , but are not limited to : significant decreases in the market price of the asset ; significant adverse changes in the business climate or legal factors ; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset ; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset ; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life .
| opcomms net revenue increase d $ 42.0 million , or 6.4 % , during fiscal 2014 compared to fiscal 2013 . this was driven by $ 61.9 million of net revenue increases primarily from products addressing the consumer and industrial and datacom markets . these increases were primarily due to higher demand for our 3-d sensing light source product related to the launch of one of our customers ' next generation gaming console in the consumer and industrial market and for our 10g and 40g products in the datacom market . this was partially offset by a decrease in net revenue of $ 19.9 million from products addressing the telecom market primarily due to lower spending on new network developments by large service providers . lasers net revenue increase d $ 6.0 million , or 5.1 % , in fiscal 2014 compared to fiscal 2013 . this increase was primarily driven by incremental net revenue from the acquisition of time-bandwidth in fiscal 2014 and increased revenue from our next generation products , partially offset by net revenue decreases from other lasers products . 36 revenue by region we operate in three geographic regions : americas , asia-pacific and emea . net revenue is assigned to the geographic region and country where our product is initially shipped . for example , certain customers may request shipment of our product to a contract manufacturer in one country , which may differ from the location of their end customers . the following table presents net revenue by the three geographic regions we operate in and net revenue from countries that exceeded 10 % of our total net revenue ( dollars in millions ) : replace_table_token_5_th during fiscal 2015 , 2014 and 2013 , net revenue from customers outside the united states , based on customer shipping location , represented 80.6 % , 78.3 % and 73.8 % of net revenue , respectively .
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we anticipate that our traffic growth will continue to slow over time , and potentially decrease in certain periods , as our business matures and we achieve higher penetration rates in our core markets of the united states and canada . we also expect the cyclicality and seasonality in our business to become more pronounced as our business matures , including weaker traffic in the fourth quarter of the year . as our traffic growth rate slows , our success will become increasingly dependent on our ability to increase levels of user engagement on our platform , which itself depends on the quality of our content and our ability to introduce new and improved products that effectively address consumer needs , among other things . our ability to attract and retain advertisers . our revenue growth is driven by our ability to attract and retain advertising customers . to do so , we must deliver compelling ad products in an effective manner , at prices that compare favorably to those of our competitors . our advertisers typically do not have long-term obligations to purchase our products , and an increasing portion have the ability to cancel their ad campaigns at any time . their decisions to renew depend on the degree of satisfaction with our products as well as a number of factors that are outside of our control , including their ability to continue their operations and spending levels . the small and medium-sized businesses on which we heavily rely often have limited advertising budgets and may be disproportionately affected by economic downturns . as a result , a worsening economic outlook would likely cause businesses to decrease investments in advertising , which could adversely affect our revenue . our ability to maintain and expand our advertiser base also depends on the size and productivity of our sales force and customer success team . as we continue to invest in expanding our sales organization , we must efficiently scale our operations while at the same time recruiting , training and integrating new hires and developing , motivating and retaining existing employees . similarly , in order to retain , and take advantage of opportunities to deepen our relationships with , our existing customers , we must continue our efforts to build out our customer success team . developing our account retention processes will be particularly important as an increasing portion of our advertisers have the ability to cancel their contracts at any time . in addition , as we make periodic adjustments to our sales organization to respond to market opportunities and to pursue initiatives to increase productivity , such changes may result in a temporary lack of focus or disruption to our operations . for example , it may take time for our sales and customer success organizations to adapt to selling and supporting advertising contracts with flexible cancellation terms . product innovation . we must deliver innovative , relevant and useful products to consumers and businesses — including products for mobile and other alternative devices — to expand the size and engagement of our user base , attract advertisers and 41 increase our revenue . we plan to continue investing in new product development as we introduce new advertising and e-commerce products , explore new platforms and distribution channels , and develop partner arrangements that provide incremental value to our users and advertisers to encourage them to increase their usage of , and the portion of their advertising budgets allocated to , our platform . as our industry evolves and competition intensifies , our investments may increasingly include products and services outside of our historical core business , such as our planned investments in yelp reservations , yelp nowait and yelp wifi marketing in 2018. these investments involve significant risks and uncertainties , such as distracting management , and may ultimately fail to generate sufficient revenue or other value to justify our investments in them . investment in growth . we have invested , and intend to continue to invest , aggressively to support the growth of our communities and platform . we dedicate significant resources to areas such as : marketing and community development ; consumer protection ; maintaining and enhancing the yelp brand ; and upgrading our systems , technology and network infrastructure to accommodate growth . our investment plans for 2018 include the neighborhood-level expansion of our community management team and continuing our performance marketing program aimed at attracting more users and advertisers . we expect that these investments will increase our operating expenses , and that any increase in revenue resulting from product innovations will likely trail the increase in expenses . stock repurchases . in july 2017 , our board of directors authorized a stock repurchase program under which we may repurchase up to $ 200 million of our outstanding common stock . we repurchased on the open market 302 thousand shares for an aggregate purchase price of approximately $ 12.6 million during the year ended december 31 , 2017. we funded these repurchases , and expect to fund any future repurchases under the stock repurchase program , with cash available on our balance sheet . as a result , this program could diminish our cash reserves in addition to affecting the trading price and volatility of our stock . corporate development activities . as part of our business strategy , we may decide to expand our product offerings and grow our business through the acquisition of complementary businesses or technologies . we may also sell existing business lines or technologies , as we did with our yelp eat24 business , which we sold to grubhub in october 2017. in addition to diverting our management 's attention and otherwise disrupting our operations , our corporate development activities will affect our future financial results due to factors such as expenses incurred in identifying , investigating and pursuing transactions , whether or not they are consummated , possible dilutive issuances of equity securities or the incurrence of debt , unidentified liabilities and the amortization of acquired intangible assets . story_separator_special_tag key metrics we regularly review a number of metrics , including the key metrics set forth below , to evaluate our business , measure our performance , identify trends in our business , prepare financial projections and make strategic decisions . unless otherwise stated , these metrics do not include metrics for yelp eat24 , yelp reservations , yelp nowait , yelp wifi marketing or from our business owner products . reviews number of reviews represents the cumulative number of reviews submitted to yelp since inception , as of the period end , including reviews that were not recommended or had been removed from our platform . in addition to the text of the review , each review includes a rating of one to five stars . we include reviews that are not recommended and that have been removed because all of them are either currently accessible on our platform or were accessible at some point in time , providing information that may be useful to users to evaluate businesses and individual reviewers . because our automated recommendation software continually reassesses which reviews to recommend based on new information that becomes available , the “ recommended ” or “ not recommended ” status of reviews may change over time . reviews that are not recommended or that have been removed do not factor into a business 's overall star rating . by clicking on a link on a reviewed business 's page on our website , users can access the reviews that are not currently recommended for the business , as well as the star rating and other information about reviews that were removed for violation of our terms of service . as of december 31 , 2017 , approximately 137.7 million reviews were available on business listing pages , including approximately 31.7 million reviews that were not recommended , after 10.6 million reviews had been removed from our platform , either by us for violation of our terms of service or by the users who contributed them . the following table presents the number of cumulative reviews as of the dates indicated ( in thousands ) : replace_table_token_8_th 42 traffic traffic to our website and mobile app has three components : visitors to our non-mobile optimized website ( our “ desktop website ” ) , visitors to our mobile-optimized website ( our “ mobile website ” ) and mobile devices accessing our mobile app . we use the following metrics to measure each of these traffic streams : desktop and mobile website unique visitors . we calculate desktop unique visitors as the number of “ users , ” as measured by google analytics , who have visited our desktop website at least once in a given month , averaged over a given three-month period . similarly , we calculate mobile website unique visitors as the number of “ users ” who have visited our mobile website at least once in a given month , averaged over a given three-month period . google analytics , a product from google inc. that provides digital marketing intelligence , measures “ users ” based on unique cookie identifiers . because the numbers of desktop unique visitors and mobile website unique visitors are therefore based on unique cookies , an individual who accesses our desktop website or mobile website from multiple devices with different cookies may be counted as multiple desktop unique visitors or mobile website unique visitors , as applicable , and multiple individuals who access our desktop website or mobile website from a shared device with a single cookie may be counted as a single desktop unique visitor or mobile website unique visitor . app unique devices . we calculate app unique devices as the number of unique mobile devices using our mobile app in a given month , averaged over a given three-month period . under this method of calculation , an individual who accesses our mobile app from multiple mobile devices will be counted as multiple app unique devices . multiple individuals who access our mobile app from a shared device will be counted as a single app unique device . we anticipate that our mobile traffic will be the driver of our growth for the foreseeable future . the following table presents our traffic for the periods indicated ( in thousands ) : replace_table_token_9_th as previously reported , a portion of our desktop traffic , as measured by google analytics , since the third quarter of 2016 has been attributable to a single robot . because the traffic from this robot does not represent valid consumer traffic , we have adjusted the number of desktop unique visitors we are reporting above to remove such traffic to provide greater accuracy and transparency . for additional information , please see the risk factor included under part i , item 1a under the heading “ we rely on data from both internal tools and third parties to calculate certain of our performance metrics . real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business . ” claimed local business locations the number of claimed local business locations represents the cumulative number of business locations that have been claimed on yelp worldwide since 2008 , as of a given date . we define a claimed local business location as each business address for which a business representative has visited our website and claimed the free business listing page for the business located at that address . the following table presents the number of cumulative claimed local business locations as of the dates presented ( in thousands ) : replace_table_token_10_th paying advertising accounts paying advertising accounts comprise all business accounts from which we recognized advertising revenue in a given three-month period . as with our advertising revenue classification , paying advertising accounts excludes subscription services customers that are not also advertising customers . the following table presents the number of paying advertising accounts during the periods presented ( in thousands ) : 43 replace_table_token_11_th non-gaap financial measures our consolidated financial statements are prepared in accordance with gaap .
| prior to the completion of our sale of eat24 , we generated revenue from our yelp eat24 business through arrangements with restaurants in which restaurants pay a commission percentage fee on orders placed through the yelp eat24 platform , which we recorded on a net basis . following the completion of the sale , we no longer recognize revenue from yelp eat24 as a standalone product . instead , under our partnership agreement with grubhub , we earn fees on food orders placed through the grubhub restaurant network , including eat24 restaurants , that originate on the yelp platform . we expect the revenue generated under the grubhub arrangement to continue to be lower than the revenue previously generated by yelp eat24 for the foreseeable future , particularly before the remainder of the grubhub restaurant network is fully integrated onto our platform , which is currently targeted to occur by mid-2018 . accordingly , our sale of eat24 has resulted in a reduction in our transactions revenue and slowing of our total net revenue growth following the sale . 46 yelp deals allow merchants to promote themselves and offer discounted goods and services on a real-time basis to consumers directly on our website and mobile app . we earn a fee on yelp deals for acting as an agent in these transactions , which we record on a net basis and recognize as revenue upon a consumer 's purchase of a deal . gift certificates allow merchants to sell full-priced gift certificates directly to consumers through their business listing pages . we earn a fee based on the amount of the gift certificate sold , which we record on a net basis and recognize as revenue upon a consumer 's purchase of the gift certificate . other services . we generate revenue through our yelp reservations and yelp nowait products , the yelp wifi marketing analytics platform , licensing payments for access to yelp data through our yelp knowledge program and other non-advertising related partnerships . brand advertising .
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we distribute our products through a flexible multi-channel approach combining our direct-to-consumer channel , including our e-commerce platform and retail stores , with retail partnerships . but whether consumers engage us through our website , at our stores , or through a retail partnerand whether they 're looking for information , content , or to purchasewe believe those who interact with casper have an experience that is genuine , trustworthy and approachable , as well as fun and playful across every channel . we intend to continue leveraging our marketing strategy to drive increased consumer traffic to both casper.com and to our physical retail locations . as of december 31 , 2019 , we operated 60 retail store locations in key cities in the united states and canada . additionally , as of december 31 , 2019 , we had 18 retail partners , including amazon , costco , hudson 's bay company , and target , among others . our research indicates that these partnerships not only expand our consumer base but also provide access to future consumers that have yet to engage with the casper brand . we believe our retail channel improves our consumer experience , attracting and educating more consumers about casper , which in turn attracts more partners to our brand thereby further enhancing our ability to generate revenue . we continue to evaluate partnerships with a wide variety of retailers , including online retailers , big-box retailers , department stores and specialty retailers . investments in research and development and ability to improve existing products and introduce new products based on superior innovation . casper is constantly investing in and improving existing products and introducing new products and services with proprietary technologies to address the full sleep arc . for example , we recently expanded our existing mattress product offering by designing new hybrid mattresses that combine our proprietary foam technology with resilient springs . casper labs , our over 25,000 square foot advanced research facility in san francisco , enables us to develop , rapidly prototype and test multiple design iterations . we thoughtfully curate our product and services offerings utilizing high-quality materials and advanced manufacturing processes to create a differentiated experience . the improvement of existing products and the introduction of new products have been , and 74 we expect will continue to be , integral to our growth . we believe our rigorous approach to creating and improving our products has helped redefine and grow the addressable market that we call the sleep economy . this in turn offers consumers more opportunities to interact with us and purchase from us , which drives new consumer as well as repeat consumer business . cost-effective acquisition of new consumers and retention of existing customers . to continue to grow our business , we must acquire new consumers as well as retain existing customers in a cost-effective manner . we continually evolve our marketing strategies , and adjust our messages , the amount we spend on advertising and the channels in which we spend . we have made , and we expect that we will continue to make , significant investments in attracting new consumers , including through traditional , digital , social media and original casper content . it is critical for us to maintain reasonable costs for these marketing efforts relative to sales derived from new consumers . we believe our multi-channel expansion creates synergies and that these channels , to date , have proven to be complementary , not cannibalistic . moreover , we expect our marketing efficiency ( which we define as net revenue as a percentage of total media spend over a specific time period ) to improve over time as sales through our owned retail stores and retail partners increase . because increasing sales through these channels requires minimal incremental marketing investment , we believe we will be able to drive natural leverage in our marketing efficiency . as we continue to launch new products and improve existing products , we expect customers generating repeat revenue to grow due to our efforts to create a differentiated and joyful experience , eliminating friction and boundaries . importantly , 23 % of customers in our direct-to-consumer channel in 2019 were repeat customers . competitive industry dynamics . we operate in the highly competitive mattress , soft goods , bedroom furniture , sleep technology and services industries , among others industries . the competitive environment of the industries in which we operate continually subjects us to the risk of loss of market share , loss of significant customers , reductions in margins , discounting by competitors , and to the challenge of acquiring new customers . while the mattress industry is highly consolidated and is dominated by a few long-standing players , the soft goods , bedroom furniture , sleep technology and services industries are highly fragmented , which presents opportunities for growth in each of those markets . we combine our offerings with a differentiated in-store experience and high-quality consumer experience , which has enabled us to continue to grow our market share and drive revenue . disciplined approach to operations . as we scale our business , we intend to continue to drive continued operational improvement so that we can provide quality products and services to ensure the best possible consumer experiences while improving our revenue and controlling our costs . in particular , we plan to drive operational efficiencies through a focus on reducing product return rates , price optimization , investing in our supply chain , improving the efficiency and enhancing performance of our marketing investments , and realizing economies of scale . impact of novel coronavirus casper is closely monitoring how the spread of the novel coronavirus is affecting its employees , customers and business operations . we have developed preparedness plans to help protect the safety of our employees and retail customers , while safely continuing business operations . story_separator_special_tag due to the spread of the outbreak in new york , california , and elsewhere where we have corporate offices , we have temporarily restricted access to our offices until at least march 27 , 2020 and implemented a mandatory remote work policy during this period . in addition , over the past several weeks , we have worked with our manufacturing , logistics and other supply chain partners to build communication and monitoring processes for all aspects of our product and delivery supply chain . to date , we have not seen a material impact on our supply chain , inventory availability or delivery capacity . 75 in addition , as of the date of this annual report on form 10-k , the outbreak has caused us to temporarily close our retail stores located in north america through march 27 , 2020. as a result , we expect that the novel coronavirus outbreak will impact our revenues , results of operations and financial condition . we are , however , carefully monitoring shifts by customers from our physical retail to our online platform . moreover , we have not , to date , experienced a material impact due to the novel coronavirus outbreak on sales with our retail partners . we are , however , continuing to work closely with our retail partners to monitor the situation . at this time , there is significant uncertainty relating to the trajectory of the novel coronavirus outbreak and impact of related responses . the continued spread of the outbreak may further impact our business , financial condition or results of operations . see `` risk factorsrisks related to our businessthe novel coronavirus outbreak could adversely impact our business , financial condition and results of operations . '' components of our results of operations revenue , net revenue , net is comprised of global sales through our direct-to-consumer channels and our retail partnerships . revenue , net reflects the impact of product returns as well as discounts for certain sales programs and promotions . revenue , net comprises the consideration received or receivable for the sale of goods and services in the ordinary course of our activities net of returns and promotions . promotions are occasionally offered , primarily in the form of discounts , and are recorded as a reduction of gross revenue at the date of revenue recognition . we typically accept sales returns during a 30- or 100-night trial period , depending on the product , with our mattresses having a 100-night trial period . a sales return accrual is estimated based on historical return rates and is then adjusted for any current trends as appropriate . returns are netted against the sales allowance reserve for the period . sales are recognized as deferred revenue at the point of sale and are recognized as revenue upon the delivery to the consumer . revenue through our direct-to-consumer channels is recognized upon in-store or home delivery to the consumer , as applicable , and retail partnership revenue is recognized upon the transfer of control , on a per contract basis . cost of goods sold cost of goods sold consists of costs of purchased merchandise , including freight , duty , and non-refundable taxes incurred in delivering goods to our consumers and distribution centers , packaging and component costs , warehousing and fulfilment costs , damages , and excess and obsolete inventory write-downs . gross profit and gross margin we calculate gross profit as revenue , net less cost of goods sold . we calculate gross margin as gross profit divided by net revenue for a specific period of time . gross margin in our direct-to-consumer channel , including company-owned retail stores and e-commerce sales , is generally higher than that on sales to our retail partnerships . our gross margin may in the future fluctuate from period to period based on a number of factors , including cost of purchased merchandise and components , the mix of products and services we sell and the mix of channels through which we sell our products . we have historically experienced that gross margin , by product , tends to increase over time as we realize cost efficiencies as a result of economies of scale , sourcing strategies and product re-engineering programs . in addition , our ability to continue to reduce the cost of our products is critical to increasing our gross margin over the long-term . 76 operating expenses operating expenses consist of sales and marketing , and general and administrative expenses , including research and development . sales and marketing expenses . sales and marketing expenses represent the largest component of our operating expenses and consist primarily of advertising and marketing promotions of our products and services as well as consulting and contractor expenses . we expect our sales and marketing expenses to increase in absolute dollars as we continue to promote our offerings . at the same time , we also anticipate that these expenses will decrease as a percentage of our sales revenue , net over time , as we improve marketing efficiencies and grow channels that require lower sales and marketing support . general and administrative expenses . general and administrative expenses consist of personnel-related costs for our retail operations , finance , legal , human resources , and it functions , as well as litigation expenses , credit card fees , professional services , rent and operating costs associated with our retail stores , depreciation and amortization , and other administrative expenses . general and administrative expenses also include research and development expenses consisting primarily of personnel related expenses , consulting and contractor expenses , tooling , test equipment and prototype materials . we expect our general and administrative expenses to increase in absolute dollars due to the growth of our business and related infrastructure as well as legal , accounting , insurance , investor relations and other compliance costs associated with becoming a public company .
| a favorable impact to our cost of goods sold . sales and marketing expense sales and marketing expenses were $ 154.6 million for the year ended december 31 , 2019 , an increase of $ 28.4 , or 22.5 % , compared to $ 126.2 million for the year ended december 31 , 2018. sales and marketing expenses increased as we continued to invest in driving traffic to our e-commerce website , market our products to consumers and build our brand . sales and marketing expenses as a percentage of revenue , net was 35.2 % for the year ended december 31 , 2019 , comparable to 35.3 % for the year ended december 31 , 2018 , and reflective of our ability to maintain efficiency , even as our overall investment in sales and marketing increased . general and administrative expenses general and administrative expenses were $ 149.6 million for the year ended december 31 , 2019 , an increase of $ 26.0 million , or 21.1 % , compared to $ 123.5 million for the year ended december 31 , 2018. general and administrative expenses increased as we invested to support our growing business , particularly in retail stores and product development . we believe innovation is a key differentiator and invest significant resources in research and development to drive product innovation to improve sleep quality . general and administrative expenses as a percentage of revenue , net decreased from 34.5 % for the year ended december 31 , 2018 to 34.1 % for the year ended december 31 , 2019 reflecting the slowing growth in general and administrative expenses relative to growth in revenue , net . other ( income ) expense , net other expense , net was $ 4.2 million for the year ended december 31 , 2019 , an increase of $ 4.1 million compared to income of $ 92.0 thousand for the year ended december 31 , 2018. the increase in other expense , net was due to interest incurred on our subordinated facility
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fiscal 2012 overview the following is a summary of our financial results for the year ended june 24 , 2012 : our year over year revenues increased 18 % to $ 1.2 billion . gross margin percentage declined from 44 % in fiscal 2011 to 35 % in fiscal 2012 . gross profit decreased by $ 26.3 million . operating income was $ 39.3 million in fiscal 2012 compared to $ 168.7 million in fiscal 2011 . net income per diluted share was $ 0.39 compared to $ 1.33 for fiscal 2011 . combined cash , cash equivalents and short-term investments decreased to $ 744.5 million at june 24 , 2012 compared to $ 1.1 billion at june 26 , 2011 primarily due to the cash outlay to acquire ruud lighting . cash provided by operating activities was $ 242.3 million for the year . inventory increased to $ 188.8 million at june 24 , 2012 compared to $ 176.5 million at june 26 , 2011 . we spent $ 95.0 million on purchases of property and equipment in fiscal 2012 compared to $ 237.1 million in fiscal 2011 . business outlook we project that the markets for our products will remain highly competitive during fiscal 2013 . we anticipate focusing on the following key areas , among others , in response to this competitive environment : accelerate adoption of led lighting . we continue to work on developing new led lighting systems to increase the lumens per dollar , which brings led lighting closer to price parity with conventional technology and reduces the payback time for the customer . we are focused on delivering best-in-class products for key lighting categories and expanding our sales channels to build the cree brand and access more customers . grow led component sales through product innovation . we are working to leverage our sc 3 technology next generation led platform into a range of new led component products that are targeted to deliver more lumens per dollar to the customer . we are also developing component and module products targeted to simplify our customers ' product designs and reduce their time to market . 28 leverage technology leadership in power and rf to open new applications for these products . in the power product line , we are working with our customers to combine our sic mosfet and schottky diodes technology to enable power modules for solar , uninterruptable power supplies ( ups ) and motor control applications . in the rf product line , we are developing gan based products to access new military applications and some commercial platforms . translate product innovation into revenue and profit growth . we target incremental improvement from factory cost reductions , process improvements and lower cost new product designs . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > 2011 , and 2010 , respectively . power and rf products revenue decreased approximately 25 % to $ 73.0 million in fiscal 2012 from $ 97.6 million in fiscal 2011 . the decrease in revenue was primarily due to a lower demand in the solar inverter market and the delay of rf orders related to military programs . power and rf products overall blended asp decreased by 11 % in fiscal 2012 compared to fiscal 2011 due to change in product mix . power and rf products revenue increased $ 20.3 million or 26 % in fiscal 2011 as compared to fiscal 2010 . this increase was primarily due to increased orders for sic schottky diodes and gan mmics . the power and rf products overall blended asp decreased by 4 % in fiscal 2011 compared to fiscal 2010 due to change in product mix . unallocated revenue all of our revenue is allocated to our reportable segments . the company 's chief executive officer does not review inter-segment revenue when evaluating performance and allocating resources to each segment , and inter-segment revenue is not included in the segment revenues presented above . as such , total segment revenue in the table above is equal to the company 's consolidated revenue . 30 gross profit and gross margin gross profit and gross margin for fiscal 2012 , 2011 and 2010 were as follows ( in thousands , except percentages ) : replace_table_token_6_th our consolidated gross profit decreased 6 % to $ 409.5 million in fiscal 2012 from $ 435.8 million in fiscal 2011 . our consolidated gross margin decreased to 35 % in fiscal 2012 from 44 % in fiscal 2011 . these year over year consolidated gross profit and gross margin decreases are due to the decrease in led products and power and rf products gross profit , offset by an increase in lighting products gross profit . the 23 % decrease in led products gross profit was due to a competitive pricing environment and lower factory utilization . the 36 % decrease in power and rf products gross profit was due to reduced solar demand that resulted in lower factory utilization . the 337 % increase in lighting products gross profit was due to increased sales volume due to the ruud lighting acquisition , manufacturing cost reductions and lower cost new product designs . our consolidated gross profit increased 6 % to $ 435.8 million in fiscal 2011 from $ 411.1 million in fiscal 2010 . however , consolidated gross margin decreased to 44 % in fiscal 2011 from 47 % in fiscal 2010 . factors contributing to the increase in gross profit included a 97 % increase in lighting products gross profit due to increased sales and a 45 % increase in power and rf products gross profit due to increased sales and lower costs . these gross profit increases were partially offset by a 1 % decrease in led products gross profit due to significant pricing pressure . story_separator_special_tag the consolidated gross margin decrease is due to a more competitive pricing environment and lower factory utilization for led products and power and rf products , as well as an increase in sales of lighting products and a decline in gross profit on our led products . led products segment gross profit and gross margin our led products gross profit was $ 290.6 million , $ 375.4 million , and $ 379.8 million for fiscal 2012 , 2011 , and 2010 , respectively . led products gross margin was 38 % , 46 % , and 51 % for fiscal 2012 , 2011 , and 2010 respectively . led products gross profit decreased approximately 23 % to $ 290.6 million in fiscal 2012 from $ 375.4 million in fiscal 2011 and led products gross margin decreased to 38 % in fiscal 2012 from 46 % in fiscal 2011 . led products gross profit and gross margin fell during fiscal 2012 due to a competitive pricing environment for led chips and components and lower factory utilization . led products gross profit decreased approximately 1 % to $ 375.4 million in fiscal 2011 from $ 379.8 million in fiscal 2010 . led products gross margin decreased to 46 % in fiscal 2011 from 51 % in fiscal 2010 . led products gross profit and gross margin fell in fiscal 2011 due to a more competitive pricing environment . lighting products segment gross profit and gross margin lighting products gross profit was $ 103.4 million , $ 23.7 million , and $ 12.0 million for fiscal 2012 , 2011 , and 2010 , respectively . lighting products gross margin was 31 % , 29 % , and 28 % for fiscal 2012 , 2011 , and 2010 respectively . lighting products gross profit increased approximately 337 % to $ 103.4 million in fiscal 2012 from $ 23.7 million in fiscal 2011 . during fiscal 2012 , lighting products gross margin increased to 31 % from 29 % in fiscal 2011 . lighting products gross profit and gross margin increased during fiscal 2012 due to a combination of increased sales volumes due to the ruud lighting acquisition , manufacturing cost reductions and lower cost new product designs . lighting products gross profit increased approximately 97 % to $ 23.7 million in fiscal 2011 from $ 12.0 million in fiscal 2010 . lighting products gross margin increased to 29 % in fiscal 2011 from 28 % in fiscal 2010 . lighting products gross profit and gross margin increased in fiscal 2011 due to increased sales . 31 power and rf products segment gross profit and gross margin power and rf products gross profit was $ 32.1 million , $ 49.8 million , and $ 34.4 million for fiscal 2012 , 2011 , and 2010 , respectively . power and rf products gross margin was 44 % , 51 % , and 44 % for fiscal 2012 , 2011 , and 2010 respectively . power and rf products gross profit decreased approximately 36 % to $ 32.1 million in fiscal 2012 from $ 49.8 million in fiscal 2011 . for fiscal 2012 , power and rf products gross margin decreased to 44 % from 51 % in 2011 . power and rf products gross profit and gross margin decreased during fiscal 2012 due to lower revenue , primarily from reduced solar demand which resulted in lower factory utilization . power and rf products gross profit increased approximately 45 % to $ 49.8 million in fiscal 2011 from $ 34.4 million in fiscal 2010 . power and rf products gross margin increased to 51 % in fiscal 2011 from 44 % in fiscal 2010 . power and rf products gross profit and gross margin increased during fiscal 2011 due to increased product sales and lower manufacturing costs . unallocated costs total gross profit and gross margin by segment reconcile to consolidated gross profit and gross margin through a subtraction of $ 16.6 million , $ 13.2 million , and $ 15.1 million of unallocated variable compensation costs for manufacturing employees , consisting primarily of stock-based compensation , expenses for profit sharing and quarterly or annual incentive plans , matching contributions under our 401 ( k ) plan and acquisition related costs . these costs are not allocated to the reportable segments ' gross profit because our chief executive officer does not review them regularly when evaluating segment performance and allocating resources . for further information on the allocation of costs to segment gross profit , refer to note 13 , `` reportable segments , '' in our consolidated financial statements included in item 8 of this annual report . research and development research and development expenses include costs associated with the development of new products , enhancements of existing products and general technology research . these costs consist primarily of employee salaries and related compensation costs , occupancy costs , consulting costs and the cost of development equipment and supplies . the following sets forth our research and development expenses in dollars and as a percentage of revenues ( in thousands , except percentages ) : replace_table_token_7_th research and development expenses in fiscal 2012 increased 25 % to $ 143.4 million from $ 115.0 million in fiscal 2011 . the increase was primarily due to increased spending on new led chips , led components , led lighting products , power products , including associated manufacturing process improvement initiatives , and incremental research and development expense incurred from the acquisition of ruud lighting . research and development expenses increased 41 % in fiscal 2011 to $ 115.0 million compared to $ 81.4 million in fiscal 2010 . the increase was primarily due to increased spending to support the transition to 150mm wafer capabilities as well as continued research and development activities focused on new led chips , led components , led lighting products , and power products .
| this decrease was primarily due to generally weaker demand and downward pricing pressure for our led chips and components . led products overall blended average selling price , or asp increased by 8 % in fiscal 2012 compared to fiscal 2011 due primarily to changes in product mix . led products revenue increased 8 % to $ 808.2 million in fiscal 2011 as compared to $ 747.4 million in fiscal 2010 . this increase was driven by increased sales of led components partially offset by lower demand for led chips and a more competitive pricing environment . led products overall blended asp increased approximately 51 % in fiscal 2011 as compared to fiscal 2010 . this increase was due to a shift in product mix to a higher proportion of revenues generated from sales of our led components versus our led chips . lighting products segment revenue lighting products revenues represented approximately 29 % , 8 % , and 5 % of our total revenues for fiscal 2012 , 2011 and 2010 respectively . lighting products revenue was $ 334.7 million , $ 81.8 million , and $ 42.5 million for fiscal 2012 , 2011 , and 2010 respectively . lighting products revenue increased approximately 309 % to $ 334.7 million in fiscal 2012 from $ 81.8 million in fiscal 2011 . the increase in our lighting products revenue was primarily due to sales of products acquired from ruud lighting and an increase in the sales of our existing products . including the ruud lighting products acquired , which have a higher overall asp than our existing products , the lighting products overall blended asp increased by approximately 34 % in fiscal 2012 compared to fiscal 2011 . lighting products revenue increased 92 % to $ 81.8 million in fiscal 2011 as compared to $ 42.5 million in fiscal 2010 . this increase was due to higher sales resulting from growth in the led general illumination market and new product introductions . lighting products overall
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for a description of the numerous risks and uncertainties associated with product development , see `` risk factors '' . financial operations overview revenue collaboration revenue we have not generated any revenue from the sale of products . our revenue to date has been predominantly derived from collaboration revenue , which includes license and milestone revenues and cost sharing revenue , generated through collaboration and license agreements with partners for the development and commercialization of our therapeutic candidates . cost sharing revenue represents amounts reimbursed by our collaboration partners for expenses incurred by us for research and development activities and , potentially , co-promotion activities , under our collaboration agreements . cost sharing revenue is recognized in the period that the related activities are performed . costs and expenses research and development expenses research and development expenses consist primarily of costs directly incurred by us for the development of our therapeutic candidates , which include : direct employee-related expenses , including salaries , benefits , travel and stock-based compensation expense of our research and development personnel ; expenses incurred under agreements with clinical research organizations , or cros , and investigative sites that will conduct our clinical trials ; the cost of acquiring and manufacturing preclinical and clinical study materials and developing manufacturing processes ; allocated facilities , depreciation , and other expenses , which include rent and maintenance of facilities , insurance and other supplies ; expenses associated with obtaining and maintaining patents ; and costs associated with preclinical activities and regulatory compliance . research and development costs are expensed as incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites . 50 we can not determine with certainty the duration and completion costs of the current or future clinical trials of our therapeutic candidates or if , when , or to what extent we will generate revenues from the commercialization and sale of any of our therapeutic candidates for which we or any partner obtain regulatory approval . we or our partners may never succeed in achieving regulatory approval for any of our therapeutic candidates . the duration , costs and timing of clinical trials and development of our therapeutic candidates will depend on a variety of factors , including : the scope , rate of progress , and expense of our ongoing , as well as any additional , clinical trials and other research and development activities ; future clinical trial results ; potential changes in government regulation ; and the timing and receipt of any regulatory approvals . a change in the outcome of any of these variables with respect to the development of a therapeutic candidate could mean a significant change in the costs and timing associated with the development of that therapeutic candidate . for example , if the u.s. food and drug administration , 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 the clinical development of therapeutic candidates , or if we experience significant delays in the enrollment in any clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . from inception through december 31 , 2016 , we have incurred $ 465.1 million in research and development expenses . we plan to increase our research and development expenses for the foreseeable future as we continue the development of our tgf-beta platform therapeutic candidates , the discovery and development of preclinical therapeutic candidates , and the development of our clinical programs . expenses associated with sotatercept and luspatercept are reimbursed 100 % by celgene . these reimbursements are recorded as revenue . we are expensing the costs of eight phase 2 clinical trials for luspatercept , dalantercept , and ace-083 , of which the four for luspatercept are reimbursed by celgene , and we are also expensing the costs of a phase 1 clinical trial for ace-083 . with respect to the luspatercept phase 3 clinical trials directly conducted by celgene , we do not incur and are not reimbursed for expenses related to these development activities . we manage certain activities such as clinical trial operations , manufacture of therapeutic candidates , and preclinical animal toxicology studies through third-party cros . the only costs we track by each therapeutic candidate are external costs such as services provided to us by cros , manufacturing of preclinical and clinical drug product , and other outsourced research and development expenses . we do not assign or allocate to individual development programs internal costs such as salaries and benefits , facilities costs , lab supplies and the costs of preclinical research and studies . our external research and development expenses during the years ended december 31 , 2016 , 2015 and 2014 , were as follows : replace_table_token_4_th _ ( 1 ) expenses associated with luspatercept are reimbursed 100 % by celgene . these reimbursements are recorded as revenue and are presented as cost-sharing , net . ( 2 ) other expenses include unallocated employee and contractor-related expenses , facility expenses , lab supplies and miscellaneous expenses . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for personnel , including stock-based compensation and travel expenses for our employees in executive , operational , finance and human resource functions and other general and administrative expenses including directors ' fees and professional fees for accounting and legal services . 51 we continue to incur expenses related to audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and securities and exchange commission , or sec , requirements , director and officer insurance premiums , and investor relations costs associated with being a public company . story_separator_special_tag we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our therapeutic candidates . additionally , if and when we believe regulatory approval of a therapeutic candidate appears likely , to the extent that we are undertaking commercialization of such therapeutic candidate ourselves , we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operation . other income ( expense ) , net other income ( expense ) , net consists primarily of the re-measurement gain or loss associated with the change in the fair value of our common stock warrant liabilities and interest income earned on cash , cash equivalents and investments . to estimate the fair value of our liability classified warrants , we use either the monte carlo simulation framework , which incorporates future financing events over the remaining life of the warrants to purchase common stock , or for certain re-measurement dates , due to the warrants being deeply in the money , the black-scholes option pricing model . we base the estimates in the pricing models , in part , on subjective assumptions , including stock price volatility , risk-free interest rate , dividend yield , and the fair value of the preferred stock or common stock underlying the warrants . the monte carlo simulation framework was used at december 31 , 2016 . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , accrued expenses and stock-based compensation . we also utilize significant estimates and assumptions in determining the fair value of our liability-classified warrants to purchase common stock . we base our estimates on historical experience , known trends and events , and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this annual report on form 10-k , we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we have primarily generated revenue through collaboration arrangements with strategic partners for the development and commercialization of our therapeutic candidates . we recognize revenue in accordance with accounting standards codification ( asc ) topic 605 , revenue recognition . accordingly , revenue is recognized for each unit of accounting when all of the following criteria are met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue on our consolidated balance sheets . amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue , current portion and amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue , net of current portion . under collaboration agreements , we may receive payments for non-refundable up-front fees , milestone payments upon achieving significant development events , research and development reimbursements and royalties on future product sales . these payments are received in connection with the deliverables contained in the arrangements which may include ( 1 ) licenses , or options to obtain licenses , to our technology , ( 2 ) research and development activities performed for the collaboration partner , ( 3 ) participation on joint committees and ( 4 ) manufacturing clinical or preclinical material . 52 effective january 1 , 2011 , we adopted accounting standards update ( asu ) no . 2009-13 , multiple-deliverable revenue arrangements , which amends asc topic 605-25 , revenue recognition—multiple element arrangements . this guidance applies to new arrangements as well as existing agreements that are significantly modified after january 1 , 2011. the application of the multiple element guidance requires subjective determinations , and requires management to make judgments about the individual deliverables , and whether such deliverables are separable from the other aspects of the contractual relationship . deliverables are considered separate units of accounting provided that : ( 1 ) the delivered item ( s ) has value to the customer on a stand-alone basis and ( 2 ) if the arrangement includes a general right of return relative to the delivered item ( s ) , delivery or performance of the undelivered item ( s ) is considered probable and substantially in our control . in determining the units of accounting , management evaluates certain criteria , including whether the deliverables have stand-alone value , based on the consideration of the relevant facts and circumstances for each arrangement , such as the research , manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace .
| the $ 4.7 million increase was primarily due to an increase in personnel expenses of $ 4.2 million , which includes an increase in stock-based compensation expense of $ 3.2 million , as well as an increase in professional fees of $ 0.5 million . other income ( expense ) , net . other income , net was $ 9.1 million in the year ended december 31 , 2016 , compared to $ 3.0 million of expense in the year ended december 31 , 2015 . this $ 12.1 million increase was primarily due to a decrease in the common warrant liability of $ 10.8 million due to the effect of marking the common warrant liability to market each period , and an increase in interest income of $ 1.3 million . income tax provision income tax provision is attributable to taxes on interest income from our investment portfolio . 56 comparison of the years ended december 31 , 2015 and 2014 replace_table_token_6_th revenue . we recognized revenue of $ 18.1 million in the year ended december 31 , 2015 , compared to $ 14.6 million in year ended december 31 , 2014. all of the revenue in both periods was derived from the celgene agreements . this $ 3.5 million increase was primarily due to higher cost sharing revenue of $ 4.0 million caused by higher expenses for luspatercept clinical trials and manufacturing bulk drug substance during 2015 , offset by a decrease in celgene deferred revenue of $ 0.5 million during 2015 as we complete our deliverables under the collaboration agreement . research and development expenses . research and development expenses were $ 58.4 million in the year ended december 31 , 2015 , compared to $ 50.9 million in the year ended december 31 , 2014. this $ 7.5 million increase was primarily due to an increase in personnel expenses of $ 3.2 million , including an increase of $ 2.8 million
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( 3 ) graham o. chappell , a director of the company , is the managing director ( president ) and sole shareholder of chappell salikin weil associates pty . ltd. and is considered the beneficial owner of the 788,006 shares . mr. chappell is the sole shareholder of international aviation services pty . ltd. which owns 43,400 shares of which mr. chappell is considered the beneficial owner . mr. chappell is a trustee and a beneficiary of the chappell salikin weil associates pty . ltd. staff superannuation fund which holds 1,940,000 shares . ( 4 ) philip a. shiels , chief financial officer and a director of the company , holds the power of attorney for the trustee of the research no . 2 trust which holds 3,198,522 shares . mr. shiels is a trustee and a beneficiary of the shiels superannuation fund which holds 8,250,000 shares . mr. shiels is a trustee and a beneficiary of the shiels trust which holds 7,000,000 shares . ( 5 ) richard lukso , chairman and a director of the company , holds 1,140,000 shares directly and is the beneficial owner of 1,000,000 shares held by the lukso family trust dtd 4/29/97 . ( 6 ) eric p. van der griend is a director and shareholder of ocean view investment pty . ltd. which owns 13,888,889 shares and a director and shareholder of swiss time australia pty . ltd. which owns 268,750 shares . mr. van der griend is considered the beneficial owner of 14,157,639 shares . ( 7 ) david and beverly chalmers are trustees of the broben superannuation fund which holds 10,039,613 shares . ( 8 ) reginald edward gleeson is a trustee of regsher pty . ltd. superannuation fund which owns 12,788,471 shares . ( 9 ) roman lohyn is a trustee of mostyn superannuation fund which owns 10,000,002 shares and a director of roman lohyn pty . ltd. which owns 500,000 shares . 14 item 13. certain relationships and related transactions and director independence . ron chapman , graham chappell , and philip shiels are directors of the company and directors of the company 's former subsidiary asiq pty . ltd. ( `` asiq `` ) . asiq provides technical support for the company 's business jet program , and in the year ended june 30 , 2019 , received a monthly retainer plus outgoings . chapman international pty . ltd. , of which ron chapman is a director and shareholder , was paid marketing and engineering service fees during the year ended june 30 , 2019. shiels and co. , of which philip shiels is the principal , was paid management fees during the year ended june 30 , 2019. bizjetmobile llc , the north and south american agent for bizjetmobile services and systems , is 50 % owned by asiq . the owner of chapman reid , the european and middle east agent for bizjetmobile services and systems , is related to ron chapman . since june 30 , 2017 , the company entered into a license agreement with asiq , under which the company granted asiq the right to develop , manufacture , market and commercialize the company 's intellectual property for global military and government applications . item 14. principal accountant fees and services audit fees audit fees paid to b f borgers in the fiscal year ended june 30 , 2018 and june 30 , 2019 were $ 15,000 and $ 15,000 respectively . audit-related fees there were no fees billed for services reasonably related to the performances of the audit or review of our financial statements other than those disclosed under the caption audit fees for fiscal years 2018 and 2019. tax fees no fees have been paid for income tax return preparation . all other fees there were no other fees filled for services . item 15. exhibits and financial statement schedules ( a ) exhibits exhibit no . description 31.1 certification of the president under rule 13a-14 ( a ) ( section 302 of the sarbanes-oxley act of 2002 ) 31.2 certification of the chief financial officer under rule 13a-14 ( a ) ( section 302 of the sarbanes-oxley act of 2002 ) 32.1 certification pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . section 1350 ) 32.2 certification pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . section 1350 ) 15 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized . as-ip tech , inc. dated : january 21 , 2020 by : ronald j. chapman president by : philip a. shiels principal financial officer pursuant to the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . signature title date richard lukso director 1/21/2020 richard lukso ronald j. chapman director 1/21/2020 ronald j. chapman graham o. chappell director 1/21/2020 graham o. chappell philip a. shiels director 1/21/2020 philip a. shiels 16 story_separator_special_tag overview the company maintains a low-cost structure as it has no employees , contracting the services of executives and support engineers as required . because of the low-cost structure , the company anticipates that the proceeds from stock issues and revenue from service and system sales , will be sufficient to meet the company 's operating and capital requirements for approximately 12 months . story_separator_special_tag raise substantial doubt about its ability to continue as a going concern . management 's plans in regard to these matters are described in note 1 to the financial statements . the financial statements do not include any adjustments that might result from the outcome of this uncertainty. the company 's ability to continue its operations is dependent upon story_separator_special_tag ( 3 ) graham o. chappell , a director of the company , is the managing director ( president ) and sole shareholder of chappell salikin weil associates pty . ltd. and is considered the beneficial owner of the 788,006 shares . mr. chappell is the sole shareholder of international aviation services pty . ltd. which owns 43,400 shares of which mr. chappell is considered the beneficial owner . mr. chappell is a trustee and a beneficiary of the chappell salikin weil associates pty . ltd. staff superannuation fund which holds 1,940,000 shares . ( 4 ) philip a. shiels , chief financial officer and a director of the company , holds the power of attorney for the trustee of the research no . 2 trust which holds 3,198,522 shares . mr. shiels is a trustee and a beneficiary of the shiels superannuation fund which holds 8,250,000 shares . mr. shiels is a trustee and a beneficiary of the shiels trust which holds 7,000,000 shares . ( 5 ) richard lukso , chairman and a director of the company , holds 1,140,000 shares directly and is the beneficial owner of 1,000,000 shares held by the lukso family trust dtd 4/29/97 . ( 6 ) eric p. van der griend is a director and shareholder of ocean view investment pty . ltd. which owns 13,888,889 shares and a director and shareholder of swiss time australia pty . ltd. which owns 268,750 shares . mr. van der griend is considered the beneficial owner of 14,157,639 shares . ( 7 ) david and beverly chalmers are trustees of the broben superannuation fund which holds 10,039,613 shares . ( 8 ) reginald edward gleeson is a trustee of regsher pty . ltd. superannuation fund which owns 12,788,471 shares . ( 9 ) roman lohyn is a trustee of mostyn superannuation fund which owns 10,000,002 shares and a director of roman lohyn pty . ltd. which owns 500,000 shares . 14 item 13. certain relationships and related transactions and director independence . ron chapman , graham chappell , and philip shiels are directors of the company and directors of the company 's former subsidiary asiq pty . ltd. ( `` asiq `` ) . asiq provides technical support for the company 's business jet program , and in the year ended june 30 , 2019 , received a monthly retainer plus outgoings . chapman international pty . ltd. , of which ron chapman is a director and shareholder , was paid marketing and engineering service fees during the year ended june 30 , 2019. shiels and co. , of which philip shiels is the principal , was paid management fees during the year ended june 30 , 2019. bizjetmobile llc , the north and south american agent for bizjetmobile services and systems , is 50 % owned by asiq . the owner of chapman reid , the european and middle east agent for bizjetmobile services and systems , is related to ron chapman . since june 30 , 2017 , the company entered into a license agreement with asiq , under which the company granted asiq the right to develop , manufacture , market and commercialize the company 's intellectual property for global military and government applications . item 14. principal accountant fees and services audit fees audit fees paid to b f borgers in the fiscal year ended june 30 , 2018 and june 30 , 2019 were $ 15,000 and $ 15,000 respectively . audit-related fees there were no fees billed for services reasonably related to the performances of the audit or review of our financial statements other than those disclosed under the caption audit fees for fiscal years 2018 and 2019. tax fees no fees have been paid for income tax return preparation . all other fees there were no other fees filled for services . item 15. exhibits and financial statement schedules ( a ) exhibits exhibit no . description 31.1 certification of the president under rule 13a-14 ( a ) ( section 302 of the sarbanes-oxley act of 2002 ) 31.2 certification of the chief financial officer under rule 13a-14 ( a ) ( section 302 of the sarbanes-oxley act of 2002 ) 32.1 certification pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . section 1350 ) 32.2 certification pursuant to section 906 of the sarbanes-oxley act of 2002 ( 18 u.s.c . section 1350 ) 15 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized . as-ip tech , inc. dated : january 21 , 2020 by : ronald j. chapman president by : philip a. shiels principal financial officer pursuant to the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . signature title date richard lukso director 1/21/2020 richard lukso ronald j. chapman director 1/21/2020 ronald j. chapman graham o. chappell director 1/21/2020 graham o. chappell philip a. shiels director 1/21/2020 philip a. shiels 16 story_separator_special_tag overview the company maintains a low-cost structure as it has no employees , contracting the services of executives and support engineers as required . because of the low-cost structure , the company anticipates that the proceeds from stock issues and revenue from service and system sales , will be sufficient to meet the company 's operating and capital requirements for approximately 12 months . story_separator_special_tag raise substantial doubt about its ability to continue as a going concern . management 's plans in regard to these matters are described in note 1 to the financial statements . the financial statements do not include any adjustments that might result from the outcome of this uncertainty. the company 's ability to continue its operations is dependent upon
| the company recorded a net loss from operations for the twelve month period ended june 30 , 2019 of $ 588,320 , compared to a loss of $ 782,922 for the twelve month period ended june 30 , 2018. other expenses decreased from $ 223,946 in the year ended june 30 , 2018 , to $ 164,259 in the year ended june 30 , 2019 , mainly due to decreased loss of impairment , but after increased interest expense . the company recorded a net loss for the twelve month period ended june 30 , 2019 of $ 752,579 , compared to a loss of $ 1,006,868 for the twelve month period ended june 30 , 2018. liquidity and capital resources the company 's cash and cash equivalents cash equivalents decreased from $ 40,457 at june 30 , 2018 to $ 192 at june 30 , 2019. the company 's revenue for the twelve months ended june 30 , 2019 was $ 81,667 , compared to $ 67,807 in the twelve month period to june 30 , 2018. operating costs decreased for the period from july 1 , 2017 to june 30 , 2018 mainly as a result decreased amortization , engineering , marketing and communication costs . after increased accounts payables and related party payables , the company had a net cash outflow of $ 353,590 from operating activities for the period from july 1 , 2018 to june 30 , 2019 , compared to a net cash outflow from operating activities of $ 659,039 for the period from july 1 , 2017 to june 30 , 2018. the company had no cash flow from investing activities for the twelve months ended june 30 , 2019 , and june 30 , 2018 respectively . the cash flow of the company from financing activities for the twelve months ending june 30 , 2019 was from the proceeds from issue of common stock . in the twelve months ended june 30 , 2018 , financing activities was from issue of convertible notes and issue of common stock . the company 's business plan is based on developing the bizjetmobile business as well as expansion into the airline business with its fflya program . this plan may require significant capital from
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we recognized over $ 150 million of this target in 2018 and expect to recognize the remainder in 2019. a large portion of these gross savings has been , and will continue to be , reinvested in the business , particularly in commerce services and our third-party financing initiative . we are also addressing immediate challenges such as higher labor and transportation costs . in january 2019 , we sold the direct operations and moved to a dealer model in six smaller markets within international mailing . the impact on 2019 revenue is estimated to be about $ 40 million and the impact on earnings will not be significant . proceeds from the sale were not material . as our business continues to transform to higher growth markets , we need to increase our financial flexibility to be able to pursue opportunities in growth markets and create value for our shareholders . accordingly , our board of directors approved a first quarter 2019 dividend on our common stock of $ 0.05 per share ; down from our historical $ 0.1875 quarterly dividend per share , and authorized an incremental $ 100 million share repurchase . these changes in our capital allocation strategy more appropriately reflect our business profile today and are designed to provide a competitive return to our shareholders while ensuring financial flexibility to support our long-term growth strategy . 17 story_separator_special_tag sg & a expense decreased 4 % , or $ 48 million , in 2018 compared to 2017 , despite $ 51 million of incremental expenses from the acquisition of newgistics . the underlying decrease in sg & a was primarily due to lower employee related expenses of $ 38 million , lower marketing and advertising spend of $ 34 million , and other operating expense cost reductions as a result of our cost savings initiatives . sg & a expense increased 3 % , or $ 31 million , in 2017 compared to 2016. contributing to this increase was higher compensation-related costs of $ 28 million due to the reinstatement of our annual variable compensation program and higher stock-based compensation expense . each of these programs are tied to our performance against pre-established targets and costs in 2016 were significantly lower than in 19 2017. additionally , expenses in global ecommerce were $ 21 million higher as we continue to invest in the business , we incurred $ 17 million of additional expense from newgistics , $ 9 million of higher marketing expenses , $ 9 million of higher residual losses on leased equipment due to the timing of trade-up activity and $ 9 million of acquisition transaction costs , primarily related to newgistics . offsetting these increases was approximately $ 63 million of benefits from productivity initiatives and a $ 6 million pre-tax gain from the sale of technology . additionally , 2017 included loan forgiveness income of $ 10 million and a favorable state sales tax adjustment of $ 5 million . restructuring charges and asset impairments , net in 2018 , restructuring charges and asset impairments of $ 27 million consisted of $ 25 million of restructuring related charges and $ 2 million of asset impairment charges . in 2017 , restructuring charges and asset impairments of $ 56 million consisted of $ 52 million of restructuring related charges and $ 4 million of asset impairment charges . in 2016 , restructuring charges and asset impairments of $ 60 million consisted of $ 45 million of restructuring related charges and $ 15 million of asset impairment charges , primarily from a loss of $ 5 million from the sale of a facility and an impairment charge of $ 4 million related to another facility . goodwill impairment in 2016 , we recorded a non-cash goodwill impairment charge of $ 148 million associated with our software solutions reporting unit . other components of net pension and postretirement cost in connection with the disposition of the production mail business and certain other actions , we incurred a pre-tax , non-cash pension settlement charge of $ 45 million in the fourth quarter of 2018. we recognized $ 32 million of this charge in other components of net pension and postretirement cost and the remaining $ 13 million in income from discontinued operations , net of tax . other expense other expense for 2018 and 2017 represents a loss on the early extinguishment of debt . income taxes the effective tax rate was 5.8 % and 0.2 % for the year ended december 31 , 2018 and 2017 , respectively . on december 22 , 2017 , the tax cuts and jobs act of 2017 ( the act ) was signed into law making significant changes to the internal revenue code . changes included , but were not limited to , a federal corporate income tax rate decrease from 35 % to 21 % effective january 1 , 2018 , the transition of u.s. international taxation from a worldwide tax system to a territorial system by creating a minimum tax on earnings of foreign subsidiaries and a one-time transition tax on the mandatory deemed repatriation of post-1986 cumulative foreign earnings . in accordance with the act , the tax provision at december 31 , 2017 included a net provisional one-time non-cash benefit of $ 39 million , comprised of a provisional $ 130 million benefit from the remeasurement of net u.s. deferred tax liabilities arising from a lower u.s. tax rate , offset by a provisional $ 91 million charge related primarily to the u.s. tax on unremitted post-1986 earnings of our foreign subsidiaries . the effective tax rate for 2017 also included tax benefits of $ 30 million from the resolution of certain tax examinations . staff accounting bulletin no . 118 ( sab 118 ) was issued to address the application of u.s. gaap in situations when a registrant does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the act . story_separator_special_tag sab 118 provided registrants up to one year to complete the analysis , computations and accounting for the impact of the act on their consolidated financial statements . we completed our analysis and measurement of the impact of the act . our tax provision for the year ended december 31 , 2018 includes an adjustment to the provisional tax recorded of $ 37 million , comprised of a $ 13 million benefit related to the remeasurement of certain deferred tax assets and liabilities and a $ 24 million decrease in the u.s. tax on unremitted post-1986 earnings of our foreign subsidiaries . the effective tax rate for 2018 also includes a benefit of $ 17 million from the resolution of certain tax examinations . see note 15 to the consolidated financial statements for further information . income from discontinued operations income from discontinued operations includes net income and a gain on sale of our production mail business . see note 4 to the consolidated financial statements for further information . preferred stock dividends of subsidiaries attributable to noncontrolling interests we redeemed all of the pbih preferred stock in november 2016 . 20 business segments in january 2018 , we revised our business reporting groups to reflect how we manage these groups and clients served in each market . we formed the commerce services group to include our global ecommerce and presort services segments . additionally , we classified the operating results of the production mail business to discontinued operations and have recast segment operating results for prior years to conform to the current year presentation . the principal products and services of each of our reportable segments are as follows : commerce services : global ecommerce : includes the worldwide revenue and related expenses from cross-border ecommerce transactions , domestic retail and ecommerce shipping solutions and fulfillment , delivery and return services . presort services : includes revenue and related expenses from sortation services that allow clients to qualify large volumes of first class mail , marketing mail and bound and packet mail ( standard flats and bound printed matter ) for postal worksharing discounts . small & medium business ( smb ) solutions : north america mailing : includes the revenue and related expenses from mailing and shipping solutions , financing , services and supplies for small and medium businesses to efficiently create mail , evidence postage and help simplify and save on the sending , tracking and receiving of letters , parcels and flats in the u.s. and canada . international mailing : includes the revenue and related expenses from mailing and shipping solutions , financing , services and supplies for small and medium businesses to efficiently create mail , evidence postage and help simplify and save on the sending , tracking and receiving of letters , parcels and flats in areas outside the u.s. and canada . software solutions : includes the worldwide revenue and related expenses from the licensing of customer engagement , customer information , location intelligence software , data solutions and related support services . management uses segment earnings before interest and taxes ( ebit ) to measure profitability and performance at the segment level and believes that it provides a useful measure of operating performance and underlying trends of the businesses . we determine segment ebit by deducting from segment revenue the related costs and expenses attributable to the segment . segment ebit excludes interest , taxes , general corporate expenses , restructuring charges and other items not allocated to a particular business segment . segment ebit may not be indicative of our overall consolidated performance and should be read in conjunction with our consolidated results of operations . due to acquisition activity in commerce services , we are also providing segment earnings before interest , taxes , depreciation and amortization ( ebitda ) as a supplemental non-gaap measure of profit and operational performance for each segment . see note 3 to the consolidated financial statements for a reconciliation of segment ebit to net income . revenue and ebit by business segment are presented in the tables below . the sum of the individual segments in the tables above may not equal the totals due to rounding . replace_table_token_5_th 21 replace_table_token_6_th replace_table_token_7_th global ecommerce global ecommerce revenue increased 85 % in 2018 compared to 2017. excluding newgistics , global ecommerce revenue increased 13 % driven by higher revenue from shipping solutions , partially offset by lower cross-border revenue due to lower volumes . ebit in 2018 was a loss of $ 32 million compared to a loss of $ 18 million in 2017. the increase in ebit loss was primarily due to higher amortization expense of $ 12 million due to a full year of amortization related to newgistics , higher transportation and labor costs of $ 6 million due to increased competition for labor and transportation resources as a result of the rapid growth in ecommerce , partially offset by higher revenue . global ecommerce revenue increased 63 % in 2017 compared to 2016 primarily due to : 41 % from the acquisition of newgistics ; 12 % from higher domestic ecommerce shipping revenues ; 6 % from higher cross-border marketplace volumes , particularly in the uk ; and 4 % from higher retail volumes . ebit was a loss of 18 million in 2017 primarily due to investments in market growth opportunities and additional amortization expense from the acquisition of newgistics . presort services presort services revenue increased 4 % in 2018 compared to 2017 primarily due to higher volumes of first class mail , standard class mail and bound and packet mail processed . revenue increased 5 % in 2017 compared to 2016 primarily due to higher volumes and revenue per piece of mail processed . 22 ebit decreased 24 % in 2018 compared to 2017 primarily due to higher labor and transportation costs of $ 34 million due to increased competition for labor and transportation resources and $ 8 million from the launch of a marketing mail pilot program .
| supplies supplies revenue decreased 6 % on a reported basis and 7 % on a constant currency basis in 2018 compared to 2017 , driven by a 4 % decline north america mailing and 3 % decline in international mailing due to a global decline in installed mailing equipment and postage volumes . cost of supplies as a percentage of supplies revenue improved to 27.9 % in 2018 compared to 28.7 % due to a favorable mix of sales in north america mailing . 18 supplies revenue decreased 4 % in 2017 compared to 2016 primarily from a decline in installed mailing equipment and postage volumes in north america mailing . cost of supplies as a percentage of supplies revenue increased to 28.7 % primarily due to higher mix of lower margin products . software software revenue increased 3 % in 2018 compared to 2017 primarily due to higher data licensing revenue . cost of software as a percentage of software revenue increased to 29.5 % in 2018 as data licenses have slightly lower margins than traditional software licenses due to royalty payments that are made on data licenses . software revenue increased 2 % in 2017 compared to 2016 primarily due to higher software licensing , data and saas revenue . cost of software as a percentage of software revenue decreased to 28.6 % primarily due to the increase in high margin licensing revenue and cost reduction initiatives . rentals rentals revenue decreased 5 % ( 6 % on a constant currency basis ) in 2018 compared to 2017 and 6 % ( 7 % on a constant currency basis ) in 2017 compared to 2016 primarily due to a declining meter population . cost of rentals as a percentage of rentals revenue increased to 23.8 % in 2018 and increased to 21.5 % in 2017 primarily due to higher scrapping costs associated with retiring aging meters . financing financing revenue decreased 5 % in 2018 compared to 2017 and 10 % in 2017 compared to 2016 primarily due to a declining portfolio and lower fees . we allocate a portion of our total borrowing costs to financing interest expense . in computing financing interest expense , we assume an 8:1 debt to equity leverage ratio and apply our overall
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the following discussion addresses the most critical areas where these assumptions and estimates could affect the financial condition , results of operations and cash flows of the company . these critical accounting policies and estimates have been discussed with the appropriate committees of the board of directors . allowance for loan losses and accrual for off-balance sheet credit risk the appropriateness of the allowance for loan losses and accrual for off-balance sheet credit risk is assessed quarterly by management based on an ongoing evaluation of the probable estimated losses inherent in the loan portfolio and probable estimated losses on unused commitments to provide financing . a consistent , well-documented methodology has been developed and is applied by an independent credit administration department to ensure consistency across the company . the allowance for loan losses consists of specific allowances attributed to certain impaired loans that have not yet been charged down to amounts we expect to recover , general allowances for unimpaired loans that are based on estimated loss rates by loan class and nonspecific allowances for risks beyond factors specific to a particular portfolio segment or loan class . there were no material changes in the approach or techniques utilized in developing the allowance for loan losses and accrual for off-balance sheet credit risk during 2019 . loans are considered impaired when it is probable that we will not collect all amounts due according to the contractual terms of the loan agreements , including loans modified in a troubled debt restructuring . internally risk graded loans are evaluated individually for impairment . substantially all commercial and commercial real estate loans and certain residential mortgage and personal loans are risk graded through a quarterly evaluation of the borrower 's ability to repay . specific allowances for impaired loans that have not yet been charged down to amounts we expect to recover are measured by an evaluation of estimated future cash flows discounted at the loan 's initial effective interest rate or the fair value of collateral for certain collateral dependent loans . collateral value of real property is generally based on third party appraisals that conform to uniform standards of professional appraisal practice , less estimated selling costs . appraised values are on an “ as-is ” basis and generally are not adjusted by the company . updated appraisals are obtained at least annually or more frequently if market conditions indicate collateral values may have declined . collateral value of mineral rights is determined by our internal staff of engineers based on projected cash flows under current market conditions . the value of other collateral is generally determined by our special assets staff based on liquidation cash flows under current market conditions . collateral values and available cash resources that support impaired loans are evaluated quarterly . historical statistics may be used as a practical way to estimate impairment in limited situations , such as when a collateral dependent loan is identified as impaired near the end of a reporting period until an updated appraisal of collateral value is received or a full assessment of future cash flows is completed . estimates of future cash flows and collateral values require significant judgments and may be volatile . general allowances for unimpaired loans are based on estimated loss rates by loan class . the appropriate historical gross loss rate for each loan class is determined by the greater of the current loss rate based on the most recent twelve months or average gross loss rate over the long-term credit cycle . recoveries are not directly considered in the estimation of historical loss rates . recoveries generally do not follow predictable patterns and are not received until well-after the charge-off date as a result of protracted legal proceedings . for risk graded loans , historical loss rates are adjusted for changes in risk rating . for each loan class , the weighted average current risk grade is compared to the weighted average long-term risk grade . this comparison determines whether the risk in each loan class is increasing or decreasing . historical loss rates are adjusted upward or downward in proportion to changes in weighted average risk grading . general allowances for unimpaired loans also consider inherent risks identified for a given loan class . inherent risks include consideration of the loss rates that most appropriately represent the current credit cycle and other factors attributable to a specific loan class which have not yet been represented in the historical gross loss rates or risk grading . examples of these factors include changes in commodity prices or engineering imprecision , which may affect the value of reserves that secure our energy loan portfolio , construction risk that may affect commercial real estate loans , changes in regulations and public policy that may disproportionately impact health care loans and changes in loan product types . nonspecific allowances are maintained for risks beyond factors specific to a particular portfolio segment or loan class . these factors include trends in the economy in our primary lending areas , concentrations in loans with large balances and other relevant factors . 22 fair value measurement certain assets and liabilities are recorded at fair value in the consolidated financial statements . fair value is defined by applicable accounting guidance as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal markets for the given asset or liability at the measurement date based on market conditions at that date . an orderly transaction assumes exposure to the market for a customary period for marketing activities prior to the measurement date and not a forced liquidation or distressed sale . story_separator_special_tag a hierarchy for fair value has been established that prioritizes the inputs of valuation techniques used to measure fair value into three broad categories : unadjusted quoted prices in active markets for identical assets or liabilities ( level 1 ) , other observable inputs that can be observed either directly or indirectly ( level 2 ) and unobservable inputs for assets or liabilities ( level 3 ) . fair value may be recorded for certain assets and liabilities every reporting period on a recurring basis or under certain circumstances on a non-recurring basis . fair value measurements of significant assets or liabilities that are based on unobservable inputs ( level 3 ) are considered critical accounting policies and estimates . additional discussion of fair value measurement and disclosure is included in notes 7 and 19 of the consolidated financial statements . mortgage servicing rights we have a significant investment in mortgage servicing rights . our mortgage servicing rights are primarily retained from sales in the secondary market of residential mortgage loans we have originated or purchased from correspondent lenders . occasionally , mortgage servicing rights may be purchased from other lenders . both originated and purchased mortgage servicing rights are initially recognized at fair value . we carry all mortgage servicing rights at fair value . changes in fair value are recognized in earnings as they occur . mortgage servicing rights are not traded in active markets . the fair value of mortgage servicing rights is determined by discounting the projected cash flows . certain significant assumptions and estimates used in valuing mortgage servicing rights are based on current market sources including projected prepayment speeds , assumed servicing costs , earnings on escrow deposits , ancillary income and discount rates . assumptions used to value our mortgage servicing rights are considered significant unobservable inputs and represent our best estimate of assumptions that market participants would use to value this asset . a separate third party model is used to estimate prepayment speeds based on interest rates , housing turnover rates , estimated loan curtailment , anticipated defaults and other relevant factors . the prepayment model is updated periodically for changes in market conditions and adjusted to better correlate with actual performance of our servicing portfolio . the discount rate is based on benchmark rates for mortgage loans plus a market spread expected by investors in servicing rights . significant assumptions used to determine the fair value of our mortgage servicing rights are presented in note 7 to the consolidated financial statements . at least annually , we request estimates of fair value from outside sources to corroborate the results of the valuation model . the assumptions used in this model are primarily based on mortgage interest rates . evaluation of the effect of a change in one assumption without considering the effect of that change on other assumptions is not meaningful . considering all related assumptions , we expect a 50 basis point increase in primary mortgage interest rates to increase the fair value of our servicing rights by $ 30 million . we expect a $ 42 million decrease in the fair value of our mortgage servicing rights from a 50 basis point decrease in primary mortgage interest rates . valuation of impaired loans and real estate and other repossessed assets the fair value of collateral for certain impaired loans and real estate and other repossessed assets is measured on a non-recurring basis . the fair value of real estate is generally based on unadjusted third-party appraisals derived principally from or corroborated by observable market data . fair value measurements based on these appraisals are considered to be based on level 2 inputs . fair value measurements based on appraisals that are not based on observable inputs or that require significant adjustments by us or fair value measurements that are not based on third-party appraisals are considered to be based on level 3 inputs . significant unobservable inputs include listing prices for comparable assets , uncorroborated expert opinions or management 's knowledge of the collateral or industry . 23 the fair value of mineral rights is generally determined by our internal staff of engineers based on projected cash flows from proven oil and gas reserves under existing economic and operating conditions . proven oil and gas reserves are estimated quantities that geological and engineering data demonstrate , with reasonable certainty , to be recoverable in future years from known reservoirs using existing prices and costs . projected cash flows incorporate assumptions related to a number of factors including production , sales prices , operating expenses , severance , ad valorem taxes , capital costs and appropriate discount rate . fair values determined through this process are considered to be based on level 3 inputs . income taxes determination of income tax expense and related assets and liabilities is complex and requires estimates and judgments when applying tax laws , rules , regulations and interpretations . it also requires judgments as to future earnings and the timing of future events . accrued income taxes represent an estimate of net amounts due to or from taxing jurisdictions based upon these estimates , interpretations and judgments . management evaluates the company 's current tax expense or benefit based upon estimates of taxable income , tax credits and statutory tax rates . annually , we file tax returns with each jurisdiction where we conduct business and adjust recognized income tax expense or benefit to filed tax returns . we recognize deferred tax assets and liabilities based upon the differences between the values of assets and liabilities as recognized in the financial statements and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled . a valuation allowance is provided when it is more likely than not that some portion of the entire deferred tax asset may not be realized .
| lower mortgage interest rates have increased both mortgage loan production and trading activities . fiduciary and asset management revenue increased $ 7.7 million . other operating expense totaled $ 1.1 billion , a $ 103.6 million increase compared to 2018 , including $ 84.0 million of costs related to cobiz operations in 2019 and $ 29.7 million in 2018. excluding cobiz operating costs , personnel expense increase d $ 49.3 million , primarily due to an increase in incentive compensation expense combined with annual merit increases . non-personnel expense remained consistent with 2018. based on an evaluation of all credit factors , including specific impairment of two shared national credit energy loans where the company is not the lead agent , changes in nonaccruing and potential problem loans and net charge-offs , the company recorded a $ 44.0 million provision for credit losses in 2019 . an $ 8.0 million provision for credit losses was recorded in 2018 . nonaccruing loans not guaranteed by u.s. government agencies increase d $ 19 million compared to december 31 , 2018 . potential problem loans decrease d $ 55 million while other loans especially mentioned increase d $ 28 million . net charge-offs were $ 41 million or 0.19 % of average loans for 2019 , compared to net charge-offs of $ 33 million or 0.18 % of average loans for 2018 . at december 31 , 2019 , the combined allowance for credit losses totaled $ 212 million or 0.98 % of outstanding loans and 1.06 % , excluding loans from cobiz measured at acquisition date fair value . period-end outstanding loan balances were $ 21.8 billion at december 31 , 2019 , a $ 94 million increase over the prior year . an increase in commercial loan balances of $ 396 million was largely offset by a decrease in commercial real estate loans of $ 331 million . period-end deposits totaled $ 27.6
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we continue to focus on gaining operational efficiencies among our operations , all of which continue to have organic growth potential . company outlook the company maintains a conservative cost structure in an effort to build added value into our homes and has worked diligently to maintain a solid financial position . our balance sheet strength and position in cash and cash equivalents should help us avoid liquidity problems and enable us to act effectively as market opportunities present themselves . the company has manufacturing facilities strategically positioned across the united states , and we utilize local market research to design homes to meet the demands of our customers . the company has the ability to customize floor plans and designs to fulfill specific needs and interests . by offering a full range of homes from entry-level models to large custom homes and with the ability to engineer designs in-house , we can accommodate virtually any customer request . in addition to homes built to the federal hud code , we construct modular homes that conform to state and local codes , park model rvs and cabins and light commercial buildings at many of our manufacturing facilities . 31 the company employs a concerted effort to identify niche market opportunities where our diverse product lines and custom building capabilities provide us with a competitive advantage . our green building initiatives involve the creation of an energy efficient envelope and higher utilization of renewable materials . these homes provide environmentally-friendly maintenance requirements , typically lower utility costs , specially designed ventilation systems and sustainability . cavco also builds homes designed to use alternative energy sources , such as solar and wind . from bamboo flooring and tankless water heaters to solar-powered homes , our products are diverse and tailored to a wide range of consumer interests . innovation in housing design is a forte of the company and we continue to introduce new models at competitive price points with expressive interiors and exteriors that complement home styles in the areas in which they are located . based on the relatively low cost associated with manufactured home ownership , our products have traditionally competed with rental housing 's monthly payment affordability . rental housing activity is reported to have continued to increase in recent years , which appears to have caused a decline in tenant housing vacancy rates , causing a corresponding rise in associated rental rates . these rental market factors may cause some renters to become interested buyers of affordable-housing alternatives , including manufactured homes . further , with respect to the general rise in demand for rental housing , we have realized a larger proportion of orders from developers and community owners for new manufactured homes intended for use as rental housing . the company is responsive to the unique product and related requirements of these home buyers and values the opportunity to provide homes that are well suited for these purposes . cavco maintains a backlog of home orders from its distribution network of licensed distributors including communities and developers . distributors may cancel orders prior to production without penalty . accordingly , until the production of a particular home has commenced , we do not consider our order backlog to be firm orders . the backlog of sales orders at march 30 , 2019 , varied among our factories , but in total was $ 128.8 million compared to $ 179.0 million at march 31 , 2018 . during the most recent fall and winter months , order rates for lower price-point homes declined , mainly from an increase in because distributor inventories of these homes . although it is difficult to determine the cause , some prospective home buyers may have been adversely affected by generally rising interest rates in 2018 , home price escalation from input cost inflation in 2018 and 2017 , and persistent fall and winter adverse weather conditions caused extensive delays in home set-up processes . the company is developing order volume growth opportunities by working to increase our distribution network as well as adjusting affected product lines . this home order rate decline is partially offset by continued robust demand for higher-priced , larger and more amenitized homes in various markets . the company strives to manage its production levels and workforce size based upon market demand . however , the constrained labor market continues to be a key challenge to this process . the company believes the overall need for affordable manufactured homes remains strong . the company participates in certain commercial loan programs with members of the company 's independent wholesale distribution chain . under these programs , the company provides a significant amount of the funds that independent financiers then lend to distributors to finance retail inventories of our products . in addition , the company has entered into direct commercial loan arrangements with distributors , communities and developers under which the company provides funds for financing homes ( see note 7 to the consolidated financial statements ) . the company 's involvement in commercial loans helps to increase the availability of manufactured home financing to distributors and other users of our products . the company believes that our participation in wholesale financing is helpful to distributors , communities and developers and allows our products additional opportunities for exposure to potential home buyers . these initiatives support the company 's ongoing efforts to expand our product distribution in all of our markets . however , the initiatives expose the company to risks associated with the creditworthiness of certain customers and business partners , including independent distributors , developers , communities and inventory financing partners . 32 restrictive underwriting guidelines , higher interest rates compared to site-built homes , a limited number of institutions lending to manufactured home buyers and limited secondary market availability for manufactured home loans continue to constrain industry growth . the company is working directly with other industry participants to develop manufactured home consumer financing loan portfolios to attract industry financiers interested in furthering or expanding lending opportunities in the industry . story_separator_special_tag additionally , we continue to invest in community-based lending initiatives that provide home-only financing to new residents of certain manufactured home communities . our mortgage subsidiary also develops and invests in home-only lending programs to grow sales of homes through traditional distribution points . the company believes that growing our participation in home-only lending may provide additional sales growth opportunities for our factory-built housing operations . the company is also working through industry trade associations to encourage favorable legislative and gse action to address the mortgage financing needs of buyers of affordable homes . federal law requires the gses to issue a regulation to implement the `` duty to serve '' requirements specified in the federal housing enterprises financial safety and soundness act of 1992 , as amended by the housing and economic recovery act of 2008. in december 2017 , fannie mae and freddie mac released their final underserved markets plan that describes , with specificity , the actions they will take over a three-year period to fulfill the `` duty to serve '' obligation . these plans became effective on january 1 , 2018. each of the three-year plans offers an enhanced mortgage loan product through their `` mh advantage '' and `` choicehome '' programs , respectively , that began in the latter part of calendar 2018. small-scale pilot programs for the purchase of home-only loans are expected to commence towards the end of calendar 2019. expansion of the secondary market for lending through the gses could support further demand for housing , as lending options would likely become more available to home buyers . although some progress has been made in this area , meaningful positive impact in the form of increased home orders has yet to be realized . on january 25 , 2018 , hud announced a top-to-bottom review of its manufactured housing rules as part of a broader effort to identify regulations that may be ineffective , overly burdensome , or excessively costly given the critical need for affordable housing . while they have not indicated when this review will be complete , if certain changes are made , the company may be able to serve a broader range of home buyers . the insurance subsidiary is subject to adverse effects from excessive policy claims that may occur during periods of inclement weather , including seasonal spring storms or fall hurricane activity in texas where most of its policies are underwritten . where applicable , losses from catastrophic events are somewhat limited by reinsurance contracts in place as part of the company 's loss mitigation structure . during the second fiscal quarter of fiscal 2018 , hurricane harvey produced the largest recorded rain volume for a single weather event in u.s. history , resulting in historic flooding and widespread property damage , primarily in southeast texas , causing high homeowners ' insurance claim volume . the company produced a limited number of disaster-relief homes for fema during the third and fourth quarters of fiscal years 2018 and 2017. while not as severe as hurricane harvey , during the second and third quarters of fiscal year 2019 , the insurance subsidiary 's results were adversely impacted by increased homeowners ' insurance claims from weather events in arizona . as disclosed in part i , item 3 , `` legal proceedings , '' the company and joseph stegmayer received subpoenas from the sec 's division of enforcement seeking documents related to trading in the stock of another public company . the company expects to incur expenses related to this matter that may materially impact the company 's earnings over the next several quarters . those costs include , among other items , advancement of expenses for mr. stegmayer pursuant to his indemnity arrangements with the company . the audit committee initiated an internal investigation led by independent legal counsel to the audit committee in relation to this inquiry . the independent counsel to the audit committee has advised the audit committee that it has completed its internal investigation related to the matters . the results of this investigation have been shared with the staff at the sec . the company is continuing to fully cooperate with the sec . 33 as a result of the ongoing independent investigation , the company recorded $ 2.1 million related to legal and other expenses during the fiscal year and expects to continue to incur related costs pertaining to this matter over the next several quarters . during the third quarter of fiscal year 2019 , the company also reviewed the sufficiency of its insurance coverage and as a result of this review , cavco 's board of directors made a decision to purchase additional d & o insurance coverage . these new 22 month policies were implemented december 21 , 2018 , with premiums totaling $ 15.3 million . as a result , the company recorded $ 2.8 million of additional d & o policy premium expense during the fiscal year ended march 31 , 2019 , and expects to incur approximately $ 2.1 million per quarter in selling , general and administrative expense from the amortization of these policy premiums through the second quarter of fiscal year 2021. any additional adjustments are expected to be in the normal course of maintaining adequate d & o insurance for the company . story_separator_special_tag company 's internal investigation and response to the sec inquiry and $ 2.8 million from the premium amortization related to the additional d & o insurance purchased during the current fiscal year . total premiums paid for these policies were $ 15.3 million and the company expects to incur approximately $ 2.1 million per quarter from the amortization of these policy premiums through the second quarter of fiscal year 2021. selling , general and administrative expenses for financial services increased primarily from higher salary and incentive compensation costs from improved earnings . as a percentage of net revenue , selling , general and administrative expenses increased from the sec and d & o costs discussed previously .
| for the twelve months ended march 30 , 2019 , the company sold 11,806 homes wholesale and 2,583 retail versus 12,137 homes wholesale and 2,400 homes retail in the comparable prior year period . further , fluctuations in net factory-built housing revenue per home sold are the result of changes in product mix , which results from home buyer tastes and preferences as they select home types/models , as well as optional home upgrades when purchasing the home . these selections vary regularly based on consumer interests , local housing preferences and economic circumstances . our product prices are also periodically adjusted for the cost and availability of raw materials included in , and labor used to produce , each home . for these reasons , we have experienced , and expect to continue to experience , volatility in overall net factory-built housing revenue per home sold . financial services segment revenue increased primarily from higher premium revenue from a greater number of insurance policies in force and higher interest income on loans held for investment , partially offset by lower interest income earned on securitized loan portfolios that continue to amortize . gross profit . gross profit consisted of the following for fiscal years 2019 and 2018 , respectively ( in thousands ) : replace_table_token_4_th the increase in factory-built housing gross profit was the result of higher home sales prices better suited to input cost fluctuations in certain commodity prices during the year . financial services gross profit improved from fewer weather-related insurance claims and more insurance policies in force during the year , partially offset by lower net interest income earned on securitized loan portfolios that continue to amortize . 35 selling , general and administrative expenses . selling , general and administrative expenses consisted of the following for fiscal years 2019 and 2018 , respectively ( in thousands ) : replace_table_token_5_th selling , general and administrative expenses in the factory-built housing segment increased from higher salary and incentive compensation expense on improved earnings . current year selling , general and administrative expenses also include $ 2.1 million in legal and other expenses related to the
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those results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we recognize revenue upon the shipment of products or the performance of services when : ( 1 ) persuasive evidence of the arrangement exists ; ( 2 ) goods or services have been delivered ; ( 3 ) the price is fixed or determinable ; and ( 4 ) collectibility is reasonably assured . when a sales agreement involves multiple deliverables , such as extended support provisions , training to be supplied after delivery of the systems , and test programs specific to customers ' routine applications , the multiple deliverables are evaluated to determine the units of accounting . judgment is required to properly identify the accounting units of multiple element transactions and the manner in which revenue is allocated among the accounting units . judgments made , or changes to judgments made , may significantly affect the timing or amount of revenue recognition . revenue related to the multiple elements is allocated to each unit of accounting using the relative selling price hierarchy . consistent with accounting guidance , the selling price is based upon vendor specific objective evidence ( vsoe ) . if vsoe is not available , third party evidence ( tpe ) is used to establish the selling price . in the absence of vsoe or tpe , estimated selling price is used . during the first quarter of fiscal 2013 , we entered into an agreement with a customer to develop a next generation fox system , and we shipped the first system in july 2016. the project identifies multiple milestones with values assigned to each . the consideration earned upon achieving the milestone is required to meet the following conditions prior to recognition : ( i ) the value is commensurate with the vendor 's performance to meet the milestone , ( ii ) it relates solely to past performance , ( iii ) and it is reasonable relative to all of the deliverables and payment terms within the arrangement . revenue is recognized for the milestone upon acceptance by the customer . 20 we recognize revenue in certain circumstances before physical delivery has occurred . in these arrangements , among other things , risk of ownership has passed to the customer , the customer has made a written fixed commitment to purchase the products , the customer has requested the products be held for future delivery as scheduled and designated by them , and no additional performance obligations exist by us . for these transactions , the products are segregated from inventory and normal billing and credit terms granted . sales tax collected from customers is not included in net sales but rather recorded as a liability due to the respective taxing authorities . provisions for the estimated future cost of warranty and installation are recorded at the time the products are shipped . royalty-based revenue related to licensing income from performance test boards and burn-in boards is recognized upon the earlier of the receipt by us of the licensee 's report related to its usage of the licensed intellectual property or upon payment by the licensee . our terms of sales with distributors are generally free on board , or fob , shipping point with payment due within 60 days . all products go through in-house testing and verification of specifications before shipment . apart from warranty reserves , credits issued have not been material as a percentage of net sales . our distributors do not generally carry inventories of our products . instead , the distributors place orders with us at or about the time they receive orders from their customers . our shipment terms to our distributors do not provide for credits or rights of return . because our distributors do not generally carry inventories of our products , they do not have rights to price protection or to return products . at the time we ship products to the distributors , the price is fixed . subsequent to the issuance of the invoice , there are no discounts or special terms . we do not give the buyer the right to return the product or to receive future price concessions . our arrangements do not include vendor consideration . allowance for doubtful accounts we maintain an allowance for doubtful accounts to reserve for potentially uncollectible trade receivables . we also review our trade receivables by aging category to identify specific customers with known disputes or collection issues . we exercise judgment when determining the adequacy of these reserves as we evaluate historical bad debt trends , general economic conditions in the united states and internationally and changes in customer financial conditions . uncollectible receivables are recorded as bad debt expense when all efforts to collect have been exhausted and recoveries are recognized when they are received . warranty obligations we provide and record the estimated cost of product warranties at the time revenues are recognized on products shipped . while we engage in extensive product quality programs and processes , including actively monitoring and evaluating the quality of our component suppliers , our warranty obligation is affected by product failure rates , material usage and service delivery costs incurred in correcting a product failure . our estimate of warranty reserve is based on management 's assessment of future warranty obligations and on historical warranty obligations . story_separator_special_tag should actual product failure rates , material usage or service delivery costs differ from our estimates , revisions to the estimated warranty liability would be required , which could affect how we account for expenses . inventory obsolescence in each of the last three fiscal years , we have written down our inventory for estimated obsolescence or unmarketable inventory by an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . if future market conditions are less favorable than those projected by management , additional inventory write-downs may be required . income taxes income taxes have been provided using the liability method whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and net operating loss and tax credit carryforwards measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse or the carryforwards are utilized . valuation allowances are established when it is determined that it is more likely than not that such assets will not be realized . a full valuation allowance was established against all deferred tax assets , as management determined that it is more likely than not that deferred tax assets will not be realized , as of may 31 , 2018 and 2017 . 21 we account for uncertain tax positions consistent with authoritative guidance . the guidance prescribes a “ more likely than not ” 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 . we do not expect any material change in its unrecognized tax benefits over the next twelve months . we recognize interest and penalties related to unrecognized tax benefits as a component of income taxes . although we file u.s. federal , various state and foreign tax returns , our only major tax jurisdictions are the united states , california , germany and japan . tax years 1996 – 2017 remain subject to examination by the appropriate governmental agencies due to tax loss carryovers , research and development tax credits , or other tax attributes from those years . stock-based compensation expense stock-based compensation expense consists of expenses for stock options , restricted stock units , or rsus , and employee stock purchase plan , or espp , purchase rights . stock-based compensation cost for stock options and espp purchase rights is measured at each grant date , based on the fair value of the award using the black-scholes option valuation model , and is recognized as expense over the employee 's requisite service period . this model was developed for use in estimating the value of publicly traded options that have no vesting restrictions and are fully transferable . our employee stock options have characteristics significantly different from those of publicly traded options . for rsus , stock-based compensation cost is based on the fair value of our common stock at the grant date . all of our stock-based compensation is accounted for as an equity instrument . the fair value of each option grant and the right to purchase shares under our espp are estimated on the date of grant using the black-scholes option valuation model with assumptions concerning expected term , stock price volatility , expected dividend yield , risk-free interest rate and the expected life of the award . see notes 10 to our consolidated financial statements for detailed information relating to stock-based compensation and the stock option plan and the espp . story_separator_special_tag font-size : 13px '' > research and development . r & d expenses increased to $ 4.7 million for the fiscal year ended may 31 , 2017 from $ 4.3 million for the fiscal year ended may 31 , 2016 , an increase of 7.7 % . higher r & d expenses in the fiscal year ended may 31 , 2017 were primarily due to increases of $ 0.2 million in employment related expenses and $ 0.1 million in project expenses . interest expense . interest expense increased to $ 678,000 for the fiscal year ended may 31 , 2017 from $ 605,000 for the fiscal year ended may 31 , 2016. the increase in interest expense for the fiscal year ended may 31 , 2017 was primarily due to higher average borrowings . other ( expense ) income , net . other expense , net was $ 21,000 and $ 16,000 for the fiscal year ended may 31 , 2017 and 2016 , respectively . the change in other expense was due primarily to losses realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods . 23 income tax expense . income tax expense was $ 25,000 and $ 10,000 for the fiscal year ended may 31 , 2017 and 2016 , respectively . liquidity and capital resources we consider cash and cash equivalents as liquid and available for use . as of may 31 , 2018 and 2017 , we had $ 16.8 million and $ 17.8 million , respectively , in cash and cash equivalents . net cash used in operating activities was $ 1.4 million and $ 4.5 million for the fiscal years ended may 31 , 2018 and 2017 , respectively . for the fiscal year ended may 31 , 2018 , net cash used in operating activities was primarily the result of the net income of $ 0.5 million , as adjusted to exclude the effect of non-cash charge of stock-based compensation expense of $ 1.0 million , depreciation and amortization of $ 0.4 million , and a decrease in accounts receivable of $ 1.3 million .
| r & d expenses decreased to $ 4.2 million for the fiscal year ended may 31 , 2018 from $ 4.7 million for the fiscal year ended may 31 , 2017 , a decrease of 10.2 % . the decrease in r & d expenses was primarily due to decreases in project expenses . interest expense . interest expense decreased to $ 399,000 for the fiscal year ended may 31 , 2018 from $ 678,000 for the fiscal year ended may 31 , 2017. the decrease in interest expense for the fiscal year ended may 31 , 2018 was primarily due to the debt issuance costs related to the convertible notes becoming fully amortized at the end of fiscal 2017. other expense , net . other expense , net was $ 61,000 and $ 21,000 for the fiscal year ended may 31 , 2018 and 2017 , respectively . the change in other expense was due primarily to losses realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods . income tax benefit ( expense ) . income tax benefit was $ 73,000 for the fiscal year ended may 31 , 2018 compared with income tax expense of $ 25,000 for the fiscal year ended may 31 , 2017. the income tax benefit in the fiscal year ended may 31 , 2018 was primarily due to the impact of the “ tax cuts and jobs act ” enacted on december 22 , 2017 , specifically , the provision which made our alternative minimum tax credit refundable by 2022. fiscal year ended may 31 , 2017 compared to fiscal year ended may 31 , 2016 net sales . net sales increased to $ 18.9 million for the fiscal year ended may 31 , 2017 from $ 14.5 million for the fiscal year ended may 31 , 2016 , an increase of 30.3 % . the increase in net sales in fiscal 2017 resulted primarily from increases in net sales of both our wafer-level products and test during burn-in ( tdbi ) products . net sales of the wafer-level products for fiscal 2017 were $ 9.6 million , and increased approximately $ 0.9 million from fiscal
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global automotive production the trend toward the globalization of automotive production continues to intensify in regions such as asia ( particularly china , india , south korea and thailand ) , eastern europe and south america . automotive production in these regions is expected to continue to grow while production in the traditional automotive production centers such as north america , western europe and japan are continuing to improve from recent declines . we have significantly increased our global installed capacity to support current and future opportunities while reducing our installed capacity in the u.s. we have expanded our facilities in mexico , brazil and poland , constructed a new facility in thailand , increased our investment in our china joint venture and are currently constructing a new facility in india . we also have offices in germany , india , china , south korea , brazil and sweden to support these developing markets . we expect our business activity in these markets to increase significantly over the next several years . approximately 50 % of our new business backlog is for end use markets outside the u.s. and approximately 70 % has been sourced to our manufacturing facilities outside the u.s. steel and other metallic commodities worldwide commodity market conditions have resulted in volatile steel and other metallic material prices . as general economic conditions have improved and production levels increased in 2011 , demand for these commodities has grown and prices have risen . we have taken actions to mitigate the impact of this trend through commercial agreements with our customers , strategic sourcing arrangements with suppliers and technology advancements that result in using less metallic content or less expensive metallic content in the manufacturing of our products . the majority of our sales contracts with our largest customers provide price adjustment provisions for metal market price fluctuations . we do not have metal market price provisions with all of our customers for all of the parts that we sell . we also have agreed to share in the risk of metal market price fluctuations in certain customer contract s. as a result , we may experience higher net costs for raw materials . these cost increases would come in the form of metal market adjustments and base price increases . we currently have contracts with our steel suppliers that ensure continuity of supply to our principal operating facilities in north america . we also have validation and testing capabilities that enable us to strategically qualify steel sources on a global basis . increase in demand for alternative energy sources and electronic integration with a shift towards aggressive , environmentally focused legislation in the u.s. , we have observed an increased demand for technologies designed to help reduce emissions , increase fuel economy and minimize the environmental impact of vehicles . in 2010 , the u.s. congress enacted new corporate average fuel economy ( cafe ) regulations that would increase the u.s. fuel-economy standard industry average for passenger cars to 35 miles per gallon by year 2016 , while light trucks will be required to meet nearly 28 miles per gallon by 2016. as a result , oems and suppliers are competing intensely to develop and market new and alternative technologies , such as electric vehicles , hybrid vehicles , fuel cells , diesel engines and efficiency improvements of driveline systems to improve fuel economy and emissions . the electronic content of vehicles continues to expand , largely driven by consumer demand for greater vehicle performance , functionality , and affordable convenience options . this demand is a result of increased communication abilities in vehicles as well as increasingly stringent regulatory standards for energy efficiency , emissions reduction and increased safety . as these electronics continue to become more reliable and affordable , we expect this trend to continue . the increased use of electronics provides greater flexibility in vehicles and enables the oems to better control vehicle stability , fuel efficiency , and safety while improving the overall driving experience . suppliers with enhanced capability in electronic integration have greater sourcing opportunities with oems and may be able to obtain more favorable pricing for these products . we are responding to the continuing change in vehicle mix in the north american market as well as expected increases in cafe regulations , with ongoing research and development ( r & d ) efforts that focus on fuel economy , emission reduction and environmental improvements . these efforts position us to compete as this product mix shift continues and have led to new business awards for products that support awd and rwd passenger cars and crossover vehicles . we are continuing to invest in the development of advanced products focused on fuel economy , mass reductions , vehicle safety and performance leveraging electronics and technology . we have increased our focus on alternative energy and electronics by investing in product development that is consistent with the expected shift in market demand . approximately 50 % of aam 's new business backlog launching from 2012 21 to 2014 , which is an estimated $ 1.1 billion , relates to aam 's newest awd systems for passenger cars and crossover vehicles . in 2010 , we entered into a joint venture with saab in which the new company , e-aam , will design and commercialize electric all-wheel-drive ( eawd ) hybrid driveline systems for passenger cars and crossover vehicles . we have also developed and commercialized a disconnecting awd system and established our new ecotrac brand of fuel-efficient and environment-friendly driveline products , which strengthens aam 's position as a leader in global driveline systems technology . the ecotrac brand includes the eawd systems , the disconnecting awd systems and a full range of high-efficiency axles . through our establishment of e-aam and the development of our ecotrac brand , we have made great progress on our focus to improve fuel efficiency and ride and handling performance while reducing emissions . story_separator_special_tag story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; '' > and a loss of $ 203.8 million in 2009 . operating margin was 8.6 % in 2011 as compared to 8.9 % in 2010 and negative 13.4 % in 2009 . the changes in operating income and operating margin in 2011 , 2010 and 2009 were due to the factors discussed in gross profit ( loss ) and sg & a . interest expense interest expense was $ 83.9 million in 2011 , $ 89.0 million in 2010 and $ 84.5 million in 2009 . the decrease in interest expense 2011 as compared to 2010 relates primarily to higher capitalized interest as a result of increased capital expenditures to support our significant global program launches . the increase in interest expense in 2010 as compared to 2009 primarily reflects higher interest rates and amortization of debt issuance costs in 2010 as compared to 2009 . 23 the weighted-average interest rate of our total debt outstanding was 8.0 % , 8.1 % and 7.3 % during 2011 , 2010 and 2009 , respectively . investment income investment income was $ 1.2 million in 2011 , $ 3.8 million in 2010 and $ 2.0 million in 2009 . investment income includes interest and dividends earned on cash and cash equivalents and short-term investments during the period . investment income includes a gain of $ 0.1 million and $ 2.3 million in 2011 and 2010 , respectively , related to distributions of our short-term investments from which distributions were previously suspended . investment income in 2009 includes a loss of $ 1.3 million as a result of an other-than-temporary decline in the fair value of our short-term investments . other income ( expense ) following are the components of other income ( expense ) for 2011 , 2010 and 2009 : debt refinancing and redemption costs in 2011 , we expensed $ 3.1 million of unamortized debt issuance costs , discount and prepayment premiums related to the voluntary prepayment of $ 42.5 million of our 9.25 % notes and the termination of our second lien term loan with gm . in 2009 , we expensed $ 7.7 million of unamortized debt issuance costs related to the voluntary prepayment of our term loan and a portion of our amended revolving credit facility that was scheduled to become due april 2010. other , net other , net , which includes the net effect of foreign exchange gains and losses and our proportionate share of earnings from equity in unconsolidated subsidiaries , was net income of $ 0.5 million in 2011 , expense of $ 0.1 million in 2010 and expense of $ 3.1 million in 2009 . income tax expense ( benefit ) income tax expense ( benefit ) was an expense of $ 1.0 million in 2011 as compared to expense of $ 4.3 million in 2010 and a benefit of $ 43.8 million in 2009 . our effective income tax rate was 0.7 % in 2011 as compared to 3.6 % in 2010 and 14.7 % in 2009 . the following is a reconciliation of our provision for income taxes to the expected amounts using statutory rates : replace_table_token_5_th our income tax expense and effective tax rate in 2011 reflects the effect of recognizing a net operating loss ( nol ) benefit against our taxable income in the u.s. our income tax expense for 2011 also reflects net tax benefits of $ 4.5 million relating to the favorable resolution of income tax audits in the u.s. and the impacts of tax law changes in brazil and the state of michigan . our current low effective tax rate is primarily the result of our valuation allowance against deferred tax assets . sustained levels of profitability are expected to lead to a reversal of the majority of our valuation allowance , which could occur as early as the second half of 2012. see `` critical accounting estimates – valuation of deferred tax assets and other tax liabilities '' below for more detail on the impact of this reversal . our income tax expense and effective tax rate for 2010 reflects the effect of recognizing an nol benefit against our taxable income in the u.s. in conjunction with the filing of our 2009 federal tax return , under provisions contained in the american recovery and reinvestment act of 2009 , we recorded a tax benefit of $ 1.4 million in 2010 attributable to the monetization of alternative minimum tax and research and development credits . we received this tax refund during the fourth quarter of 2010 . 24 our income tax expense and effective tax rate for 2009 reflects the effect of recording a tax benefit of $ 48.8 million related to the extension of the carryback period of our 2008 nol and recording a valuation allowance against income tax benefits on losses in the u.s. and certain foreign subsidiaries . in 2009 , we also established a deferred tax liability of $ 118.8 million which represented the estimated tax impact of the undistributed earnings of certain foreign subsidiaries as we believed these accumulated foreign earnings in certain jurisdictions were likely to be remitted to the u.s. as dividends or intercompany loans . net loss attributable to noncontrolling interests net loss attributable to noncontrolling interests was $ 5.7 million in 2011 , $ 0.9 million in 2010 and $ 0.2 million in 2009 . the increase in 2011 primarily reflects the portion of the net expenses of e-aam that relates to noncontrolling interests , which included an impairment charge of $ 0.5 million in 2011 related to the write off of the saab intangible asset . the increase in 2010 as compared to 2009 primarily reflects the portion of the net loss of e-aam that relates to noncontrolling interests .
| the increase in 2010 as compared to 2009 is primarily due to higher metal market pass throughs partially offset by a change in the billing process for consigned components for the dodge ram program and the adverse impact in the first half of 2010 associated with timing of the launch of the next generation heavy-duty truck for gm in june 2010. our 4wd/awd penetration rate was 63.0 % in 2011 as compared to 64.2 % in 2010 and 64.1 % in 2009 . we define 4wd/awd penetration as the total number of front axles we produce divided by the total number of rear axles we produce for the vehicle programs we support . gross profit ( loss ) gross profit ( loss ) was a profit of $ 455.1 million in 2011 as compared to a profit of $ 401.7 million in 2010 and a loss of $ 31.1 million in 2009 . gross margin was 17.6 % in both 2011 and 2010 and negative 2.0 % in 2009 . the increase in gross profit in 2011 as compared to 2010 primarily reflects the positive impact of an increase in sales and productivity gains , partially offset by special charges and the impact of the implementation of certain provisions of the 2009 settlement and commercial agreement with gm . these provisions were effective january 1 , 2011 and , among other things , include expanded warranty cost sharing and product price-downs . the increase in gross profit and gross margin in 2010 , as compared to 2009 , reflects the positive impact of an increase in sales , lower special charges and the favorable impact of structural cost reductions taken in 2008 and 2009. gross profit in 2011 includes special charges and other non-recurring operating costs of $ 15.0 million , which includes $ 8.7 million of asset impairment charges and indirect inventory obsolescence as a result of the announced closure of ckmf and $ 6.3 million of other plant closure related costs . gross profit in 2011 also includes a $ 6.1 million gain related to the sale of equipment that we had previously written down to its estimated fair value as a result of asset impairments . 22 gross profit in 2010 includes the adverse impact of an arbitration
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at december 31 , 2020 2019 percent of percent of percent of percent of allowance loans in allowance loans in for loan each for loan each allowance losses to category allowance losses to category for loan total to total for loan total to total losses allowance loans losses allowance loans ( dollars in thousands ) 1 – 4 family $ 342 3.00 % 7.20 % $ 344 4.92 % 8.52 % commercial 5,003 43.88 53.28 4,048 57.92 45.66 multifamily 1,278 11.21 25.24 1,048 14.99 27.02 commercial real estate 597 5.24 8.13 560 8.01 9.29 construction — — — 161 2.30 1.14 consumer 4,182 36.67 6.15 828 11.85 8.37 total allocated allowance $ 11,402 100.00 % 100.00 % $ 6,989 100.00 % 100.00 % 46 loans rated special mention increased $ 4.5 million to $ 7.9 million as of december 31 , 2020 from $ 3.4 million as of december 31 , 2019 driven by our 1-4 family , multifamily , and consumer portfolios which increased $ 3.0 million , $ 0.7 million , and $ 0.7 million , respectively . loans rated substandard increased $ 0.8 million to $ 2.4 million as of december 31 , 2020 , from $ 1.6 million at december 31 , 2019. the allowance for loan losses as a percentage of loans was 1.70 % and 1.24 % as of december 31 , 2020 and 2019 , respectively . charge-offs were $ 1.8 million for the year ended december 31 , 2020 which is an increase of $ 1.3 million as compared to the prior year . the increase in the allowance as a percentage of loans , charge-offs , and substandard loans is primarily attributable to the consumer portfolio , specifically , our legacy post settlement nfl loan program as well as the ongoing effects of the covid-19 pandemic on economic and non-economic credit risk factors . our nfl consumer post settlement loan exposure as of december 31 , 2020 is approximately $ 23.6 million with a weighted average remaining maturity of approximately one year where $ 4.2 million and $ 2.3 million have been classified as special mention and substandard , respectively , representing approximately 28 % of the remaining exposure . all substandard loan exposures related to this program have been placed on nonaccrual and $ 4.2 million , or 37 % , of the allowance for loan losses has been allocated to the consumer portfolio . nfl loan principal balances charged-off since inception to date and calendar year 2020 were $ 2.1 million and $ 1.8 million , respectively . we believe the nfl portfolio 's duration has extended and there may be future risks associated with these loans ( see “ item 1a—risk factors—potential fraud by our post-settlement consumer loan customers who are claimants or others related to the nfl concussion settlement program , revisions to qualifying physician requirements , and other administrative changes could increase our actual loan losses which would decrease earnings ” on page 24 ) and management has proactively refined and applied its internal risk rating criteria specific to this portfolio . this refined risk rating criteria considers factors including , but not limited to , the potential for fraud by our borrower or their representatives ( i.e. , lawyer , doctor ) ; denial of our borrower 's claim by the claims administrator based on revised medical guidelines issued by the claims administrator in may 2019 ; the covid-19 impact on a borrower 's ability to adhere to the claims administration protocols ; death of our borrower ; or loan maturities that are not in the process of collection . these factors , among other factors , may be used to assess future changes in risk ratings for the loans in our nfl loan portfolio . we had impaired loans of $ 2.3 million and $ 1.5 million at december 31 , 2020 and 2019 , respectively , related to the nfl portfolio and no specific reserves were recorded . these loans were also classified as nonperforming assets . 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 generally accepted accounting principles in the united states of america , 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 . story_separator_special_tag merchant processing credit risk from a merchant processing perspective , we have taken action to identify and assess our covid-19 related credit exposure , primarily defined as merchant returns and chargebacks , by merchant industry type and category . these industry types include , but are not limited to , restaurants , hospitality , travel , and entertainment . we have also assessed the level and adequacy of our iso and merchant reserves held on deposit at esquire bank . currently , based on our assessments , we have not identified any elevated credit risk in these affected industry types and other categories and our returns and chargeback ratios remain relatively consistent with pre-covid-19 levels and commensurate to the merchant portfolio risk profile . 47 debt securities portfolio at december 31 , 2020 and 2019 , all debt securities were carried at fair value and we had no investments in a single company or entity , other than government and government agency securities , which had an aggregate book value in excess of 10 % of our equity . we review the investment portfolio on a quarterly basis to determine the cause , magnitude and duration of declines in the fair value of each security . in estimating other-than-temporary impairment ( otti ) , we consider many factors including : ( 1 ) the length of time and extent that fair value has been less than cost , ( 2 ) the financial condition and near term prospects of the issuer , ( 3 ) whether the market decline was affected by macroeconomic conditions , and ( 4 ) whether we have the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery . if either of the criteria regarding intent or requirement to sell is met , the entire difference between amortized cost and fair value is recognized as impairment through earnings . for securities that do not meet the aforementioned criteria , the amount of impairment is split into two components as follows : ( 1 ) otti related to credit loss , which must be recognized in the income statement and ( 2 ) otti related to other factors , which is recognized in other comprehensive income . the credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis . the assessment of whether any other than temporary decline exists may involve a high degree of subjectivity and judgment and is based on the information available to management at a point in time . we evaluate securities for otti at least on a quarterly basis , and more frequently when economic or market conditions warrant such an evaluation . at december 31 , 2020 and december 31 , 2019 , securities in unrealized loss positions were issuances from government sponsored entities . the decline in fair value is attributable to changes in interest rates and illiquidity , not credit quality and because we do not have the intent to sell the securities and it is likely that we will not be required to sell the securities before their anticipated recovery , we do not consider the securities to be other-than-temporarily impaired at december 31 , 2020 and 2019. no impairment charges were recorded for the years ended december 31 , 2020 , 2019 and 2018. portfolio maturities and yields . the composition and maturities of the investment securities portfolio at december 31 , 2020 , are summarized in the following table . maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or early redemptions that may occur . no tax-equivalent yield adjustments have been made , as we have no tax free interest earning assets . at december 31 , 2020 more than one year more than five years one year or less through five years through ten years more than ten years total weighted weighted weighted weighted weighted book average book average book average book average book average value yield value yield value yield value yield value yield ( dollars in thousands ) mortgage backed securities-agency $ — — % $ — — % $ 6,664 2.69 % $ 48,548 1.55 % $ 55,212 1.69 % collateralized mortgage obligations-agency — — — — — — 60,474 2.10 60,474 2.10 total securities available-for-sale $ — — % $ — — % $ 6,664 2.69 % $ 109,022 2.39 % $ 115,686 1.90 % deposits total deposits increased $ 123.4 million , or 18.1 % , to $ 804.1 million at december 31 , 2020 from $ 680.6 million at december 31 , 2019. we continue to focus on the acquisition and expansion of core deposit relationships , which we define as all deposits except for certificates of deposit . core deposits totaled $ 792.9 million at december 31 , 2020 , or 98.6 % of total deposits at that date . 48 the following tables set forth the distribution of average deposits by account type at the dates indicated . replace_table_token_10_th as of december 31 , 2020 and 2019 , the aggregate amount of uninsured deposits ( deposits in amounts greater than or equal to $ 250,000 , which is the maximum amount for federal deposit insurance ) was $ 579.8 million and $ 525.5 million , respectively
| loan interest income increased $ 3.8 million , or 11.9 % , to $ 35.6 million for the year ended december 31 , 2020 from $ 31.8 million for the year ended december 31 , 2019. this increase was attributable to a $ 97.7 million , or 19.3 % , increase in the average loan balance from our attorney-related , multifamily , and commercial real estate portfolios offset by a 38 basis point decrease in loan yields . the decrease in loan yields is due to the historically low interest rate environment caused by the pandemic and its effects on the overall economy . the impact of the decline in loan yields on interest income was primarily offset by a 39 basis point decrease in rates on interest bearing deposits as part of the company 's overall asset/liability management strategy . securities interest income decreased $ 1.4 million , or 34.6 % , to $ 2.6 million for the year ended december 31 , 2020 from $ 3.9 million for the year ended december 31 , 2019. this decrease was attributable to a $ 21.6 million , or 14.6 % , decrease in average securities balances and a 62 basis point decrease in yields , both driven by accelerated prepayments due to the current interest rate environment . interest earning cash and other interest income decreased $ 568 thousand , or 59.2 % , to $ 392 thousand for the year ended december 31 , 2020 from $ 960 thousand for the year ended december 31 , 2019. this decrease was attributable to a 164 basis point decrease in yields driven by the current interest rate environment offset by a $ 52.0 million , or 110.5 % , increase in average cash balance primarily due to growth in our merchant payment processing volumes as well as increases in our core deposits . interest expense . interest expense decreased $ 1.4 million , or 53.3 % , to $ 1.2 million for the year ended december 31 ,
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during fiscal 2013 , we plan to seek relief from the supervisory agreements so that , at a minimum , we can resume commercial real estate lending and grow our assets in accordance with our business strategy . subject to the receipt of relief from the supervisory agreements and any other necessary approvals or non-objections from federal banking regulators , we plan to resume , on a relatively modest basis , the origination of commercial real estate loans and construction and development loans in our market area . such loans will be underwritten in accordance with our strengthened loan underwriting standards and our enhanced credit review and administration procedures . we continue to believe that we can be a successful niche lender to small and mid-sized commercial borrowers and homebuilders in our market area . assuming we receive regulatory relief from the restrictions of the supervisory agreements , we also plan to resume modest growth of our loan portfolio . we believe that a resumption of commercial real estate and construction and development lending in a planned , deliberative fashion with the loan underwriting and administration enhancements that we have implemented in recent periods , together with modest loan growth , should increase our interest income and our returns in future periods . however , no assurance can be given whether , or when , we will receive the necessary relief from the supervisory agreements and any other approvals or non-objections to engage in such expanded lending activities in the future . ● increasing market share penetration . we operate in a competitive market area for banking products and services . in recent fiscal years , we have been working to increase our deposit share in chester and delaware counties , and we increased our marketing and promotional efforts . however , as a result of the shrinkage of our balance sheet and the reduction in total deposits in fiscal 2012 , our deposit market share decreased from 4.74 % in 2011 to 4.55 % in 2012. we are focused on continuing our efforts to increase market share . ● increasing our core deposits . we are attempting to increase our core deposits , which we define as all deposit products other than certificates of deposit , by offering customers additional deposit products as well as incentives to invest in core deposits . at september 30 , 2012 , our core deposits amounted to $ 222.8 million , or 41.2 % of total deposits , compared to $ 239.9 million , or 43.3 % of total deposits , at september 30 , 2011. we have continued our promotional efforts to increase core deposits and expect to add additional deposit products in fiscal 2012 as part of our efforts to increase core deposits . we review our deposit products on an on-going basis and we are considering additional deposit products as well as more flexible delivery options , such as mobile banking , as part of our efforts to increase core deposits . we expect to increase our commercial checking accounts when we resume commercial lending and we plan to enhance our cross-marketing as part of our efforts to gain additional deposit relationships with our loan customers . ● continuing to provide exceptional customer service . as a community oriented savings bank , we take pride in providing exceptional customer service as a means to attract and retain customers . we deliver personalized service to our customers that distinguish us from the large regional banks operating in our market area . our management team has strong ties to , and deep roots in , the community . we believe that we know our customers ' banking needs and can respond quickly to address them . 53 this management 's discussion and analysis section is intended to assist in understanding the financial condition and results of operations of malvern federal bancorp . the information contained in this section should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements contained in item 8 of this annual report on form 10-k. critical accounting policies in reviewing and understanding financial information for malvern federal bancorp , inc. , you are encouraged to read and understand the significant accounting policies used in preparing our consolidated financial statements . these policies are described in note 2 of the notes to our consolidated financial statements included elsewhere in item 8 of this annual report on form 10-k. the accounting and financial reporting policies of malvern federal bancorp conform to accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) and to general practices within the banking industry . accordingly , the consolidated financial statements require certain estimates , judgments , and assumptions , which are believed to be reasonable , based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the periods presented . the following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results . these policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may affect our reported results and financial condition for the period or in future periods . allowance for loan losses . the allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments . the allowance for loan losses represents management 's estimate of losses inherent in the loan portfolio as of the statement of financial condition date and is recorded as a reduction to loans . reserves for unfunded lending commitments represents management 's estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated statement of financial condition . the allowance for loan losses is increased by the provision for loan losses , and decreased by charge-offs , net of recoveries . story_separator_special_tag loans deemed to be uncollectible are charged against the allowance for loan losses , and subsequent recoveries , if any , are credited to the allowance . all , or part , of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all , or part , of the principal balance is highly unlikely . non-residential consumer loans are generally charged off no later than when they become 120 days past due on a contractual basis or earlier in the event of the borrower 's bankruptcy , or if there is an amount deemed uncollectible . because all identified losses are immediately charged off , no portion of the allowance for loan losses is restricted to any individual loan or groups of loans , and the entire allowance is available to absorb any and all loan losses . the allowance for credit losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated . management performs a quarterly evaluation of the adequacy of the allowance . the allowance is based on the company 's past loan loss experience , known and inherent risks in the portfolio , adverse situations that may affect the borrower 's ability to repay , the estimated value of any underlying collateral , the composition of the loan portfolio , current economic conditions and other relevant factors . this evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available . the allowance consists of specific , general and unallocated components . the specific component relates to loans that are classified as impaired . for loans that are classified as impaired , an allowance is established when the discounted cash flows ( or collateral value or observable market price ) of the impaired loan is lower than the carrying value of that loan . the general component covers pools of loans by loan class including commercial loans not considered impaired , as well as smaller balance homogeneous loans , such as residential real estate , home equity and other consumer loans . these pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans , as adjusted for qualitative factors . an unallocated component is maintained to cover uncertainties that could affect management 's estimate of probable losses . the unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio . once all factor adjustments are applied , general reserve allocations for each segment are calculated , summarized and reported on the alll summary . alll final schedules , calculations and the resulting evaluation process are reviewed quarterly by the asset classification committee and the board of directors . 54 a loan is considered impaired when , based on current information and events , it is probable that the company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . factors considered by management in determining impairment include payment status , collateral value and the probability of collecting scheduled principal and interest payments when due . loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired . management determines the significance of payment delays and payment shortfalls on a case-by-case basis , taking into consideration all of the circumstances surrounding the loan and the borrower , including the length of the delay , the reasons for the delay , the borrower 's prior payment record and the amount of the shortfall in relation to the principal and interest owed . impairment is measured on a loan by loan basis for commercial and industrial loans , commercial real estate loans and commercial construction loans by either the present value of expected future cash flows discounted at the loan 's effective interest rate or the fair value of the collateral if the loan is collateral dependent . the allowance is adjusted for other significant factors that affect the collectibility of the loan portfolio as of the evaluation date including changes in lending policy and procedures , loan volume and concentrations , seasoning of the portfolio , loss experience in particular segments of the portfolio , and bank regulatory examination results . other factors include changes in economic and business conditions affecting our primary lending areas and credit quality trends . loss factors are reevaluated each reporting period to ensure their relevance in the current economic environment . we review key ratios such as the allowance for loan losses to total loans receivable and as a percentage of non-performing loans ; however , we do not try to maintain any specific target range for these ratios . while management uses the best information available to make loan loss allowance evaluations , adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance . historically , our estimates of the allowance for loan losses have not required significant adjustments from management 's initial estimates . in addition , the occ ( and , previously , the ots ) , as an integral part of its examination processes , periodically reviews our allowance for loan losses . the occ may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations . to the extent that actual outcomes differ from management 's estimates , additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods .
| interest income on investment securities increased by $ 485,000 , or 47.3 % , in fiscal 2011 compared to fiscal 2010. the increase in interest income on investment securities in fiscal 2011 was due to a $ 44.3 million , or 131.1 % , increase in the average balance of our investment securities portfolio . interest expense . our total interest expense amounted to $ 10.2 million for the year ended september 30 , 2011 compared to $ 13.6 million for the year ended september 30 , 2010 , a decrease of $ 3.4 million or 25.2 % . the reason for the decrease in interest expense in fiscal 2011 compared to fiscal 2010 was a 41 basis point decrease in average rate paid on total deposits . the average balance of our total deposits increased by $ 27.2 million , or 5.3 % , in fiscal 2011 compared to fiscal 2010 due primarily to our new concordville , delaware county branch which opened in mid-september 2010 and which had $ 47.5 million in deposits at september 30 , 2011 , along with an $ 23.5 million increase in the average balance of money market accounts together with a $ 3.4 million increase in the average balance of demand and now accounts . our expense on borrowings amounted to $ 1.7 million in fiscal 2011 compared to $ 3.5 million in fiscal 2010 , a decrease of $ 1.8 million or 50.4 % . the average balance of our borrowings decreased by $ 30.8 million in fiscal 2011 compared to fiscal 2010 , and the average cost of borrowed funds decreased by 87 basis points to 3.50 % during the year ended september 30 , 2011. provision for loan losses . during the year ended september 30 , 2011 , we made a $ 12.4 million provision to our allowance for loan losses compared to a $ 9.4 million provision in the year ended september 30 , 2010. the increase in the
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we have expertise in a broad range of existing and emerging digital marketing technologies , as well as the related media management and distribution software platforms and networks , device management , product management , customized software service layers , systems , experiences , workflows , and integrated solutions . our technology and solutions include : digital merchandising systems and omni-channel customer engagement systems , interactive digital shopping assistants , advisors and kiosks , and other interactive marketing technologies such as mobile , social media , point-of-sale transactions , beaconing and web-based media that enable our customers to transform how they engage with consumers . we have expertise in a broad range of existing and emerging digital marketing technologies , as well as the following related aspects of our business : content , network management , and connected device software and firmware platforms ; customized software service layers ; hardware platforms ; digital media workflows ; and proprietary processes and automation tools . our main operations are conducted directly through creative realities , inc. ( f/k/a wireless ronin technologies , inc. ) , and under our wholly owned subsidiaries creative realities , llc , a delaware limited liability company , wireless ronin technologies canada , inc. , a canadian corporation , and conexus world global , llc , a kentucky limited liability company . we generate revenue in this business by : ● consulting with our customers to determine the technologies and solutions required to achieve their specific goals , strategies and objectives ; ● designing our customers ' digital marketing experiences , content and interfaces ; ● engineering the systems architecture delivering the digital marketing experiences we design – both software and hardware – and integrating those systems into a customized , reliable and effective digital marketing experience ; ● managing the efficient , timely and cost-effective deployment of our digital marketing technology solutions for our customers ; 21 ● delivering and updating the content of our digital marketing technology solutions using a suite of advanced media , content and network management software products ; and ● maintaining our customers ' digital marketing technology solutions by : providing content production and related services ; creating additional software-based features and functionality ; hosting the solutions ; monitoring solution service levels ; and responding to and or managing remote or onsite field service maintenance , troubleshooting and support calls . these activities generate revenue through : bundled-solution sales ; service fees for consulting , experience design , content development and production , software development , engineering , implementation , and field services ; software license fees ; and maintenance and support services related to our software , managed systems and solutions . our sources of revenue we generate revenue through digital marketing solution sales , which include system hardware , professional and implementation services , software design and development , software licensing , deployment , and maintenance and support services . 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 prospective 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 our management is responsible for our financial statements and has evaluated the accounting policies to be used in their preparation . our management believes these policies are reasonable and appropriate . the company 's significant accounting policies are described in note 2 of the company 's consolidated financial statements included within part ii , item 8 of this report . the following discussion identifies those accounting policies that we believe are critical in the preparation of our financial statements , the judgments and uncertainties affecting the application of those policies and the possibility that materially different amounts will be reported under different conditions or using different assumptions . the preparation of financial statements in conformity with gaap requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . our actual results could differ from those estimates . revenue recognition see note 2 , “ summary of significant accounting policies , ” in our consolidated financial statements , included in part ii , item 8 of this report , for a complete discussion of our revenue recognition policies . story_separator_special_tag we recognize revenue primarily from these sources : ● hardware : system hardware sales ● services and other : professional and implementation services software design and development services software and software license sales maintenance and support services 22 we recognize revenue in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 910 , contractors-construction , asc 605 , revenue recognition , asc 605-25 , accounting for revenue arrangements with multiple deliverables . and asc subtopic 985-605 , software . in the event of a multiple-element arrangement , we evaluate each element of the transaction to determine if it represents a separate unit of accounting , taking into account all factors following the guidelines set forth in fasb asc 985-605-25-5 : ( 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 payments are fixed or determinable and free of contingencies and significant uncertainties ; and ( iv ) collection is reasonably assured . if it is determined that collection of a fee is not reasonably assured , we defer the revenue and recognize it at the time collection becomes reasonably assured , which is generally upon receipt of cash payment , revenues are reported on a gross basis . on january 1 , 2018 , we adopted accounting standards update ( “ asu ” ) 2014-09 , revenue from contracts with customers ( “ asu 2014-09 , ” as codified in “ asc 606 ” ) , which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance , including industry-specific guidance . the adoption of the standard did not have a significant impact on our financial statements or our critical accounting policies related to revenue recognition . based on our initial evaluation of the company 's current contracts and the related revenue streams and performance obligations , the company expects that the allocation of revenue between hardware , services and other will have insignificant changes as compared with current gaap . however , for certain sales transactions , the timing of revenue recognition for hardware and certain services sales may occur earlier , with the remaining service and other sales , occurring later than under current gaap . the largest impacts as a result of the new standard are the new required qualitative and quantitative disclosures . see note 2 , “ recently issued accounting pronouncements , ” in our consolidated financial statements , included in part ii , item 8 of this report for additional information . accounts receivable our unsecured accounts receivable are customer obligations due under normal trade terms , carried at their face value less an allowance for doubtful accounts . we had a factoring arrangement with allied affiliated funding for the majority of our accounts receivable during the period october 15 , 2015 to august 16 , 2016. we record an allowance for doubtful accounts receivable for amounts due from third parties that we do not expect to collect . we estimate the allowance based on historical write-off experience and current economic conditions and also consider factors such as customer credit , past transaction history with the customer and changes in customer payment terms when determining whether the collection of a receivable is reasonably assured . historically , less than 1.0 % of net sales ultimately prove to be uncollectible . accounts receivable are written off after all reasonable collection efforts have failed . we have not made any material changes in the accounting methodology we use to measure the estimated liability for doubtful accounts during the past two fiscal years . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to establish the liability for doubtful accounts . however , if actual results are not consistent with our estimates or assumptions , we may be exposed to losses or gains that could be material . approximately 51 % or $ 3,017 of our accounts receivable at december 31 , 2017 is from a related party ( see note 8 ) . goodwill and intangible assets goodwill is evaluated for impairment annually as of september 30 and whenever events or circumstances make it more likely than not that impairment may have occurred . the company has no indefinite-lived intangible assets . we test goodwill for impairment by comparing the book value to the fair value at the reporting unit level . the company has only one reporting unit , and therefore the entire goodwill is allocated to that reporting unit . the fair value of the reporting unit is determined by using a discounted cash flow analyses consisting of various assumptions , including expectations of future cash flows based on projections or forecasts derived from analysis of business prospects and economic or market trends that may occur . we use these same expectations in other valuation models throughout the business . in addition to the discounted cash flow analysis , we utilize a leveraged buy-out model , trading comps and market capitalization to ultimately determine an estimated fair value of our reporting unit based on weighted average calculations from these models . the company bases its fair value estimates on assumptions it believes to be reasonable but that are unpredictable and inherently uncertain . if the carrying amount exceeds the fair value , further analysis is performed to measure the impairment loss . 23 in addition , the company 's market capitalization could fluctuate from time to time .
| general and administrative expenses total general and administrative expenses increased 9 % to $ 6,944 in 2017 from $ 6,393 in 2016. the increase was primarily due to an increase in personnel costs , including recruiting fees , offset primarily by decreases in legal fees . depreciation and amortization expenses depreciation and amortization expenses decreased 25 % to $ 1,505 in 2017 from $ 2,003 in 2016 primarily as a result of the reduction of intangible assets from the impairment recognized in the third quarter of 2016. interest expense see note 6 to the consolidated financial statements for a discussion of the company 's debt and related interest expense obligations . change in fair value of warrant liability see note 3 to the consolidated financial statements for a discussion of the company 's non-cash change in warrant liability . gain on settlement of debt during 2017 , the company settled and or wrote off debt of $ 1,159 for $ 288 cash payment and recognized a gain of $ 872. this debt included $ 693 of payables previously recorded by our dissolved subsidiary broadcast international , inc , as we had exhausted all efforts to identify and settle these obligations in the first quarter of 2017. in august 2016 , the company settled debt of $ 90 for $ 35 cash payment , resulting in a gain on debt settlement of $ 55. in june 2016 , the company settled debt of $ 614 for $ 123 cash payment and the issuance of 409,347 shares of the company 's restricted common stock , fair value at conversion date of $ 85 , and recognized a gain on debt restructuring of $ 406. in conjunction with this debt settlement , an additional 809,842 shares of restricted common stock were issued to investors for cash to facilitate the settlement of a portion of the $ 614 debt . in march 2016 , the company issued 8.00 % nonconvertible
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these risks include , but are not limited to , intense competition , whether we can be successful in obtaining fda approval for the sale of our product , whether there will be a demand for the viveve treatment , given that the cost of the procedure will likely not be reimbursed by the government or private health insurers . in addition , we will continue to require substantial funds to support our clinical trials and fund our efforts to expand regulatory approval for our products in locations in which we do not currently have approval to market our product , including the u.s. we can not be certain that any additional required financing will be available when needed or on terms which are favorable to us . as noted above , our operations to date have been primarily funded through the sale of debt and equity securities . various factors , including our limited operating history with minimal revenues to date and our limited ability to market and sell our product have resulted in limited working capital available to fund our operations . the recent merger and concurrent private placement was consummated in an effort to raise additional capital and increase public awareness of viveve , as well as create opportunities for access to additional capital by increasing liquidity that investors may find more attractive in a public company . while we believe that our recent going public transaction will be attractive to investors , there are no assurances that we will be successful in securing additional financing to fund our operations going forward . failure to generate sufficient cash flows from operations , raise additional capital or reduce certain discretionary spending could have a material adverse effect on our ability to achieve our intended business objectives . these factors raise substantial doubt about our ability to continue as a going concern . 34 p lan of operation we intend to increase our sales and exposure both internationally and in the united states market by seeking regulatory approval for the sale and distribution of our product , identifying and training qualified distributors and expanding the scope of physicians who offer the viveve treatment to include plastic surgeons , dermatologists , general surgeons , urologists , urogynecologists and primary care physicians . in addition , we intend to use the strategic relationships that we have developed with outside contractors and medical experts to improve the viveve system by focusing our research and development efforts on various areas including , but not limited to : ● designing new treatment tips optimized for both ease-of-use and to reduce procedure times for patients and physicians ; ● increasing security to prevent the re-use of treatment tips , resulting in improved procedure efficacy and reduced safety concerns ; and ● developing a new cooling system that integrates a substitute for hydroflurocarbon , to maintain compliance with changes in international environmental regulations . we are using the net proceeds received from the private placement to support commercialization of our product in existing and new markets , for our research and development efforts and for protection of our intellectual property , as well as for working capital and other general corporate purposes . we expect that we will continue to require funds to fully implement our plan of operation . the net proceeds of approximately $ 4.2 million received from the private placement , together with our debt financing of up to $ 5 million and additional equity financing in the next twelve months , are expected to be sufficient to fund our activities for the next twelve months . our operating costs include employee salaries and benefits , compensation paid to consultants , professional fees and expenses , costs associated with our clinical trials , capital costs for research and other equipment , costs associated with research and development activities including travel and administration , legal expenses , sales and marketing costs , general and administrative expenses , and other costs associated with an early stage public company subject to the reporting requirements of the securities exchange act of 1934. we also expect to incur expenses related to obtaining regulatory approvals in the u.s. and internationally as well as legal and related expenses to protect our intellectual property . we expect capital expenditures to be less than $ 250,000 annually . we intend to continue to meet our operating cash flow requirements through the sales of our products and by raising additional funds from the sale of equity or debt securities . if we sell our equity securities , or securities convertible into equity , to raise capital , our current stockholders will likely be substantially diluted . we may also consider the sale of certain assets , or entering into a transaction , such as a merger , with a business complimentary to ours , although we do not currently have plans for any such transaction . while we have been successful in raising capital to fund our operations since inception , other than as discussed in this annual report , we do not have any committed sources of financing and there are no assurances that we will be able to secure additional funding . if we can not obtain financing , then we may be forced to curtail our operations or consider other strategic alternatives . r esults of operations year ended december 31 , 2014 compared to the year ended december 31 , 2013 revenue replace_table_token_3_th we recorded revenue of $ 90,000 for the year ended december 31 , 2014 as compared to revenue of $ 152,000 for the year ended december 31 , 2013 , a decrease of $ 62,000 or approximately 41 % . the decrease in revenue was a result of the limited production of inventory available for sale and reduced sales and marketing efforts in the second half of 2013 and throughout 2014 due to funding constraints . story_separator_special_tag 35 research and development expenses replace_table_token_4_th research and development expense totaled $ 1,426,000 for the year ended december 31 , 2014 , compared to research and development expense of $ 772,000 for the year ended december 31 , 2013 , an increase of $ 654,000 or approximately 85 % . spending on research and development primarily increased as we prepared for our ous clinical trial and incurred costs associated with the trial 's implementation . the viveve ous clinical trial commenced in the fourth quarter of 2014 and is designed to evaluate the safety and effectiveness of the viveve treatment . selling , general and administrative expenses year ended december 31 , change 2014 2013 $ % ( in thousands , except percentages ) selling , general and administrative $ 4,276 $ 3,129 $ 1,147 37 % selling , general and administrative expenses totaled $ 4,276,000 for the year ended december 31 , 2014 , compared to $ 3,129,000 for the year ended december 31 , 2013 , an increase of $ 1,147,000 or approximately 37 % . the increase in selling , general and administrative expenses was primarily attributable to additional professional services related expenses associated with the merger transaction that was completed in september 2014 and additional costs in the fourth quarter of 2014 associated with being a public company . the increase was partially offset by greater spending in the first quarter of 2013 as we incurred additional costs and expenses in connection with the planning of our going public strategy initially launched in the second quarter of 2013 but not consummated until september 2014. interest expense replace_table_token_5_th during the year ended december 31 , 2014 , we had interest expense of $ 567,000 as compared to $ 447,000 for the year ended december 31 , 2013. the increase of $ 120,000 or approximately 27 % resulted primarily from greater interest expense on our convertible bridge notes due to the issuance of additional convertible notes in 2014 and in the fourth quarter of 2013 in the aggregate principal amount of $ 2,875,000. other income , net replace_table_token_6_th other income , net , for the year ended december 31 , 2014 and 2013 was $ 49,000 and $ 61,000 , respectively . the decrease of $ 12,000 , or approximately 20 % , was primarily attributable to mark-to-market adjustments associated with the change in the fair value for our preferred stock warrants , which were accounted for as liabilities . 36 liquidity and capital resources year ended december 31 , 2014 liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments . in addition , liquidity includes the ability to obtain appropriate financing or to raise capital . we have funded our operations since inception through the sale of common and preferred stock and borrowings from related parties and financial institutions . to date , we have not generated sufficient cash flows from operating activities to meet our obligations and commitments , and we anticipate that we will continue to incur losses for the foreseeable future . we completed our merger with plc systems , inc. on september 23 , 2014. concurrent with the merger , we completed the private placement described above , raising total gross proceeds of approximately $ 6,000,000 , which included the conversion of $ 1,500,000 of convertible notes . the proceeds were partially offset by costs of $ 296,000 related to the private placement . on september 30 , 2014 , we entered into the loan agreement , as amended on february 19 , 2015 , pursuant to which we received a term loan in the amount of $ 5 million , which will be funded in 3 tranches . the first tranche of $ 2.5 million was provided to us on october 1 , 2014. the proceeds from the first tranche were used to repay the existing loan with a financial institution which totaled approximately $ 1,631,000. the second tranche of the term loan is equal to $ 1.5 million , of which $ 500,000 was provided to us on february 19 , 2015 and $ 1 million is subject to ( i ) evidence acceptable to the lender of at least 50 % enrollment in the ous clinical trial no later than march 9 , 2015 and ( ii ) documentation or other evidence acceptable to the lender of a prospective equity financing to close by april 15 , 2015. on march 16 , 2015 , we have received an additional $ 500,000 in connection with a drawdown of funds from the second tranche . before the third tranche of $ 1 million of the term loan will be funded , we must achieve positive interim 3-month results relating to our ous clinical trials ending on june 30 , 2015. the proceeds from the second and third tranches will be used for general working capital purposes and capital expenditures . the failure to satisfy the conditions to draw down on the third tranche of the term loan and an inability to renegotiate the terms of the loan with the lender to permit a drawdown of the funds when such conditions are satisfied could have a material adverse effect on the company and its operations . in connection with the terms of the loan agreement , we entered into the intellectual property security agreement , dated as of september 30 , 2014 , pursuant to which a first priority security interest was created in all of our intellectual property and issued a 10-year warrant to the lender for the purchase of 471,698 shares of the company 's common stock at an exercise price of $ 0.53 per share , such number of shares to automatically increase in the event that we fail to meet certain covenants to achieve certain ous clinical trial milestones or capital raising requirements as set forth in the loan agreement , as amended , by a number equal to the quotient derived by dividing ( i ) 1 % of the principal balance outstanding under the loan agreement by ( ii
| in addition , as a condition to and upon the closing of the merger , an aggregate amount of $ 4,875,000 and related accrued interest of approximately $ 522,000 were extinguished pursuant to the terms and conditions of a convertible note termination agreement , dated may 9 , 2014 , by and between viveve , inc. and 5am co-investors ii , lp , a convertible note termination agreement , dated may 9 , 2014 ( collectively , the “ 5am note termination agreements ” ) , by and between viveve , inc. and 5am ventures ii , lp ( together with 5am co-investors ii , lp , the “ 5am parties ” ) and a convertible note exchange agreement , dated may 9 , 2014 ( the “ gbs note exchange agreement ” ) by and between viveve , inc. and gbs venture partners limited , trustee for gbs bioventures iii ( “ gbs ” ) . in accordance with the terms and conditions of the 5am note termination agreements , the 5am parties acknowledged and agreed that the benefits received from the closing of the merger , including the portion of the merger consideration issued to the 5am parties as shareholders of viveve , inc. in accordance with the terms of the merger agreement , was full and fair consideration to cancel or extinguish all principal and interest underlying the notes held by such holders . pursuant to the terms of the note exchange agreement , gbs agreed to cancel and extinguish all principal and interest underlying the notes held by gbs in exchange for a warrant to acquire such number of shares of common stock of the company equal to 5 % of the issued and outstanding common stock of the company following the effective date of the merger ( the “ gbs warrant ” ) . upon the closing of the merger , the company issued an aggregate of 943,596 shares of common stock to gbs upon the automatic conversion of the warrant upon the closing of the merger , all rights , title or interest in outstanding warrants to purchase securities of viveve , inc. were also terminated , extinguishing approximately $ 572,000 in outstanding warrant liabilities , in accordance with the terms and conditions of a warrant termination agreement , dated may 9 , 2014 , by and between viveve , inc. and each of the 5am parties , a warrant termination agreement , dated may 9 , 2014 , by and between viveve , inc. and gbs , a warrant termination agreement , dated may 9 , 2014 , by and between viveve , inc. and oxford finance llc ( “ oxford ” ) , and a warrant termination agreement , dated may 9 , 2014 ( collectively , the “ warrant termination agreements ” ) , by and between viveve , inc. and svb financial group ( “ svb financial ” ) . the cancellation of the outstanding principal amount and related accrued interest underlying the
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for example , over the last six months , we integrated aiware with the alteryx platform , enabling alteryx users to access aiware 's ai models and ai analytics capabilities , and we enhanced aiware to run on the nvidia ® cuda ® gpu-based platform , enabling dramatic increases in aiware 's processing speed and opening up a wide range of new use cases for our technology . we are in the process of developing and marketing specific use cases for these integrations , which we believe will open up new markets for our products and accelerate our near and long term revenue growth . we plan to hire additional engineers and business development resources in the near term to further accelerate our pursuit of these potential opportunities , as well as other third-party technology integrations . for the year ended december 31 , 2020 , our gross margin ( calculated as described in “ non-gaap financial measures ” below ) improved to 73 % , compared with 69 % for the year ended december 31 , 2019 , driven by a higher proportion of saas revenue , which generally has higher gross margins , coupled with recent enhancements made to the aiware platform that significantly reduced our computing and storage costs . our gross margin is impacted significantly by the mix of our aiware saas revenue , aiware content licensing and media services revenue and advertising revenue in a given period . our gross profit ( calculated as described in “ non-gaap financial measures ” below ) is also dependent upon our ability to grow our revenue by expanding our customer base and increasing business with existing customers , and to manage our costs by negotiating favorable economic terms with cloud computing providers such as aws and microsoft azure . while we are focused on continuing to improve our gross profit , our ability to attract new and retain existing customers to grow our revenue will be highly dependent on our ability to implement and continually improve upon our technology and services and improve our technology infrastructure and operations as we experience increased network capacity constraints due to our growth . we believe our operating results and performance are , and will continue to be , driven by various factors that affect our industry . our ability to attract , grow and retain customers for our ai platform is highly sensitive to rapidly changing technology and is dependent on our ability to maintain the attractiveness of our platform , content and services to our customers . moreover , we expect to continue to report operating losses in the near term . the future revenue and operating growth across our platform will rely heavily on our ability to grow our saas customer base , continue to develop and deploy quality and innovative ai-driven applications , provide unique and attractive content and advertising services to our customers , continue to grow in newer markets such as government and energy , and manage our corporate overhead costs . while we believe we will be successful in these endeavors , we can not guarantee that we will succeed in generating substantial long term operating growth and profitability . since 2017 , we have made acquisitions that extended our business and technology reach in several areas , as discussed in more detail in “ business - overview ” above . we believe there are strategic acquisition targets that can accelerate our entry into key strategic markets , as well as our ability to grow our business . as a result , we are prioritizing corporate development efforts beginning in the first half of 2021. our acquisition strategy is threefold : ( i ) to increase the scale of our business in markets we are in today , ( ii ) to accelerate growth in new markets and product categories , including expanding our existing engineering and sales resources , and ( iii ) to accelerate the adoption of aiware as the universal ai operating system through venture or market-driven opportunities . if we are successful in identifying and entering into 32 agreements to acquire target companies , we may need to raise additional capital to finance such acquisitions and to continue executing on our growth strategy . in the years ended december 31 , 2020 and 2019 , substantially all of our revenue was derived from customers located in the united states . we believe that there is a substantial opportunity over time for us to significantly expand our service offerings and customer base in countries outside of the united states . in the long term , we plan to expand our business further internationally in places such as europe , asia pacific and latin america , and as a result we expect to continue to incur significant incremental upfront expenses associated with these growth opportunities . impact of the coronavirus ( “ covid-19 ” ) pandemic the covid-19 outbreak emerged in late 2019 and was declared a global pandemic by the world health organization in march 2020. the covid-19 pandemic , and the actions being taken by governments worldwide to mitigate the public health consequences of the pandemic , significantly impacted the global economy . beginning in march 2020 , we began to experience fluctuations in demand for certain services , particularly our aiware content licensing and media services , a significant amount of revenue from which is typically driven by major live sporting events that were cancelled or postponed in the united states due to covid-19 . while many major sporting events have resumed , future cancellations of live sporting events could have a material adverse impact on our revenue generated from our aiware content licensing and media services in future quarters . the pandemic has affected and may continue to affect some of our customers , which may further reduce the demand and or delay purchase decisions for our products and services , and may additionally impact the creditworthiness of customers . story_separator_special_tag we have assessed the potential credit deterioration of our customers due to changes in the macroeconomic environment and have determined that no additional allowance for doubtful accounts was necessary due to credit deterioration as of december 31 , 2020. the extent to which the covid-19 pandemic and the related macroeconomic conditions may continue to affect our financial condition or results of operations is uncertain . while we did not experience decreases in revenue from our advertising services and aiware saas solutions in 2020 compared with 2019 , the severity and duration of the pandemic and the resulting macroeconomic conditions are difficult to predict , and our revenue and operating results may be adversely impacted in future periods . the extent of the impact on our operational and financial performance will depend on various factors , including the duration and spread of the outbreak ; advances in testing , treatment and prevention ; the impact of government measures to contain the virus ; and related government stimulus actions . due to the nature of our business , the effect of the covid-19 pandemic may not be fully reflected in its results of operations until future periods . the most significant risks to our business and results of operations arising from the covid-19 pandemic are discussed in part i , item 1a ( risk factors ) . in response to the covid-19 pandemic , we have taken actions to control expenses , including temporarily discontinuing non-essential services and instituting controls on travel , entertainment and other expenses . in addition , in compliance with government mandates , we have temporarily closed our offices and initiated a work from home policy . non-gaap financial measures in evaluating our cash flows and financial performance , we use a measure of non-gaap net loss , the results for which measure are presented below for the years ended december 31 , 2020 and 2019. the items excluded from non-gaap net loss , as well as a breakdown of gaap net loss , non-gaap net loss and these excluded items between our core operations and corporate , are detailed in the reconciliation below . non-gaap net loss is not a financial measure calculated and presented in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) and should not be considered as an alternative to net income ( loss ) , operating income ( loss ) or any other financial measures so calculated and presented , nor as an alternative to cash flow from operating activities as a measure of liquidity . other companies ( including our competitors ) may define non-gaap net loss differently . in addition , we have provided additional supplemental non-gaap measures of operating expenses , loss from operations , other income ( expense ) , net , and loss before income taxes , excluding the items excluded from non-gaap net loss as noted above , and reconciling such non-gaap measures to the applicable gaap measures . we present this supplemental non-gaap financial information because management believes such information to be important supplemental measures of performance that are commonly used by securities analysts , investors and other interested parties in the evaluation of companies in its industry , and believes that such measures , and the breakdown between 33 our core operations and corporate , provide a useful comparison of our current period financial results to our historical and future financial results . management also uses this information internally for forecasting and budgeting . these non-gaap measures may not be indicative of our historical operating results or predictive of potential future results . investors should not consider this supplemental non-gaap financial information in isolation or as a substitute for analysis of our results as reported in accordance with gaap . ( in thousands ) year ended december 31 , 2020 2019 core operations ( 1 ) corporate ( 2 ) total core operations ( 1 ) corporate ( 2 ) total net loss $ ( 9,060 ) $ ( 38,816 ) $ ( 47,876 ) $ ( 24,019 ) $ ( 38,059 ) $ ( 62,078 ) provision for ( benefit from ) income taxes — 76 76 — ( 1,452 ) ( 1,452 ) depreciation and amortization 5,538 869 6,407 4,836 1,111 5,947 stock-based compensation expense 2,720 16,819 19,539 2,680 16,722 19,402 change in fair value of warrant liability — 200 200 — ( 16 ) ( 16 ) warrant expense — 102 102 — — — gain on sale of asset — ( 56 ) ( 56 ) — — — interest expense — 9 9 — — — state sales tax reserve — 818 818 — — — stock offering costs — 27 27 — — — lease termination charges — 16 16 — — — machine box contingent payments — — — 1,600 — 1,600 performance bridge earn-out fair value adjustment — — — 139 — 139 business realignment and officer severance costs — 145 145 242 37 279 non-gaap net loss $ ( 802 ) $ ( 19,791 ) $ ( 20,593 ) $ ( 14,522 ) $ ( 21,657 ) $ ( 36,179 ) ( 1 ) core operations consists of our aiware operating platform of software , saas and related services ; content , licensing and advertising agency services ; and their supporting operations , including direct costs of sales as well as operating expenses for sales , marketing and product development and certain general and administrative costs dedicated to these operations . ( 2 ) corporate consists of general and administrative functions such as executive , finance , legal , people operations , fixed overhead expenses ( including facilities and information technology expenses ) , other income ( expenses ) and taxes , and other expenses that support the entire company , including public company driven costs .
| 36 ( 2 ) represents the total fees payable during the full contract term for new contracts received in the quarter ( including fees payable during any cancellable portion and an estimate of license fees that may fluctuate over the term ) , excluding any variable fees under the contract ( i.e. , fees for cognitive processing , storage , professional services and other variable services ) . as we grow our business for our aiware saas solutions , we expect that our kpi results will be impacted in different ways based on our customer profiles and the nature of their use of our aiware saas solutions in certain target markets . for example , in the government , legal and compliance markets , use of our aiware saas solutions is often project-based and , accordingly , in a given period , we may experience significant fluctuations in revenue without any significant change in total accounts or new bookings . the timing of large contract renewals and the variable versus fixed fee nature of certain contracts will impact the amount of new bookings and the total contract value of new bookings from quarter to quarter . as such , our results for different kpis may fluctuate significantly within the same period , and the result for a particular kpi in one period may not be indicative of the results that we will achieve for that kpi in future periods . common stock warrants in april 2020 , we issued warrants to purchase up to 450,000 shares of our common stock at an exercise price of $ 3.01 per share , of which 50,000 shares were fully vested and exercisable upon issuance , and an additional 133,333 shares vested and became exercisable upon the achievement of a market condition in 2020. the vesting of the remaining 266,667 shares underlying such warrants is conditioned upon the achievement of performance goals and had not vested as of december 31 , 2020. during 2020 , we issued 154,311 shares of common stock upon the exercise of warrants for an aggregate exercise price of $ 2.1 million and issued an aggregate of 442,126 shares of common stock upon exercises of warrants to purchase an aggregate of 813,400
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we have made a fair value determination of the acquired assets and assumed liabilities and approximately $ 2.0 million of fixed assets , $ 150,000 of other intangible assets and $ 161,000 of other assets were recorded with respect to this transaction . 34 on may 1 , 2013 , we acquired a 40 % equity interest in orange county radiation oncology , llc , a radiation oncology center located in orange county , california for cash consideration of $ 1.0 million . as of may 1 , 2013 we have accounted for this investment under the equity method . on april 1 , 2013 , we sold one of our wholly-owned multi-modality imaging centers located in northfield , new jersey for $ 3.9 million in cash . the net book value associated with the imaging center was $ 1.8 million , which included $ 1.0 million of goodwill , on the date of sale and accordingly a gain of $ 2.1 million was recorded with respect to this transaction . on february 28 , 2013 , we completed our acquisition of a multi-modality imaging center located in brooklyn , new york by exercising a $ 1.00 purchase option to acquire an initial 50 % interest ( we acquired this option through our december 31 , 2012 acquisition of lenox hill radiology ) and then by purchasing the remaining 50 % interest from the existing partner for approximately $ 2.4 million in cash . on january 30 , 2013 , we purchased for $ 430,000 an additional 20.9 % interest in a joint venture multi-modality imaging center located in manhattan , new york ( park west ) of which we initially held a 31.5 % interest from our december 31 , 2012 acquisition of lenox hill radiology . this additional 20.9 % interest gave us a 52.4 % controlling interest in the center and so accordingly , we now consolidate its financial statements . included in our initial consolidating entry was $ 979,000 of noncontrolling interests representing the fair value on january 30 , 2013 of the remaining 47.6 % not owned by us . on january 1 , 2013 , we completed our acquisition of a breast surgery practice located in mission viejo , california for $ 350,000. we have made a fair value determination of the acquired assets and assumed liabilities and approximately $ 135,000 of working capital , $ 30,000 of fixed assets and $ 185,000 of goodwill was recorded with respect to this transaction . on december 31 , 2012 , we completed our acquisition of lenox hill radiology , consisting of three multi-modality imaging centers as well as three additional x-ray facilities all located in manhattan , new york . we also acquired in this transaction a 31.5 % interest in a joint venture multi-modality imaging center in manhattan , new york and an option to purchase a 50 % interest in a multi-modality imaging center located in brooklyn , new york for $ 1.00. the purchase price consisted of approximately $ 28.5 million in cash . we have made a fair value determination of the acquired assets and assumed liabilities and approximately $ 4.5 million of working capital , $ 8.7 million of fixed assets , $ 648,000 of joint venture interests , $ 2.5 million in a $ 1.00 joint venture purchase option , $ 1.4 million of intangible assets $ 12.7 million of goodwill and the assumption of approximately $ 650,000 of other liabilities and $ 1.3 million of capital lease debt was recorded with respect to this transaction . story_separator_special_tag with our decrease in procedure volumes at these centers . this comparison excludes contributions from centers that were acquired subsequent to january 1 , 2012. for the year ended december 31 , 2013 , salaries and professional reading fees from centers that were acquired subsequent to january 1 , 2012 and excluded from the above comparison was $ 38.1 million . for the year ended december 31 , 2012 , salaries and professional reading fees from centers that were acquired subsequent to january 1 , 2012 , and excluded from the above comparison was $ 9.0 million . 37 · stock-based compensation stock-based compensation decreased $ 163,000 , or 6.0 % , to $ 2.6 million for the year ended december 31 , 2013 compared to $ 2.7 million for the year ended december 31 , 2012. the decrease is due to fewer equity compensation instruments being issued in 2013 compared to the prior year . · building and equipment rental building and equipment rental expenses increased $ 4.4 million , or 7.2 % , to $ 65.0 million for the year ended december 31 , 2013 , compared to $ 60.6 million for the year ended december 31 , 2012. building and equipment rental expenses , including only those centers which were in operation throughout the full fiscal years of both 2013 and 2012 , decreased $ 3.2 million , or 5.4 % . this 5.4 % decrease is due to equipment lease buy-outs and the conversion of equipment operating leases to capital leases occurring over the third and fourth quarters of 2013. this comparison excludes contributions from centers that were acquired subsequent to january 1 , 2012. for the year ended december 31 , 2013 , building and equipment rental expenses from centers that were acquired subsequent to january 1 , 2012 , and excluded from the above comparison , was $ 9.6 million . for the year ended december 31 , 2012 , building and equipment rental expenses from centers that were acquired subsequent to january 1 , 2012 , and excluded from the above comparison , was $ 2.0 million . · medical supplies medical supplies expense decreased $ 1.7 million , or 4.4 % , to $ 37.2 million for the year ended december 31 , 2013 , compared to $ 38.9 million for the year ended december 31 , 2012. medical supplies expenses , including only those centers which were in operation throughout the full fiscal years of both 2013 and 2012 , decreased $ 5.3 million , or 14.0 % . story_separator_special_tag this 14.0 % decrease is primarily due to an increase in rebates we received from certain vendors subsequent to january 1 , 2013. this comparison excludes contributions from centers that were acquired or divested subsequent to january 1 , 2012. for the year ended december 31 , 2013 , medical supplies expense from centers that were acquired subsequent to january 1 , 2012 , and excluded from the above comparison was $ 4.5 million . for the year ended december 31 , 2012 , medical supplies expense from centers that were acquired subsequent to january 1 , 2012 , and excluded from the above comparison was $ 856,000 . · other operating expenses other operating expenses increased $ 29.5 million , or 20.7 % , to $ 171.8 million for the year ended december 31 , 2013 compared to $ 142.3 million for the year ended december 31 , 2012. other operating expenses , including only those centers which were in operation throughout the full fiscal years of both 2013 and 2012 , increased $ 43,000. this comparison excludes contributions from centers that were acquired or divested subsequent to january 1,2012. for the year ended december 31 , 2013 , other operating expense from centers that were acquired subsequent to january 1 , 2013 , and excluded from the above comparison was $ 33.9 million . for the year ended december 31 , 2012 , other operating expense from centers that were acquired subsequent to january 1 , 2012 , and excluded from the above comparison was $ 4.5 million . · depreciation and amortization expense depreciation and amortization expense increased $ 1.2 million , or 2.0 % , to $ 58.9 million for the year ended december 31 , 2013 when compared to the same period last year . depreciation and amortization expense at those centers which were in operation throughout the full fiscal years of both 2013 and 2012 , decreased $ 4.4 million or 7.8 % . this 7.8 % decrease is primarily due to several assets completing their depreciation schedules subsequent to january 1 , 2012. this comparison excludes contributions from centers that were acquired or divested subsequent to january 1 , 2012. for the year ended december 31 , 2013 , depreciation and amortization from centers that were acquired or divested subsequent to january 1 , 2012 and excluded from the above comparison was $ 6.7 million . for the year ended december 31 , 2012 , depreciation and amortization from centers that were acquired subsequent to january 1 , 2012 , an excluded from the above comparison was $ 1.1 million . 38 · loss on sale and disposal of equipment loss on sale of equipment was approximately $ 1.0 million for the year ended december 31 , 2013 and primarily related to the difference between the net book value of certain equipment sold and proceeds we received from the sale . loss on the sale of equipment was approximately $ 456,000 for the year ended december 31 , 2012 and primarily related to the difference between the net book value of certain equipment sold and proceeds we received from the sale . · severance costs during the year ended december 31 , 2013 , we recorded severance costs of $ 806,000 compared to $ 736,000 recorded during the year ended december 31 , 2012. in each period , these costs were primarily associated with the integration of acquired operations and other cost saving measures . interest expense interest expense decreased approximately $ 8.0 million , or 14.9 % , to $ 45.8 million for the year ended december 31 , 2013 compared to $ 53.8 million for the year ended december 31 , 2012. interest expense for the year ended december 31 , 2013 included $ 4.6 million of amortization of deferred financing costs and discount on issuance of debt . interest expense for the year ended december 31 , 2012 included $ 3.6 million of amortization of deferred financing costs and discount on issuance of debt as well as $ 918,000 of amortization of accumulated other comprehensive loss associated with fair value adjustments to our interest rate swaps accumulated prior to april 6 , 2010. excluding these adjustments to interest expense for each period , interest expense decreased approximately $ 8.1 million for the year ended december 31 , 2013 compared to the year ended december 31 , 2012. this decrease was primarily due to the reduced interest rate on our credit facilities stemming from the amendment of april 10 , 2013 and the ending of our interest rate swaps in november 2012. see “ liquidity and capital resources ” below for more details on our credit facilities . gain on sale of imaging center on april 1 , 2013 , we sold one of our wholly-owned multi-modality imaging centers located in northfield , new jersey for $ 3.9 million in cash . the net book value associated with the imaging center was $ 1.8 million on the date of sale and accordingly a gain of $ 2.1 million was recorded with respect to this transaction . other expenses / income for the year ended december 31 , 2013 we recorded approximately $ 228,000 of other expenses , primarily relating to costs associated with our credit amendment of april 10 , 2013. for the year ended december 31 , 2012 , we recorded $ 3.7 million of other income primarily consisting of approximately $ 5.1 million of fair value adjustments on our interest rate swaps and an $ 810,000 bargain purchase gain related to our november 9 , 2012 acquisition of pueblo radiology ( see “ recent developments and facility acquisitions ” above ) . income tax expense /benefit for the year ended december 31 , 2013 , we recorded income tax expense of $ 3.5 million . for the year ended december 31 , 2012 we recorded a benefit from income taxes of approximately $ 55.2 million primarily related to reversing the valuation allowance against our deferred tax assets ( see note 11 to our consolidated financial statements for more details ) .
| revenue under capitation arrangements revenue under capitation arrangements for the year ended december 31 , 2013 was $ 65.6 million compared to $ 55.1 million for the year ended december 31 , 2012 , an increase of $ 10.5 million , or 19.1 % . revenue under capitation arrangements , including only those centers which were in operation throughout the full fiscal years of both 2013 and 2012 , increased $ 7.7 million , or 15.0 % . this 15.0 % increase is due to additional capitation contracts entered into subsequent to the year 2012. this comparison excludes revenue contributions from centers that were acquired subsequent to january 1 , 2012. for the year ended december 31 , 2013 , revenue under capitation arrangements from centers that were acquired subsequent to january 1 , 2012 and excluded from the above comparison was $ 6.7 million . for the year ended december 31 , 2012 , net revenue from centers that were acquired subsequent to january 1 , 2012 and excluded from the above comparison was $ 3.9 million . operating expenses cost of operations for the year ended december 31 , 2013 increased approximately $ 55.7 million , or 10.3 % , from $ 543.0 million for the year ended december 31 , 2012 to $ 598.7 million for the year ended december 31 , 2013. the following table sets forth our operating expenses for the years ended december 31 , 2013 and 2012 ( in thousands ) : replace_table_token_9_th * includes billing fees , office supplies , repairs and maintenance , insurance , business tax and license , outside services , utilities , marketing , travel and other expenses . · salaries and professional reading fees , excluding stock-based compensation and severance salaries and professional reading fees increased $ 23.7 million , or 7.9 % , to $ 322.1 million for the year ended december 31 , 2013 , compared to $ 298.4 million for the year ended december 31 , 2012. salaries and professional reading fees , including only those centers which were in operation throughout the full fiscal
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in our technology solutions segment , we purchase peripherals , it systems , system components , software , networking equipment , including ce and complementary products from our primary suppliers such as hp , lenovo , asus tek computer inc. and microsoft corporation , and sell them to our reseller and retail customers . we perform a similar function for our 28 distribution of licensed software products . our reseller customers include value-added resellers , or vars , corporate resellers , government resellers , system integrators , direct marketers , and national and regional retailers . in technology solutions , we also provide comprehensive it solutions in key vertical markets such as government and healthcare and we provide specialized service offerings that increase efficiencies in the areas of print management , renewals , networking , logistics services and supply chain management . additionally , within our technology solutions segment , we provide our customers with systems design and integration solutions for data center servers and storage solutions built specific to our customers ' data center environments . in our concentrix segment , our portfolio of services includes end-to-end process outsourcing to customers in various industry vertical markets delivered through omni-channels that include both voice and non-voice mediums . revenue and cost of revenue we derive our revenue primarily through the distribution of peripherals , it systems , system components , software , networking equipment and ce products . we also provide systems design and integration solutions and bpo crm services . for products , we recognize revenue generally as products are shipped , if a purchase order exists , the sales price is fixed or determinable , collection of the resulting accounts receivable is reasonably assured , risk of loss and title have transferred and product returns are reasonably estimable . shipping terms are typically f.o.b . shipping point . where product acceptance provisions exist , revenue is recognized upon the customer acceptance provisions and other revenue recognition criteria being met . provisions for sales returns and allowances are estimated based on historical data and are recorded concurrently with the recognition of revenue . we review and adjust these provisions periodically . revenue is reduced for early payment discounts and volume incentive rebates offered to customers . we provide our bpo crm services in our concentrix segment to customers under contracts that typically consist of a master services agreement or statement of work , which contains the terms and conditions of each program and service we offer . our agreements can range from less than one year to over five years and are subject to early termination by our customers or us for any reason , typically with 30 to 90 days notice . revenue on fixed price contracts is recognized on a straight-line basis over the term of the contract as services are provided . revenue on unit-price transactions is recognized using an objective measure of output including staffing hours or the number of transactions processed by service agents . we recognize revenue on a net basis on certain contracts , including service contracts , post-contract software support services and extended warranty contracts , where we are not the primary obligor , by recognizing the margin earned in revenue without any associated cost of revenue . in fiscal years 2014 , 2013 and 2012 , no customer accounted for 10 % or more of our total revenue . approximately 25 % , 31 % , and 36 % of our total revenue in fiscal years 2014 , 2013 , and 2012 , respectively , were derived from the sale of hp products and services . the market for it products and services is generally characterized by declining unit prices and short product life cycles . our overall business is also highly competitive on the basis of price . we set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and services we provide . from time to time , we also participate in the incentive and rebate programs of our oem suppliers . these programs are important determinants of the final sales price we charge to our reseller customers . to mitigate the risk of declining prices and obsolescence of our distribution inventory , our oem suppliers generally offer us limited price protection and return rights for products that are marked down or discontinued by them . we carefully manage our inventory to maximize the benefit to us of these supplier provided protections . a significant portion of our cost of revenue is the purchase price we pay our oem suppliers for the products we sell , net of any incentives , rebates and purchase discounts received from our oem suppliers . cost of product distribution revenue also consists of provisions for inventory losses and write-downs , freight expenses associated with the receipt in and shipment out of our inventory , and royalties due to oem vendors . in addition , cost of revenue includes the cost of materials , labor and overhead for our systems design and integration solutions and bpo crm services . margins the technology solutions industries in which we operate are characterized by low gross profit as a percentage of revenue , or gross margin , and low income from operations as a percentage of revenue , or operating margin . our gross margin has fluctuated annually due to changes in the mix of products and services we offer , customers we sell to , incentives and rebates received from our oem suppliers , competition , seasonality and replacement of less profitable business with investments in higher margin , more profitable lines , lower costs associated with increased efficiencies and inventory obsolescence . increased competition arising from industry consolidation and low demand for it products may hinder our ability to maintain or improve our gross margin . generally , when our revenue becomes more concentrated on limited products or customers , our gross margin tends to decrease due to increased pricing pressure from oem suppliers or reseller customers . story_separator_special_tag 29 concentrix margins , which are generally higher than those in our technology solution segment , can be impacted by additional lead time for programs to be fully scalable and transition and initial set-up costs . our operating margin has also fluctuated annually , based primarily on our ability to achieve economies of scale , the management of our operating expenses , changes in the relative mix of our technology solutions and concentrix revenue , and the timing of our acquisitions and investments . economic and industry trends our technology solutions revenue is highly dependent on the end-market demand for it and ce products . this end-market demand is influenced by many factors including the introduction of new it and ce products and software by oems , replacement cycles for existing it and ce products and overall economic growth and general business activity . a difficult and challenging economic environment may also lead to consolidation or decline in the it and ce distribution industry and increased price-based competition . the bpo crm industry is also extremely competitive . the customers ' performance measures are based on competitive pricing terms and quality of services . accordingly , we could be subject to pricing pressure and may experience a decline in our average selling prices for our services . while we are susceptible to economic trends in the global economy , our technology solutions business is largely concentrated in the united states , canada and japan and our concentrix business is largely concentrated in the united states , united kingdom , india and japan , so we will be most directly impacted by economic strength or weakness in these geographies . during the fiscal years 2014 , 2013 and 2012 , the economic environment was stable and grew modestly . deferred compensation plan we have a deferred compensation plan for a limited number of our directors and employees . we maintain a liability on our balance sheet for salary and bonus amounts deferred by participants and we accrue interest expense on uninvested amounts . interest expense on the deferred amounts is classified in selling , general and administrative expenses on our consolidated statements of operations . the participant may designate one or more investments as the measure of investment return on the participant 's account . the equity securities are either classified as trading securities or cost-method securities . generally , the gains ( losses ) on the deferred compensation securities are recorded in other income ( expense ) , net and an equal amount is charged ( or credited if losses ) to selling , general and administrative expenses relating to compensation amounts which are payable to the plan participants . for the deferred compensation investments , we recorded a gain of $ 0.4 million , $ 1.9 million and $ 2.6 million , in fiscal years 2014 , 2013 and 2012 , respectively . critical accounting policies and estimates the discussions and analysis of our consolidated financial condition and results of operations are based on our consolidated financial statements , which have been prepared in conformity with generally accepted accounting principles in the united states . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of any contingent assets and liabilities at the financial statement date , and reported amounts of revenue and expenses during the reporting period . on an ongoing basis , we review and evaluate our estimates and assumptions , including those that relate to accounts receivable , vendor programs , inventories , goodwill and intangible assets , and income taxes . our estimates are based on our historical experience and a variety of other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making our judgment about the carrying values of assets and liabilities that are not readily available from other sources . actual results could differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies are affected by our judgment , estimates and or assumptions used in the preparation of our consolidated financial statements . revenue recognition . for the technology solutions segment , we generally recognize revenue on the sale of hardware and software products when they are shipped and on services when they are performed , if a purchase order exists , the sales price is fixed or determinable , collection of resulting accounts receivable is reasonably assured , risk of loss and title have transferred and product returns are reasonably estimable . where product acceptance provisions exist , assuming all other revenue recognition criterion are met , revenue is recognized upon the earlier of shipment for products that have been demonstrated to meet product specifications , customer acceptance or the lapse of acceptance provisions . provisions for sales returns and allowances are estimated based on historical data and are recorded concurrently with the recognition of revenue . these provisions are reviewed and adjusted periodically by us . revenue is presented net of taxes collected from customers and remitted to government authorities . revenue is reduced for early payment discounts and volume incentive rebates offered to customers . we recognize revenue on a net basis on certain contracts , including service contracts , post-contract software support services and extended warranty contracts , where we are not the primary obligor , by recognizing the margins earned in revenue without any associated cost of revenue . 30 for the concentrix segment , we recognize revenue from services contracts when evidence of an arrangement exists , services are delivered , fees are fixed or determinable and collectability is reasonably assured . service contracts may be based on a fixed price or on a fixed unit-price per transaction or other objective measure of output . revenue on fixed price contracts is recognized on a straight-line basis over the term of the contract as services are provided .
| on a constant currency basis , revenue increased by 21.8 % in fiscal year 2014 , compared to fiscal year 2013. by product category , our sales of system components and integration , it systems , peripherals , software and networking equipment in fiscal year 2014 were higher by 46 % , 20 % , 13 % , 11 % and 10 % , respectively , in comparison to fiscal year 2013. the increase in the sale of system components and integration was due to the expansion of our system design and integration solutions business . the increase in the sale of it systems was primarily due to higher sales of laptops , tablets and desktops . the increase in the sale of peripherals was primarily due to higher sales of audio products and system accessories . the increase in the sale of software was primarily due to higher sales from it system software and gaming products . revenue in our technology solutions segment increased in fiscal year 2013 from fiscal year 2012 due to strong demand for our systems design and integration solutions , strong consumer and commercial sales growth in the u.s. and strong consumer sales in japan . in comparison to fiscal year 2012 , revenue in fiscal year 2013 was negatively impacted by 2.6 % for the translation impact of foreign exchange rates , primarily from the weakening of the japanese yen . by product category , our sales of peripherals , networking , system components and integration and it systems in fiscal year 2013 were higher by 15 % , 9 % , 2 % and 2 % , respectively , in comparison to fiscal year 2012. the increase in the sale of peripheral and networking categories was due to higher sales of audio products and networking hardware devices , including the expansion of our line card . revenue growth was partially offset by 15 % lower software sales which was due to the strategic decision to consolidate less profitable products and lower gaming software sales . all product categories
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the tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement . as facts and circumstances change , management reassesses these probabilities and would record any changes in the financial statements as appropriate . overview the company generates revenue from the sales of wine to wholesalers and direct to consumers . the company is experiencing increased levels of competition in traditional wholesale to retail grocery distribution from large california based wineries that are acquiring , producing and marketing oregon branded wines . direct to consumer sales primarily include sales through the company 's tasting rooms and wine club . direct to consumer sales provide a higher gross profit to the company due to prices received being closer to retail than those prices paid by wholesalers . the company continues to emphasize growth in direct to consumer sales through use of the hospitality center and growth in wine club membership . the company had 7,565 wine club memberships for the year ended december 31 , 2019 , a net increase of 56 when compared to 2018. additionally , the company 's preferred stock sales since august 2015 have resulted in approximately 5,738 preferred stockholders many of which the company believes are wine enthusiasts . when considering joint ownership , we believe these new shareholders represent approximately 9,000 potential customers of the company . the company also has approximately 2,200 common shareholders which we believe represent an estimated 3,450 potential customers when considering joint ownership . additionally , the company has made significant investment in developing alternative wine brands , products , direct sales methods and venues . 22 periodically , the company will sell grapes or bulk wine , which primarily consists of inventory that does not meet company standards or is in excess to production targets . however , this activity is not a significant part of the company 's activities . the company sold approximately 156,791 and 146,300 cases of produced wine during the years ended december 31 , 2019 and 2018 , respectively , an increase of 10,491 cases , or 7.2 % in the current year over the prior year . the increase in case sales was primarily the result of increased shipments to distributors in 2019 when compared to 2018. cost of sales includes grape costs , whether purchased or grown at company vineyards , crush costs , winemaking and processing costs , bottling , packaging , warehousing and shipping and handling costs associated with purchased production materials . for grapes grown at company vineyards , costs include farming expenditures and amortization of vineyard development costs . the company expects cost of sales to decrease , as a percentage of net sales , over the next several years , as higher yield vintages are released . at december 31 , 2019 , wine inventory included approximately 115,011 cases of bottled wine and 445,482 gallons of bulk wine in various stages of the aging process . case wine is expected to be sold over the next 12 to 24 months and generally before the release date of the next vintage . the winery bottled approximately 172,869 cases during the year ended december 31 , 2019. story_separator_special_tag times , serif ; margin : 0 ; text-align : justify '' > selling , general and administrative expenses were $ 11,567,058 and $ 10,598,784 for the years ended december 31 , 2019 and 2018 , respectively , an increase of $ 968,274 , or 9.1 % , for the year ended december 31 , 2019 over the prior year period . this increase was mainly the result of both increased staffing and other selling expenses and increased general and administrative costs associated with efforts to increase sales and accommodate and develop retail growth and new operations . income from operations was $ 3,727,524 and $ 4,182,715 for the years ended december 31 , 2019 and 2018 , respectively , a decrease of $ 455,191 , or 10.9 % , for the year ended december 31 , 3019 compared to the prior year period . the primary reason for this decrease was increased gross profit being more than offset by increased selling and administrative expense . interest income was $ 48,066 and $ 26,591 for the years ended december 31 , 2019 and 2018 , respectively , an increase of $ 21,475. the increase was primarily due to higher interest rates on deposits in 2019 compared to the previous year . interest expense was $ 440,999 and $ 457,689 for the years ended december 31 , 2019 and 2018 , respectively , a decrease of $ 16,690 , or 3.6 % , for the year ended december 31 , 2019 over the prior year period . the decrease in interest expense was mainly due to the decrease in loan balances in 2019 compared to the previous year . other income , net , was $ 128,433 and $ 187,969 for the years ended december 31 , 2019 and 2018 , respectively , a decrease of $ 59,536 , or 31.7 % , for the year ended december 31 , 2019 over the prior year period . the decrease in other income in 2019 compared to 2018 was primarily the result of a decrease in revenue recognized from the amortization of a distribution agreement due to that agreement completing the amortization period during 2018. provision for income taxes was $ 952,123 and $ 1,081,006 for the years ended december 31 , 2019 and 2018 , respectively , a decrease of $ 128,883 , or 11.9 % , for the year ended december 31 , 2019 over the prior year period . story_separator_special_tag this decrease in income taxes in 2019 compared to 2018 were primarily the result of lower income from operations in 2019. income per common share after preferred dividends was $ 0.30 and $ 0.37 for the years ended december 31 , 2019 and 2018 , respectively , a decrease of $ 0.07 , or 18.9 % , for the year ended december 31 , 2019 over the prior year period . the primary reason for this decrease is a decrease in net income in 2019 compared to 2018. the company had cash balances of $ 7,050,176 , at december 31 , 2019 , and $ 9,737,467 at december 31 , 2018. the company had no outstanding line of credit balance at december 31 , 2019 or 2018. ebitda in 2019 , the company 's earnings before interest , taxes , depreciation and amortization ( ebitda ) decreased 6.5 % to $ 5,668,420 from $ 6,063,147 in 2019 , primarily as a result of a decrease in net income . ebitda does not reflect the impact of a number of items that affect our net income , including financing costs . ebitda is not a measure of financial performance under the accounting principles generally accepted in the united states of america , referred to as gaap , and should not be considered as an alternative to net income or income from operations as a measure of performance , nor as an alternative to net cash from operating activities as a measure of liquidity . we use ebitda as a benchmark measurement of our own operating results and as a benchmark relative to our competitors . we consider it to be a meaningful supplement to operating income as a performance measure primarily because depreciation and amortization expense are not actual cash costs , and depreciation expense varies widely from company to company in a manner that we consider largely independent of the underlying cost efficiency of our operating facilities . ebitda has significant limitations as an analytical tool , and should not be considered in isolation , or as a substitute for analysis of our gaap results as reported . because of these limitations , ebitda should only be considered as a supplemental performance measure and should not be considered as a measure of liquidity or cash available to us to invest in the growth of our business . see the statement of cash flows set out in our consolidated financial statements included herein . 25 the following table provides a reconciliation of net income ( the most comparable gaap measure ) to ebitda for the periods indicated : replace_table_token_4_th sales wine case sales for the years ended december 31 , 2019 and 2018 and ending inventory amounts for the year ended december 31 , 2019 , are shown on the following table , as well as planned production quantities for the year ending december 31 , 2020 : replace_table_token_5_th approximately 51 % of the company 's case sales during 2019 were of the company 's flagship varietal , pinot noir . case sales of pinot gris and riesling follow with approximately 18 % and 12 % of case sales each , respectively . the company sold approximately 156,791 and 146,300 cases of company-produced wine during the years ended december 31 , 2019 and 2018 , respectively . this represents an increase of approximately 10,491 cases , or 7.2 % in 2019 compared to 2018. this increase in case sales in 2019 compared to 2018 was primarily the result of increased shipments through distributors . the company has three primary sales channels : direct-to-consumer sales , in-state sales to distributors , and out-of-state sales to distributors . these three sales channels represent 38.2 % , 20.9 % and 40.9 % , of net sales for the year ended december 31 , 2019 , respectively . this compares to 39.4 % , 21.1 % and 39.5 % of net sales for the year ended december 31 , 2018 , respectively . miscellaneous and grape sales are included in direct-to-consumer sales . the company 's direct-to-consumer sales and national sales to distributors offer comparable products to customers and utilize similar processes and share resources for production , selling and distribution . direct-to-consumer sales generate a higher gross profit margin than national sales to distributors due to differentiated pricing between these segments . 26 wine inventory the company had approximately 115,011 cases of bottled wine on-hand at the end of 2019. management believes sufficient bulk wine inventory is on-hand to bottle approximately 189,825 cases of wine in 2020 and that sufficient stock is on hand to meet current demand levels until the 2020 vintage becomes available . production capacity current production volumes are within the current production capacity constraints of the winery when including storage capacity at the tualatin winery and utilization of temporary storage when appropriate . in 2019 , approximately 172,869 cases were produced , and management anticipates bottling approximately 189,825 cases in 2020. the winery has capacity to store and process about 220,000 cases of wine per year at the estate winery but can expand that capacity by utilizing storage at the tualatin winery as well as temporary storage . management continues to invest in new production technologies intended to increase the efficiency and quality of wine production . during 2019 , the company did not choose to utilize the wine production facilities at the tualatin winery but did utilize it for wine storage . the tualatin winery has capacity to produce approximately 28,000 cases of wine . the facility is maintained in good condition and is occasionally used by other local wineries . management intends to fully utilize the production capacity at the estate winery before expanding into the tualatin winery . grape supply for the 2019 and 2018 vintages , the company grew approximately 60 % and 59 % of all grapes harvested , respectively . the remaining grapes harvested were purchased from other growers .
| bulk wine/miscellaneous sales revenues for the years ended december 31 , 2019 and 2018 were $ 156,768 and $ 368,046 , respectively , a decrease of $ 211,278 in 2019 compared to 2018. this decrease was primarily the result of a better balance of grapes produced to requirements , which resulted in fewer grapes being in excess of product targets in 2019 compared to the previous year . in-state sales revenues for the years ended december 31 , 2019 and 2018 were $ 5,215,251 and $ 4,918,276 , respectively , an increase of $ 296,975 , or 6.0 % , for the year ended december 31 , 2019 over the prior year period . management believes this increase is primarily due to increased visibility of our products in the oregon market as well as enhanced sales efforts in 2019. out-of-state sales revenues for the years ended december 31 , 2019 and 2018 were $ 10,228,132 and $ 9,201,200 , respectively , an increase of $ 1,026,932 , or 11.2 % . management believes this increase is related to increased sales and promotion efforts in 2019. the company pays alcohol excise taxes to both the olcc and to the ttb . these taxes are based on product sales volumes . the company is liable for the taxes upon the removal of product from the company 's warehouse on a per gallon basis . the company also pays taxes on the grape harvest on a per ton basis to the olcc for the oregon wine board . the company 's excise taxes for the years ended december 31 , 2019 and 2018 were $ 233,043 and $ 226,266 , a decrease of $ 6,777 , or 3.0 % , for the year ended december 31 , 2019 over the prior year period . this increase was due primarily to increased wine sales revenues in 2019. cost of sales was $ 9,454,681 and $ 8,298,240 for the years ended december 31 , 2019 and 2018 , respectively , an increase of $ 1,156,441 , or 13.9 % , for the year ended december 31 , 2019 , over the prior year period . the increase in cost of sales can be attributed mainly to higher case sales volume and higher product costs ,
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market and income approaches ) are weighted to derive the final fair value for each security trading in an inactive market . we are obligated to assess , at each reporting date , whether there is an other-than-temporary impairment to our investment securities . if we determine that a decline in fair value is other-than-temporary , a credit-related impairment loss is recognized in current earnings . noncredit-related impairment losses are charged to other comprehensive income , to the extent we intend and have the ability to hold these securities and it is not more likely than not that we will be required to sell these securities until recovery . the determination of other-than-temporary impairment is a subjective process , requiring the use of judgments and assumptions . we examine all individual securities that are in an unrealized loss position at each reporting date for other-than-temporary impairment . specific investment-related factors are examined to assess impairment which include the nature of the investments , severity and duration of the loss , the probability that we will be unable to collect all amounts due , an analysis of the issuers of the securities and whether there has been any cause for default on the securities and any change in the rating of the securities by the various rating agencies . additionally , we evaluate whether the creditworthiness of the issuer calls the realization of contractual cash flows into question . we take into consideration the financial resources , intent and the overall ability of the company to hold the securities and not be required to sell the securities until their fair values recover . investment securities are discussed in more detail in note 5 to the company 's consolidated financial statements presented elsewhere in this report . the company considers available information relevant to the collectability of the security , including information about past events , current conditions , and reasonable and supportable forecasts , when developing the estimate of future cash flows and making its other-than-temporary impairment assessment for its portfolio of trust preferred securities . the company considers factors such as remaining payment terms of the security , prepayment speeds , expected defaults , the financial condition of the issuer ( s ) , and the value of any underlying collateral . acquired loans acquired loans are initially recorded as of acquisition date at fair value in accordance with asc 805 , business combinations . loans purchased with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are accounted for under asc 310-30 , receivables loans and debt securities acquired with deteriorated credit quality . further , the company elected to account for all loans acquired through fdic assisted transactions , within the scope of asc 310-30 using the same methodology . an allowance for loan losses is not carried over or recorded as of the acquisition date . in situations where loans have similar risk characteristics , loans were aggregated into pools to estimate cash flows under asc 310-30. a pool is accounted for as a single asset with a single interest rate , cumulative loss rate and cash flow expectation . the company aggregated all of the loans acquired in the fdic-assisted acquisitions of wfib and ucb into different pools , based on common risk characteristics . the cash flows expected over the life of the pools are estimated using an internal cash flow model that projects cash flows and calculates the carrying values of the pools , book yields , effective interest income and impairment , if any , based on pool level events . assumptions as to cumulative loss rates , loss curves and prepayment speeds are utilized to calculate the expected cash flows . under asc 310-30 , the excess of the expected cash flows at acquisition over the recorded investment is considered to be the accretable yield and is recognized as interest income over the life of the loan or pool . the excess of the contractual cash flows over the expected cash flows is considered to be the nonaccretable difference . subsequent to the acquisition date , any increases in cash flow over those expected at purchase date in excess of the fair value that are probable are recorded as an adjustment to the accretable difference on a prospective basis . any subsequent decreases in cash flow over those expected at purchase date that are probable and significant are recognized by recording an allowance for loan losses . any disposals of loans , including sales of loans , payments in full or foreclosures result in the removal of the loan from the asc 310-30 portfolio at the carrying amount . 32 the majority of the loans acquired in the fdic-assisted acquisitions of wfib and ucb are included in the fdic shared-loss agreements and are referred to as covered loans . covered loans are reported exclusive of the expected cash flow reimbursements from the fdic . at the date of acquisition , all covered loans were accounted for under asc 805 and asc 310-30. fdic indemnification asset in conjunction with the fdic-assisted acquisitions of wfib and ucb , the bank entered into shared-loss agreements with the fdic for amounts receivable covered by the shared-loss agreements . at the date of the acquisition the company elected to account for amounts receivable under the shared-loss agreements as an indemnification asset in accordance with asc 805. subsequent to the acquisition the indemnification asset is tied to the loss in the covered loans and is not being accounted for under fair value . the fdic indemnification asset is accounted for on the same basis as the related covered loans and is the present value of the cash flows the company expects to collect from the fdic under the shared-loss agreements . the difference between the present value and the undiscounted cash flow the company expects to collect from the fdic is accreted into noninterest income over the life of the fdic indemnification asset . story_separator_special_tag the fdic indemnification asset is adjusted for any changes in expected cash flows based on the loan performance . any increases in cash flow of the loans over those expected will reduce the fdic indemnification asset and any decreases in cash flow of the loans over those expected will increase the fdic indemnification asset . over the life of the fdic indemnification asset , increases and decreases are recorded as adjustments to noninterest income . during the year , the bank lowered the credit discount on the ucb covered loan portfolio as the credit quality was performing better than originally estimated . by lowering the credit discount , interest income will increase over the life of the loans . correspondingly , with the lowered credit discount , the expected reimbursement from the fdic under the loss sharing agreement will decrease , resulting in amortization of the fdic indemnification asset which is recorded as a charge to noninterest income . allowance for loan losses our allowance for loan loss methodology incorporates a variety of risk considerations , both quantitative and qualitative , in establishing an allowance for loan loss that management believes is appropriate at each reporting date . quantitative factors include our historical loss experience , delinquency and charge-off trends , collateral values , changes in nonperforming loans , and other factors . qualitative considerations include , but are not limited to , prevailing economic or market conditions , relative risk profiles of various loan segments , volume concentrations , growth trends , delinquency and nonaccrual status , problem loan trends , and geographic concentrations . for a detailed discussion of our allowance for loan loss methodology see management 's discussion and analysis of consolidated financial condition and results of operations allowance for loan losses presented elsewhere in this report . as we add new products , increase the complexity of our loan portfolio , and expand our geographic coverage , we continue to enhance our methodology to keep pace with the size and complexity of the loan portfolio and the changing credit environment . changes in any of the factors cited above could have a significant impact on the loan loss calculation . we believe that our methodologies continue to be appropriate given our size and level of complexity . this discussion should also be read in conjunction with the company 's consolidated financial statements and the accompanying notes presented elsewhere in this report . see note 8 to the company 's consolidated financial statements . goodwill impairment under asc 350 , intangiblesgoodwill and other , goodwill must be allocated to reporting units and tested for impairment . the company tests goodwill for impairment at least annually or more frequently if events or circumstances , such as adverse changes in the business , indicate that there may be justification for conducting an interim test . impairment testing is performed at the reporting-unit level ( which is the same level as the company 's major operating segments identified in note 24 to the company 's consolidated financial statements presented elsewhere in this report ) . the first part of the test is a comparison , at the reporting unit level , of the fair value of each reporting unit to its carrying value , including goodwill . in order to determine the fair value of the reporting units , a combined income approach and market approach was used . under the income approach , the company provided a net income projection and a terminal growth rate was used to calculate the discounted cash flows and the present value of the reporting units . under the market approach , the fair value was calculated using the current fair values of comparable peer banks of similar size , geographic footprint and focus . the market capitalizations and multiples of these peer banks were used to calculate the market price of the company and each reporting unit . the fair value was also subject to a control premium adjustment , which is the cost savings that a purchase of the reporting unit could achieve by eliminating duplicative costs . under the combined income and market approach , the value from each approach was appropriately weighted to determine the fair value . if the fair value is less than the carrying value , then the second part of the test is needed to measure the amount of goodwill impairment . the implied fair value of the reporting unit goodwill is calculated and compared to the actual carrying value of goodwill recorded within the reporting unit . if the carrying value of reporting unit goodwill exceeds the implied fair value of that goodwill , then the company would recognize an impairment loss for the amount of the difference , which would be recorded as a charge against net income . for complete discussion and disclosure see note 12 to the company 's consolidated financial statements presented elsewhere in this report . 33 share-based compensation we account for share-based awards to employees , officers , and directors in accordance with the provisions of asc 505 , equity , and asc 718 , compensationstock compensation . share-based compensation cost is measured at the grant date , based on the fair value of the award , and is recognized as expense over the employee 's requisite service period . we grant nonqualified stock options and restricted share awards , which include a service condition for vesting . additionally , some of our stock awards include a company financial performance requirement for vesting . the stock option awards generally vest in one to four years from the grant date , while the restricted share awards generally vest in one to five years from the date of grant . compensation expense is amortized on a straight-line basis over the requisite service period for the entire award , which is generally the maximum vesting period of the award . we use an option-pricing model to determine the grant-date fair value of our stock options which is affected by assumptions regarding a number of complex and subjective variables .
| comparing 2012 to 2011 our net interest margin decreased by 3 basis points to 4.63 % during 2012 , compared to 4.66 % during 2011. the decrease in the net interest margin resulted primarily from the low interest rate environment , and the related lower average yield on non-covered loans . the following table presents the interest rate spread , net interest margin , average balances , interest income and expense , and the average yield rates by asset and liability component for the years ended december 31 , 2013 , 2012 and 2011 : table 2 : summary of selected financial data replace_table_token_4_th ( 1 ) includes ( amortization ) of premiums and accretion of discounts on investment securities and loans receivable totaling ( $ 26.4 ) million , ( $ 8.0 ) million , and $ 6.3 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . also includes the net ( amortization ) of deferred loan fees and cost totaling ( $ 15.3 ) million , ( $ 16.2 ) million , and ( $ 13.1 ) million for the years ended december 31 , 2013 , 2012 and 2011 . ( 2 ) average balances exclude unrealized gains or losses on available-for-sale securities . ( 3 ) average balances include nonperforming loans . 36 analysis of changes in net interest income changes in our net interest income are a function of changes in rates and volumes of both interest-earning assets and interest-bearing liabilities . the following table sets forth information regarding changes in interest income and interest expense for the years indicated . the total change for each category of interest-earning assets and interest-bearing liabilities is segmented into the change attributable to variations in volume ( changes in volume multiplied by old rate ) and the change attributable to variations in interest rates ( changes in rates multiplied by old volume ) . nonaccrual loans are included in average loans used to compute this table . table 3 : analysis of changes in net interest income replace_table_token_5_th ( 1 ) changes in interest income/expense not arising from volume or rate variances are
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we use those metrics to assess the progress of our business and make decisions on where to allocate capital , time and technology investments . certain of the financial metrics are reported in accordance with u.s. gaap and certain of those metrics are considered non-gaap financial measures . as our business evolves , we may make changes in future periods to the key financial and operating metrics that we use to measure our business . for further information and reconciliations to the most applicable financial measures under u.s. gaap , refer to our discussion under non-gaap financial measures in the results of operations section . financial metrics gross billings . this metric represents the total dollar value of customer purchases of goods and services . for third- party revenue transactions , gross billings differs from third-party revenue reported in our consolidated statements of operations , which is presented net of the merchant 's share of the transaction price . for direct revenue transactions , gross billings are equivalent to direct revenue reported in our consolidated statements of operations . we consider this metric to be an important indicator of our growth and business performance as it measures the dollar volume of transactions generated through our marketplaces . tracking gross billings on third-party revenue transactions also allows us to monitor the percentage of gross billings that we are able to retain after payments to merchants . revenue . third-party revenue , which is earned from transactions in which we act as a marketing agent , is reported on a net basis as the purchase price received from the customer less an agreed upon portion of the purchase price paid to the featured merchant . direct revenue , which is earned from sales of merchandise inventory directly to customers through our online marketplaces , is reported on a gross basis as the purchase price received from the customer . gross profit . gross profit reflects the net margin earned after deducting our cost of revenue from our revenue . due to the lack of comparability between third-party revenue , which is presented net of the merchant 's share of the transaction price , and direct revenue , which is reported on a gross basis , we believe that gross profit is an important measure for evaluating our performance . adjusted ebitda . adjusted ebitda is a non-gaap financial measure that we define as net income ( loss ) from continuing operations excluding income taxes , interest and other non-operating items , depreciation and amortization , stock-based compensation , acquisition-related expense ( benefit ) , net and other special charges and credits , including items that are unusual in nature or infrequently occurring . for further information and a reconciliation to income ( loss ) from continuing operations , refer to our discussion under non-gaap financial measures in the results of operations section . free cash flow . free cash flow is a non-gaap financial measure that comprises net cash provided by ( used in ) operating activities from continuing operations less purchases of property and equipment and capitalized software from continuing operations . for further information and a reconciliation to net cash provided by ( used in ) operating activities from continuing operations , refer to our discussion in the liquidity and capital resources section . the following table presents the above financial metrics for the years ended december 31 , 2017 , 2016 and 2015 ( in thousands ) : replace_table_token_5_th 35 operating metrics active customers . we have historically defined active customers as unique user accounts that have made a purchase through one of our online marketplaces during the trailing twelve months ( `` ttm '' ) . as a result of our ongoing development and testing of voucherless offerings that are linked to customer credit cards , we have updated our definition of active customers as follows : unique user accounts that have made a purchase during the ttm either through one of our online marketplaces or directly with a merchant for which we earned a commission . this change in definition did not have a significant impact on our active customer count for the ttm ended december 31 , 2017. we consider this metric to be an important indicator of our business performance as it helps us to understand how the number of customers actively purchasing our offerings is trending . some customers could establish and make purchases from more than one account , so it is possible that our active customer metric may count certain customers more than once in a given period . for entities that we have acquired in a business combination , this metric includes active customers of the acquired entity , including customers who made purchases prior to the acquisition . gross billings and gross profit per average active customer . these metrics represent the ttm gross billings and gross profit generated per average active customer . we use these metrics to evaluate average customer spend and the resulting gross profit . units . this metric has historically represented the number of purchases made through our online marketplaces , before refunds and cancellations . as a result of our ongoing development and testing of voucherless offerings that are linked to customer credit cards , we have updated our definition of units as follows : purchases during the reporting period , before refunds and cancellations , made either through one of our online marketplaces or directly with a merchant for which we earned a commission . this change in definition did not have a significant impact on our unit count for the year ended december 31 , 2017. we consider unit growth to be an important indicator of the total volume of business conducted through our marketplaces . story_separator_special_tag our active customers and gross billings per average active customer for the ttm ended december 31 , 2017 , 2016 and 2015 were as follows : replace_table_token_6_th ( 1 ) ttm active customers has decreased from 52.8 million active customers previously reported to 47.9 million active customers for the year ended december 31 , 2016 and from 48.9 million active customers to 43.7 million for the year ended december 31 , 2015 due to the exclusion of customers from our operations in 11 countries that have been presented as discontinued operations . the exclusion of those countries ' gross billings and active customers increased the ttm gross billings per average active customer from $ 119.97 previously reported to $ 124.26 for the year ended december 31 , 2016 and from $ 129.98 previously reported to $ 133.94 for the year ended december 31 , 2015 . our units for the years ended december 31 , 2017 , 2016 and 2015 were as follows : replace_table_token_7_th ( 1 ) units have been reduced from 214.3 million to 195.6 million for the year ended december 31 , 2016 and from 220.8 million to 198.4 million for the year ended december 31 , 2015 due to the exclusion of the units from our operations in 11 countries that have been presented as discontinued operations . factors affecting our performance attracting and retaining local merchants . as we seek to build a more complete online local commerce marketplace platform , we depend on our ability to attract and retain merchants who are willing to offer discounted products and services through our marketplaces . additionally , merchants can generally withdraw their offerings from our marketplaces at any time and their willingness to continue offering products and services through our platform depends on the effectiveness of our marketing and promotional services . we primarily source the deal offerings available on our marketplaces through our sales teams , which comprise a significant portion of our global employee base . we have also entered into commercial agreements with third parties that enable 36 us to feature additional merchant offerings through our marketplaces . we continue to focus much of our sales efforts on sourcing local deal offerings in subcategories that we believe provide us with the best opportunities for high frequency customer purchase behavior . in connection with our efforts to grow our offerings in those high frequency subcategories , which include food and drink , health , beauty and wellness , and events and activities , we may be willing to offer more attractive terms to local merchants that could reduce our deal margins in future periods . growing our active customer base and customer value . we must continue to acquire and retain customers and improve gross profit per customer in order to grow our business . we significantly increased our marketing spending throughout 2016 and 2017 in order to drive customer growth and we expect that trend to continue . our marketing spending in those years included significant investments in offline campaigns intended to increase customer awareness and understanding of the groupon brand and our product and service offerings . the organic traffic to our websites and mobile applications , including organic traffic from consumers responding to our emails , has declined in recent years , such that an increasing proportion of our traffic is generated from paid marketing channels , such as search engine marketing . as such , we are focused on developing sources of organic traffic other than email and on optimizing the efficiency of our marketing spending , which is primarily guided by return on investment thresholds that are currently based on expected months-to-payback targets ranging from 12 to 18 months . additionally , we consider order discounts and certain other initiatives to drive customer acquisition and activation to be marketing-related activities , even though such activities may not be presented as marketing expenses in our consolidated statements of operations . investing in growth . we have invested significantly in product and technology enhancements intended to support the growth of our online local marketplaces and we intend to continue to do so in the future . we have also invested in business acquisitions to grow our merchant and customer base and advance our product and technology capabilities . we are currently developing and testing a number of product enhancements intended to make our offerings easier to use for both customers and merchants , including voucherless offerings that are linked to customer credit cards , which we refer to as groupon+ , and functionality enabling appointment booking at the time an offering is purchased . while we believe that those initiatives may be important drivers for increasing customer purchase frequency and growing our business over time , they are not expected to significantly impact our performance in the near term , as we are currently focusing our efforts on growing customer awareness of the products and scaling the related merchant base . additionally , groupon+ offerings provide cash back on the customer 's credit card and involve groupon collecting a net fee from the merchant , rather than selling a voucher to the customer and then remitting a portion of the proceeds to the merchant . as we report sales of vouchers to customers as gross billings , the growth of groupon+ transactions in future periods could adversely impact our gross billings trends . continuing to focus on managing our operating efficiency . we are focused on effectively managing our cost structure as we seek to generate and grow our profits in future periods . as a result of numerous divestitures and other exits from countries in which we previously operated , which were completed from 2015 through 2017 , we reduced the global footprint of our operations from 47 countries to 15 countries . additionally , we significantly reduced our global workforce over that period as a result of our restructuring actions .
| comparison of the years ended december 31 , 2016 and 2015 : gross profit for the years ended december 31 , 2016 and 2015 was as follows : replace_table_token_29_th the effect on gross profit for the year ended december 31 , 2016 from changes in exchange rates versus the u.s. dollar was as follows : year ended december 31 , 2016 at avg . 2015 rates ( 1 ) exchange rate effect ( 2 ) as reported ( in thousands ) gross profit $ 1,289,643 $ ( 8,990 ) $ 1,280,653 ( 1 ) represents the financial statement balance that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period . ( 2 ) represents the increase or decrease in the reported amount resulting from changes in exchange rates from those in effect in the prior year period . the decrease in total gross profit for the year ended december 31 , 2017 resulte d from a $ 91.1 million decrease in our international segment , partially offset by an $ 84.0 million increase in ou r north america segment . see below for information about gross profit by segment . 53 gross profit by segment gross profit by category and segment for the years ended december 31 , 2016 and 2015 was as follows : replace_table_token_30_th the percentages of gross profit by segment for the years ended december 31 , 2016 and 2015 were as follows : replace_table_token_31_th north america international north america the increase in north america gross profit was primarily attributable to the following : a $ 15.3 million increase from third-party revenue transactions and a $ 44.8 million increase from other revenue transactions in our local category . the increase in gross profit from other revenue transactions in our local category was primarily attributable to commission revenue earned when customers make purchases with retailers using digital coupons accessed through our websites and mobile applications ; and 54 a $ 25.0 million increase from direct revenue transactions in our goods category , which was primarily driven by an increase in gross profit margin to 11.8 % for the year ended december 31 , 2016 , as compared to 10.2 % for the prior
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26 distribution fees and other income primarily include distribution fee revenue earned in accordance with rule 12b-1 of the company act , as amended , along with sales charges and underwriting fees associated with the sale of the mutual funds plus other revenues . distribution fees fluctuate based on the level of aum and the amount and type of mutual funds sold directly by g.distributors or through various distribution channels . compensation costs include variable and fixed compensation and related expenses paid to officers , portfolio managers , sales , trading , research and all other professional staff . variable compensation paid to sales personnel and portfolio management generally represents 40 % of revenues and is the largest component of total compensation costs . distribution costs include marketing , product distribution and promotion costs . management fee is incentive-based and entirely variable compensation in the amount of 10 % of the aggregate pre-tax profits which is paid to mr. gabelli or his designee for acting as ceo pursuant to his 2008 employment agreement so long as he is an executive of gbl and devotes the substantial majority of his working time to the business . other operating expenses include general and administrative operating costs . other income and expenses include net gains and losses from investments ( which includes both realized and unrealized gains and losses from trading securities ) , interest and dividend income , and interest expense . net gains and losses from investments are derived from our proprietary investment portfolio consisting of various public and private investments . net income ( loss ) attributable to noncontrolling interests represents the share of net income attributable to the minority stockholders , as reported on a separate company basis , of our consolidated majority-owned subsidiaries and net income attributable to third party limited partners of certain partnerships and offshore funds we consolidate . please refer to note a in our consolidated financial statements included elsewhere in this report . income/ ( loss ) on discontinued operations , net of taxes represents the results of the businesses and assets that were part of the spin-off of ac . please refer to note p in our consolidated financial statements included elsewhere in this report . consolidated statements of financial condition we ended the 2015 year with approximately $ 46.6 million in cash and investments , net of securities sold , not yet purchased of $ 0.1 million . the $ 46.6 million consists of $ 13.7 million cash and cash equivalents , primarily invested in our 100 % u.s. treasury money market fund , $ 0.4 million invested in common stocks and available for sale ( “ afs ” ) securities of $ 32.6 million . our afs securities of $ 32.6 million represents our investment in shares of westwood holdings group . our debt consisted of $ 250 million of a 4 % pik note due to ac , $ 35.0 million loan from an affiliate and $ 24.2 million of 5.875 % senior notes due june 1 , 2021. equity , excluding noncontrolling interests , was a negative $ 276.3 million on december 31 , 2015 compared to $ 525.1 million on december 31 , 2014. the decrease in equity from the end of 2014 was due to the spin-off of ac of approximately $ 1.0 billion , the declaration of dividends of $ 7.5 million and the purchase of treasury stock of $ 27.2 million during 2015 partially offset by the sale of $ 150.0 million of gbl stock to gsi and comprehensive income of $ 76.9 million . we filed a shelf registration with the sec in 2015 which , among other things , provides us the flexibility to sell any combination of senior and subordinate debt securities , convertible debt securities , equity securities ( including common and preferred stock ) , and other securities up to a total amount of $ 500 million . the shelf is available through april 10 , 2018 , at which time it may be renewed . our primary short-term goal is to use our liquid resources to pay down our existing debt . as a secondary goal , we will look to opportunistically and strategically grow operating income at what we consider a margin of safety . we will also consider alternatives to return capital to our shareholders including stock repurchases and dividends . 27 story_separator_special_tag roman ' , times , serif ; font-style : italic '' > management fee : in 2015 management fee expense decreased to $ 15.5 million versus $ 18.7 million in 2014. management fee expense is incentive-based and entirely variable in the amount of 10 % of the aggregate pre-tax profits which is paid to mr. gabelli ( or his designee ) in accordance with his employment agreement . distribution costs : distribution costs , which include marketing , promotion and distribution costs decreased $ 7.7 million , or 12.9 % , to $ 52.0 million in 2015 from $ 59.7 million in 2014 driven by a decrease in average open-end equity mutual funds aum of 10.7 % . other operating expenses : our other operating expenses were $ 19.2 million in 2015 compared to $ 17.5 million in 2014 , an increase of $ 1.7 million or 9.7 % . the year over year increase was attributable to recovery of legal expense in 2014 related to prior years of $ 1.3 million . the remainder of $ 0.4 million increase was spread among multiple categories of expense . operating income and margin operating income decreased $ 21.6 million , or 12.7 % , to $ 147.9 million for 2015 versus $ 169.5 million in the prior year period . this decrease was primarily due to the declines in revenues which were largely attributable to the lower levels of average aum in 2015 versus 2014. operating margin was 38.8 % for the year ended december 31 , 2015 , versus 40.2 % in the prior year period . story_separator_special_tag the decline in operating margin was due to increased fixed costs as a percentage of revenues partially offset by lower management fee expense . operating income before management fee was $ 163.5 million for the year ended of 2015 , versus $ 188.1 million in the prior year . operating margin before management fee was 42.9 % in the 2015 period versus 44.6 % in the 2014 period . the reconciliation of operating income before management fee and operating margin before management fee , both of which are non-gaap measures to their respective gaap measures , is provided at the end of this section . other income and expense total other income ( expense ) , net of interest expense , was an expense of $ 8.9 million for the year ended december 31 , 2015 compared to an expense of $ 1.4 million in 2014. this is comprised of net gain from investments of $ 5.0 million in 2015 as compared to $ 4.3 million in 2014 ; loss on extinguishment of debt of $ 1.1 million in 2015 and $ 0.1 million in 2014 ; interest and dividend income of $ 2.2 million in 2015 versus $ 2.2 million in 2014 ; interest expense of $ 8.6 million in 2015 as compared to $ 7.7 million in 2014 and shareholder-designated contribution expense of $ 6.4 million in 2015 and $ 0.1 million in 2014. interest expense increased $ 0.9 million to $ 8.7 million in 2015 , from $ 7.7 million in 2014 primarily related to the 4 % pik note payable to ac that was outstanding for one month in 2015. in 2015 , the board of directors of gbl again adopted a shareholder designated charitable contribution program on behalf of all registered class a and class b shareholders . under the program the board approved a $ 0.25 per share contribution , resulting in a charge of $ 6.4 million in 2015. during 2013 , the board had approved a $ 0.25 per share contribution that was not finalized as to which shareholders would participate until 2014. as a result there was $ 0.1 million of expense recorded in 2014. income taxes the effective tax rate ( “ etr ” ) was 37.2 % for the year ended december 31 , 2015 , versus 36.7 % for the year ended december 31 , 2014 . 30 shareholder compensation and initiatives during 2015 , we returned $ 34.7 million of our earnings to shareholders through dividends and stock repurchases . we returned to shareholders a total of $ 0.28 per share in regular quarterly cash dividends in 2015 totaling $ 7.5 million . during 2014 , we returned $ 45.6 million of our earnings to shareholders through dividends and stock repurchases . we returned to shareholders a total of $ 0.25 per share in regular quarterly cash dividends and one special cash dividend of $ 0.25 per share in 2014 totaling $ 12.9 million . through our stock buyback program , we repurchased 426,628 and 414,432 shares in 2015 and 2014 , respectively , for approximately $ 27.2 million and $ 32.7 million , or $ 63.85 and $ 78.99 per share , respectively ( for 2015 , 413,228 shares were at an average investment of $ 64.86 per share prior to the distribution of ac on november 30 , 2015 and 13,400 shares were at an average price of $ 32.56 following the distribution of ac ) . approximately 582,000 shares remain authorized under our stock buyback program at december 31 , 2015. since our ipo we have repurchased 9,552,653 shares for a total investment of $ 428.0 million , or $ 44.81 per share . weighted average shares outstanding on a diluted basis in 2015 and 2014 were 25.7 million and 25.6 million , respectively . there were no stock options outstanding at december 31 , 2015. operating income before management fee expense is used by management for purposes of evaluating its business operations . we believe this measure is useful in illustrating the operating results of the company as management fee expense is based on pre-tax income before management fee expense , which includes non-operating items including investment gains and losses from the company 's proprietary investment portfolio and interest expense . we believe that an investor would find this useful in analyzing the business operations of the company without the impact of the non-operating items such as trading and investment portfolios or interest expense . reconciliation of non-gaap financial measures to gaap : replace_table_token_13_th operating results for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 revenues total revenues were $ 421.9 million in 2014 , $ 43.5 million or 11.5 % higher than the total revenues of $ 378.4 million in 2013. the change in total revenues by revenue component was as follows ( dollars in millions ) : replace_table_token_14_th investment advisory and incentive fees : investment advisory fees , which comprised 83.3 % of total revenues in 2014 , are directly influenced by the level and mix of average aum . average total aum rose 14.2 % to $ 46.7 billion in 2014 as compared to $ 40.9 billion in 2013. average equity aum rose 15.1 % to $ 44.9 billion in 2014 from $ 39.0 billion in 2013. incentive fees , which comprised 2.1 % of total revenues in 2014 , result from our ability to either generate an absolute return in a portfolio or meet or exceed a specific benchmark index or indices and can vary significantly from one period to another . incentive fees were lower in 2014 as fewer portfolios exceeded their respective benchmarks . 31 fund revenues increased $ 24.2 million or 11.3 % , to $ 238.2 million , driven by higher average aum .
| operating results for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 revenues total revenues were $ 381.0 million in 2015 , $ 40.9 million or 9.7 % lower than the total revenues of $ 421.9 million in 2014. the change in total revenues by revenue component was as follows ( dollars in millions ) : replace_table_token_12_th investment advisory and incentive fees : investment advisory fees , which comprised 85.5 % of total revenues in 2015 , are directly influenced by the level and mix of average aum . average total aum declined 7.5 % to $ 43.2 billion in 2015 as compared to $ 46.7 billion in 2014. average equity aum fell 7.3 % to $ 41.6 billion in 2015 from $ 44.9 billion in 2014 , primarily from net outflows . incentive fees , which comprised 1.2 % of total revenues in 2015 , result from our ability to either generate an absolute return in a portfolio or meet or exceed a specific benchmark index or indices and can vary significantly from one period to another . incentive fees were lower in 2015 as fewer portfolios exceeded their respective benchmarks . fund revenues decreased $ 23.9 million or 10.1 % , to $ 214.2 million , driven by lower average aum . revenue from open-end funds decreased $ 19.0 million , or 11.1 % , from the prior year as average aum in 2015 decreased $ 2.0 billion , or 10.3 % , to $ 17.4 billion from the $ 19.4 billion in 2014. closed-end fund revenues decreased $ 5.0 million , or 7.4 % , to $ 62.3 million from the prior year and was comprised of a decline of $ 3.4 million in incentive fees on certain closed-end fund aum and a decrease of $ 1.6 million in investment advisory fees attributable to lower average aum . revenue from institutional and private wealth management accounts , excluding incentive fees , which are generally billed on beginning quarter aum , decreased $ 6.1 million , or 5.0 % , principally due to lower billable aum levels throughout the course of 2015. incentive fees earned on certain accounts declined by $ 1.1 million . in 2015 , average aum in our equity institutional and private wealth management business decreased $ 1.3 billion , or 6.3 % , for the year to $ 18.9 billion . distribution fees and other income : distribution fees and other income decreased $ 10.4 million , or 16.9 % , to $ 51.0 million in
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qualitative factors supplement the quantitative factors applied to each segment of the loan portfolio and include : levels of and trends in delinquencies and impaired loans ( including tdrs ) ; levels of and trends in charge-offs and recoveries ; migration of loans to the classification of special mention , substandard , or doubtful ; trends in volume and terms of loans ; effects of any changes in risk selection and underwriting standards ; other changes in lending policies , procedures , and practices ; experience , ability , and depth of lending management and other relevant staff ; national and local economic trends and conditions ; industry conditions ; and effects of changes in credit concentration . while management uses the best information available to make its evaluation , future adjustments to the allowance for loan losses may be necessary if there are significant changes in economic or other conditions that affect the current risk profile of the loan portfolio . -41- other significant accounting policies our most significant accounting policies are described in note 1 to our audited financial statements for the year ended december 31 , 2020 , included elsewhere in this report . covid-19 since early 2020 , the covid-19 pandemic has caused a substantial disruption to the economy , as well as a heightened level of uncertainty about the scope and longevity of its impact . in response to the pandemic , we have implemented a multi-pronged approach to address the challenges caused by the effects of this pandemic . our approach includes ensuring the safety of our employees and the communities that we serve and developing new and temporarily revised programs that are responsive to the needs of our loan and deposit customers . as we continue to closely monitor covid-19 developments , we remain focused on our ability to navigate these challenging conditions and the underlying strength and stability of our company . for information regarding the specific business impact to the company regarding covid-19 , see note 2 of the consolidated financial statements , which are included elsewhere in this report . non-gaap financial measures some of the financial measures discussed in this report are considered non-gaap financial measures . in accordance with sec rules , we classify a financial measure as being a non-gaap financial measure if that financial measure excludes or includes amounts , or is subject to adjustments that have the effect of excluding or including amounts , from the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles . the following tables reflect the details of the non-gaap financial measures the company included in this report . we believe that these non-gaap financial measures provide useful information to management and investors that is supplementary to our statements of financial condition , results of income and cash flows computed in accordance with gaap . however , we acknowledge that our non-gaap financial measures have limitations . as such , you should not view these disclosures as a substitute for results determined in accordance with gaap , and they are not necessarily comparable to non-gaap financial measures that other banking companies use . other banking companies may use names similar to those we use for the non-gaap financial measures we disclose , but may calculate them differently . you should understand how we and other companies each calculate their non-gaap financial measures when making comparisons . replace_table_token_5_th -42- replace_table_token_6_th ( dollars in thousands ) december 31 , 2020 december 31 , 2019 yield on average gross loans , excluding ppp loans : interest income on average gross loans $ 51,401 $ 46,915 less : interest income on average ppp loans 2,496 less : amortization of fees ( costs ) pertaining to ppp loans 3,205 interest income on average gross loans , net of ppp loans 45,700 46,915 average gross loans 1,219,324 903,922 less : average ppp loans 248,267 average gross loans , net of average ppp loans 971,057 903,922 yield on average gross loans , excluding ppp loans 4.71 % 5.19 % story_separator_special_tag style= '' margin-top:1em ; margin-bottom:0em ; page-break-before : always '' > compared to net loan charge-offs of $ 2.1 million during the same period of 2019. during the year ended december 31 , 2020 , the company charged-off a legacy commercial loan that had been on nonaccrual status since the second quarter of 2019. the allowance for loan loss as a percent of outstanding loans was 1.03 % at december 31 , 2020 and 1.17 % at december 31 , 2019. the decrease in the reserve percentage reflects the impact of ppp loans which are guaranteed by the sba . the reserve percentage excluding ppp loans was 1.33 % ( see discussion in management 's discussion and analysis of financial condition and results of operationsnon-gaap financial measures ) . see further discussion of the provision for credit losses and allowance for loan losses in financial conditionallowance for loan losses . noninterest income the following table reflects the major components of the company 's noninterest income for the years ended december 31 , 2020 and 2019. replace_table_token_9_th noninterest income decreased by $ 236,000 or 6 % for the year ended december 31 , 2020 compared to the same period of 2019. the decrease was primarily attributable to a decrease in gains recognized on the sale of sba loans . noninterest expense the following table reflects the major components of the company 's noninterest expense for the years ended december 31 , 2020 and 2019. replace_table_token_10_th during the year ended december 31 , 2020 , non-interest expenses increased by $ 4.6 million or 14 % to $ 37.8 million compared to $ 33.2 million in the same period of 2019. operating expenses for the year ended december 31 , 2020 included increases in salaries and benefits related to the investment in our business , professional and legal fees related to implementation of fdicia and sec compliance controls and processes as story_separator_special_tag well as the registration of the company 's common shares , and occupancy and equipment from the expansion of facilities due to the growth of our business . -46- provision for income taxes income tax expense was $ 1.9 million for the year ended december 31 , 2020 which compared to $ 2.6 million for the same period one year earlier . the effective tax rates for those time periods were 31.0 % and 27.4 % , respectively . the increase in the effective tax rate for the year ended december 31 , 2020 was the result of an adjustment to the amortization schedule of an individual low income housing tax credit investment . financial condition : overview total assets of the company were $ 1.91 billion as of december 31 , 2020 compared to $ 1.15 billion as of december 31 , 2019. the increase in assets was driven by an increase in both the loan portfolio and federal funds sold . growth in assets was primarily funded by growth in deposits and other borrowings . loan portfolio our loan portfolio consists almost entirely of loans to customers who have a full banking relationship with us . gross loan balances increased by $ 491.4 million or 44 % from december 31 , 2019 to december 31 , 2020 , primarily due to the loans funded under the ppp which were primarily classified as sba loans . the loan portfolio at december 31 , 2020 was comprised of approximately 30 % of commercial and industrial loans compared to 41 % at december 31 , 2019. in addition , commercial real estate loans comprised 43 % of our loans at december 31 , 2020 compared to 58 % at december 31 , 2019. a substantial percentage of the commercial real estate loans are considered owner-occupied loans . our loans are generated by our relationship managers and executives . our senior management is actively involved in the lending , underwriting , and collateral valuation processes . higher dollar loans or loan commitments are also approved through a bank loan committee comprised of executives and outside board members . the following table reflects the composition of the company 's loan portfolio and their percentage distribution at december 31 , 2020 and 2019. replace_table_token_11_th -47- the following table shows the maturity distribution for total loans outstanding as of december 31 , 2020. the maturity distribution is grouped by remaining scheduled principal payments that are due within one year , after one but within five years , or after five years . the principal balances of loans are indicated by both fixed and variable rate categories . replace_table_token_12_th ( 1 ) excludes variable rate loans on floors nonperforming assets nonperforming assets are comprised of loans on nonaccrual status , loans 90 days or more past due and still accruing interest , and other real estate owned . we had no loans 90 days or more past due and still accruing interest and no other real estate owned at december 31 , 2020. a loan is placed on nonaccrual status if there is concern that principal and interest may not be fully collected or if the loan has been past due for a period of 90 days or more , unless the obligation is both well secured and in process of legal collection . when loans are placed on nonaccrual status , all interest previously accrued but not collected is reversed against current period interest income . income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the loan 's principal balance is deemed collectible . loans are returned to accrual status when they are brought current with respect to principal and interest payments and future payments are reasonably assured . loans in which the borrower is encountering financial difficulties and we have modified the terms of the original loan are evaluated for impairment and classified as tdr loans . see part ifinancial information , notes to consolidated financial statements , footnote 2business impact of covid-19 for additional discussion of loan modifications that have occurred under the cares act . the following table presents information regarding the company 's nonperforming and restructured loans at december 31 , 2020 and 2019. replace_table_token_13_th allowance for loan losses our allowance for loan losses is maintained at a level management believes is adequate to account for probable incurred credit losses in the loan portfolio as of the reporting date . we determine the allowance based on a quarterly evaluation of risk . that evaluation gives consideration to the nature of the loan portfolio , historical loss -48- experience , known and inherent risks in the portfolio , the estimated value of any underlying collateral , adverse situations that may affect a borrower 's ability to repay , current economic and environmental conditions and risk assessments assigned to each loan as a result of our ongoing reviews of the loan portfolio . this process involves a considerable degree of judgment and subjectivity . in addition , various regulatory agencies , as an integral part of their examination process , periodically review the bank 's allowance . such agencies may require the bank to recognize additions to the allowance based on judgments different from those of management . our allowance is established through charges to the provision for loan losses . loans , or portions of loans , deemed to be uncollectible are charged against the allowance . recoveries of previously charged-off amounts are credited to our allowance for loan losses . the allowance is decreased by the reversal of prior provisions when the total allowance balance is deemed excessive for the risks inherent in the portfolio . the allowance for loan losses balance is neither indicative of the specific amounts of future charge-offs that may occur , nor is it an indicator of any future loss trends .
| average deposit balances for the year ended december 31 , 2020 grew $ 414.7 million , or 46 % , from the year ended december 31 , 2019 , while average loans -43- grew $ 315.4 million , or 35 % , for the same period . as a result , the average loan to deposit ratio for the year ended december 31 , 2020 was 93.2 % down from 101.1 % for the same time period of 2019 and the yield on average earning assets decreased 169 basis points to 3.25 % from 4.94 % . in addition , the average yield on total average gross loans for the year ended december 31 , 2020 was 4.22 % , a decrease of 97 basis points compared to 5.19 % in the same period one year earlier . excluding ppp loans , the average yield on total average gross loans in the year ended december 31 , 2020 was 4.71 % . of the $ 414.7 million increase in average total deposit balances year over year , $ 224.1 million was attributable to noninterest-bearing deposits and $ 190.6 million was attributable to interest-bearing deposits . the cost of interest-bearing deposits was 0.85 % during the year ended december 31 , 2020 compared to 1.31 % in the same period one year earlier . in addition , the overall cost of average total deposit balances decreased by 33 basis points to 0.48 % in the year ended december 31 , 2020 compared to 0.81 % in the in the same period of 2019. as a result , the net interest margin decreased by 136 basis points to 2.76 % for the year ended december 31 , 2020 , compared to 4.12 % for the year ended december 31 , 2019. the following table shows the composition of average earning assets and average funding sources , average yields and rates , and the net interest margin for the years ended december 31 , 2020 and 2019. replace_table_token_7_th -44- ( 1 ) nonperforming loans are included in average loan balances . no adjustment has been made for these loans in the calculation of yields . interest income on loans includes amortization of deferred loan fees / ( costs ) of $
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the employee partnerships were liquidated in august 2010. as generally used in the energy industry and in this annual report , the acronyms below have the following meanings : /d = per day mmbbls = million barrels bbtus = billion british thermal units mmbpd = million barrels per day bcf = billion cubic feet mmbtus = million british thermal units bpd = barrels per day mmcf = million cubic feet mbpd = thousand barrels per day tbtus = trillion british thermal units cautionary statement regarding forward-looking information this discussion contains various forward-looking statements and information that are based on our beliefs and those of our general partner , as well as assumptions made by us and information currently available to us . when used in this document , words such as “ anticipate , ” “ project , ” “ expect , ” “ plan , ” “ seek , ” “ goal , ” “ estimate , ” “ forecast , ” “ intend , ” “ could , ” “ should , ” “ will , ” “ believe , ” “ may , ” “ potential ” and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements . although we and our general partner believe that our expectations reflected in such forward-looking statements are reasonable , neither we nor our general partner can give any assurances that such expectations will prove to be correct . forward-looking statements are subject to a variety of risks , uncertainties and assumptions as described in more detail under item 1a of this annual report . if one or more of these risks or uncertainties materialize , or if underlying assumptions prove incorrect , our actual results may vary materially from those anticipated , estimated , projected or expected . you should not put undue reliance on any forward-looking statements . the forward-looking statements in this annual report speak only as of the date hereof . except as required by federal and state securities laws , we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or any other reason . overview of business we are a publicly traded delaware limited partnership , the common units of which are listed on the new york stock exchange ( “ nyse ” ) under the ticker symbol “ epd. ” we were formed in april 1998 to own and operate certain natural gas liquids ( “ ngls ” ) related businesses of epco and are now a leading north american provider of midstream energy services to producers and consumers of natural gas , ngls , crude oil , refined products and certain petrochemicals . our midstream energy asset network links producers of natural gas , ngls and crude oil from some of the largest supply basins in the u.s. , canada and the gulf of mexico with domestic consumers and international markets . our assets include approximately 50,600 miles of onshore and offshore pipelines ; 190 mmbbls of storage capacity for ngls , crude oil , refined products and certain petrochemicals ; and 14 bcf of working natural gas storage capacity . our midstream energy operations include : natural gas gathering , treating , processing , transportation and storage ; ngl transportation , fractionation , storage , and import and export terminaling ; crude oil and refined products transportation , storage , and terminaling ; offshore production platforms ; petrochemical transportation and services ; and a marine transportation business that operates primarily on the u.s. inland and intracoastal waterway systems and in the gulf of mexico . we have six reportable business segments : ( i ) ngl pipelines & services ; ( ii ) onshore natural gas pipelines & services ; ( iii ) onshore crude oil pipelines & services ; ( iv ) offshore pipelines & services ; ( v ) petrochemical & refined products services ; and ( vi ) other investments . we conduct substantially all of our business through epo and are owned 100 % by our limited partners from an economic perspective . enterprise gp owns a non-economic general partner interest in us . 74 significant recent developments development of our atex express long-haul ethane pipeline in january 2012 , we announced the receipt of sufficient transportation commitments to support development of our 1,230-mile appalachia to texas pipeline ( the “ atex express ” ) that will transport growing ethane production from the marcellus and utica shale producing areas of pennsylvania , west virginia and ohio to the u.s. gulf coast . demand for ethane feedstock over more expensive crude oil-based derivatives within the gulf coast petrochemical market has reached over 1 mmbpd and continues to increase given current pricing differentials . several petrochemical companies have made announcements to modify , expand or build new facilities that would use ethane as a feedstock . as currently designed , the atex express will have the capacity to transport up to 190 mbpd of ethane from the appalachian production areas to our storage and distribution assets in southeast texas . the project would utilize a combination of new and existing infrastructure . the northern portion of the atex express involves construction of a pipeline that would originate in pennsylvania and extend west , then southwest , to indiana following existing pipeline corridors in order to minimize the footprint of the project . the southern portion of atex express would utilize a significant portion of our existing products pipeline system , which would be reversed to accommodate southbound delivery of ethane to the u.s. gulf coast . story_separator_special_tag at the southern terminus of the atex express in beaumont , we plan to construct a 55-mile pipeline to provide shippers with access to our ngl storage complex at mont belvieu , which would provide them with direct and indirect access to every ethylene plant in the u.s. we expect that the atex express will begin commercial operations in the first quarter of 2014. plans to construct a crude oil pipeline in the gulf of mexico with genesis in january 2012 , we announced the execution of crude oil transportation agreements with a consortium of six gulf of mexico producers that will provide the necessary support for construction of a crude oil gathering pipeline serving the lucius oil and gas field located in the southern keathley canyon area of the deepwater central gulf of mexico . the pipeline will be constructed and owned by southeast keathley canyon pipeline company , l.l.c . ( “ sekco ” ) , which is a 50/50 joint venture owned by us and genesis energy , l.p. ( “ genesis ” ) . we will serve as construction manager and operator of the new deepwater pipeline ( the “ sekco oil pipeline ” ) . the 149-mile , 18-inch diameter sekco oil pipeline is being designed with a crude oil transportation capacity of 115 mbpd and would connect the third party owned lucius-truss spar floating production platform to an existing junction platform at south marsh island 205 that is part of our poseidon oil pipeline system . the lucius production area is estimated to have more than 300 mmbbls of oil equivalent , with relatively shallow and highly productive reservoirs , primarily comprised of crude oil . the sekco oil pipeline is expected to begin service by mid-2014 . sale of 22.8 million common units of energy transfer equity in january 2012 , we sold 22,762,636 common units of energy transfer equity , l.p. ( “ energy transfer equity ” ) in a private transaction , which generated cash proceeds of approximately $ 825.1 million . proceeds from this sale were used for general company purposes , including funding capital expenditures . our other investments business segment consists of our investment in the common units of energy transfer equity . as of the date of this report , we own approximately 6 million common units of energy transfer equity , which represent less than 3 % of its common units outstanding at february 15 , 2012. plans with enbridge to reverse the seaway pipeline in november 2011 , conocophillips agreed to sell its 50 % partnership interest in seaway crude pipeline company ( “ seaway ” ) to enbridge inc. ( “ enbridge ” ) . this transaction closed in december 2011. we own the remaining 50 % partnership interest in seaway , which owns the seaway crude oil pipeline system ( the “ seaway pipeline ” ) , and operate the seaway pipeline . historically , the 546-mile seaway pipeline transported imported crude oil from freeport , texas to the cushing , oklahoma hub . the increase in crude oil production from canada 's tar 75 sands and u.s. fields like the bakken in north dakota and niobrara in kansas , wyoming and colorado , has led to an oversupply of oil at the cushing hub . this oversupply at cushing led to depressed prices for domestic crude oil production versus international and u.s. gulf coast benchmarks , which , in turn , created feedstock cost disadvantages for domestic refiners that rely primarily on imported crude oil . as a result of the change in ownership in seaway , we and enbridge inc. agreed to reverse the direction of crude oil flows on the seaway pipeline to enable it to transport oil from the oversupplied cushing hub to u.s. gulf coast refiners . pending regulatory approval , the seaway pipeline could operate in reversed service with an initial capacity of 150 mbpd during the second quarter of 2012. following pump station additions and other modifications , which are anticipated to be completed in the first quarter of 2013 , we anticipate the capacity of the reversed seaway pipeline will be up to 400 mbpd ( assuming a mix of light and heavy grades of crude oil ) . we expect that this capacity will be fully contracted by shippers . in anticipation of additional shipper demand , we launched an open season in january 2012 to support a further expansion of the seaway pipeline 's transportation capacity . the reversed seaway pipeline will deliver crude oil from cushing into the houston , texas market by utilizing affiliate and third party pipelines . seaway plans to build a 45-mile pipeline that will link its pipeline to our enterprise crude houston ( “ echo ” ) crude oil storage terminal , which is being constructed southeast of houston . completion of this pipeline segment is expected in the first quarter of 2013. in addition , seaway plans to build an 85-mile pipeline from our echo facility to the port arthur/beaumont , texas refining center that would provide shippers access to the region 's heavy oil refining capabilities . completion of this pipeline segment is expected in early 2014. expansion of our natural gas pipeline and processing infrastructure in the eagle ford shale in november 2011 , we announced several new construction projects that would extend and expand our natural gas and ngl infrastructure in south texas to accommodate expected production growth from the eagle ford shale . as a result of additional demand from our eagle ford shale producing customers , along with the execution of new gathering and processing agreements , we plan to expand natural gas processing capacity at our yoakum facility ( which is currently under construction ) by an additional 300 mmcf/d . once the expansion is completed , we expect our yoakum facility will have total gas processing capacity of 900 mmcf/d . we also plan to increase the size of the ngl takeaway pipelines originating at the yoakum plant to handle the expected increase in ngl production .
| upon completion of the holdings merger , holdings merged with and into a wholly owned subsidiary of enterprise . the holdings merger resulted in holdings being considered the surviving consolidated entity for accounting purposes , while enterprise products partners l.p. is the surviving consolidated entity for legal and reporting purposes . for accounting purposes , holdings is deemed the acquirer of the noncontrolling interests in enterprise that were previously recognized in holdings ' consolidated financial statements ( i.e. , the acquisition of enterprise 's limited partner interests that were owned by parties other than holdings ) . as a result of the holdings merger , enterprise 's consolidated financial and operating results prior to november 22 , 2010 have been presented as if enterprise were holdings from an accounting perspective ( i.e. , the financial statements of holdings became the historical financial statements of enterprise ) . while it was a publicly traded partnership , holdings ( nyse , ticker symbol “ epe ” ) electronically filed its annual and quarterly consolidated financial statements with the sec . you can access this information at www.sec.gov . the primary differences between holdings ' and enterprise 's consolidated results of operations were ( i ) general and administrative costs incurred by holdings and epgp ( our former general partner ) ; ( ii ) equity in income of holdings ' noncontrolling ownership interests in energy transfer equity ; and ( iii ) interest expense associated with holdings ' debt . in addition , for periods prior to november 22 , 2010 , the net assets , income , cash distributions and contributions and other amounts attributable to enterprise 's limited partner interests that were owned by third parties and related parties other than holdings are presented as a component of noncontrolling interests . see note 13 of the notes to consolidated financial statements included under item 8 of this annual report for additional information regarding our noncontrolling interests . historical limited partner units outstanding and earnings per unit amounts presented in our financial statements have been retroactively presented in connection with the 1.5 to one unit-for-unit exchange that occurred under the holdings merger . see
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the increase in export revenues as a percentage of total revenues in 2016 was due to the large increase in sales of smt inspection systems , a higher proportion of which are generally sold outside the united states as compared to our other products . 24 cost of revenues and gross margin cost of revenues decreased by $ 8.6 million or 23 % to $ 28.6 million in 2017 , and increased by $ 14.2 million or 62 % to $ 37.2 million in 2016 , from $ 23 million in 2015 . fluctuations in cost of revenues were primarily due to the corresponding fluctuations in revenue levels . total revenue decreased by 19 % in 2017 and increased by 61 % in 2016 . items included in cost of revenues that fluctuate with the level of sales include raw materials , direct labor and factory overhead costs . total gross margin as a percentage of revenue was 46 % in 2017 , 44 % in 2016 and 44 % in 2015 . the fluctuations in gross margin percentage were mainly due to a change in the mix of products sold . sales of higher margin mrs and wafersense® products constituted a larger percentage of our total revenue in 2017 , compared to 2016 and 2015 . our markets are highly price competitive , particularly the electronic assembly market , resulting in continual pressure on our gross margins . we compensate for pricing pressure by introducing new products with more features and improved performance and through manufacturing cost reduction programs . sales of many products that we have recently introduced or are about to introduce , including our cybergage ® 360 and sq 3000 3 d cmm products , sq 3000 3 d aoi products , 3 d mrs sensors and wafersense products have , or are expected to have , more favorable gross margins than many of our existing products . operating expenses research and development expenses were $ 8.0 million or 15 % of revenue in 2017 , $ 8.0 million or 12 % of revenue in 2016 , and $ 7.6 million or 18 % of revenue in 2015 . in 2017 , lower bonus accruals for employees working in research and development were offset by costs related to pay increases and employee additions . research and development expenses were higher in 2016 when compared to 2015 mainly due to bonus accruals resulting from our improved financial performance . current research and development expenditures are primarily focused on continued development of our mrs technology and related products , including 3 d sensor subsystems , enhancements to the sq 3000 3 d aoi and sq 3000 3 d cmm products and commercialization of a sensor for mid-end semiconductor inspection . selling , general and administrative expenses were $ 15.7 million or 29 % of revenue in 2017 , $ 14.8 million or 22 % of revenue in 2016 and $ 12.6 million or 31 % of revenue in 2015 . the increase in selling , general and administrative expenses in 2017 was due to additional investment in marketing programs and additional sales and marketing personnel to better penetrate our targeted markets . the cost increases in 2017 were offset in part by lower incentive compensation expenses due to reduced levels of revenue and profitability . the increase in selling , general and administrative expenses in 2016 compared to 2015 was due to higher sales commissions and the accrual of incentive compensation resulting from our significantly improved financial performance . interest income and other interest income and other includes interest earned on investments and gains and losses associated with foreign currency transactions , including intercompany financing transactions associated with our subsidiaries in the united kingdom , singapore and china . because we maintain our investments in instruments designed to avoid risk of loss of principal , we have generated very little interest income in the current interest rate environment . our gains and losses from foreign currency transactions primarily result from intercompany financing transactions . due to weakness in the u.s. dollar relative to foreign currencies in 2017 , we recognized losses from foreign currency transactions of $ 177 ,000 in 2017 . due to the strength of the u.s. dollar in 2016 and 2015 , we recognized gains from foreign currency transactions of $ 207,000 in 2016 and $ 103,000 in 2015 . provision for income taxes we recorded income tax benefits of $ 404,000 in 2017 and $ 5.2 million in 2016 , and income tax expense of $ 28,000 in 2015 . the non-cash income tax benefit recorded in 2017 was primarily due to a significant change in income tax law , contained in the tax cuts and jobs act , passed by the u.s. congress in december 2017. prior to passage of the new tax law , we had recorded a $ 2.7 million deferred tax liability for the outside basis difference related to the undistributed earnings of our singapore subsidiary . under the new tax law , the prior system of taxing u.s. corporations on the foreign earnings of their non-u.s. subsidiaries when such earnings were repatriated was replaced with a partial territorial system that provides a 100 % dividends-received-deduction for foreign-source dividends received from 10 % -or-more owned foreign corporations . the benefit from eliminating the deferred tax liability for the undistributed earnings of our singapore subsidiary was offset in part by the write-down of our deferred tax assets to reflect the 21 % corporate income tax rate in the new tax law . our income tax benefit in 2017 also includes excess tax benefits from employee share-based payments . the non-cash income tax benefit recorded in 2016 reflects a $ 9.6 million reduction in the valuation allowances recorded against our deferred tax assets from utilization of available net operating loss carry forwards and our determination that significant valuation allowances were no longer needed for our u.s. and singapore based deferred tax assets . story_separator_special_tag income tax expense in 2015 includes minimal state income tax expense and foreign income tax expense incurred by our subsidiaries in the united kingdom and china . 25 effective january 1 , 2017 , we adopted accounting standards update no . 2016 - 09 , improvements to employee share-based payment accounting , which requires recognition of excess tax benefits or tax deficiencies from employee-share based payments in income tax expense or benefit as a discrete item in the reporting period in which they occur . in 2017 , we recognized $ 227,000 of excess tax benefits from employee-share based payments . we have significant deferred tax assets as a result of temporary differences between the taxable income reflected on our tax returns and our income determined in accordance with accounting principles generally accepted in the united states ( gaap ) , research and development tax credit carry forwards and federal , state and foreign net operating loss carry forwards . a deferred tax asset generally represents future tax benefits to be received when temporary differences previously reported in our consolidated financial statements become deductible for income tax purposes , when net operating loss carry forwards are applied against future taxable income , or when tax credit carry forwards are utilized on our tax returns . we assess the realizability of our deferred tax assets and the need for a valuation allowance based on the guidance provided in current financial accounting standards . significant judgment is required in determining the realizability of our deferred tax assets . the assessment of whether valuation allowances are required considers , among other matters , the nature , frequency and severity of any current and cumulative losses , forecasts of future profitability , the duration of statutory carry forward periods , our experience with loss carry forwards not expiring unused and tax planning alternatives . in analyzing the need for valuation allowances , we first considered our history of cumulative operating results for income tax purposes over the past three years in each of the tax jurisdictions in which we operate , our financial performance in recent quarters , statutory carry forward periods and tax planning alternatives . finally , we considered both our near and long-term financial outlook . after considering all available evidence both positive and negative , we concluded that recognition of valuation allowances for substantially all of our u.s. and singapore deferred tax assets was not required at december 31 , 2017 or december 31 , 2016. our conclusions regarding the realizability of our deferred tax assets caused us to substantially reduce the valuation allowances recorded against our u.s. and singapore based deferred tax assets in the fourth quarter of 2016 , resulting in recognition of a significant non-cash income tax benefit . we file income tax returns in the united states and various state and foreign jurisdictions . our federal income tax returns for years after 2012 are still subject to examination by the internal revenue service . we are no longer subject to state and local income tax examinations for years prior to 2013 . the inland revenue authority of singapore recently initiated a review of our 2016 and 2015 income tax returns . we do not presently anticipate that the outcome of this audit will have a significant impact on our financial position or results of operations . liquidity and capital resources our cash and cash equivalents decreased by $ 3.7 million in 2017. proceeds of $ 6.9 million from maturities of marketable securities , and proceeds of $ 636,000 from stock option exercises and share purchases under our employee stock purchase plan added to our cash and cash equivalents . these sources of cash were more than offset by cash used to fund operating activities totaling $ 2.4 million , by purchases of marketable securities totaling $ 7.5 million , purchases of fixed assets and payment of capitalized patent costs totaling $ 1.3 million and common stock repurchases totaling $ 240,000. our cash and cash equivalents fluctuate in part because of sales and maturities of marketable securities and investment of cash balances in marketable securities , and from other sources of cash . accordingly , we believe the combined balances of cash and marketable securities provide a more reliable indication of our available liquidity than cash balances alone . combined balances of cash and marketable securities decreased by $ 3.2 million to $ 22.7 million as of december 31 , 2017 , from $ 25.9 million as of december 31 , 2016. operating activities used $ 2.4 million of cash in 2017 . cash used in operations included net income of $ 1.3 million , which included non-cash expenses totaling $ 3.0 million for depreciation and amortization , recovery of doubtful accounts , deferred taxes , non-cash losses from foreign currency transactions and equity-based compensation costs . changes in operating assets and liabilities using cash included an increase in inventories of $ 3.2 million , a decrease in accounts payable of $ 2.1 million and a decrease in accrued expenses of $ 1.6 million . changes in operating assets and liabilities providing cash included a decrease in accounts receivable of $ 171,000 . inventories increased because materials were purchased to support higher sales of our new products that were originally anticipated in the second half of 2017 . actual sales of these products were lower than anticipated . the use of cash for accounts payable resulted from the timing of the additional inventory purchases and corresponding payments to suppliers . accrued expenses decreased due to payment in 2017 of incentive compensation and bonuses accrued in 2016. the accounts receivable decrease was due to lower sales levels in the fourth quarter of 2017 , when compared to the fourth quarter of 2016 . 26 operating activities provided $ 9.1 million of cash in 2016 .
| we also have entered into an agreement to supply nordson-yestech with high precision 3 d sensor subsystems for its inspection systems serving the smt market . two new metrology products , cybergage® 360 , which was launched in the second half of 2016 , and sq 3000 3 d cmm , which was launched in the second half of 2017 . manufacturers in a variety of industries , including smt , semiconductor and consumer electronics , can use these products as in-line or off-line metrology tools to help solve complex manufacturing and product quality challenges . we have not sold a significant number of cybergage360 and sq3000 3d cmm products to date . however , based upon positive feedback from customer product evaluations , we believe future sales of these products could be significant . revenue from mrs based products increased to $ 14.3 million in 2017 , up from $ 12.3 million in 2016 and $ 4.8 million in 2015 . we believe we will be able to increase sales of products based on our mrs technology in the smt , semiconductor and metrology markets , including the market that requires inspection and metrology for advanced packaging applications . we intend to increase sales of these products by utilizing new oem partners and system integrators and by expanding direct sales to end-user customers . we have significantly advanced our mrs-enabled 3 d sensor technology as part of a research initiative aimed at applying our 3 d mrs technology to mid-end and front-end semiconductor inspection and the emerging semiconductor advanced packaging market . our mrs technology is now able to inspect cracks and other defects as small as 30 microns in wafer dies , which makes our mrs technology suitable for many mid-end semiconductor and advanced packaging inspection and metrology applications . we are currently demonstrating this technology to semiconductor manufacturers , and we believe that initial sales of products based on mrs-enabled technology for mid-end semiconductor inspections are possible before the end
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in in-vitro and in-vivo pre-clinical studies , synergy ( interaction of discrete drugs such that the total effect is greater than the sum of the individual effects ) has been demonstrated with onvansertib when used in combination with numerous different chemotherapies , including cisplatin , cytarabine , doxorubicin , gemcitabine and paclitaxel , as well as targeted therapeutics , such as abiraterone acetate ( zytiga ® ) , hdac inhibitors , such as belinostat ( beleodaq ® ) , quizartinib ( ac220 ) , a development stage flt3 inhibitor , and bortezomib ( velcade ® ) . these therapies are used clinically for the treatment of leukemias , lymphomas and solid tumor cancers , including aml , nhl , mcrpc , mcrc , and triple negative breast cancer ( “ tnbc ” ) . we continue to focus on advancing our two active clinical trials with onvansertib and to initiating our third trial in 2019. we have achieved a number of key milestones during the year ended december 31 , 2018 and anticipate achieving the following milestones throughout 2019 : phase 1b/2 trial of onvansertib in combination with either low-dose cytarabine or decitabine for the treatment of acute myeloid leukemia . presented data from the aml trial at the 60 th annual american society of hematology ( “ ash ” ) conference in december 2018. provided topline preliminary safety and efficacy data on the combination of onvansertib + ldac and the combination of onvansertib + decitabine in patients treated through the end of 2018 . 40 completed the first three dose levels in the phase 1b dose-escalation segment of the aml trial ( 12 mg/m 2 , 18 mg/m 2 and 27 mg/m 2 ) without experiencing dose-limiting toxicities in 2018. complete phase 1b dose escalation cohorts and identify the recommended phase 2 dose ( “ rp2d ” ) for the phase 2 continuation trial . initiate the phase 2 segment of the aml trial , which will enroll approximately 32 patients for continued evaluation of safety and preliminary efficacy of onvansertib in combination with either ldac or decitabine . present data at the american association for cancer research ( “ aacr ” ) annual conference in april , 2019. phase 2 trial of onvansertib in combination with abiraterone acetate ( zytiga ® ) and prednisone for the treatment of metastatic castration-resistant prostate cancer . completed enrollment and evaluation of the 3 safety lead-in patients with onvansertib at 24 mg/m 2 in combination with abiraterone acetate ( zytiga ® ) and prednisone in 2018. present data from the mcrpc trial at the 2019 genitourinary cancers symposium ( “ asco gu ” ) . provide topline preliminary safety and efficacy data of onvansertib in combination with abiraterone acetate ( zytiga ® ) and prednisone in patients completing 4 cycles ( 12 weeks ) of treatment , in 2019. present data at the aacr annual conference in april 2019. phase 2 trial of onvansertib in combination with folfiri and avastin ® ( bevacizumab ) for the treatment of metastatic colorectal cancer . completed submission of new ind and phase 1b/2 protocol to the fda . received notification from the fda that the “ study may proceed ” . entered into agreement with poc capital , llc to fund the clinical development program . activate two clinical trial sites to conduct the study : usc norris comprehensive cancer center and the mayo clinic . initiate trial in mid-2019 . enroll phase 1b dose escalation segment of trial to identify the maximum tolerated dose and recommended phase 2 dose . provide initial safety and clinical benefit data for patients treated in 2019. during 2018 , we advanced our business with the following activities : announced new data from phase 1b/2 study of onvansertib in combination with ldac or decitabine demonstrates response to treatment in relapsed/refractory aml . on december 3 , 2018 , we announced that preliminary anti-leukemic activity demonstrates > 80 % patient benefit to treatment with onvansertib in combination with ldac or decitabine in dose escalation phase of our aml trial . announced new patent claim allowances affirming broad patent portfolio coverage of npm1 mutations by the united states patent and trademark office . on october 24 , 2018 , we announced that the uspto has allowed claims that affirm broad coverage of npm1 mutation testing ; patent application 14/750331 , entitled “ nucleophosmin protein ( “ npm ” ) mutants , corresponding gene sequences and uses thereof. ” this patent encompasses broad claims around the assessment of npm1 mutational status in any cancer type , including aml . announced exclusive license agreement with mit for combination therapy of anti-androgens and polo-like kinase inhibitors in prostate cancer . on october 3 , 2018 , we announced that we have entered into an exclusive patent license agreement with the mit . under the agreement , we have exclusive rights to develop combination therapies that include anti-androgen or androgen antagonist and a polo-like kinase inhibitor for the treatment of cancer . the exclusive license agreement is part of our strategy to explore the efficacy of onvansertib in combination with anti-androgen drugs in cancers including prostate , breast , pancreatic , lung and gastrointestinal . announced completion of dosing cohort of patients treated with onvansertib in combination with decitabine in ongoing phase 1b/2 aml trial . 41 on september 27 , 2018 , we announced completion of the second dosing cohort of onvansertib in combination with standard-of-care decitabine , in our phase1b/2 clinical trial in patients with aml . all three patients in the cohort successfully completed treatment with onvansertib at 18mg/m 2 , administered orally , once daily , on days 1-5 of the treatment cycle , in combination with decitabine and the combination was well tolerated . the safety review committee ( “ src ” ) has recommended escalating to the next dose level of onvansertib at 27mg/m 2 ( approximately a 50 % increase ) in combination with decitabine . announced predictive clinical biomarker approach to identify aml patients most likely to respond to onvansertib . story_separator_special_tag on september 5 , 2018 , we announced we have developed a method for predicting response to treatment by measuring the ability of onvansertib to inhibit plk1 in patients with aml . plk1 uniquely phosphorylates tctp to form ptctp and inhibition of this enzymatic activity by onvansertib appears to be predictive of patient response to treatment . in the ongoing phase1b/2 open label clinical trial in aml , plk1 inhibition is being assessed 3-hours following administration , at the approximate peak concentration ( c max ) of onvansertib . in the first six patients treated , the greatest target engagement , or inhibition of plk1 , was observed in the three patients who showed a response to treatment . we have filed a u.s. patent application with the uspto to protect our method for evaluating responsiveness of a cancer to a plk1 inhibitor by determining the ability of the plk1 inhibitor to inhibit phosphorylation of a unique target of plk1 in cells of the cancer . announced european commission grants orphan drug designation to onvansertib ( pcm-075 ) for treatment of acute myeloid leukemia in europe . on august 29 , 2018 , we announced that the european commission has endorsed the positive opinion of the committee for orphan medicinal products ( “ comp ” ) and has granted odd for onvansertib for the treatment of patients with aml . orphan drug designation by the european commission provides regulatory and financial incentives to us , including reduced fees during the product development phase , direct access to centralized marketing authorization in the eu , and 10-year market exclusivity following product approval . announced completion of second dosing cohort of patients treated with onvansertib ( pcm-075 ) in ongoing phase 1b/2 aml trial . on august 16 , 2018 , we announced completion of the second dosing cohort of onvansertib , in combination with standard-of-care ldac , in our phase1b/2 clinical trial in patients with aml . all three patients in the cohort successfully completed treatment with onvansertib at 18 mg/m 2 , administered orally , once daily , on days 1-5 of the treatment cycle , in combination with ldac and the combination was well tolerated . the src has recommended escalating to the next dose level of onvansertib at 27 mg/m 2 ( approximately a 50 % increase ) in combination with ldac . additionally , two patients in the three-patient cohort of onvansertib at 18 mg/m 2 in combination with decitabine have also successfully completed at least one cycle of treatment and recruitment of the third patient to complete this cohort is in process . four of the eleven patients treated to-date remain on treatment , three are currently receiving a second cycle of treatment and one patient is scheduled to start a fifth cycle of treatment . received united states adopted name ( “ usan ” ) approval for “ onvansertib ” as nonproprietary name for first-in-class , 3rd generation plk1 inhibitor drug candidate , pcm-075 . on august 15 , 2018 , we announced that the usan council has approved “ onvansertib ” as the nonproprietary ( generic ) name for our drug candidate , pcm-075 . received positive opinion for orphan drug designation in the european union for onvansertib ( pcm-075 ) , our investigational cancer drug . on august 1 , 2018 , we announced that the european medicines agency ( “ ema ” ) comp has adopted a positive opinion recommending onvansertib ( pcm-075 ) for designation as an orphan medicinal product for the treatment of aml . the opinion letter sent to us by the comp stated that “ although satisfactory methods of treatment of the condition have been authorized in the eu , pcm-075 will be of significant benefit to those affected by aml. ” 42 announced preliminary clinical data from first dosing cohort demonstrating durable treatment effect of onvansertib ( pcm-075 ) in combination with cytarabine or decitabine in patients with relapsed or refractory aml . on june 27 , 2018 , we announced preliminary clinical data from the first dosing cohort showing a treatment effect with onvansertib ( pcm-075 ) in combination with ldac or decitabine , as measured by decreases in leukemic cells in both peripheral blood and bone marrow in patients in its ongoing phase 1b/2 trial in relapsed or refractory aml . both blood and bone marrow samples were obtained from patients with relapsed or refractory aml enrolled in the phase 1b/2 trial prior to , and at timepoints following administration of onvansertib ( pcm-075 ) , in combination with cytarabine or decitabine . among the 6 patients evaluated , no dose-limiting toxicities were observed that would prohibit further escalation of the onvansertib ( pcm-075 ) dosing . three patients exhibited substantial reductions in the percentage of both circulating leukemic cells within the blood and leukemic cells within the bone marrow . two of these three patients continued on treatment in the second cycle and further decreases in circulating leukemic cells in the blood and within the bone marrow were observed . one patient had a decrease in his bone marrow blasts from 96 % to 40 % at the end of cycle 2 and has continued on treatment in cycle 3. announced the start of recruitment and enrollment for phase 2 clinical trial of onvansertib ( pcm-075 ) in combination with zytiga ® in patients with mcrpc . on june 21 , 2018 , we announced we have received institutional review board approval from dana-farber/harvard cancer center and our phase 2 clinical trial of onvansertib ( pcm-075 ) in combination with zytiga ® ( abiraterone acetate ) and prednisone in mcrpc is officially activated and recruiting patients . the trial is being conducted by bidmc , dfci , and mgh . david einstein , md , genitourinary oncology program at bidmc , is the principal investigator for the trial . announced completion of first dosing cohort of patients treated with onvansertib ( pcm-075 ) in combination with decitabine in ongoing phase 1b/2 aml trial .
| our costs have increased primarily due to the increase in clinical trials , outside services , and lab supplies offset by the decrease in fees , license and other . research and development expenses related to clinical trials , outside services , and lab supplies increased for the year ended december 31 , 2018 as compared to the prior year resulting from two ongoing clinical trials for the development of onvansertib . the decrease in fees , license and other was primarily due to the $ 2.0 million license fee payment in march 2017 to nerviano for development and commercialization rights to onvansertib . we expect an increase of research and development costs as we continue the development of onvansertib . selling , general and administrative expenses selling , general and administrative expenses consisted of the following : replace_table_token_2_th selling , general and administrative expenses decrease d by $ 6,227,293 to $ 8,005,583 for the year ended december 31 , 2018 , from $ 14,232,876 for the year ended december 31 , 2017 . the overall decrease in selling , general and administrative expenses was due to the decrease in legal and accounting fees and reduction in force . the decrease in legal and accounting fees primarily resulted from the $ 2.1 million litigation settlement with the former ceo and cfo during the year ended december 31 , 2017. during the year ended december 31 , 2018 , we reduced the number of our selling , general and administrative personnel , thereby bringing down our average headcount to eight from twelve in the prior year . therefore , our personnel related costs were decreased for the year ended december 31 , 2018 as compared to the prior year . in addition , in august 2017 , a total of 10,352 shares of immediately vested rsa were granted to our former ceo . per the agreement , the income taxes associated with the rsa were also paid by our company . this event further increased the personnel costs and stock-based
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the agreement provides for the manufacture of the tests named above and the joint sales and marketing of those tests in india . the company will license its technology to the joint venture on a royalty-free basis . the profits from the partnership shall be divided as follows : replace_table_token_3_th synbiotics will be reimbursed by the joint venture for some expenses , such as approximately $ 96,000 in rent for the manufacturing plant and office space . if the joint venture needs additional funding , it will be achieved through loans obtained by the joint venture , or if loans are not available on commercially reasonable terms , from capital contributions . there is no term to the joint venture agreement but it can be dissolved by mutual agreement or by one party upon a material breach by the other party . the manufacturing plant is completed and is scheduled to be ready for production in the second quarter of 2019. we have submitted technical files describing seven difference diagnostic tests to the indian regulatory bodies requesting approval for those tests to be manufactured in our plant and sold in the indian market . the joint venture is currently marketing our products in the indian market and has sold approximately $ 200,000 of our probes and primers to various laboratories and other users to be used as research use only tests in their facilities , which we anticipate will be the beginning of sales of our products in india . intellectual property protection because much of our future success and value depends on our proprietary technology , our patent and intellectual property strategy is of critical importance . four of our initial u.s. patents related to our technology have been granted by the u.s. patent and trademark office , or pto , including the patent for our coprimer technology , which we consider our most important patent . one of our patents has been issued in great britain , but is still pending in the united states . as of march 15 , 2019 , we had two additional patents pending in the u.s. and foreign counterpart applications . two of our issued patents expire in 2034 , one in 2036 and one in 2038. we have identified additional applications of the technology , which represent potential patents that further define specific applications of the processes that are covered by the original patents . we intend to continue building our intellectual property portfolio as development continues and resources are available . we have copyrighted our development software that can be used by any lab or developer to develop diagnostic tests based on our technology . we have allowed one potential customer access to our development software and intend to sell customized reagents through that customer to labs serviced by that customer throughout the world . to date we have not sold any products to that customer . major customers we currently have no major customers . competition the molecular diagnostics industry is extremely competitive . there are many firms that provide some or all of the products we provide and provide many diagnostic tests that we have yet to develop . many of these competitors are larger than us and have significantly greater financial resources . because we are not established , many of our competitors have a competitive advantage in the diagnostic testing industry because they also have other lines of business in the pharmaceutical industry from which they derive revenues and for which they are well known and respected in the medical profession . we will need to overcome the disadvantage of being a start up with no history of success and no respect of the medical and testing professionals . in the diagnostic testing industry , we compete with such companies as biomerieux , siemans , qiagen , and cephied and with such pharmaceutical companies as abbott laboratories , becton , dickinson and johnson and johnson . many of these competitors already have an established customer base with industry standard technology , which we must overcome to be successful . 11 employees we currently employ 20 full-time personnel at our executive offices and lab facilities in salt lake city , utah , and two employees outside of utah . we have engaged independent contractors in india to promote the use of our products and develop outlets for products and employ the services of independent sales representatives on an “ as needed ” basis . government regulation we will be regulated by the u.s. federal drug administration and our products must be approved by the fda before we will be allowed to sell our tests in the united states . because our lab is iso certified we are allowed to apply for ce-marking , which will allow us to sell in most countries in europe , south america and asia . we currently have ce marks issued for our tuberculosis test , our zika virus test , and a triplex test that tests for zika , dengue , and chikungunya simultaneously . properties our executive offices are located at 2401 s. foothill drive , salt lake city , utah 84109. we occupy the space at the executive offices under a lease , which expires january 31 , 2020. the lease covers approximately 10,273 square feet of lab and office space leased at a rate of $ 14,086 per month . we have no other properties . legal proceedings the company has no legal proceedings and to the knowledge of management , no litigation has been threatened . story_separator_special_tag story_separator_special_tag we had net loss of $ 6,271,723 for the year ended december 31 , 2018 compared to a net loss of $ 6,959,232 for the year ended december 31 , 2017. the decrease in net loss for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 was $ 687,509 resulted primarily from the loss on extinguishment of debt in 2017 of $ 2,072,365 being partially offset by increased operating expenses of $ 1,576,909 in 2018 explained in more detail above . liquidity and capital resources liquidity is the ability of a company to generate funds to support its current and future operations , satisfy its obligations , and otherwise operate on an ongoing basis . significant factors in the management of liquidity are funds generated by operations , levels of accounts receivable and accounts payable and capital expenditures . to date we have financed our operations through sales of common stock and the issuance of debt . at december 31 , 2018 , we had cash and cash equivalents of $ 950,237 , total current assets of $ 1,051,913 , total current liabilities of $ 2,351,983 and total stockholders ' deficit of $ 1,058,811. at december 31 , 2017 , we had cash and cash equivalents of $ 3,534,454 , total current assets of $ 4,451,874 , total current liabilities of $ 628,256 and total stockholders ' equity of $ 3,850,524 . 13 on july 12 , 2017 , we entered into an underwriting agreement ( the “ underwriting agreement ” ) with wallachbeth capital , llc and network 1 financial securities , inc. ( the “ underwriters ” ) , related to the company 's initial public offering of 1,178,532 shares of the company 's common stock , at a price of $ 6.00 per share , less $ 0.60 constituting the underwriting commissions and non-accountable expense allowance . under the terms of the underwriting agreement , the company granted the underwriters an option , exercisable for 45 days , to purchase up to an additional 176,780 shares of common stock to cover over-allotments , if any . total gross proceeds from the offering were $ 7,071,192 and the company received net proceeds after costs of $ 5,977,924. coincident with the closing of the ipo , the company retired all of its principal debt of $ 3,440,000 and approximately $ 283,000 of accrued interest through the issuance of approximately 857,048 shares . we experienced negative cash flow used in operations during the twelve months ended december 31 , 2018 of $ 4,080,036 compared to negative cash flow used in operations for the twelve months ended december 31 , 2017 of $ 3,211,401. in addition , we used $ 153,000 of our cash in financing transactions and used $ 339,000 in contributions to our joint venture in india . the negative cash flow in 2018 was met by cash reserves from the issuances of common stock incident to the completion of our initial public offering and in august 2018 , we issued short term debt to an individual in the principal amount of $ 2.0 million that bore interest of 9 % per annum and matured on july 31 , 2019 , which was converted to series a preferred stock in january 2019. the amount of our operating deficit could decrease or increase significantly depending on strategic and other operating decisions , thereby affecting our need for additional capital . we expect our operating losses will continue until we are able to generate revenue . until our operations become profitable , we will continue to rely on proceeds received from our public offerings of stock . in august 2018 we filed a shelf registration of our securities with the sec and in september 2018 it was declared effective . in february 2019 we completed the registered direct offering described above pursuant to that registration . we expect additional investment capital to come from ( i ) additional issuances of our common stock pursuant to our s-3 shelf registration with existing and new investors and ( ii ) the private placement of other securities with investors similar to those that have provided funding in the past . our monthly cash operating expenses , including our technology research and development expenses and interest expense , were approximately $ 385,000 per month during the year ended december 31 , 2018. our operating expenses increased significantly upon completion of our initial public offering as we increased development and sales activities in furtherance of our business plan . we did not have sufficient capital resources at december 31 , 2018 to fund our negative cash flow for the next year without raising additional capital and therefore in january 2019 we completed a registered direct offering to fund operations until we commence sales of products . the foregoing estimates , expectations and forward-looking statements are subject to change as we make strategic operating decisions from time to time and as our expenses fluctuate from period to period . on january 30 , 2019 , we entered into a securities purchase agreement with investors , whereby the investors purchased from the company 30,000 shares of series a convertible preferred stock of the company for a purchase price of $ 3,000,000. the purchase price was paid by the investors with $ 1.0 million in cash and the conversion of a $ 2.0 million note owed by the company to one of the investors . the investors may not convert the series a preferred stock to the extent that such conversion would result in beneficial ownership by the investors and their affiliates of more than 4.99 % of the issued and outstanding common stock of the company . on february 4 , 2019 , we completed the sale of 3,925,716 shares of the company 's common stock , par value $ 0.001 per share , at a purchase price of $ 1.40 per share in a registered direct offering . the
| in addition , legal and professional fees increased $ 83,158 and directors ' fees increased $ 82,500 , and regulatory expenses increased $ 52,636 all primarily incident to becoming a publically traded company . these increases were partially offset by a decrease in other professional services of $ 600,572 our sales and marketing expenses for the year ended december 31 , 2018 were $ 1,165,631 compared to sales and marketing expenses of $ 426,711 for the year ended december 31 , 2017. the increase of $ 738,920 is due primarily to incurring a marketing expense of $ 497,208 related to acquisition of a distributor network and changing the licensee to a distributor with its territory restricted to one country . we also experience an increase of $ 118,950 in salaries and related benefits , and an increase of $ 44,091 in travel expenses , which were incurred as we increased our sales efforts . our research and development expenses increased by $ 357,987 from $ 1,003,167 for the year ended december 31 , 2017 to $ 1,361,154 for the year ended december 31 , 2018. the increase was primarily due to an increase of $ 119,789 in salaries and related benefits as we increased research and development activities . in addition , lab supplies consumed by the increased research activities increased $ 93,733 and consulting fees for research services increased by $ 70,754 and other professional services increased by $ 76,092 and building and lab rent increased by $ 58,093. the increase in expenses was partially offset by a reduction of $ 107,500 in technology license royalties . interest and other expense interest and other expense items decreased for the year ended december 31 , 2018 by $ 2,241,258. in the year ended december 31 , 2017 we recorded a loss on the extinguishment of debt incident to debt being retired following our initial public offering of $ 2,072,365 , which expense was not repeated in
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periodically , we review the status of each significant matter and assess our potential financial exposure . if the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated , we accrue a liability for the estimated loss . significant judgment is required in both the determination of probability and the determination as to whether an exposure can be reasonably estimated . because of uncertainties related to these matters , accruals are based on the best information available at the time . as additional information becomes available , we reassess the potential liability related to our pending claims and litigation and may revise our estimates . such revisions in the estimates of the potential liabilities could have a material adverse effect on our business , results of operations and financial position . for more information related to our outstanding legal proceedings , see contingencies , commitments and guarantees in note 14 of the accompanying consolidated financial statements as well as legal proceedings in part i , item 3 hereof . impairment analysis we perform an annual assessment as to whether there was an indication that goodwill and certain intangible assets are impaired . we also perform impairment analyses whenever events and circumstances indicate that goodwill or certain intangibles may be impaired . the fasb issued accounting standards update no . 2011-08 , testing goodwill for impairment ( the revised standard ) on september 15 , 2011. this new guidance amends certain previous guidance under asc 350-20 which allows an initial assessment of qualitative factors to determine whether it is necessary to perform the first step of the two step goodwill impairment test . the revised standard is intended to reduce the cost and complexity of the annual goodwill impairment test providing both public and nonpublic entities with the option of performing a qualitative assessment to determine whether the 25 impairment testing is necessary . the standard provides the option to assess qualitative factors to determine if it is more likely than not that the fair value of the reporting unit is not less than its carrying value before applying the two-step quantitative goodwill impairment analysis . early adoption is permitted , including for annual and interim goodwill impairment tests performed as of a date before september 15 , 2011 , if an entity 's financial statements for the most recent annual or interim period have not yet been issued . we have chosen to perform the qualitative analysis for our three reporting units for our 2011 annual assessment of goodwill performed as of our october fiscal month end . in accordance with the asc topic 350 , we test goodwill for impairment at the reporting unit level . we utilize our three operating segments as our goodwill reporting units as we have discrete financial information that is regularly reviewed by operating segment management and businesses with each segment have similar economic characteristics . for the year-ended december 31 , 2011 , the company 's three reporting units were energy , aerospace and flow technologies with respective goodwill balances of $ 51.9 million , $ 22.1 million and $ 3.8 million . for the year-ended december 31 , 2010 , the company 's three reporting units were energy , aerospace and flow technologies with respective goodwill balances of $ 39.4 million , $ 19.4 million and $ 4.3 million . in 2010 when we performed our step one analysis , the fair value of each of our reporting units exceeded the respective carrying amount , and no goodwill impairments were recorded . the fair values utilized for our 2010 goodwill assessment exceeded the carrying amounts by approximately 65 % , 74 % and 130 % for our energy , aerospace and flow technologies reporting units , respectively . based on our qualitative analysis performed for our 2011 annual goodwill impairment test , we concluded it was more likely than not that the fair value of each of our reporting units was not less than the carrying amounts . see notes 2 and 7 of the accompanying consolidated financial statements for further information on our goodwill and annual impairment analysis . if our estimates or related projections change in the future due to changes in industry and market conditions , we may be required to record impairment charges . the goodwill recorded on the consolidated balance sheet as of december 31 , 2011 was $ 77.8 million compared with $ 63.2 million as of december 31 , 2010. see notes 2 and 7 of the accompanying consolidated financial statements for further information on our goodwill and annual impairment analysis . income taxes significant management judgment is required in determining our provision for income taxes , deferred tax assets and liabilities and any valuation allowance . our effective tax rates differ from the statutory rate due to the impact of research and experimental tax credits , domestic manufacturing deduction , state taxes and the tax impact of non-u.s. operations . our effective tax rate was 27.0 % , ( 0.9 ) % and ( 90.3 ) % , for the fiscal years ended december 31 , 2011 , 2010 and 2009 , respectively . the tax rate for 2010 included the tax impact of the $ 31.4 million of 2010 leslie bankruptcy related costs . excluding this charge and related tax benefit , the 2010 effective tax rate would have been 23.7 % . 26 for 2012 , we expect an effective income tax rate of approximately 30.0 % . our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and vice versa . changes in the valuation of our deferred tax assets or liabilities , or changes in tax laws or interpretations thereof may also adversely affect our future effective tax rate . in addition , we are subject to the continuous examination of our income tax returns by the internal revenue service and other tax authorities . story_separator_special_tag we regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes . in 2011 , deferred income tax assets remained consistent with 2010. we maintained a total valuation allowance of $ 10.6 million at december 31 , 2011 for deferred income tax assets due to uncertainties related to our ability to utilize these assets . such deferred income tax assets consisted of certain foreign tax credits , state net operating losses and state tax credits carried forward . the valuation allowance is based on estimates of taxable income in each of the jurisdictions in which we operate and the period over which our deferred tax assets will be recoverable . if market conditions improve and future results of operations exceed our current expectations , our existing tax valuation allowances may be adjusted , resulting in future tax benefits . alternatively , if market conditions deteriorate or future results of operations are less than expected , future assessments may result in a determination that some or all of the deferred tax assets are not realizable . consequently , we may need to establish additional tax valuation allowances for all or a portion of the gross deferred tax assets , which may have a material adverse effect on our business , results of operations and financial condition . the company has had a history of domestic taxable income , is able to avail itself of federal tax carryback provisions , has future taxable temporary differences and projects future domestic taxable income . we believe that after considering all of the available objective evidence , it is more likely than not that the results of future operations will generate sufficient taxable income to realize the remaining deferred tax assets . deferred tax assets and liabilities are determined based upon the differences between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse . valuation allowances are provided if , based upon the weight of available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . except for the company 's dutch subsidiary , undistributed earnings of foreign subsidiaries are considered to be indefinitely reinvested and , accordingly , no provision for u.s. federal and state income taxes has been recorded thereon . no additional provision is required for the undistributed earnings of the dutch subsidiary . it is the company 's policy to record estimated interest and penalties as income tax expense and tax credits as a reduction in income tax expense . the company recognizes both interest and penalties as part of the income tax provision . as of december 31 , 2011 and december 31 , 2010 , accrued interest and penalties were $ 1.0 million and $ 0.1 million , respectively . as of december 31 , 2011 , the liability for uncertain income tax positions was $ 2.4 million excluding interest of $ 1.0 million . due to the high degree of uncertainty regarding the timing of potential future cash flows associated with these liabilities , we are unable to make a reasonably reliable estimate of the amount and period in which these liabilities might be paid . 27 pension benefits we maintain two pension benefit plans , a qualified noncontributory defined benefit plan and a nonqualified , noncontributory defined benefit supplemental plan that provides benefits to certain highly compensated officers and employees . to date , the supplemental plan remains an unfunded plan . these plans include significant pension benefit obligations which are calculated based on actuarial valuations . key assumptions are made in determining these obligations and related expenses , including expected rates of return on plan assets and discount rates . benefits are based primarily on years of service and employees ' compensation . as of july 1 , 2006 , in connection with a revision to our retirement plan , we froze the pension benefits of our qualified noncontributory plan participants . under the revised plan , such participants generally do not accrue any additional benefits under the defined benefit plan after july 1 , 2006 and instead receive enhanced benefits associated with our defined contribution 401 ( k ) plan in which substantially all of our u.s. employees are eligible to participate . based on a desire to ensure compliance with section 409a of the internal revenue code , during 2009 we facilitated a mandatory cash-out to all active and terminated employees of the supplemental plan who were not currently receiving benefit payments . this pension settlement resulted in $ 0.2 million of pre-tax expense during the year ended december 31 , 2009. as required in the recognition and disclosure provisions of asc topic 715 , the company recognizes the over-funded or under-funded status of defined benefit post-retirement plans in its balance sheet , measured as the difference between the fair value of plan assets and the benefit obligation ( the projected benefit obligation for pension plans and the accumulated post-retirement benefit obligation for other post-retirement plans ) . the change in the funded status of the plan is recognized in the year in which the change occurs through other comprehensive income . these provisions also require plan assets and obligations to be measured as of the company 's balance sheet date . see note 13 of the accompanying consolidated financial statements for further information on our benefit plans . assets of our qualified pension plan are comprised of equity investments of companies in the united states with large and small market capitalizations , fixed income securities issued by the united states government , or its agencies , and certain international equities . there are no shares of our common stock in the plan assets .
| we will drive margin expansion with lean manufacturing , low-cost sourcing and our continuous improvement culture . we feel our strong balance sheet and available credit facilities will provide us with the financial capital to execute our growth strategy , both organically and through acquisitions . basis of presentation all significant intercompany balances and transactions have been eliminated in consolidation . certain prior period financial statement amounts have been reclassified to conform to currently reported presentations . we monitor our business in three segments : energy , aerospace and flow technologies . we operate and report financial information using a 52-week fiscal year ending december 31. the data periods contained within our quarterly reports on form 10-q reflect the results of operations for the 13-week , 26-week and 39-week periods which generally end on the sunday nearest the calendar quarter-end date . critical accounting policies the following discussion of accounting policies is intended to supplement the section summary of significant accounting policies presented in note ( 2 ) to our consolidated financial statements . these policies were selected because they are broadly applicable within our operating units . the expenses and accrued liabilities or allowances related to certain of these policies are initially based on our best estimates at the time of original entry in our accounting records . adjustments are recorded when our actual experience , or new information concerning our expected experience , differs from underlying initial estimates . these adjustments could be material if our actual or expected experience were to change significantly in a short period of time . we make frequent comparisons of actual experience and expected experience in order to mitigate the likelihood of material adjustments . there have been no significant changes from the methodology applied by management for critical accounting estimates previously disclosed in our annual report on form 10-k for the fiscal year ended december 31 , 2010. revenue recognition revenue is recognized when products are delivered , title and risk of loss have passed to the customer , no significant post-delivery obligations remain and
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use of estimates in preparing the cfs , management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets as well as revenues and expenses during the year reported . actual results may differ from these estimates . accounts receivable the company 's policy is to maintain an allowance for potential credit losses on accounts receivable . management reviews the composition of accounts receivable and analyzes historical bad debts , customer concentrations , customer credit worthiness , current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves . as of december 31 , 2020 and 2019 , the bad debt allowance was $ 151,372 and $ 149,500 , respectively . revenue recognition in may 2014 the fasb issued accounting standards update ( asu ) no . 2014-09 , revenue from contracts with customers ( topic 606 ) , which supersedes all existing revenue recognition requirements , including most industry specific guidance . this new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services . the fasb subsequently issued the following amendments to asu no . 2014-09 that have the same effective date and transition date : asu no . 2016-08 , revenue from contracts with customers ( topic 606 ) : principal versus agent considerations ; asu no . 2016-10 , revenue from contracts with customers ( topic 606 ) : identifying performance obligations and licensing ; asu no . 2016-12 , revenue from contracts with customers ( topic 606 ) : narrow-scope improvements and practical expedients ; and asu no . 2016-20 , technical corrections and improvements to topic 606 , revenue from contracts with customers . the company adopted these amendments with asu 2014-09 ( collectively , the new revenue standards ) . under the new revenue standards , the company recognizes revenues when its customer obtains control of promised goods or services , in an amount that reflects the consideration which it expects to receive in exchange for those goods . the company recognizes revenues following the five step model prescribed under asu no . 2014-09 : ( i ) identify 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 revenues when ( or as ) we satisfy the performance obligation . revenues from product sales are recognized when the customer obtains control of the company 's product , which occurs at a point in time , typically upon delivery to the customer . the company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial . revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with the company 's customers . 7 product revenue reserves , which are classified as a reduction in product revenues , are generally characterized in the following categories : discounts , returns and rebates . these reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to the company 's customer . the company 's return policy allows for the return of damaged or defective products and shipment errors . a notice of damage or wrong items should make within five days from receiving the goods , and actual return of the products must be completed within 30 days from the date of receiving the goods . delayed notification for damaged or wrong products will not be accepted for return or exchange . custom formulas and capsules are not returnable . the amount for return of products was immaterial for the years ended december 31 , 2020 and 2019. story_separator_special_tag margin-bottom : 0pt '' > 9 net cash used in investing activities net cash used in investing activities was $ 7,365 for the year ended december 31 , 2020 , compared to $ 27,650 in 2019. for the year ended december 31 , 2020 , we purchased fixed assets of $ 7,365. for the year ended december 31 , 2019 , we purchased fixed assets of $ 27,650. net cash provided by financing activities net cash provided by financing activities was $ 729,273 for the year ended december 31 , 2020 , compared to $ 931,063 in 2019. the net cash provided by financing activities in 2020 consisted of proceeds from government loans $ 343,340 due to the covid-19 and loan from a major shareholder ( also the senior officer ) $ 457,309 , but partly offset with return of investment to investor for $ 100,000. the net cash provided by financing activities in 2019 mainly consisted of proceeds from issuance of shares $ 361,140 and loan from a major shareholder ( also the senior officer ) $ 560,699. equity financing in may and june 2019 , the company sold 722,000 shares to individual investors at $ 0.50 per share through a private placement for proceeds of $ 361,000. in february 2020 , with the company 's consent , one investor returned 200,000 shares to the company for $ 100,000 as a result of cancellation of the investment . our current liabilities exceed current assets at december 31 , 2020 , and we incurred substantial losses and cash outflows from operating activities in the periods presented . we may have difficulty to meet upcoming cash requirements . as of december 31 , 2020 , our principal source of funds was loans from officers ( also are the company 's major shareholders story_separator_special_tag use of estimates in preparing the cfs , management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets as well as revenues and expenses during the year reported . actual results may differ from these estimates . accounts receivable the company 's policy is to maintain an allowance for potential credit losses on accounts receivable . management reviews the composition of accounts receivable and analyzes historical bad debts , customer concentrations , customer credit worthiness , current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves . as of december 31 , 2020 and 2019 , the bad debt allowance was $ 151,372 and $ 149,500 , respectively . revenue recognition in may 2014 the fasb issued accounting standards update ( asu ) no . 2014-09 , revenue from contracts with customers ( topic 606 ) , which supersedes all existing revenue recognition requirements , including most industry specific guidance . this new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services . the fasb subsequently issued the following amendments to asu no . 2014-09 that have the same effective date and transition date : asu no . 2016-08 , revenue from contracts with customers ( topic 606 ) : principal versus agent considerations ; asu no . 2016-10 , revenue from contracts with customers ( topic 606 ) : identifying performance obligations and licensing ; asu no . 2016-12 , revenue from contracts with customers ( topic 606 ) : narrow-scope improvements and practical expedients ; and asu no . 2016-20 , technical corrections and improvements to topic 606 , revenue from contracts with customers . the company adopted these amendments with asu 2014-09 ( collectively , the new revenue standards ) . under the new revenue standards , the company recognizes revenues when its customer obtains control of promised goods or services , in an amount that reflects the consideration which it expects to receive in exchange for those goods . the company recognizes revenues following the five step model prescribed under asu no . 2014-09 : ( i ) identify 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 revenues when ( or as ) we satisfy the performance obligation . revenues from product sales are recognized when the customer obtains control of the company 's product , which occurs at a point in time , typically upon delivery to the customer . the company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial . revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with the company 's customers . 7 product revenue reserves , which are classified as a reduction in product revenues , are generally characterized in the following categories : discounts , returns and rebates . these reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to the company 's customer . the company 's return policy allows for the return of damaged or defective products and shipment errors . a notice of damage or wrong items should make within five days from receiving the goods , and actual return of the products must be completed within 30 days from the date of receiving the goods . delayed notification for damaged or wrong products will not be accepted for return or exchange . custom formulas and capsules are not returnable . the amount for return of products was immaterial for the years ended december 31 , 2020 and 2019. story_separator_special_tag margin-bottom : 0pt '' > 9 net cash used in investing activities net cash used in investing activities was $ 7,365 for the year ended december 31 , 2020 , compared to $ 27,650 in 2019. for the year ended december 31 , 2020 , we purchased fixed assets of $ 7,365. for the year ended december 31 , 2019 , we purchased fixed assets of $ 27,650. net cash provided by financing activities net cash provided by financing activities was $ 729,273 for the year ended december 31 , 2020 , compared to $ 931,063 in 2019. the net cash provided by financing activities in 2020 consisted of proceeds from government loans $ 343,340 due to the covid-19 and loan from a major shareholder ( also the senior officer ) $ 457,309 , but partly offset with return of investment to investor for $ 100,000. the net cash provided by financing activities in 2019 mainly consisted of proceeds from issuance of shares $ 361,140 and loan from a major shareholder ( also the senior officer ) $ 560,699. equity financing in may and june 2019 , the company sold 722,000 shares to individual investors at $ 0.50 per share through a private placement for proceeds of $ 361,000. in february 2020 , with the company 's consent , one investor returned 200,000 shares to the company for $ 100,000 as a result of cancellation of the investment . our current liabilities exceed current assets at december 31 , 2020 , and we incurred substantial losses and cash outflows from operating activities in the periods presented . we may have difficulty to meet upcoming cash requirements . as of december 31 , 2020 , our principal source of funds was loans from officers ( also are the company 's major shareholders
| selling expense was $ 150,093 for the year ended december 31 , 2020 , compared to $ 231,137 for the year ended december 31 , 2019 , a decrease of $ 81,044 or 35.06 % , mainly resulting from decreased advertising expense by $ 45,300 , decreased e-commerce market expense by $ 15,000 and decreased show expense by $ 48,700 which was partly offset by increased marketing fee by $ 25,900 and increased other expenses by $ 2,100. bad debt expense was $ 1,872 for the year ended december 31 , 2020 , compared to $ 149,500 for the year ended december 31 , 2019. general and administrative expenses consist mainly of employee salaries and welfare , business meeting , utilities and audit and legal expenses . general and administrative expenses were $ 907,888 for the year ended december 31 , 2020 , compared to $ 1,509,260 for the year ended december 31 , 2019 , a decrease of $ 601,372 or 39.85 % , the decrease was mainly due to decreased salary expense by $ 25,200 , decreased rent expense by $ 383,400 , decreased professional expense by $ 44,000 , decreased stock compensation expense by $ 69,700 and other miscellaneous expense by $ 79,000. other income , net other income was $ 240,028 for the year ended december 31 , 2020 , compared to $ 17,771 for the year ended december 31 , 2019 , an increase of $ 222,257 or 1,250.67 % . the increase was mainly due to waiver of refund of $ 244,175 for a purchase deposit which was made by a customer of fds a few years ago , despite increased interest expense by $ 41,905 in 2020. net loss we had a net loss of $ 595,838 for the year ended december 31 , 2020 , compared to $ 1,703,406 for the year ended december 31 , 2019 , a decrease of $ 1,107,568 or 65.02 % . the decrease in our net loss was mainly resulted from decreased operating expenses by $ 830,044 and increased other income by $ 222,257 as described above . liquidity and capital resources
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we focus our direct selling efforts on medium to large organizations as well as smaller companies that are exhibiting significant growth . we engage with and support these customers with our field sales representatives , account managers , and technical account managers who focus on customer satisfaction and drive expansion of their usage of our platform and products . these teams work with technical and business leaders to help our customers ' end-users receive the best possible digital experience , while also lowering our customers ' total cost of ownership . we have established and continue to maintain our position by improving upon our programmable edge platform and software-defined modern network architecture . we continue to focus on empowering our developer community through events and conferences , including our altitude conferences . the success of these direct selling efforts is reflected by our 288 enterprise customers as of december 31 , 2019 that generated 87 % of our total revenue for the trailing 12 months ended december 31 , 2019 . as our customers become more successful and grow , they typically increase their usage of our platform and adopt additional fastly products . a meaningful indicator of the increased activity from our existing customer accounts and overall customer satisfaction is our dollar-based net expansion rate ( `` dbner '' ) , which was 135.5 % , 132.0 % , and 147.3 % for the trailing 12 months ended december 31 , 2019 , 2018 , and 2017 respectively . we believe that an annual cohort analysis of our customers , as depicted in the chart below , demonstrates our success in customer expansion . once a customer begins to generate revenue for us , they tend to increase their usage of our platform , in particular in their second year . customer accounts acquired in 2015 , 2016 , 2017 , 2018 , and 2019 are referred to as the cohort , 2015 cohort , 2016 cohort , 2017 cohort , 2018 cohort , and 2019 cohort , respectively . our 2015 cohort increased its revenue 2.5 times after its first year and has grown at approximately a 44 % cagr over the last four years . in 2015 , we generated $ 7.8 million of revenue from the 2015 cohort . revenue from the 2015 cohort grew to $ 20.1 million in 2016 , representing a year-over-year growth rate of 157 % . in 2016 , we generated $ 6.6 million of revenue from the 2016 cohort . revenue from the 2016 cohort grew to $ 22.0 million in 2017 , representing 233 % year-over-year growth . in 2017 , we generated $ 5.6 million of revenue from the 2017 cohort . revenue from the 2017 cohort grew to $ 16.8 million in 2018 , representing 200 % year-over-year growth . in 2018 , we generated $ 11.2 million of revenue from the 2018 cohort . revenue from the 2018 cohort grew to $ 34.4 million in 2019 , representing 207 % year-over-year growth . 59 summary of revenue generated by customer cohorts over time ( in millions ) : customers that have negotiated contracts with us generate a substantial majority of our revenue . these customers typically purchase one or more products , for which we charge a monthly recurring or one-time fee depending on the products selected . some of these customers also choose to purchase various levels of account management and enhanced customer support for a monthly fee . typically , the term of these contracts is 12 months and includes a minimum monthly billing commitment in exchange for more favorable pricing terms . many of these customers generate billings in excess of their minimum commitment . in addition , customers can sign up online by providing their credit card information and agreeing to a minimum monthly fee . the timing of our sales is difficult to predict . the length of our sales cycle , from initial evaluation to payment , can range from several months to well over a year and can vary substantially from customer to customer . similarly , the onboarding and ramping process with new enterprise customers can take several months . we have achieved significant growth in recent periods . for the years ended december 31 , 2019 and 2018 , our revenue was $ 200.5 million and $ 144.6 million , respectively . our 10 largest customers generated an aggregate of 29 % and 32 % of our revenue in the trailing 12 months ended december 31 , 2019 and 2018 , respectively . we incurred a net loss of $ 51.6 million and $ 30.9 million in the years ended december 31 , 2019 and 2018 , respectively . factors affecting our performance winning new customers we are focused on continuing to attract new customers . our customer base includes both large , established enterprises that are undergoing digital transformation and emerging companies spanning a wide array of industries and verticals . in both instances , developers within these companies often use and advocate the adoption of our platform by their companies . we also benefit from word-of-mouth promotion across the broader developer community . we will continue to invest in our developer outreach , leveraging it as a cost-efficient approach to attracting new customers . we also plan to dedicate significant resources to sales and marketing programs , including various online marketing activities as well as targeted account-based advertising . 60 this will require us to dedicate significant resources to further develop the market for our platform and differentiate our platform from competitive products and services . we will also need to expand , retain , and motivate our sales and marketing personnel in order to target our sales efforts at larger enterprises and senior management of these potential customers . expanding within our existing customer base we emphasize retaining our customers and expanding their usage of our platform and adoption of our other products . customers often begin with smaller deployments of our programmable edge platform and then expand their usage over time . story_separator_special_tag in addition , our programmable edge platform includes a variety of other offerings , such as load balancing , shielding , web security , and waf . as our customers mature , we assist them in expanding their use of our platform , including the use of additional offerings beyond edge cloud delivery . as enterprises grow and experience increased traffic , their needs evolve , leading them to find additional use cases for our platform and expand their usage accordingly . in addition , given that customer acquisition costs are incurred largely for acquiring and initial onboarding , we gain operating leverage to the extent that existing customers expand their use of our platform and products . our ability to retain our customers and expand their usage could be impaired for a variety of reasons , including a customer moving to another provider or reducing usage within the term of their contract to their minimum usage commitment . even if our customers expand their usage of our platform , we can not guarantee that they will maintain those usage levels for any meaningful period of time or that they will renew their commitments . international customer growth we intend to continue expanding our efforts to attract customers outside of the united states by augmenting our sales teams and strategically increasing the number of pops in select international markets . as of december 31 , 2019 and 2018 , 49 % and 46 % of our customers were headquartered outside of the united states , respectively . our international expansion , including our global sales efforts , will add increased complexity and cost to our business . this will require us to significantly expand our sales and marketing capabilities outside of the united states , as well as increase the number of pops in select international markets to support our customers . we have limited experience managing the administrative aspects of a global organization , and we have only recently begun to establish and operate offices in foreign countries , which could place a strain on our business and culture . investing in sales and marketing our customers have been pivotal in driving brand awareness and broadening our reach . while we continue to leverage our self-service approach to drive adoption by developers , we intend to continue to expand our sales and marketing efforts , with an increased focus on sales to enterprises globally . utilizing our direct sales force , we have multiple selling points within organizations to acquire new customers and increase usage from our existing customers . we intend to increase our discretionary marketing spend , including account based and brand spend , to drive the effectiveness of our sales teams . as a result , we expect our total operating expenses to increase as we continue to expand . our investments in our sales and marketing teams are intended to help accelerate our sales , onboarding , and ramp cycles . as of december 31 , 2019 , we had 69 sales representatives and sales managers across our company . these efforts will require us to invest significantly in financial and other resources . furthermore , we believe that there is significant competition for sales personnel with the skills and technical knowledge that we require . our ability to achieve significant revenue growth will depend , in large part , on our success in recruiting , training , and retaining sufficient numbers of sales personnel to support our growth . continued investment in our platform and network infrastructure we must continue to invest in our platform and network infrastructure to maintain our position in the market . we expect our revenue growth to be dependent on an expanding customer base and continued adoption of our edge cloud platform . in anticipation of winning new customers and staying ahead of our customers ' needs , we plan to continue to invest in order to expand the scale and capacity of our software-defined modern network , resulting in increased network service provider fees , which could adversely affect our gross margins if we are unable to offset these costs with revenue from new customers and increased revenue from existing customers . our customers require constant innovation within their own organizations and 61 expect the same from us . therefore , we will continue to invest in resources to enhance our development capabilities and introduce new products and features on our platform . we believe that investment in research and development will contribute to our long-term growth but may also negatively impact our short-term profitability . for the years ended december 31 , 2019 and 2018 , our research and development expenses as a percentage of revenue was 23 % and 24 % , respectively . developers use our platform to build custom applications and require a state-of-the-art infrastructure to test and run these applications . we will continue to invest in our network infrastructure by strategically increasing our pops . we also anticipate making investments in upgrading our technology and hardware to continue providing our customers a fast and secure platform . our total investment in property and equipment for the years ended december 31 , 2019 and 2018 were $ 30.3 million and $ 18.7 million , respectively , representing 15 % and 13 % of our revenue in such periods . we expect our investment in property and equipment to increase on an absolute basis and may increase as a percentage of revenue in future periods . our gross margins and operating results are impacted by these investments . as of december 31 , 2019 , we had 68 pops in 53 markets across 26 countries . in the event that there are errors in software , failures of hardware , damages to a facility or misconfigurations of any of our services—whether caused by our products , third-party error , our own error , natural disasters , or security breaches—we could experience lengthy interruptions in our platform as well as delays and additional expenses in arranging new facilities and services .
| we had 861 domestic customers and 721 international customers as of december 31 , 2018 . this is an increase in domestic customers of 30 , or 3 % , and an increase in international customers of 131 , or 18 % , compared to december 31 , 2018 . 2018 compared to 2017 revenue was $ 144.6 million for the year ended december 31 , 2018 compared to $ 104.9 million for the year ended december 31 , 2017 , an increase of $ 39.7 million , or 38 % . we had 1,582 customers and 227 enterprise customers as of 67 december 31 , 2018 . we had 1,439 customers and 170 enterprise customers as of december 31 , 2017 . this was an increase of 143 , or 10 % , in customers and 57 , or 34 % , in enterprise customers from december 31 , 2017 . approximately 95 % of our revenue in 2018 was driven by usage on our platform . the remainder of our revenue was generated by our other products and services , including support and professional services . u.s. revenue was $ 110.9 million and 77 % of revenue for the year ended december 31 , 2018 . u.s. revenue was $ 82.7 million and 79 % of revenue for the year ended december 31 , 2017 . this was an increase of $ 28.2 million , or 34 % , from u.s. revenue for the year ended december 31 , 2017 . international revenue was $ 33.7 million and 23 % of revenue for the year ended december 31 , 2018 . international revenue was $ 22.2 million and 21 % of revenue for the year ended december 31 , 2017 . this was an increase of $ 11.5 million , or 52 % , from international revenue for the year ended december 31 , 2017 . we had 830 domestic customers and 609 international customers in 2017. we had 861 domestic customers and 721 international customers in 2018. this
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economic uncertainty as well as increasing health insurance premiums , deductibles and co-payments have resulted and may continue to result in cost-conscious consumers focusing on acute care rather than wellness , which has and may continue to adversely affect demand for our products and procedures . furthermore , governments and other third-party payors around the world facing tightening budgets could move to further reduce the reimbursement rates or the scope of coverage offered , which could adversely affect sales of our products . if the current adverse macroeconomic conditions continue , our business and prospects may be negatively impacted . in march 2010 , significant reforms to the healthcare system were adopted as law in the united states . the law includes provisions that , among other things , reduce and or limit medicare reimbursement , require all individuals to have health insurance ( with limited exceptions ) and imposes new and or increased taxes . specifically , the law requires the medical device industry to subsidize healthcare reform in the form of a 2.3 % excise tax on united states sales of certain medical devices effective january 1 , 2013. the majority of our products fall under the government classification requiring the excise tax . product sales in the united states represented 74 % and 73 % of our worldwide net product sales for the years ended september 28 , 2013 and september 29 , 2012 , respectively . since the effective date of the medical device excise tax through september 28 , 2013 , the company has incurred $ 15.7 million of excise tax expense related to the domestic sales of its medical device products . the law also includes new regulatory mandates and other measures designed to constrain medical costs , as well as stringent new reporting requirements of financial relationships between medical device manufacturers and physicians and hospitals . we expect compliance with the new healthcare legislation , including these new reporting requirements and the new excise tax , to impose significant additional administrative and financial burdens on us . various healthcare reform proposals have also emerged at the state level and in various foreign countries . the healthcare reform legislation and these proposals could reduce medical procedure volumes and impact the demand for our products or the prices at which we sell our products . in addition , the excise tax has increased our cost of doing business . these reforms , cost containment measures and new taxes , including the uncertainty in the medical community regarding their nature and effect , could also have an adverse effect on our customers ' purchasing decisions regarding our products and treatments and could harm our business , results of operations , financial condition and prospects . we operate in a highly regulated industry and other governmental actions may adversely affect our business , operations or financial condition , including , without limitation : new laws , regulations or judicial decisions , or new interpretations of existing laws , regulations or decisions , related to healthcare availability , methods of delivery and payment for health care products and services ; changes in the fda and foreign regulatory approval 58 processes that may delay or prevent the approval of new products and result in lost market opportunity ; changes in fda and foreign regulations that may require additional safety monitoring , labeling changes , restrictions on product distribution or use , or other measures after the introduction of our products to market , any of which could increase our costs of doing business , adversely affect the future permitted uses of approved products , or otherwise adversely affect the market for our products and treatments ; new laws , regulations and judicial decisions affecting pricing or marketing practices ; and changes in the tax laws relating to our operations , including those associated with the recently adopted healthcare reform law discussed above . professional societies , government agencies , practice management groups , private health/science foundations , and organizations involved in healthcare issues may publish guidelines , recommendations or studies to the healthcare and patient communities from time to time . recommendations of government agencies or these other groups/organizations may relate to such matters as usage , cost-effectiveness , and use of related preventative services and treatments/therapies . recommendations , guidelines or studies that are followed by patients and healthcare providers could result in decreased reimbursement or use of our products . for example , in november 2012 , the american congress of obstetrics and gynecologists , known as the acog , released updates in which they have recommended less frequent cervical cancer screening similar to guidelines released in march 2012 by the u.s. preventative services task force , known as the uspstf , and the american cancer society . however , the uspstf recommendations now also include hpv co-testing for certain patient populations , an update from their draft guidelines in october 2011. overall , we believe that these guidelines have contributed to an increase in testing intervals in the u.s. for cervical cancer screening , resulting in fewer such tests being performed . over the last few years , there have been periodic significant fluctuations in foreign currencies relative to the u.s. dollar . the ongoing fluctuations of the value of the u.s. dollar may cause our products to be less competitive in international markets and may impact sales and profitability over time . historically , a majority of our capital equipment sales to international dealers were denominated in u.s. dollars . however , more sales are now denominated in the euro compared to the u.s. dollar for our euro zone dealers . in addition , we have international sales , principally in our diagnostics segment , that are denominated in foreign currencies . the value of these sales is also impacted by fluctuations in the value of the u.s. dollar . given the uncertainty in the worldwide financial markets , foreign currency fluctuations may be significant in the future and we may experience a material adverse effect on our international revenues and operating results . story_separator_special_tag acquisitions fiscal 2013 acquisitions : chindex medical limited on december 31 , 2012 , we acquired certain assets from chindex medical limited for a net purchase price of $ 4.4 million , including contingent consideration . chindex was a distributor of certain of our breast health products in china . we accounted for this transaction as the acquisition of a business pursuant to asc 805 and allocated the majority of the purchase price to customer relationships . senorx , inc. on may 31 , 2013 , through the settlement of litigation , we acquired certain assets related to senorx 's contura brachytherapy device for a net purchase price of $ 2.4 million . we accounted for this transaction as the acquisition of a business pursuant to asc 805 and allocated the majority of the purchase price to developed technology . 59 fiscal 2012 acquisitions : gen-probe incorporated on august 1 , 2012 , we completed the acquisition of gen-probe and acquired all of the outstanding shares of gen-probe . pursuant to the merger agreement , each share of common stock outstanding immediately prior to the effective time of the acquisition was cancelled and converted into the right to receive $ 82.75 in cash . in addition , all outstanding restricted shares , restricted stock units , performance shares , and those stock options granted prior to february 8 , 2012 were cancelled and converted into the right to receive $ 82.75 per share in cash less the exercise price , as applicable . stock options granted after february 8 , 2012 were cancelled and converted into stock options to acquire shares of hologic common stock determined by a conversion formula defined in the merger agreement . the total purchase price was $ 3.97 billion , which was funded through available cash and financing consisting of senior secured credit facilities and senior notes resulting in aggregate proceeds of $ 3.48 billion , net of discounts . the allocation of the purchase price was based on estimates of the fair value of assets acquired and liabilities assumed as of august 1 , 2012. the purchase price was allocated to the acquired assets and assumed liabilities based on management 's estimate of their fair values . certain of gen-probe 's assets were designated as assets held-for-sale and recorded at fair value less the estimated cost to sell such assets and were disposed of in fiscal 2013. these represented non-core assets to our business plan . as part of the purchase price allocation , we determined the identifiable intangible assets were developed technology of $ 1.7 billion , in-process research and development of $ 117.0 million , customer contracts of $ 585.0 million , and trade names of $ 95.0 million . the fair value of the intangible assets was estimated using the income approach , specifically the excess earning method and relief from royalty method , and the cash flow projections were discounted using rates ranging from 10 % to 12 % . the cash flows were based on estimates used to price the transaction , and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital . the developed technology assets comprised know-how , patents and technologies embedded in gen-probe 's products and related to currently marketed products and related instrument automation . in valuing the developed technology assets consideration was only given to products that had received regulatory approval . in-process research and development projects relate to in-process projects that have not reached technological feasibility as of the acquisition date and have no alternative future use . the primary basis for determining technological feasibility of these projects is obtaining regulatory approval to market the underlying product , which primarily pertains to receiving approval to perform certain diagnostic testing on gen-probe 's instrumentation , such as the panther and tigris systems . we recorded $ 117.0 million of in-process research and development projects related to six projects . three projects valued at $ 93.0 million received fda approval in fiscal 2013 and were transferred to developed technology . the other projects are expected to be completed over the next four years with a total estimated cost of approximately $ 49.0 million to complete such projects . given the uncertainties inherent with product development and introduction , we can give no assurance that any of our product development efforts will be successful , completed on a timely basis or within budget , if at all . all of the in-process research and development assets were valued using the multiple-period excess earnings method approach using a discount rate of 12.0 % . the excess of the purchase price over the estimated fair value of the tangible net assets and intangible assets acquired of $ 1.64 billion was recorded to goodwill . the factors contributing to the recognition of the amount of goodwill were based on several strategic and synergistic benefits that were expected to be realized from the gen-probe acquisition . these benefits included the expectation that the combined company 's complementary products in the molecular diagnostics market with gen-probe 's fully automated product franchise would significantly broaden the company 's offering in women 's health and diagnostics . the combined company should benefit from a broader global presence and with hologic 's direct sales force and marketing in europe and its investment in china distribution , the growth prospects of gen-probe 's products are expected to be enhanced significantly . the combined company anticipates significant cross-selling opportunities within the diagnostics market through hologic 's larger channel coverage and physician sales team . none of the goodwill is expected to be deductible for income tax purposes . 60 gen-probe 's revenue and pre-tax loss from continuing operations for the period from the acquisition date to september 29 , 2012 were $ 89.5 million and $ 47.7 million , respectively .
| 83 operating income for this business segment decreased in fiscal 2012 compared to fiscal 2011 primarily due to the net gain of $ 84.5 million on the sale of makena intellectual property to kv in the second quarter of fiscal 2011 compared to a net gain of $ 12.4 million recorded in the second quarter of fiscal 2012 for a scheduled payment received under the amended agreement . the balance of the decrease in fiscal 2012 of $ 131.4 million was due to higher operating expenses partially offset by an increase in gross margin in absolute dollars . while gross margin in absolute dollars increased , the gross margin rate declined to 50.5 % in fiscal 2012 compared to 53.9 % in fiscal 2011 as discussed above . operating expenses increased in fiscal 2012 primarily due to the inclusion of tct for a full year , which included an increase in contingent consideration compensation expense of $ 58.0 million , the inclusion of $ 42.4 million of operating expenses for gen-probe ( excluding restructuring charges and integration and retention costs ) , acquisition transaction and integration costs of approximately $ 42.0 million related to the gen-probe transaction , and restructuring charges of $ 14.8 million related to the consolidation of our diagnostics business as a result of the gen-probe acquisition . we also experienced higher expenses related to trade shows , higher compensation costs related to hiring additional personnel and annual salary increases , travel , and higher bad debt charges , primarily related to one international customer . gyn surgical . replace_table_token_21_th gyn surgical revenues increased in fiscal 2012 compared to fiscal 2011 due to the increase in product sales discussed above . this business segment incurred an operating loss in fiscal 2012 compared to income in fiscal 2011 primarily attributable to the inclusion of interlace 's operations ( acquired in the second quarter of fiscal 2011 ) , which included a charge of $ 41.8 million in fiscal 2012 to adjust the contingent consideration liability to fair value compared to aggregate contingent
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during the year ended december 31 , 2013 , we acquired seven facilities with an aggregate of 694 licensed beds including a 75-bed facility under construction , which opened on october 1 , 2013. in addition , we added 325 new beds during the year ended december 31 , 2013 , including opening two newly-developed facilities with a combined 102 licensed beds . we expect to add over 300 total beds during 2014 ( exclusive of acquisitions ) . we are the leading publicly traded pure-play provider of inpatient behavioral healthcare services based upon number of licensed beds in the united states . management believes that the company 's recent acquisitions described below position the company as a leading platform in a highly fragmented industry under the direction of an experienced management team that has significant industry expertise . management expects to take advantage of several strategies that are more accessible as a result of our increased size and geographic scale , including continuing a national marketing strategy to attract new patients and referral sources , increasing our volume of out-of-state referrals , providing a broader range of services to new and existing patients and clients and selectively pursuing opportunities to expand our facility and bed count . acquisitions on december 1 , 2013 , we completed the acquisition of the assets of cascade , an inpatient psychiatric facility with 63 licensed beds located in tukwila , washington , for cash consideration of $ 19.6 million . on october 1 , 2013 , we completed the acquisition of the assets of longleaf , an inpatient psychiatric facility with 68 licensed beds located in alexandria , louisiana , for cash consideration of $ 8.3 million . on august 1 , 2013 , we completed the acquisition of the refuge , an inpatient psychiatric facility near ocala , florida , with 87 licensed beds , for cash consideration of $ 14.1 million . on may 1 , 2013 , we completed the acquisition of the umc facilities , including san juan capestrano hospital in san juan , puerto rico , which is licensed for 108 beds and has a certificate of need for 100 additional beds , and a 75-bed inpatient behavioral healthcare hospital in tampa , florida , which opened on october 1 , 2013 , for cash consideration of $ 99.4 million . on january 31 , 2013 , we completed the acquisition of delta , a facility with 243 licensed beds located in memphis , tennessee with the majority of operating beds dedicated to inpatient psychiatric patients , for cash consideration of $ 23.0 million . on january 1 , 2013 , we completed the acquisition of the assets of greenleaf , an inpatient psychiatric facility with 50 licensed beds located in valdosta , georgia , for cash consideration of $ 6.3 million . on december 31 , 2012 , we completed the acquisition of bca and amicare . on november 11 , 2012 , we purchased 100 % of the membership interests of park royal . on august 31 , 2012 , we completed the acquisition of the assets of timberline knolls . on march 1 , 2012 , we completed the acquisition of the haven facilities . revenue our revenue is primarily derived from services rendered to patients for inpatient psychiatric and substance abuse care , outpatient psychiatric care and adolescent residential treatment . we receive payments from the following sources for services rendered in our facilities : ( i ) state governments under their respective medicaid and other programs ; ( ii ) commercial insurers ; ( iii ) the federal government under the medicare program administered by cms ; and ( iv ) individual patients and clients . revenue is recorded in the period in which services are provided at established billing rates less contractual adjustments based on amounts reimbursable by medicare or medicaid under provisions of cost or prospective reimbursement formulas or amounts due from other third-party payors at contractually determined rates . 28 story_separator_special_tag revenue before provision for doubtful accounts increased $ 194.1 million , or 88.4 % , to $ 413.9 million for the year ended december 31 , 2012 from $ 219.7 million for the year ended december 31 , 2011. the increase related primarily to the revenue generated during the year ended december 31 , 2012 from the yfcs facilities acquired on april 1 , 2011 , phc facilities acquired on november 1 , 2011 , the haven facilities acquired on march 1 , 2012 , timberline knolls acquired on august 31 , 2012 and park royal acquired on november 11 , 2012 , which were not included in our results for periods prior to the acquisitions . same-facility revenue before provision for doubtful accounts for the year ended december 31 , 2012 increased by $ 20.5 million , or 9.3 % , compared to the year ended december 31 , 2011 , primarily resulting from same-facility growth in patient days of 9.3 % . the growth in same-facility patient days for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 resulted from the addition of beds to our existing facilities and ongoing demand for our services . 30 provision for doubtful accounts . the provision for doubtful accounts was $ 6.4 million for the year ended december 31 , 2012 , or 1.5 % of revenue before provision for doubtful accounts , compared to $ 3.2 million for the year ended december 31 , 2011 , or 1.5 % of revenue before provision for doubtful accounts . the same-facility provision for doubtful accounts was $ 3.5 million for the year ended december 31 , 2012 , or 1.4 % of revenue before provision for doubtful accounts , compared to $ 3.2 million for the year ended december 31 , 2011 , or 1.5 % of revenue before provision for doubtful accounts . story_separator_special_tag the increase related primarily to the provision for doubtful accounts recorded during the year ended december 31 , 2012 from the yfcs facilities acquired on april 1 , 2011 , phc facilities acquired on november 1 , 2011 , the haven facilities acquired on march 1 , 2012 , timberline knolls acquired on august 31 , 2012 and park royal acquired on november 11 , 2012 , which were not included in our results for periods prior to the acquisitions . salaries , wages and benefits . swb expense was $ 239.6 million for the year ended december 31 , 2012 compared to $ 152.6 million for the year ended december 31 , 2011 , an increase of $ 87.0 million . swb expense included $ 2.3 million and $ 17.3 million of equity-based compensation expense for the year ended december 31 , 2012 and 2011 , respectively . excluding equity-based compensation expense , swb expense was $ 237.4 million , or 58.3 % of revenue , for the year ended december 31 , 2012 , compared to $ 135.3 million , or 62.5 % of revenue , for the year ended december 31 , 2011. the $ 102.1 million increase in swb expense , excluding equity-based compensation expense , was primarily attributable to the hiring of additional employees in connection with the acquisition of the phc facilities on november 1 , 2011 , the haven facilities on march 1 , 2012 , timberline knolls on august 31 , 2012 and park royal on november 11 , 2012. the decrease in swb expense , excluding equity-based compensation expense , as a percentage of revenue was primarily the result of savings in employee benefit costs and lower swb expense incurred by the phc facilities acquired on november 1 , 2011 , the haven facilities acquired on march 1 , 2012 and timberline knolls acquired on august 31 , 2012. same-facility swb expense was $ 133.0 million for the year ended december 31 , 2012 , or 56.2 % of revenue , compared to $ 127.1 million for the year ended december 31 , 2011 , or 58.7 % of revenue . professional fees . professional fees were $ 19.0 million for the year ended december 31 , 2012 , or 4.7 % of revenue , compared to $ 8.9 million for the year ended december 31 , 2011 , or 4.1 % of revenue . the increase in professional fees as a percentage of revenue was primarily attributable to the higher professional fees incurred by our corporate office after becoming a public company on november 1 , 2011 and higher professional fees associated with the phc facilities acquired on november 1 , 2011 and timberline knolls acquired on august 31 , 2012. same-facility professional fees were $ 7.2 million for the year ended december 31 , 2012 , or 3.1 % of revenue , compared to $ 7.6 million , for the year ended december 31 , 2011 , or 3.5 % of revenue . supplies . supplies expense was $ 19.5 million for the year ended december 31 , 2012 , or 4.8 % of revenue , compared to $ 11.3 million for the year ended december 31 , 2011 , or 5.2 % of revenue . the $ 8.1 million increase in supplies expense was primarily attributable to the acquisitions of yfcs on april 1 , 2011 , phc on november 1 , 2011 , the haven facilities on march 1 , 2012 , timberline knolls on august 31 , 2012 and park royal on november 11 , 2012. same-facility supplies expense was $ 11.4 million for the year ended december 31 , 2012 , or 4.8 % of revenue , compared to $ 11.3 million for the year ended december 31 , 2011 , or 5.2 % of revenue . rents and leases . rents and leases were $ 7.8 million for the year ended december 31 , 2012 , or 1.9 % of revenue , compared to $ 5.6 million for the year ended december 31 , 2011 , or 2.6 % of revenue . the decrease in rents and leases as a percentage of revenue was primarily attributable to the acquisition of the haven facilities , which are owned facilities , on march 1 , 2011 , the purchase of the property previously leased by timberline knolls and the purchase of six facilities that we previously leased during 2012. same-facility rents and leases were $ 4.2 million for the year ended december 31 , 2012 , or 1.8 % of revenue , compared to $ 5.1 million for the year ended december 31 , 2011 , or 2.4 % of revenue . other operating expenses . other operating expenses consist primarily of purchased services , utilities , insurance , travel and repairs and maintenance expenses . other operating expenses were $ 42.8 million for the year ended december 31 , 2012 , or 10.5 % of revenue , compared to $ 20.2 million for the year ended december 31 , 2011 , or 9.3 % of revenue . the increase in other operating expenses as a percentage of revenue was primarily attributable to slight increases in various components of other operating expenses . same-facility other operating expenses were $ 24.0 million for the year ended december 31 , 2012 , or 10.1 % of revenue , compared to $ 19.5 million for the year ended december 31 , 2011 , or 9.0 % of revenue . depreciation and amortization . depreciation and amortization expense was $ 8.0 million for the year ended december 31 , 2012 , or 2.0 % of revenue , compared to $ 4.3 million for the year ended december 31 , 2011 , or 2.0 % of revenue .
| the same-facility provision for doubtful accounts was $ 8.9 million for the year ended december 31 , 2013 , or 2.0 % of revenue before provision for doubtful accounts , compared to $ 6.3 million for the year ended december 31 , 2012 , or 1.6 % of revenue before provision for doubtful accounts . salaries , wages and benefits . salaries , wages and benefits ( swb ) expense was $ 408.0 million for the year ended december 31 , 2013 compared to $ 239.6 million for the year ended december 31 , 2012 , an increase of $ 168.4 million . swb expense included $ 5.2 million and $ 2.3 million of equity-based compensation expense for the year ended december 31 , 2013 and 2012 , respectively . excluding equity-based compensation expense , swb expense was $ 402.8 million , or 56.4 % of revenue , for the year ended december 31 , 2013 , compared to $ 237.4 million , or 58.3 % of revenue , for the year ended december 31 , 2012. the $ 165.3 million increase in swb expense , excluding equity-based compensation expense , was primarily attributable to the hiring of additional employees in connection with the 2012 and 2013 acquisitions . same-facility swb expense was $ 235.4 million for the year ended december 31 , 2013 , or 53.9 % of revenue , compared to $ 216.2 million for the year ended december 31 , 2012 , or 54.4 % of revenue . professional fees . professional fees were $ 37.2 million for the year ended december 31 , 2013 , or 5.2 % of revenue , compared to $ 19.0 million for the year ended december 31 , 2012 , or 4.7 % of revenue . the increase in professional fees as a percentage of revenue was primarily attributable to higher professional fees incurred by the facilities acquired in our 2012 and 2013 acquisitions , which had higher professional fees as a percentage of revenue than our facilities acquired prior to 2012. same-facility professional fees were $ 13.7 million for the year ended december 31 , 2013 , or 3.1 % of revenue , compared to $ 13.3 million , for the year ended december 31 , 2012 , or 3.3 % of revenue . 29 supplies . supplies expense was $ 37.6 million for the year ended december 31 , 2013 , or
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for a discussion of additional factors that could materially adversely affect the company 's and the operating partnership 's business and financial performance , see the discussion below as well as “ item 1a . risk factors , ” and in our other filings with the sec . all forward-looking statements are based on information that was available and speak only as of the dates on which they were made . we assume no obligation to update any forward-looking statement that becomes untrue because of subsequent events , new information or otherwise , except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws . company overview we are a self-administered reit active in premier office and mixed-use submarkets along the west coast . we own , develop , acquire and manage real estate assets , consisting primarily of class a properties in the coastal regions of greater los angeles , orange county , san diego county , the san francisco bay area and greater seattle , which we believe have strategic advantages and strong barriers to entry . we own our interests in all of our real properties through the operating partnership and the finance partnership and generally conduct substantially all of our operations through the operating partnership . we owned an approximate 98.0 % and 97.9 % general partnership interest in the operating partnership as of december 31 , 2018 and 2017 , respectively . all of our properties are held in fee except for the thirteen office buildings that are held subject to long-term ground leases for the land ( see note 18 “ commitments 54 and contingencies ” to our consolidated financial statements included in this report for additional information regarding our ground lease obligations ) . 2018 operating and development highlights 2018 was an excellent year across the company . we achieved a company record in annual leasing and continued to create value in our operating and development platforms that we believe will drive future earnings and dividend growth . leasing . during 2018 , we executed new and renewal leases totaling 2.8 million square feet within our stabilized portfolio with an increase in gaap rents of 36.0 % and an increase in cash rents of 14.8 % . the occupancy of our stabilized office portfolio was 94.4 % as of december 31 , 2018 . we also signed approximately 0.6 million square feet of leases in our development portfolio . development . we continued to execute on our development program during 2018 , with two development projects progressing from the construction phase to the tenant improvement phase , commencing construction on two projects and acquiring a 39 -acre waterfront development site in south san francisco for approximately $ 308.2 million . the site is fully entitled for 2.5 million square feet of office and laboratory space . see “ —factors that may influence future operations ” for additional information . capital recycling program . we have continued to utilize our capital recycling program to provide additional capital to finance development expenditures , fund potential acquisitions , repay long-term debt and for other general corporate purposes . our general strategy is to target the disposition of non-core properties or those that have limited upside for us and redeploy the capital into acquisitions and or development projects where we can create additional value to generate higher returns ( see “ —factors that may influence future operations ” for additional information ) . in connection with this strategy , during 2018 , we generated gross sales proceeds totaling approximately $ 373.0 million through the sale of 11 office buildings . operating property acquisitions . we remain a disciplined buyer of office properties and development opportunities and continue to focus on value-add opportunities in west coast markets populated by knowledge and creative based tenants in a variety of industries , including technology , media , health care , life sciences , entertainment and professional services . during 2018 , we acquired three office buildings in south san francisco and an office building in san francisco totaling 255,560 rentable square feet of office and laboratory space in two separate transactions for a total purchase price of approximately $ 257.0 million . 2018 financing highlights in 2018 , we raised approximately $ 783.8 million in new equity and debt , entered into forward equity sale agreements to sell 5,000,000 shares of common stock , commenced a new $ 500.0 million at-the-market stock offering program and redeemed approximately $ 250.0 million in more expensive debt . refer to our 2018 financing highlights in “ —liquidity and capital resources of the operating partnership ” for a list of financing transactions completed in 2018 and notes 9 and 13 , “ secured and unsecured debt of the operating partnership ” and “ stockholders ' equity of the company , ” respectively , to our consolidated financial statements included in this report for additional information regarding our debt and capital market activity . critical accounting policies the preparation of financial statements in conformity with gaap requires us to make estimates , assumptions , and judgments that affect the reported amounts of assets , liabilities , and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting periods . certain accounting policies are considered to be critical accounting policies . critical accounting policies are those policies that require our management team to make significant estimates and or assumptions about matters that are uncertain at the time the estimates and or assumptions are made or where we are required to make significant judgments 55 and assumptions with respect to the practical application of accounting principles in our business operations . critical accounting policies are by definition those policies that are material to our financial statements and for which the impact of changes in estimates , assumptions , and judgments could have a material impact to our financial statements . story_separator_special_tag the following critical accounting policies discussion reflects what we believe are the most significant estimates , assumptions , and judgments used in the preparation of our consolidated financial statements . this discussion of our critical accounting policies is intended to supplement the description of our accounting policies in the footnotes to our consolidated financial statements and to provide additional insight into the information used by management when evaluating significant estimates , assumptions , and judgments . for further discussion of our significant accounting policies , see note 2 “ basis of presentation & significant accounting policies ” to our consolidated financial statements included in this report . rental revenue recognition rental revenue for office operating properties is our principal source of revenue . the timing of when we commence rental revenue recognition for office and life science properties depends largely on our conclusion as to whether we are or the tenant is the owner for accounting purposes of tenant improvements at the leased property . when we conclude that we are the owner of tenant improvements for accounting purposes , we record the cost to construct the tenant improvements as an asset , and we commence rental revenue recognition when the tenant takes possession of or controls the finished space , which is typically when the improvements being recorded as our asset are substantially complete . the determination of whether we are or the tenant is the owner of tenant improvements for accounting purposes is subject to significant judgment . in making that determination , we consider numerous factors and perform a detailed evaluation of each individual lease . no one factor is determinative in reaching a conclusion . the factors we evaluate include but are not limited to the following : whether the lease agreement requires landlord approval of how the tenant improvement allowance is spent prior to installation of the tenant improvements ; whether the lease agreement requires the tenant to provide evidence to the landlord supporting the cost and what the tenant improvement allowance was spent on prior to payment by the landlord for such tenant improvements ; whether the tenant improvements are unique to the tenant or reusable by other tenants ; whether the tenant is permitted to alter or remove the tenant improvements without the consent of the landlord or without compensating the landlord for any lost utility or diminution in fair value ; and whether the ownership of the tenant improvements remains with the landlord or remains with the tenant at the end of the lease term . in addition , we also record the cost of certain tenant improvements paid for or reimbursed by tenants when we conclude that we are the owner of such tenant improvements using the factors discussed above . for these tenant-funded tenant improvements , we record the amount funded or reimbursed by tenants as deferred revenue , which is amortized and recognized as rental revenue over the term of the related lease beginning upon substantial completion of the leased premises . during the years ended december 31 , 2018 , 2017 , and 2016 , we capitalized $ 22.5 million , $ 22.0 million and $ 22.3 million , respectively , of tenant-funded tenant improvements . the amount of tenant-funded tenant improvements recorded in any given year varies based upon the mix of specific leases executed and or commenced during the reporting period . for the years ended december 31 , 2018 , 2017 , and 2016 , we recognized $ 18.4 million , $ 16.8 million and $ 13.2 million , respectively , of non-cash rental revenue related to the amortization of deferred revenue recorded in connection with tenant-funded tenant improvements . when we conclude that we are not the owner and the tenant is the owner of certain tenant improvements for accounting purposes , we record our contribution towards those tenant-owned improvements as a lease incentive , which 56 is amortized as a reduction to rental revenue on a straight-line basis over the term of the related lease , and rental revenue recognition begins when the tenant takes possession of or controls the space . our determination as to whether we are or the tenant is the owner of tenant improvements for accounting purposes is made on a lease-by-lease basis and has a significant impact on the amount of non-cash rental revenue that we record related to the amortization of deferred revenue for tenant-funded tenant improvements , and also has a significant effect on the timing of commencement of revenue recognition . for residential properties , we commence revenue recognition upon occupancy of the premises by the tenant . residential rental revenue is recognized on a straight-line basis over the term of the related lease , net of any concessions . tenant reimbursement revenue reimbursements from tenants consist of amounts due from tenants for common area maintenance , real estate taxes , and other recoverable costs , including capital expenditures . calculating tenant reimbursement revenue requires an in-depth analysis of the complex terms of each underlying lease . examples of judgments and estimates used when determining the amounts recoverable include : estimating the final expenses , net of accruals , that are recoverable ; estimating the fixed and variable components of operating expenses for each building ; conforming recoverable expense pools to those used in establishing the base year or base allowance for the applicable underlying lease ; and concluding whether an expense or capital expenditure is recoverable pursuant to the terms of the underlying lease . during the year , we accrue estimated tenant reimbursement revenue in the period in which the tenant reimbursable costs are incurred based on our best estimate of the amounts to be recovered . throughout the year , we perform analyses to properly match tenant reimbursement revenue with reimbursable costs incurred to date . additionally , during the fourth quarter of each year , we perform preliminary reconciliations and accrue additional tenant reimbursement revenue or refunds .
| our net cash used in investing activities increased by $ 449.8 million , or 125.3 % , for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to development and operating property acquisitions totaling $ 568.6 million for the year ended december 31 , 2018 compared to $ 19.8 million for the year ended december 31 , 2017 , as well as an increase in spending on development projects and operating property leasing and capital expenditures during the year ended december 31 , 2018 , partially offset by $ 181.8 million of higher net proceeds received from dispositions during the year ended december 31 , 2018 . financing activities our cash flows from financing activities is principally impacted by our capital raising activities , net of dividends and distributions paid to common and preferred security holders . during the year ended december 31 , 2018 we had net cash provided by financing activities of $ 503.1 million compared to net cash used in financing activities during the year ended december 31 , 2017 of $ 171.2 million , primarily due to higher borrowings and issuances of unsecured debt during the year ended december 31 , 2018 , as well as $ 200.0 million of cash paid to redeem the company 's series g preferred stock and series h preferred stock and $ 184.3 million of special dividends paid during the year ended december 31 , 2017 . off-balance sheet arrangements as of december 31 , 2018 and as of the date this report was filed , we did not have any off-balance sheet transactions , arrangements , or obligations , including contingent obligations . 93 non-gaap supplemental financial measure : funds from operations we calculate ffo in accordance with the white paper on ffo approved by the board of governors of nareit . the white paper defines ffo as net income or loss calculated in accordance with gaap , excluding extraordinary items , as defined by gaap , gains and losses from sales of depreciable real estate and impairment write-downs associated with depreciable real estate , plus real estate-related depreciation and amortization ( excluding amortization of deferred financing costs and depreciation of non-real estate assets ) and after adjustment for unconsolidated partnerships and joint ventures . our
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room revenue measures : hotel occupancy rate measures the utilization of our available rooms ; and average daily rate ( `` adr '' ) is a price measure . results of operations overview replace_table_token_6_th net revenues the increases in our net revenues over the periods presented are primarily due to our strategic acquisitions . in 2013 , net revenues increased approximately $ 411.6 million , or 16.6 % , over the prior year due to the $ 463.4 million of incremental revenues contributed 36 by peninsula , which was acquired in november 2012 ( the “ peninsula acquisition ” ) . partially offsetting this increase was a $ 60.0 million decline in revenues from the midwest and south segment due primarily to a decrease in slot volume . net revenues increased approximately $ 152.0 million , or 6.5 % , for 2012 as compared to 2011 due primarily to the $ 143.0 million in incremental revenues contributed by ip casino resort spa ( “ ip ” ) in biloxi , mississippi , which was acquired in october 2011 , and the addition of peninsula , which contributed $ 56.9 million in net revenues during 2012 for the period following its acquisition . these increases were partially offset by reductions in revenues from our las vegas locals segment and borgata . operating income ( loss ) the variations in our reported operating income ( loss ) over the periods presented are primarily due to $ 1.05 billion of non-recurring , non-cash impairment charges recorded in 2012 , which included $ 993.9 million related to the echelon project and $ 17.5 million related to the write-down of the sam 's town shreveport gaming license . in 2013 , our operating income increased $ 1.13 billion over the operating loss reported for 2012 , reflecting the impact of the 2012 impairment charges and the contribution of $ 64.8 million in incremental operating income from peninsula . in 2012 , the reported operating loss reflected a $ 1.09 billion decrease from the operating income reported in 2011. the decrease is due primarily to the 2012 impairment charges and to the increase in other operating items , net , reflecting charges of $ 18.7 million related to the acquisition of peninsula and the evaluation of other acquisition opportunities . net loss attributable to boyd gaming corporation the variations in the net loss attributable to boyd gaming corporation over the reporting periods are also primarily due to the 2012 impairment charges . also contributing to the variations are increases in interest expense due to the incremental debt incurred to fund acquisitions and the impact on the net loss of our income tax provision . these items are discussed further below . operating revenues we derive the majority of our gross revenues from our gaming operations , which generated approximately 74 % , 72 % and 72 % of gross revenues for 2013 , 2012 and 2011 , respectively . food and beverage gross revenues represent our next most significant revenue source , generating approximately 13 % , 14 % and 14 % of gross revenues for 2013 , 2012 and 2011 , respectively . room revenues and other revenues separately contributed less than 10 % of gross revenues during each year . the shift in the mix of our revenues is primarily due to the fourth quarter 2012 acquisition of peninsula , whose properties generally offer fewer amenities than our other properties and , in particular , do not have hotels . 37 replace_table_token_7_th gaming gaming revenues are comprised primarily of the net win from our slot machine operations and to a lesser extent from table games win . gaming revenues increased by 17.7 % during 2013 as compared to the prior year primarily due to the $ 431.4 million increase in gaming revenues contributed by peninsula . partially offsetting the increase was a $ 63.2 million decrease in gaming revenues in our midwest and south segment . excluding peninsula , our overall slot handle decreased 4.0 % , while slot hold remained relatively unchanged in 2013 compared to 2012. gaming margin increased by 0.6 percentage points due to our continuing focus on cost containment measures . gaming revenues increased by $ 124.0 million , or 6.3 % , during 2012 as compared to the prior year primarily due to a $ 118.6 million increase in gaming revenues at ip , compared to gaming revenues contributed by ip in the prior year following its october 2011 acquisition . excluding ip and peninsula , overall slot handle decreased 1.7 % , while slot hold remained relatively unchanged compared to the prior year . although gaming margins decreased slightly from 53.6 % to 52.2 % , we continue to focus on our cost containment measures . food and beverage food and beverage revenues increased $ 29.2 million , or 7.0 % , during 2013 as compared to 2012 due to the $ 35.2 million increase in food and beverage revenues contributed by peninsula , which was offset by a $ 5.2 million decline in the midwest and south segment . excluding peninsula , the number of food covers decreased 7.1 % , while the average guest check increased 2.7 % . the $ 20.6 million increase in food and beverage expense is due to the inclusion of a full year of expense for peninsula . in 2012 , food and beverage revenues increased by $ 29.4 million , or 7.6 % , as compared to 2011 primarily due to a $ 28.0 million increase in food and beverage revenues at ip , compared to revenues for the period from consummation on october 4 , 2011 through december 31 , 2011 , and the addition of $ 4.0 million in revenues following the acquisition of peninsula . excluding peninsula , the number of food covers increased 5.9 % , and the average guest check increased 2.1 % . the $ 23.6 million increase in food and beverage expense is due to the 5.9 % increase in food covers and a 3.6 % increase in the cost per cover . room room revenues increased by $ 0.5 story_separator_special_tag million in 2013 compared to 2012. room revenues were unaffected by the peninsula acquisition , since the peninsula properties do not offer hotels . adr and hotel occupancy decreased 1.5 % and 0.5 % , respectively , largely driven by a decrease in leisure travel . room margins improved by 0.5 % due to our focus on cost containment measures . 38 in 2012 , room revenues increased by $ 18.7 million , or 7.6 % , of which ip contributed $ 23.1 million in incremental revenues compared to the prior year period from its acquisition consummation on october 4 , 2011 through december 31 , 2011. adr increased 1.5 % , which was slightly offset by a 1.7 percentage point decrease in hotel occupancy largely driven by a decrease in leisure travel . room margins improved from 77.2 % to 79.0 % due to our cost containment measures , as the increase in our cost per room of less than 1.0 % was more than offset by the 1.5 % increase in adr . other other revenues increased by $ 20.0 million , or 13.8 % , of which peninsula contributed $ 16.2 million in incremental revenues during 2013 compared to 2012. other expenses increased by $ 10.6 million primarily due to the incremental expenses from peninsula . other operating margin improved 2.8 percentage points due to our cost containment measures . during 2012 , other revenues increased by $ 10.6 million , or 7.9 % , of which ip contributed $ 9.0 million in incremental revenues compared to the prior year period from consummation on october 4 , 2011 through december 31 , 2011. additionally , the peninsula acquisition that closed on november 20 , 2012 , resulted in $ 1.7 million of incremental other revenues for 2012. related other expenses remained relatively flat as compared to the prior year due to our cost containment measures , resulting in an increase in overall margins . revenues by reportable segment the following table presents our net revenues by reportable segment for 2013 , 2012 and 2011. replace_table_token_8_th las vegas locals net revenues for our las vegas locals segment in 2013 were essentially flat as compared to the prior year . declines of 1.0 % in gaming revenues and food and beverage revenues were offset by a 3.8 % increase in room revenues and a 3.8 % reduction in promotional allowances . the decline in gross gaming revenues reflects a 4.1 % decline in slot drop , partially offset by a 1.3 % increase in table drop . in 2012 , net revenues declined 2.3 % as compared to the prior year . an elevated promotional environment created by local competition resulted in a 2.7 % increase in promotional allowances during 2012. additionally , gross gaming revenues decreased $ 13.0 million primarily due to 4.3 % and 1.7 % decreases in table game drop and slot drop , respectively , which were only partially offset by slight increases in table game and slot hold . these decreases were also partially offset by sales growth generated in our food and beverage outlets as food covers increased 3.2 % , resulting in a $ 2.3 million increase in food and beverage revenues as compared to the prior year . downtown las vegas net revenues decreased by 0.7 % in 2013 as compared to the prior year due to a 1.0 % decline in gaming revenues , which was primarily due to a decline in slot drop . in 2012 , net revenues were virtually unchanged as compared to 2011. we experienced a 2.4 % decrease in the hotel occupancy rate due to a challenging leisure travel market , primarily driven by a 7.3 % decrease in our hawaiian occupied rooms compared to the prior year . additionally , we experienced a $ 2.2 million decrease in gaming revenue due to a 1.8 % decrease in slot drop . these decreases were offset by a $ 1.1 million increase in food and beverage revenues and a decrease of $ 0.8 million in promotional allowances due to our cost containment focus . 39 midwest and south net revenues decreased by $ 60.0 million during 2013 as compared to 2012. this decrease was primarily due to a $ 59.2 million , or 7.0 % , decrease in gaming revenues . table game drop and slot handle decreased 5.0 % and 7.2 % , respectively , as compared to prior year . food and beverage revenues and room revenues also declined by 4.0 % and 3.8 % , respectively . food covers decreased 7.1 % , while the average guest check increased 2.7 % . occupancy decline 2.9 percentage points and adr decreased 0.5 % in the segment . net revenues increased by $ 152.8 million during 2012 , as compared to 2011. the increase in net revenues was due to the acquisition of ip , which contributed $ 187.9 million in net revenues in 2012 compared to $ 44.6 million in net revenues for the period following its acquisition in the fourth quarter of 2011 , an increase of $ 143.3 million . including ip , food covers increased 24.3 % and the average guest check increased 8.7 % . similarly , including ip , table game drop and slot handle increased 34.3 % and 16.6 % , respectively , as compared to the prior year . peninsula the increase in net revenues for the peninsula segment reflects the full year contribution in 2013 , as compared to only a partial year in 2012 for the period following the november 20 , 2012 acquisition . for 2012 , net revenues were $ 56.9 million for the period of acquisition from november 20 , 2012 to december 31 , 2012. the segment reported growth from the prior year when peninsula was a standalone company , due to a full year of contributions from the kansas star , which commenced operations on december 20 , 2011. borgata net revenues for 2013 , as compared to 2012 , increased by $ 9.5 million , or 1.4 % .
| in 2013 , our net cash outflows for financing activities totaled $ 366.2 million as we used cash generated from operations , an equity offering and asset dispositions to extinguish outstanding debt . in 2012 and 2011 , financing activities provided us with net cash inflows of $ 1.3 billion and $ 142.4 million , respectively , as we borrowed additional funds to support the acquisitions completed in those periods . cash flows from discontinued operations as a result of the may 2013 sale , we have presented the results of the dania jai-alai business as discontinued operations for all periods presented . the net cash inflow of $ 54.6 million in 2013 reflects the excess of the net selling proceeds of $ 56.8 million over the cash used in operations prior to the sale of $ 2.1 million . the results for 2012 reflect primarily the net cash used to fund dania jai-alai 's operations in that period . in 2011 , the net cash inflow of $ 2.5 million reflects the excess of $ 7.0 million in deposits and fees received from a potential buyer over the cash used to fund operations . 45 indebtedness the balances of long-term debt for each of the businesses as of december 31 , 2013 and 2012 , and the changes in those balances are as follows : replace_table_token_13_th the amount of current maturities includes certain non-extending balances scheduled to be repaid within the next twelve months under the bank credit facilities . boyd gaming debt new credit facility on august 14 , 2013 , we entered into a third amended and restated credit agreement ( the `` new credit facility '' ) , among the company , certain financial institutions , bank of america , n.a. , as administrative agent and letter of credit issuer , and wells fargo bank , national association , as swing line lender . the new credit facility replaced the second amended and restated credit agreement ( the `` prior credit facility '' ) dated as of december 17 , 2010. the new credit facility provides for ( i ) a $ 600.0 million
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such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates . in reaching such decisions , management applies judgment based on its understanding and analysis of the relevant facts and circumstances . certain of the company 's accounting policies are critical , as these policies are most important to the presentation of the company 's consolidated results of operations and financial condition . they require the greatest use of judgments and estimates by management based on the company 's historical experience and management 's knowledge and understanding of current facts and circumstances . management periodically re-evaluates and adjusts the estimates that are used as circumstances change . following are the accounting policies management considers critical to the company 's consolidated results of operations and financial condition : environmental remediation liabilities the company 's accounting policy on environmental remediation is critical because it requires significant judgments and estimates by management , involves changing regulations and approaches to remediation plans , and any revisions could be material to the operating results of any fiscal quarter or fiscal year . the company is subject to an array of environmental laws and regulations relating to the protection of the environment . in particular , the company committed to remediate environmental contamination of the groundwater at , and land adjacent , to its lindsay , nebraska facility ( the “ site ” ) with the epa . the company and its environmental consultants have developed a remedial alternative work plan , under which the company continues to work with the epa to define and implement steps to better contain and remediate the remaining contamination . environmental remediation liabilities include costs directly associated with site investigation and clean up , such as materials , external contractor costs , and incremental internal costs directly related to the remedy . estimates used to record environmental remediation liabilities are based on the company 's best estimate of probable future costs based on site-specific facts and circumstances . estimates of the cost for the likely remedy are developed using internal resources or by third-party environmental engineers or other service providers . the company records the undiscounted environmental remediation liabilities that represent the points in the range of estimates that are most probable , or the minimum amount when no amount within the range is a better estimate than any other amount . during the second quarter of fiscal 2016 , the company completed its testing for a feasibility study which clarified the extent of contamination , including the identification of a source of contamination near the manufacturing building that was not part of the area for which reserves were previously established . the company , together with its third-party environmental experts , participated in a preliminary meeting with the epa and the nebraska department of environmental quality ( the “ ndeq ” ) during the third quarter of fiscal 2016 to review remediation alternatives and proposed plans for the site and submitted its remedial alternatives evaluation report to the epa in august 2016. the proposed remediation plan is preliminary and has not been approved by the epa or the ndeq . based on guidance from third-party environmental experts and the preliminary discussions held with the epa , the company anticipates that a definitive plan will not be agreed upon until fiscal 2019 or later . the company accrues the anticipated cost of environmental remediation when the obligation is probable and can be reasonably estimated . although the company has accrued reasonably estimable costs associated with remediation of the site , additional testing , environmental monitoring , and remediation could be required in the future as part of the company 's ongoing discussions with the epa regarding the development and implementation of the remedial action plans . while any revisions could be material to the operating results of any fiscal quarter or fiscal year , the company does not expect such additional expenses would have a material adverse effect on its liquidity or financial condition . 22 financial overview and outlook operating revenues in fiscal 2018 were $ 547.7 million , a six percent increase compared to $ 518.0 million in the prior year . irrigation segment revenues increased five percent to $ 439.9 million and infrastructure segment revenues increased eight percent to $ 107.8 million . net earnings for fiscal 2018 were $ 20.3 million or $ 1.88 per diluted share compared with $ 23.2 million or $ 2.17 per diluted share in the prior year . net earnings for fiscal 2018 were reduced by tax expense of $ 2.5 million , or $ 0.23 per diluted share , due to the enactment of significant tax reform in the united states ( “ u.s . tax reform ” ) and by after-tax costs of $ 8.8 million , or $ 0.82 per diluted share , related to the company 's foundation for growth initiative . foundation for growth is a focused performance improvement initiative that includes setting strategic direction , defining priorities , and improving overall operating performance . a key financial objective is to achieve operating margin performance of 11 percent to 12 percent in fiscal 2020 exclusive of market changes . during fiscal 2018 , in connection with a portfolio review of business investments , the company committed to a plan of divestiture of its pump and filtration businesses , a company-owned irrigation dealership and a company-owned water resource consulting firm , all of which are reported in the irrigation segment . the combined revenues from these businesses were approximately $ 80 million in fiscal 2018. the company completed the divestiture of its pump and filtration businesses and the company-owned water resource consulting firm during the fourth quarter of fiscal 2018 , recognizing a loss on disposal of $ 4.1 million . the investment in the company-owned dealership is classified as held-for-sale in the august 31 , 2018 consolidated balance sheet . story_separator_special_tag in addition , during the fourth quarter of fiscal 2018 , the company closed one of its infrastructure manufacturing facilities in north america and consolidated it with an existing irrigation manufacturing facility . results for fiscal 2018 include pre-tax costs of $ 9.7 million in connection with the foundation for growth initiative , including the loss from business divestitures along with severance costs , plant closing costs and professional consulting fees . these costs , and additional future costs anticipated in connection with this initiative , are expected to be recovered through improved operating income in fiscal 2020. the company 's irrigation revenues are highly dependent upon the need for irrigated agricultural crop production , which , in turn , depends upon many factors , including the following primary drivers : agricultural commodity prices - as of august 2018 , c orn prices have increased approximately two percent and soybean prices have decreased approximately eleven percent from august 2017. commodity prices , although somewhat improved over the prior year , continue to be substantially lower than the peak prices in 2013. net farm income - as of august 2018 , the u.s. department of agriculture ( the “ usda ” ) estimated u.s. 2018 net farm income to be $ 65.7 billion , down 13 percent from the usda 's final u.s. 2017 net farm income of $ 75.5 billion . weather conditions – demand for irrigation equipment is often positively affected by storm damage and prolonged periods of drought conditions as producers look for ways to reduce the risk of low crop production and crop failures . conversely , demand for irrigation equipment can be negatively affected during periods of more predictable or excessive natural precipitation . governmental policies - a number of government laws and regulations can impact the company 's business , including : o the agricultural act of 2014 provides a degree of certainty to growers by adopting a five-year farm bill . this law continued many of the existing programs , including funding for the environmental quality incentives program , which provides financial assistance to farmers to implement conservation practices , and is frequently used to assist in the purchase of center pivot irrigation systems . o u.s. tax reform enacted in december 2017 increased the benefit of certain tax incentives , such as the section 179 income tax deduction and section 168 bonus depreciation , which are intended to encourage equipment purchases . these incentives could benefit equipment sales in the future . 23 o biofuel production continues to be a major demand driver for irr igated corn , sugar cane and soybeans as these crops are used in high volumes to produce ethanol and biodiesel . in july 2018 , the epa proposed to maintain the 201 9 ethanol production target levels at the same levels as the 2018 requirements . o many international markets are affected by government policies such as subsidies and other agriculturally related incentives . while these policies can have a significant effect on individual markets , they typically do not have a material effect on the consolidated results of the company . currency –the value of the u.s. dollar fluctuates in relation to the value of currencies in a number of countries to which the company exports products and maintains local operations . the strengthening of the dollar increases the cost in the local currency of the products exported from the u.s. into these countries and , therefore , could negatively affect the company 's international sales and margins . in addition , the u.s. dollar value of sales made in any affected foreign currencies will decline as the value of the dollar rises in relation to these other currencies . after a four-year cyclical downturn in our u.s. irrigation business , the market reached a level of stabilization during the first half of fiscal 2018 which , along with general economic optimism , contributed to improved grower sentiment towards investment in irrigation equipment . however , this improved sentiment was tempered over the last several months of fiscal 2018 by uncertainty regarding the outcome of u.s. steel tariffs and trade negotiations with other countries . international markets remain active with opportunities for further development and expansion , however regional political and economic factors , currency conditions and other factors can create a challenging environment . additionally , international results are heavily dependent upon project sales which tend to fluctuate and can be difficult to forecast accurately . the infrastructure business has continued to generate growth and profitability improvement in an environment of constrained government spending . in december 2015 , the u.s. government enacted a five-year , $ 305 billion highway-funding bill to fund highway and bridge projects , the first long-term national transportation spending bill in a decade . in addition , the fhwa has changed highway safety product certification requirements . the change has required additional research and development spending and could have an impact on the competitive positioning of the company 's highway safety products . in spite of government spending uncertainty , opportunities exist for market expansion in each of the infrastructure product lines . demand for the company 's transportation safety products continues to be driven by population growth and the need for improved road safety . as of august 31 , 2018 , the company had an order backlog of $ 50.0 million compared with $ 51.8 million at august 31 , 2017. the company 's backlog can fluctuate from period to period due to the seasonality , cyclicality , timing , and execution of contracts . backlog typically represents long-term projects as well as short lead-time orders ; therefore , it is generally not a good indication of the revenues to be realized in succeeding quarters . steel prices in the u.s. have increased dramatically over the last several months of fiscal 2018 , primarily as a result of tariffs that have been placed on imported steel . in addition , freight costs in the u.s. have increased due to a general trucking shortage .
| market activity in brazil was disrupted in the third and fourth quarters of fiscal 2018 due to a country-wide trucking strike , changes in government-subsidized equipment financing rates , and general uncertainty leading up to october federal elections . the impact of foreign currency translation rates compared to the prior fiscal year was insignificant . infrastructure segment revenues in fiscal 2018 of $ 107.8 million increased $ 7.9 million or eight percent from $ 99.9 million in fiscal 2017. the increase resulted primarily from higher road zipper system ® sales , driven by two large projects , compared to the prior fiscal year . 25 gross profit gross profit was $ 151.5 million for fiscal 2018 , an increase of $ 6.5 million , or four percent , compared to $ 145.0 million in fiscal 2017. the increase in gross profit resulted from higher revenues while gross margin of 27.7 % was slightly lower than the prior fiscal year . improved gross margin in the infrastructure segment was offset by slightly lower gross margin in the irrigation segment . infrastructure gross margin improved due to a higher proportion of revenue from road zipper system ® sales , which resulted in an improved margin mix . in the irrigation segment , a higher mix of revenue from the north america market , which produces higher gross margin , was offset by the impact of incremental lifo inventory valuation expense and lower overhead cost absorption resulting from lower international sales volume . operating expenses the company 's operating expenses of $ 112.9 million for fiscal 2018 increased $ 8.1 million , or eight percent , compared to fiscal 2017 operating expenses of $ 104.8 million . the increase included costs of $ 9.7 million in connection with the company 's foundation for growth initiative , of which $ 4.1 million represents a net loss from business divestitures with the remainder representing severance costs , plant closing costs and professional consulting fees . these costs were partially offset by the net recovery of $ 2.5 million in previously reserved accounts receivable . operating expenses were 20.6 percent of
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during the years ended december 31 , 2015 , 2014 and 2013 , our r & d expenses consisted primarily of clinical research organization , or cro fees ; fees paid to consultants ; salaries and related personnel costs ; and stock-based compensation . we expense our r & d costs as they are incurred . story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:6pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; font-family : times new roman ; font-size:10pt ; '' > an approximately $ 5.9 million increase in consultants and contractors related expenses due to increased activity in our clinical trials and in preparation of filing an nda with the fda , which we anticipate will occur in the first quarter of 2016. year ended december 31 , 2014 compared to year ended december 31 , 2013 for the year ended december 31 , 2014 , r & d expenses increased approximately $ 77.9 million compared to the same period in 2013. approximately $ 24.8 million of this increase , or 31.8 % of the total increase , is related to an increase in stock-based compensation expense , attributable to our increased headcount and additional incentive awards to existing employees . the remaining approximately $ 53.1 million increase in r & d expense for the year ended december 31 , 2014 compared to the same period in 2013 was primarily attributable to : ● an approximately $ 40.2 million increase in clinical trial expenses as a result of an increase of approximately $ 32.2 million increase in costs associated with outside cro/licensor services and outside other clinical development due to assuming responsibility , effective january 1 , 2014 , for expenses related to the on-going legacy clinical trials that we assumed from the licensor and approximately $ 8.0 million for clinical and pre-clinical services which includes drug manufacturing and supply as well as outside clinical services . 45 ● an approximately $ 10.5 million increase for internal clinical development , internal regulatory affairs and quality assurance , and internal chemical manufacturing . this increase represents an increase in f ull-time r & d headcount to 105 from 60 for the year ended december 31 , 2014 , compared to the same period in 2013 . ● an approximately $ 2.4 million increase in consultants and contractors related expenses due to increased activity in our clinical trials . while expenditures on current and future clinical development programs , particularly our pb272 program , are expected to be substantial and to increase , they are subject to many uncertainties , including the results of clinical trials and whether we develop any of our drug candidates with a partner or independently . as a result of such uncertainties , we can not predict with any significant degree of certainty the duration and completion costs of our research and development projects or whether , when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates . the duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during clinical development and a variety of other factors , including : ● the number of trials and studies in a clinical program ; ● the number of patients who participate in the trials ; ● the number of sites included in the trials ; ● the rates of patient recruitment and enrollment ; ● the duration of patient treatment and follow-up ; ● the costs of manufacturing our drug candidates ; and ● the costs , requirements , timing of , and ability to secure regulatory approvals . interest income : for the year ended december 31 , 2015 , we recognized approximately $ 1.0 million in interest income compared to approximately $ 0.3 million and $ 0.2 million of interest income for the years ended december 31 , 2014 and 2013 , respectively . the increase in interest income reflects excess cash invested in money market accounts , marketable securities and “ high yield ” savings accounts for a full year and cash invested from a public offering of our common stock completed in january 2015 ( see note 6 in the accompanying notes to consolidated financial statements ) . non-gaap financial measures : in addition to our operating results , as calculated in accordance with the accounting principles generally accepted in the united states , or gaap , we use certain non-gaap financial measures when planning , monitoring , and evaluating our operational performance . the following table presents our net loss and net loss per share , as calculated in accordance with gaap , as adjusted to remove the impact of employee stock-based compensation . these non-gaap financial measures are not , and should not be viewed as , substitutes for gaap reporting measures . we believe these non-gaap measures enhance understanding of our financial performance , are more indicative of our operational performance and facilitate a better comparison among fiscal periods . for the year ended december 31 , 2015 , stock-based compensation represented approximately 39.5 % of our loss from operations , compared to 27.5 % and 13.7 % for 2014 and 2013 , respectively . this cost is related to our employee hiring practice and the fair market value of the stock option grants on the day granted . story_separator_special_tag 46 reconciliation of gaap net loss to non-gaap adjusted net loss and gaap net loss per share to non-gaap adjusted ne t loss per share ( in thousands except share and per share data ) years ended december 31 , 2015 2014 2013 gaap net loss $ ( 239,284 ) $ ( 141,965 ) $ ( 54,659 ) adjustments : stock-based compensation - general and administrative 17,166 9,154 2,331 ( 1 ) research and development 77,768 29,997 5,188 ( 2 ) non-gaap adjusted net loss $ ( 144,350 ) $ ( 102,814 ) $ ( 47,140 ) gaap net loss per share - basic and diluted $ ( 7.45 ) $ ( 4.73 ) $ ( 1.90 ) adjustment to net loss ( as detailed above ) 2.96 1.30 0.26 non-gaap adjusted net loss per share $ ( 4.49 ) $ ( 3.43 ) $ ( 1.64 ) ( 3 ) ( 1 ) to reflect a non-cash charge to operating expense for general and administrative stock-based compensation . ( 2 ) to reflect a non-cash charge to operating expense for research and development stock-based compensation . ( 3 ) non-gaap adjusted net loss per share was calculated based on 32,126,094 , 30,010,979 , and 28,696,573 weighted average common shares outstanding for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . liquidity and capital resources operating activities we reported net losses of approximately $ 239.3 million , $ 142.0 million , and $ 54.7 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . we also reported negative cash flows from operating activities of approximately $ 154.5 million , $ 77.2 million and $ 55.0 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . net cash used in operating activities for the year ended december 31 , 2015 , includes a net loss of $ 239.3 million adjusted for non-cash items of approximately $ 94.9 million for stock option expense , build-out allowance of $ 0.2 million and $ 0.8 million for depreciation and amortization of property and equipment . further changes in cash flows from operations include a decrease in accounts payable and accrued expenses of approximately $ 12.0 million , a decrease of $ 1.8 million in licensor receivables , and an increase in prepaid expenses and other assets of approximately $ 1.0 million . the decrease in accrued expenses reflects a payment of approximately $ 16.4 million for employee payroll taxes withheld related to the exercise of employee stock options during december 2014 , paid in january 2015. the increase in prepaid expenses and other assets reflects up-front payments made to various cros for company-initiated clinical trials , for various insurance policies and the comparator inventory . net cash used in operating activities for the year ended december 31 , 2014 , includes a net loss of $ 142.0 million adjusted for non-cash items of approximately $ 39.2 million for stock option expense , build-out allowance of $ 0.2 million and $ 0.6 million for depreciation and amortization of property and equipment . further changes in cash flows from operations include an increase in accounts payable and accrued expenses of approximately $ 25.2 million , a decrease of $ 8.1 million in licensor receivables , and an increase in prepaid expenses and other assets of approximately $ 8.6 million . the increase in both accounts payable and accrued expenses reflect an increase in clinical trial cost and an accrual of approximately $ 16.4 million for employee payroll taxes withheld related to the exercise of employee stock options during december 2014. the proceeds from the exercise of the stock options were primarily received in december 2014 while the payments for taxes withheld were made in january 2015. the increase in prepaid expenses and other assets reflects up-front payments made to various cros for company-initiated clinical trials , for various insurance policies and the comparator inventory . net cash used in operating activities for the year ended december 31 , 2013 , includes a net loss of $ 54.7 million adjusted for non-cash items of approximately $ 7.5 million for stock option expense and $ 0.4 million for depreciation and amortization of property and equipment . further changes in cash flow from operations include a decrease in accounts payable and accrued expenses of approximately $ 2.4 million , a decrease of $ 0.8 million in licensor receivables , and an increase in prepaid expenses and other assets of approximately $ 6.7 million . at december 31 , 2012 , we had a large receivable from the licensor covering costs incurred in the fourth quarter of 2012. the decrease in both accounts payable and accrued expenses reflect the payment of this receivable and subsequent 47 payments for ongoing costs associated with the licensor-initiated clinical trials . the increase in prepaid expenses and other assets reflects up-front payments made to various cros for company-initiated clinical trials and for various insurance policies . investing activities net cash used in investing activities was approximately $ 85.9 million for the year ended december 31 , 2015. a significant portion of this is comprised of cash used for the purchase of available-for-sale securities of approximately $ 214.8 million offset by the sale and maturity of available-for-sale securities of $ 133.2 million . additionally , approximately $ 3.1 million of net cash used in investing activities was transferred to restricted cash to secure a standby letter of credit for the additional office leases and approximately $ 1.2 million was used for leasehold improvements and the purchase of property and equipment to support corporate growth . net cash used in investing activities was approximately $ 63.3 million for the year ended december 31 , 2014. a significant portion of this is comprised of cash used for the purchase of available-for-sale securities of approximately $ 132.3 million offset by the sale and maturity of available-for-sale securities of $ 70.3 million .
| as described in note 9 – commitments and contingencies to our consolidated financial statements included in this report , we amended two of our office leases and beginning in april 2016 we expect our facility and equipment costs will increase pursuant to the terms of those amended leases . ● an approximately $ 0.7 million increase in other expenses primarily attributable to supporting our corporate growth . in addition to the above items , we expect g & a expense will continue to increase as we continue to evaluate our options with regard to commercialization efforts . year ended december 31 , 2014 compared to year ended december 31 , 2013 total g & a expenses increased approximately 97.8 % to $ 19.4 million for the year ended december 31 , 2014 from $ 9.8 million for the year ended december 31 , 2013. approximately $ 6.9 million of this increase , or 71.9 % of the total increase , is related to an increase in stock-based compensation expense , attributable to our increased headcount and additional incentive awards to existing 44 employees . the remaining approximately $ 2.7 million increase in g & a expense for the year ended december 31 , 2014 compared to the same period in 201 3 was primarily attributable to : ● an approximately $ 1.3 million increase in overall facility costs primarily due to additional leased office space to support corporate growth . ● an approximately $ 0.9 million increase in professional fees and expenses primarily in support of meeting the requirements of becoming a large accelerated filer under the exchange act and the sarbanes-oxley act . ● an approximately $ 0.7 million increase in payroll and related costs as administrative headcount increased from 12 to 15 to support overall corporate growth . ● an approximately $ 0.2 million decrease in other expenses . research and development expenses : replace_table_token_4_th year ended december 31 , 2015 compared to year ended december 31 , 2014 for the year ended december 31 , 2015 , r & d expenses increased approximately $ 85.6 million compared
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, department of business , economic development and tourism ( dbedt ) ; university of hawaii economic research organization ( uhero ) ; u.s. bureau of labor statistics ; blue chip economic indicators ; u.s. energy information administration ; hawaii tourism authority ; honolulu board of realtors® ; bureau of economic analysis and national and local newspapers ) . hawaii 's tourism industry , a significant driver of hawaii 's economy , set new records in 2012. state visitor arrivals grew by 9.6 % in 2012 over 2011. total state visitor arrivals reached a new record in 2012. state visitor expenditures also continued to grow , increasing by 18.7 % in 2012 over 2011 , achieving another record for the state . hotel occupancies and room rates also continued to rise . the outlook for the visitor industry remains positive with the hawaii tourism authority expecting a 9.4 % increase in airline seat capacity for the first quarter of 2013 over 2012. hawaii 's unemployment rate was 5.2 % in december 2012 , lower than the state 's 6.6 % rate in december 2011 and the december 2012 national unemployment rate of 7.8 % . hawaii 's unemployment rate has slowly improved after reaching a high of 7.1 % in 2009. hawaii real estate activity improved in 2012 as indicated by the home resale market . the median sales price for single family residential homes on oahu increased by 7.8 % and home sales increased 6.5 % over 2011. the 2012 median sales price for oahu condominiums rose 5.8 % above 2011 and closed sales increased 8.2 % . hawaii 's petroleum product prices reflect supply and demand in the asia-pacific region and the price of crude oil in international markets . the dramatic reduction in japan 's nuclear production following the tragic earthquake and tsunami in march 2011 has increased regional demand for energy supplies , including petroleum , and the prices of the utilities ' fuels have accordingly remained at the elevated 2011 level throughout 2012. based on the current moderate economic outlook , the federal open market committee ( fomc ) maintained their efforts to stimulate the u.s. economy in a meeting on december 11-12 , 2012. the fomc held the federal funds rate target at 0 % to 0.25 % and expects to maintain the record low rates at least as long as the unemployment rate is above 6.5 % and inflation remains under control . the fomc will continue to purchase additional agency mortgage-backed securities out of concern that economic growth may not be strong enough to generate sustained improvement in labor market conditions . in an effort to assist broader accommodative financial conditions , the fomc announced it will initially purchase $ 45 billion per month of longer-term treasury securities after its program to extend the average maturity of its holdings is completed at the end of 2012. the fomc stated it will closely monitor economic information in the coming months and may take additional steps to improve the labor market in a context of price stability . overall , hawaii 's economy is expected to see only modest growth in 2012 and 2013 with local economic growth supported by moderate improvement in the u.s. economy and impeded by continued uncertainty in global economies . based on updated economic projections and expectations of renewable self-generation and energy-efficiency additions , the electric utilities ' 2013 kilowatthour sales are expected to decline slightly from 2012 levels and then remain relatively flat until 2022. recent tax developments . the tax relief , unemployment insurance reauthorization and job creation act of 2010 contained major tax provisions that impacted the company through 2012 , including the 50 % and 100 % bonus depreciation provisions for qualified property that resulted in an estimated net increase in federal tax depreciation of $ 116 million for 2012 , primarily attributable to the utilities . in january 2013 , the american taxpayer relief act of 2012 was signed into law and provided a one year extension of 50 % bonus depreciation , which is estimated to increase the company 's federal tax depreciation for 2013 by $ 138 million , primarily attributable to the utilities . 40 in december 2011 , the internal revenue service ( irs ) issued regulations that provide a framework for determining whether expenditures are deductible as repairs , effective january 1 , 2012. but in december 2012 , the irs delayed the effective date of these regulations until january 1 , 2014. the company will review these regulations and will analyze any subsequently issued transitional rules and guidance for their impacts and for the opportunities they present for 2012 and future years . health care reform . on june 28 , 2012 , the us supreme court upheld the patient protection and affordable care act , the 2010 health care reform law . currently , hawaii 's prepaid health care act generally provides greater benefits to employees and dependents because of cost sharing limitations . the company will continue to comply with its obligations under these laws and to monitor the interaction of the state and federal laws . results of operations . replace_table_token_21_th nm not meaningful . see executive overview and strategy above and the other segment , electric utility and bank sections below for discussions of results of operations . retirement benefits . the company 's reported costs of providing retirement benefits are dependent upon numerous factors resulting from actual plan experience and assumptions about future experience . for example , retirement benefits costs are impacted by actual employee demographics ( including age and compensation levels ) , the level of contributions to the plans , plus earnings and realized and unrealized gains and losses on plan assets , and changes made to the provisions of the plans . during 2011 , for example , the qualified retirement plan for employees of hei and heco was changed for employees hired on or after may 1 , 2011. those employees will receive lower benefit accruals , different early retirement reduction factors and no automatic cost of living increases . story_separator_special_tag the change is expected to decrease ongoing costs through a reduction in service cost . ( see note 9 of hei 's notes to consolidated financial statements. ) costs may also be significantly affected by changes in key actuarial assumptions , including the expected return on plan assets and the discount rate . the company 's accounting for retirement benefits under the plans in which the employees of heco and its subsidiaries participate is also adjusted to account for the impact of decisions by the public utilities commission of the state of hawaii ( puc ) . changes in obligations associated with the factors noted above may not be immediately recognized as costs on the income statement , but generally are recognized in future years over the remaining average service period of plan participants . the assumptions used by management in making benefit and funding calculations are based on current economic conditions . changes in economic conditions will impact the underlying assumptions in determining retirement benefits costs on a prospective basis . for 2012 , the company 's retirement benefit plans ' assets generated a gain of 13.9 % , net of investment management fees , resulting in net earnings and unrealized gains of $ 140 million , compared to net losses and unrealized losses of $ 7 million for 2011 and net earnings and unrealized gains of $ 145 million for 2010. the 41 market value of the retirement benefit plans ' assets for december 31 , 2012 and 2011 were $ 1.1 billion and $ 983 million , respectively . the company intends to make contributions to the qualified pension plan for hei and heco equal to the calculated net periodic pension cost for the year . however , if the minimum required contribution determined under the employee retirement income security act of 1974 ( erisa ) , as amended by the pension protection act of 2006 , for the year is greater than the net periodic pension cost , then the company will contribute the minimum required contribution and the utilities ' difference between the minimum required contribution and the net periodic pension cost will increase their regulatory asset . in the next rate case , the regulatory asset will be amortized over five years and used to reduce the cash funding requirement based on net periodic pension cost . the regulatory asset may not be applied against the erisa minimum required contribution . the net periodic pension cost is expected to be higher than the erisa minimum required contribution for 2013. therefore , to satisfy the requirements of the electric utilities ' pension tracking mechanism , net periodic pension cost will be the basis of the cash funding for 2013. based on plan assets as of december 31 , 2012 and various assumptions in note 9 of hei 's notes to consolidated financial statements , the company estimates the net periodic pension cost contribution to be $ 85 million ( $ 2 million for hei and $ 83 million for the utilities ) . based on various assumptions in note 9 of hei 's notes to consolidated financial statements and assuming no further changes in retirement benefit plan provisions , information regarding consolidated hei 's , consolidated heco 's and asb 's retirement benefits was , or is estimated to be , as follows , and constitutes forward-looking statements : replace_table_token_22_th based on various assumptions in note 9 of hei 's notes to consolidated financial statements , sensitivities of the projected benefit obligation ( pbo ) and accumulated postretirement benefit obligation ( apbo ) as of december 31 , 2012 , associated with a change in certain actuarial assumptions , were as follows and constitute forward-looking statements. actuarial assumption change in assumption in basis points impact on pbo or apbo ( dollars in millions ) pension benefits discount rate +/ 50 $ ( 114 ) / $ 129 other benefits discount rate +/ 50 ( 13 ) /14 health care cost trend rate +/ 100 6/ ( 6 ) the impact on 2013 net income for common stock for changes in actuarial assumptions should be immaterial based on the adoption by the electric utilities of pension and postretirement benefits other than pensions ( opeb ) tracking mechanisms approved by the puc . see note 9 of hei 's notes to consolidated financial statements for further retirement benefits information . other segment . replace_table_token_23_th 1 including writedowns of and net gains and losses from investments . nm not meaningful . 42 the other business segment includes results of the stand-alone corporate operations of hei and american savings holdings , inc. ( ashi ) , both holding companies ; hei properties , inc. ( heipi ) , a company holding passive , venture capital investments ( venture capital investments valued at $ 0.5 million as of december 31 , 2012 ) ; the old oahu tug service , inc. ( toots ) , a maritime freight transportation company that ceased operations in 1999 ; and pacific energy conservation services , inc. ( pecs ) , a contract services company which provided windfarm operational and maintenance services to an affiliated electric utility until the windfarm was dismantled in the fourth quarter of 2010 and dissolved in the second quarter of 2011 ; as well as eliminations of intercompany transactions . hei corporate-level operating , general and administrative expenses were $ 16 million in 2012 compared to $ 15 million in 2011 and $ 13 million in 2010. in 2012 , hei had higher executive compensation and employee benefits expenses , including retirement benefits . in 2011 , expense increased primarily due to the accrual of $ 3 million of contributions to be made to the hei charitable foundation in 2012. the other segment 's interest expenses were $ 16 million in 2012 , $ 22 million in 2011 and $ 20 million in 2010. in 2012 , hei had lower average borrowings and interest rates . in 2011 and 2010 , financing costs were higher due in part to the recognition of the ineffective portion of the change in fair value of forward starting swaps .
| noninterest income 76 65 11 higher gain on sale of loans as more residential loans were sold in order to manage interest rate risk and increase in debit card fees due to an increase in transaction volume . the higher gain on sale revenue helped fund spending on asb 's strategic priorities . revenues 266 264 2 interest expense 11 14 ( 3 ) lower funding costs as a result of the low interest rate environment . average deposit balances for 2012 increased by $ 89 million compared to 2011 due to an increase in core deposits of $ 170 million , partly offset by a decrease in term certificates of $ 81 million . the other borrowings average balance decreased by $ 24 million due to the payoff of a maturing fhlb advance in 2011 and lower retail repurchase agreements . provision for loan losses 13 15 ( 2 ) the provision for loan losses benefited from lower net charge-offs and improved credit quality associated with the gradual improvement in hawaii 's economy , partly offset by loan loss reserves established for the growth in the loan portfolio . noninterest expense 153 143 10 higher transaction volumes and spending on asb 's strategic projects and priorities , as well as increasing employee benefit expenses . expenses 177
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specialty beverage containers throughout the global network and the addition of a second can line in our alagoinhas , brazil , aluminum beverage container facility ; · broadening our geographic reach with the construction and start up of three beverage container manufacturing facilities in china , brazil and vietnam , as well as the award of a south korean environmental instrument in our aerospace business ; and · leveraging our technological expertise in packaging innovation and aerospace technologies to maintain our competitive advantage today and in the future . these ongoing business developments help us stay close to our customers while expanding and or sustaining our industry positions with major beverage , food , personal care , household products and aerospace customers . story_separator_special_tag style= '' font-size:10.0pt ; font-style : italic ; '' > equity in results of affiliates in october 2011 , we acquired our partners ' 60 percent equity interests in qmcp , and recorded a gain of $ 9.2 million on the fair value of our previously held equity ownership as a result of the required purchased accounting . additionally , in march 2011 we entered into a joint venture agreement with thai beverage can limited to construct a beverage container manufacturing facility in vietnam that began production in the first quarter of 2012 . 21 results of business segments ball 's operations are organized and reviewed by management along its product lines and geographical areas and presented in the four reportable segments discussed below . on january 1 , 2013 , the company implemented changes to its management and internal reporting structure . as a result , the european extruded aluminum business , which was previously included in the metal beverage packaging , europe , segment , is now included in the metal food and household products packaging segment . the segment results and disclosures for the years ended december 31 , 2012 and 2011 , and the financial position at december 31 , 2012 , have been retrospectively adjusted to conform to the current year presentation . metal beverage packaging , americas and asia replace_table_token_7_th ( a ) further details of these items are included in note 5 to the consolidated financial statements within item 8 of this annual report . the metal beverage packaging , americas and asia , segment consists of operations located in the u.s. , canada , brazil and the prc , which manufacture metal container products used in beverage packaging , as well as non-beverage plastic containers manufactured and sold in the prc . our acquisition of the remaining 60 percent interest in qmcp was completed in october 2011 . segment sales in 2013 were $ 348.3 million lower compared to 2012 due to $ 320 million for the combination of lower sales volumes , principally related to lower standard 12-ounce container sales volumes in north america , and a reduction in the pass through price of aluminum , partially offset by higher specialty container sales volumes . segment sales in 2012 were $ 125.9 million higher compared to 2011 primarily due to favorable sales mix of $ 73 million , higher sales volumes and contribution from the new facilities in qingdao , prc , and alagoinhas , brazil . segment earnings in 2013 were $ 10.7 million lower than in 2012 due to a total of $ 109 million from unfavorable net pricing in the prc and lower variable margin contribution attributable to the aforementioned lower standard 12-ounce container sales volumes , net of higher specialty container sales volumes . the volume and pricing variances were largely offset by $ 104 million of improved manufacturing performance , reduced fixed costs and other reduced costs . segment earnings in 2012 were $ 40.8 million higher than in 2011 due to $ 51 million from favorable sales mix , higher sales volumes and lower depreciation as a result of the change in the estimated useful lives , partially offset by $ 20 million from higher distribution and warehousing costs and higher tooling , spare parts and dunnage expense as a result of the accounting change . metal beverage packaging , europe replace_table_token_8_th 22 ( a ) further details of these items are included in note 5 to the consolidated financial statements within item 8 of this annual report . the metal beverage packaging , europe , segment includes the manufacture and sale of metal beverage containers in facilities located throughout europe . segment sales in 2013 increased $ 57.0 million compared to 2012 due primarily to favorable currency exchange effects of $ 42 million and higher sales volumes , net of unfavorable product mix , of $ 15 million . segment sales in 2012 decreased $ 66.3 million compared to 2011 due to $ 157 million from unfavorable currency exchange effects , partially offset by $ 77 million from higher sales volumes and product sales mix . segment earnings in 2013 were flat compared to 2012 primarily due to higher sales volumes and improved manufacturing performance , offset by higher aluminum premiums and higher labor costs . segment earnings in 2012 decreased $ 24.4 million compared to 2011 primarily due to $ 14 million from unfavorable currency exchange effects and other higher operating costs . metal food and household products packaging replace_table_token_9_th ( a ) further details of these items are included in note 5 to the consolidated financial statements within item 8 of this annual report . the metal food and household products packaging segment consists of operations located in the u.s. , europe , canada , mexico and argentina that manufacture and sell metal food , aerosol , paint , general line and extruded aluminum containers , as well as decorative specialty containers and aluminum slugs . in december 2012 , we acquired a leading producer of extruded aluminum aerosol packaging in mexico with one manufacturing facility . segment sales in 2013 were flat compared to 2012 with sales from the mexico acquisition offset by unfavorable sales mix . story_separator_special_tag segment earnings in 2013 increased $ 9.6 million compared to 2012 due to the mexico acquisition and improved manufacturing performance , partially offset by lower sales volumes and higher cost inventory carried into 2013. segment sales in 2012 decreased $ 44.4 million compared to 2011 due to lower sales volumes , partially offset by pricing and product mix . segment earnings in 2012 decreased $ 2.9 million compared to 2011 primarily due to nonrecurring inventory holding gains in 2011 of $ 16 million and lower 2012 sales volumes , partially offset by favorable manufacturing performance and improved pricing and product mix . 23 aerospace and technologies replace_table_token_10_th ( a ) further details of these items are included in note 5 to the consolidated financial statements within item 8 of this annual report . the aerospace and technologies segment consists of the manufacture and sale of aerospace and other related products and services provided for the defense , civil space and commercial space industries . segment sales in 2013 increased $ 20.3 million compared to 2012 due to higher sales from u.s. national defense contracts . segment earnings in 2013 decreased $ 6.5 million due to higher amounts of net favorable contract adjustments in 2012. segment sales in 2012 increased $ 92.2 million compared to 2011 primarily due to higher sales from u.s. national defense contracts . segment earnings in 2012 compared to 2011 increased $ 7.0 million as a result of continued strong program performance and higher sales . sales to the u.s. government , either directly as a prime contractor or indirectly as a subcontractor , represented 94 percent of segment sales in 2013 , 90 percent in 2012 and 87 percent in 2011. the aerospace and technologies contract mix in 2013 consisted of approximately 63 percent cost-type contracts , which are billed at our costs plus an agreed upon and or earned profit component , and 35 percent fixed-price contracts . the remainder represented time and material contracts , which typically provide for the sale of labor at fixed hourly rates . contracted backlog for the aerospace and technologies segment at december 31 , 2013 and 2012 , was $ 938 million and $ 1.0 billion , respectively . comparisons of backlog are not necessarily indicative of the trend of future operations due to the nature of varying delivery and milestone schedules on contracts and the funding of programs . additional segment information for additional information regarding our segments , see the business segment information in note 3 accompanying the consolidated financial statements within item 8 of this annual report . the charges recorded for business consolidation and other activities were based on estimates by ball management and were developed from information available at the time . if actual outcomes vary from the estimates , the differences will be reflected in current period earnings in the consolidated statement of earnings and identified as business consolidation gains and losses . additional details about our business consolidation and other activities are provided in note 5 accompanying the consolidated financial statements within item 8 of this annual report . 24 financial condition , liquidity and capital resources cash flows and capital expenditures our primary sources of liquidity are cash provided by operating activities and external committed borrowings . we believe that cash flows from operations and cash provided by short-term and committed revolver borrowings , when necessary , will be sufficient to meet our ongoing operating requirements , scheduled principal and interest payments on debt , dividend payments and anticipated capital expenditures . the following summarizes our cash flows : replace_table_token_11_th working capital changes in 2013 were primarily related to higher days payable outstanding and lower days sales outstanding , partially offset by higher inventory days on hand . days payable outstanding increased from 47 days to 51 days , days sales outstanding decreased from 37 days to 36 days and inventory days on hand increased from 51 days to 53 days . lower operating cash flows in 2012 compared to 2011 were primarily due to approximately $ 90 million higher u.s. pension funding . working capital changes in 2012 were primarily related to higher days payable outstanding and more effective inventory management , partially offset by higher days sales outstanding . days payable outstanding increased from 42 days to 47 days , inventory days on hand decreased from 53 days to 51 days and days sales outstanding increased from 36 days to 37 days . we have several regional uncommitted accounts receivable factoring programs with various financial institutions for certain receivables of the company . the programs are accounted for as true sales of the receivables , without recourse to ball , and had combined limits of approximately $ 248 million at december 31 , 2013. a total of $ 137.5 million and $ 75.0 million were sold under these programs as of december 31 , 2013 and 2012 , respectively . latapack-ball also commenced a non-recourse uncommitted accounts receivable factoring program in 2013 with a financial institution , which is limited to the total of eligible latapack-ball receivables , as defined in the agreement . a total of $ 6.0 million was sold under this program as of december 31 , 2013. annual cash dividends paid on common stock were 52 cents per share in 2013 , 40 cents per share in 2012 and 28 cents per share in 2011. total dividends paid were $ 75.2 million in 2013 , $ 61.8 million in 2012 and $ 45.7 million in 2011. we also paid dividends to noncontrolling interests of $ 12.9 million in 2013 , $ 7.6 million in 2012 and $ 9.8 million in 2011. share repurchases the company 's share repurchases , net of issuances , totaled $ 398.8 million in 2013 , $ 494.1 million in 2012 and $ 473.9 million in 2011. the repurchases were completed using cash on hand and available borrowings and included accelerated share repurchase agreements and other purchases under our ongoing share repurchase program .
| depreciation and amortization depreciation and amortization expense was $ 299.9 million in 2013 compared to $ 282.9 million in 2012 and $ 301.1 million in 2011. these amounts represented 3.5 percent , 3.2 percent and 3.5 percent of consolidated net sales for those three years , respectively . the higher depreciation and amortization expense in 2013 compared to 2012 was primarily due to capital spending in excess of historical levels and changes in currency exchange rates . the lower depreciation and amortization expense in 2012 compared to 2011 was primarily due to the revision of estimated useful lives of certain capital equipment and tooling . further details of the revised estimated lives are available in note 1 accompanying the consolidated financial statements included within item 8 of this report . selling , general and administrative selling , general and administrative ( sg & a ) expenses were $ 418.6 million in 2013 compared to $ 385.5 million in 2012 and $ 381.4 million in 2011. these amounts represented 4.9 percent , 4.4 percent and 4.4 percent of consolidated net sales for those three years , respectively . the higher expenses in 2013 were largely related to the reassessment of certain expenses in europe from cost of sales to sg & a in light of the relocation of the european headquarters . interest expense consolidated interest expense was $ 211.8 million in 2013 compared to $ 194.9 million in 2012 and $ 177.1 million in 2011. excluding debt refinancing costs , interest expense in 2013 was higher than in 2012 due to higher average debt levels and the timing difference of the issuance of $ 1 billion senior notes due in 2023 versus the tender and call of the 2016 senior notes , partially offset by lower average borrowing rates . interest expense in 2012 was slightly higher than in 2011 due to higher levels of debt , including the issuance in march 2012 of $ 750 million of senior notes due in 2022 , partially offset by lower interest rates . interest expense as a percentage
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we also intend to grow our ngl and crude services business by leveraging our industry knowledge , expertise and operational experience to offer unparalleled takeaway solutions from the wellhead to the end user . our three business segments include ( i ) gathering and processing , which includes our natural gas g & p operations ; ( ii ) storage and transportation , which includes our natural gas storage and transportation operations ; and ( iii ) ngl and crude services , which includes our proprietary ngl supply and logistics business , crude oil facilities and fleet , ngl processing , fractionation and storage facilities , and salt production business . except for our proprietary ngl supply and logistics business , which includes our west coast ngl operations , our seymour ngl storage facility and our fleet of ngl transportation and related rail-to-truck terminal assets , all of our operations are conducted by or through crestwood midstream . gathering and processing our g & p operations provide gathering , compression , treating , and processing services to producers in multiple unconventional resource plays across the united states . we have established footprints in “ core of the core ” areas of several shale plays with delineated condensate and rich gas windows offering attractive producer economics , while maintaining operations in several prolific dry gas plays . we believe that our strategy of focusing on liquids-rich plays without abandoning prolific lean gas plays positions us well to ( i ) generate greater returns in the near term while natural gas prices remain depressed , ( ii ) capture greater upside economics when natural gas prices normalize , and ( iii ) in general , manage through commodity price cycles and production changes associated therewith . our g & p operations primarily include : marcellus shale . we own and operate ( i ) a low-pressure natural gas gathering system with a gathering capacity of approximately 875 mmcf/d of rich gas produced by our customers in harrison and doddridge counties , west virginia ; ( ii ) eight compression and dehydration stations located on our gathering systems in the east aod ; and ( iii ) two compressor stations located in the western area ; barnett shale . we own and operate ( i ) a low-pressure natural gas gathering system with a gathering capacity of approximately 425 mmcf/d of rich gas produced by our customers in hood , somervell and johnson counties , texas , which delivers the rich gas to our two processing plants where ngls are extracted from the natural gas stream ; and 52 ( ii ) low-pressure gathering systems with a gathering capacity of 530 mmcf/d of dry natural gas produced by our customers in tarrant and denton counties , texas ; fayetteville shale . we own and operate five low-pressure gas gathering systems with a gathering capacity of approximately 510 mmcf/d of dry natural gas produced by our customers in conway , faulkner , van buren , and white counties , arkansas ; other . we own and operate ( i ) a low-pressure natural gas gathering system with a gathering capacity of approximately 36 mmcf/d of rich gas produced by our customers in roberts county , texas , and a processing plant that extracts ngls from the natural gas stream ( granite wash system ) ; ( ii ) three low-pressure natural gas gathering systems with a gathering capacity of approximately 50 mmcf/d of rich gas produced by our customers in eddy county , new mexico ( avalon/bone springs system ) ; and ( iii ) high-pressure natural gas gathering pipelines with a gathering capacity of approximately 100 mmcf/d that provide gathering and treating services to our customers located in sabine parish , louisiana ( haynesville/bossier system ) ; and prb niobrara shale . we own a 50 % ownership interest in jackalope , which we account for under the equity method of accounting . in january 2015 , the construction of the 120 mmcf/d bucking horse processing plant was completed and the plant was placed into service . we expect volumes through the bucking horse processing plant to significantly increase throughout the first quarter of 2015. in addition , the gathering system continues to expand with the most recent compression facility placed into service in january 2015. we are actively working with area producers to develop additional gathering and processing facilities beyond our jackalope acreage in the region . the jackalope system is supported by a 20-year gathering and processing agreement with chesapeake and rki under an area of dedication of approximately 311,000 gross acres located in the core of the prb niobrara . we funded a significant portion of our jackalope purchase in july 2013 with the sale to ge of non-voting preferred equity securities in crestwood niobrara , our consolidated subsidiary . we consolidate crestwood niobrara 's results in our financial statements , and we account for crestwood niobrara 's 50 % interest in jackalope as an equity investment . the cash flows from our g & p operations are predominantly fee-based with creditworthy counterparties under contracts with original terms ranging from 5-20 years . the results of our g & p operations are significantly influenced by the volumes of natural gas gathered and processed through our systems . we gather , process , treat , compress , transport and sell natural gas pursuant to fixed-fee and , to a lesser extent , percent-of-proceeds contracts . we do not take title to natural gas or ngls under our fixed-fee contracts , whereas under our percent-of-proceeds contracts , we take title to the residue gas , ngls and condensate and remit a portion of the sale proceeds to the producer based on prevailing commodity prices . our election to enter primarily into fixed-fee contracts minimizes our g & p segment 's commodity price exposure and provides us more stable operating performance and cash flows . storage and transportation our storage and transportation segment consists of our natural gas storage and transportation assets . story_separator_special_tag we have four natural gas storage facilities ( stagecoach , thomas corners , steuben and seneca lake ) and three transportation pipelines ( north/south facilities , marc i and the east pipeline ) located in the northeast in or near the marcellus shale . our storage facilities provide 41 bcf of firm storage capacity and more than 1.0 bcf/d of firm transportation capacity to producers , utilities , marketers and other customers . we believe the location of our storage and transportation assets in the northeast relative to new york city and other premium demand markets along the east coast helps to insulate our operations from production and commodity price changes that can more easily impact storage and transportation operators in other geographic regions , including texas . the cash flows from our storage and transportation operations are predominantly fee-based with creditworthy counterparties under contracts with an original term ranging from 1-10 years . our cash flows from interruptible and other hub services tends to increase during the peak winter season . in december 2014 , we sold 100 % of our membership interest in tres palacios to tres holdings llc ( tres holdings ) , a newly formed joint venture between crestwood midstream and an affiliate of brookfield for total cash consideration of approximately $ 132.8 million , of which approximately $ 66.4 million was paid by crestwood midstream . tres palacios owns a 38.4 bcf multi-cycle , salt dome storage facility . its 60-mile , dual 24-inch diameter header system ( including a 51-mile north pipeline lateral and an approximate 11-mile south pipeline lateral ) interconnects with 10 pipeline systems and can receive residue gas from the tailgate of kinder morgan inc. 's houston central processing plant . as a result of the sale , effective december 1 , 2014 , we deconsolidated tres palacios ' operations . crestwood midstream owns a 50.01 % interest in tres holdings and operates the tres palacios assets , and brookfield owns the remaining 49.99 % interest in tres holdings . we account for the investment in tres holdings under the equity method of accounting . in conjunction with the sale , brookfield and tres palacios entered into a 53 five-year , fixed fee contract under which tres palacios will make 15 bcf of firm storage capacity and 150,000 dth/d of enhanced interruptible wheeling services available to brookfield . we believe the tres palacios system is well positioned to capture meaningful natural gas revenue opportunities over the long run as the texas gulf coast market recovers , as well as near term ngl storage and transportation opportunities designed to provide relief to existing constraints . for a further discussion of our investment in tres holdings , see part iv , item 15 , exhibits , financial statement schedules , note 6. ngl and crude services our ngl and crude services segment consists of our proprietary ngl and crude supply and logistics business , crude oil gathering systems and rail terminals , and us salt . we have facilities located in and around some of the most prolific crude oil shales and premium demand markets in north america . we utilize these facilities to provide gathering , storage and terminal services to our anchor customers , and we utilize our crude oil and ngl assets on a portfolio basis to provide integrated supply and logistics solutions to producers , refiners and other customers . our ngl and crude services operations primarily include : ngl supply and logistics business . our proprietary ngl supply and logistics business utilizes processing , storage and transportation assets under our ownership or control to effectively provide supply “ flow assurance ” to producers , refiners and other customers . we are able to offer services that ensure uninterruptible ngl supply flows at attractive economic values by optimizing our fleet of rail and rolling stock , rail-to-truck terminals , west coast processing , fractionation and storage operations , ngl storage facilities , and leased storage capacity at major hubs ; bakken shale - arrow . we own and operate substantial crude oil , natural gas and produced water gathering systems ( the arrow system ) located on the fort berthold indian reservation in the core of the bakken shale in mckenzie and dunn counties , north dakota . the arrow system consists of more than 540 miles of gathering pipeline , including approximately 170 miles of crude oil gathering lines , 200 miles of natural gas gathering lines and 170 miles of produced water gathering lines . we will have approximately 235,000 barrels of crude oil working storage capacity at the arrow central delivery point after completion of the 200,000 barrel crude oil tank that is currently under construction ; bakken shale - colt hub . we own and operate the colt hub , which is one of the largest crude oil rail terminals in the bakken shale based on actual throughput and which complements our recent arrow acquisition . located approximately 60 miles away from arrow 's central delivery point , the colt hub interconnects with the arrow system through the hiland partners , lp ( hiland ) and tesoro corporation ( tesoro ) pipeline systems . the hub , which can be sourced by numerous pipeline systems or truck , is capable of loading up to 160,000 bbls/d and has 1.1 million barrels of crude oil working storage capacity ; bakken shale - transportation fleet . we own and operate an over-the-road trucking operation located in watford city , north dakota , which provides crude oil and produced water hauling services to the oilfields of western north dakota and eastern montana . our transportation fleet consists of approximately 82 tractors and 107 trailers with approximately 48,000 bbls/d of crude oil and produced water transportation capacity . we purchased substantially all of these operating assets from red rock transportation inc. and lt enterprises , inc. during the first half of 2014 ; us salt .
| 0.3 bcf/d during 2013 to 0.5 bcf/d in 2014. the increases in our g & p gathering and compression volumes were primarily due to several new compressor stations placed in service during 2013 and 2014 in the marcellus shale and new wells connected to our systems during 2014. partially offsetting the increase in our g & p segment 's revenues was a $ 14.7 million increase in costs of product/services sold during the year ended december 31 , 2014 compared to 2013. the increase was primarily due to higher volumes gathered on our new mexico gathering systems under a gathering and processing agreement we entered into with trinity river energy in april 2014 and increased production at granite wash due to new wells connected during 2014. we also experienced an increase in our g & p segment 's operations and maintenance expense of approximately $ 8.0 million during the year ended december 31 , 2014 compared to 2013 primarily due to the expansion of our assets in the marcellus shale . in addition to the higher costs discussed above , our g & p segment 's ebitda was impacted by an $ 8.6 million and $ 31.4 million loss on contingent consideration recorded during the years ended december 31 , 2014 and 2013. the loss on contingent consideration was an accrual that reflected the fair value of an earn-out premium associated with the original acquisition of our marcellus g & p assets from antero in 2012. the earn-out provision allowed antero to receive an additional $ 40 million payment when gathering volumes exceeded a certain threshold as defined in the acquisition agreements , which is due in the first quarter of 2015. year ended december 31 , 2013 compared to year ended december 31 , 2012 our g & p segment 's ebitda decreased by approximately $ 14.5 million during the year ended december 31 , 2013 compared to the same period in 2012. contributing to the decrease was
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these product classifications are : 1 ) penn-america , which includes property and general liability products for small commercial businesses distributed through a select network of wholesale general agents with specific binding authority ; 2 ) united national , which includes property , general liability , and professional lines products distributed through program administrators with specific binding authority ; and 3 ) diamond state , which includes property , casualty , and professional lines products distributed through wholesale brokers and program administrators with specific binding authority . currently , the company 's reinsurance operations segment , which consists solely of the operations of global indemnity reinsurance , provides reinsurance solutions through brokers and on a direct basis . in prior years , the company provided reinsurance solutions through program managers and primary writers , including regional insurance companies . global indemnity reinsurance is a bermuda based treaty reinsurer for specialty property and casualty insurance and reinsurance companies . global indemnity reinsurance conducts business in bermuda and is focused on using its capital capacity to write catastrophe-oriented placements and other niche or specialty-focused treaties meeting the company 's risk tolerance and return thresholds . given the current pricing environment , global indemnity reinsurance continues to cautiously deploy and manage its capital while seeking to position itself as a niche reinsurance solution provider . the company derives its revenues primarily from premiums paid on insurance policies that it writes and from income generated by its investment portfolio , net of fees paid for investment management services . the amount of insurance premiums that the company receives is a function of the amount and type of policies it writes , as well as of prevailing market prices . 52 the company 's expenses include losses and loss adjustment expenses , acquisition costs and other underwriting expenses , corporate and other operating expenses , interest , investment expenses , and income taxes . losses and loss adjustment expenses are estimated by management and reflect the company 's best estimate of ultimate losses and costs arising during the reporting period and revisions of prior period estimates . the company records its best estimate of losses and loss adjustment expenses based on both internal and external 's actuarial analyses of the estimated losses the company expects to incur on the insurance policies it writes . the ultimate losses and loss adjustment expenses will depend on the actual costs to resolve claims . acquisition costs consist principally of commissions and premium taxes that are typically a percentage of the premiums on the insurance policies the company writes , net of ceding commissions earned from reinsurers . other underwriting expenses consist primarily of personnel expenses and general operating expenses . corporate and other operating expenses are comprised primarily of outside legal fees , other professional and accounting fees , directors ' fees , management fees , and salaries and benefits for company personnel whose services relate to the support of corporate activities . interest expense is primarily comprised of amounts due on outstanding debt . critical accounting estimates and policies the company 's consolidated financial statements are prepared in conformity with gaap , which require it 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 revenues and expenses during the reporting periods . see note 2 of the notes to consolidated financial statements contained in item 8 of part ii of this report . actual results could differ from those estimates and assumptions . the company believes that of the company 's significant accounting policies , the following may involve a higher degree of judgment and estimation . liability for unpaid losses and loss adjustment expenses although variability is inherent in estimates , the company believes that the liability for unpaid losses and loss adjustment expenses reflects its best estimate for future amounts needed to pay losses and related loss adjustment expenses and the impact of its reinsurance coverage with respect to insured events . in developing loss and loss adjustment expense ( loss or losses ) reserve estimates for the company 's insurance operations , its actuaries perform detailed reserve analyses each quarter . to perform the analysis , the data is organized at a reserve category level . a reserve category can be a line of business such as commercial automobile liability , or it can be a particular type of claim such as construction defect . the reserves within a reserve category level are characterized as short-tail and long-tail . for long-tail business , it will generally be several years between the time the business is written and the time when all claims are settled . the company 's long-tail exposures include general liability , professional liability , products liability , commercial automobile liability , and excess and umbrella . short-tail exposures include property , commercial automobile physical damage , and equine mortality . to manage its insurance operations , the company differentiates by product classifications , which are penn-america , united national , and diamond state . for further discussion about the company 's product classifications , see general business segments insurance operations in item 1 of part i of this report . each of the company 's product classifications contain both long-tail and short-tail exposures . every reserve category is analyzed by the company 's actuaries each quarter . the analyses generally include reviews of losses gross of reinsurance and net of reinsurance . loss reserve estimates for the company 's reinsurance operations are developed by independent , external actuaries ; however management is responsible for the final determination of loss reserve selections . the data for this analysis is organized by treaty and treaty year . as with the company 's reserves for its insurance operations , reserves for its reinsurance operations are characterized as short-tail and long-tail . long-tail exposures include workers compensation , professional liability , and excess and umbrella liability . short-tail exposures are primarily catastrophe exposed property and marine accounts . story_separator_special_tag 53 in addition to the company 's internal reserve analysis , independent external actuaries perform a full , detailed review of the insurance operations ' and reinsurance operations ' reserves annually . the company reviews both the internal and external actuarial analyses in determining its reserve position . the methods used to project ultimate losses for both long-tail and short-tail exposures include , but are not limited to , the following : paid development method ; incurred development method ; expected loss ratio method ; bornhuetter-ferguson method using premiums and paid loss ; bornhuetter-ferguson method using premiums and incurred loss ; and average loss method . the paid development method estimates ultimate losses by reviewing paid loss patterns and applying them to accident years with further expected changes in paid loss . selection of the paid loss pattern requires analysis of several factors including the impact of inflation on claims costs , the rate at which claims professionals make claim payments and close claims , the impact of judicial decisions , the impact of underwriting changes , the impact of large claim payments and other factors . claim cost inflation itself requires evaluation of changes in the cost of repairing or replacing property , changes in the cost of medical care , changes in the cost of wage replacement , judicial decisions , legislative changes and other factors . because this method assumes that losses are paid at a consistent rate , changes in any of these factors can impact the results . since the method does not rely on case reserves , it is not directly influenced by changes in the adequacy of case reserves . for many reserve categories , paid loss data for recent periods may be too immature or erratic for accurate predictions . this situation often exists for long-tail exposures . in addition , changes in the factors described above may result in inconsistent payment patterns . finally , estimating the paid loss pattern subsequent to the most mature point available in the data analyzed often involves considerable uncertainty for long-tail reserve categories . the incurred development method is similar to the paid development method , but it uses case incurred losses instead of paid losses . since this method uses more data ( case reserves in addition to paid losses ) than the paid development method , the incurred development patterns may be less variable than paid development patterns . however , selection of the incurred loss pattern requires analysis of all of the factors listed in the description of the paid development method . in addition , the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place and the use of case incurred losses may not eliminate the issues associated with estimating the incurred loss pattern subsequent to the most mature point available . the expected loss ratio method multiplies premiums by an expected loss ratio to produce ultimate loss estimates for each accident year . this method may be useful if loss development patterns are inconsistent , losses emerge very slowly , or there is relatively little loss history from which to estimate future losses . the selection of the expected loss ratio requires analysis of loss ratios from earlier accident years or pricing studies and analysis of inflationary trends , frequency trends , rate changes , underwriting changes , and other applicable factors . the bornhuetter-ferguson method using premiums and paid losses is a combination of the paid development method and the expected loss ratio method . this method normally determines expected loss ratios similar to the method used for the expected loss ratio method and requires analysis of the same factors described above . the method assumes that only future losses will develop at the expected loss ratio level . the percent of paid loss to ultimate loss implied from the paid development method is used to determine what percentage of ultimate loss is yet to be paid . the use of the pattern from the paid development method requires consideration of all factors 54 listed in the description of the paid development method . the estimate of losses yet to be paid is added to current paid losses to estimate the ultimate loss for each year . this method will react very slowly if actual ultimate loss ratios are different from expectations due to changes not accounted for by the expected loss ratio calculation . the bornhuetter-ferguson method using premiums and incurred losses is similar to the bornhuetter-ferguson method using premiums and paid losses except that it uses case incurred losses . the use of case incurred losses instead of paid losses can result in development patterns that are less variable than paid development patterns . however , the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place . the method requires analysis of all the factors that need to be reviewed for the expected loss ratio and incurred development methods . the average loss method multiplies a projected number of ultimate claims by an estimated ultimate average loss for each accident year to produce ultimate loss estimates . since projections of the ultimate number of claims are often less variable than projections of ultimate loss , this method can provide more reliable results for reserve categories where loss development patterns are inconsistent or too variable to be relied on exclusively . in addition , this method can more directly account for changes in coverage that impact the number and size of claims . however , this method can be difficult to apply to situations where very large claims or a substantial number of unusual claims result in volatile average claim sizes . projecting the ultimate number of claims requires analysis of several factors including the rate at which policyholders report claims to the company , the impact of judicial decisions , the impact of underwriting changes and other factors .
| this non-gaap ratio or measure should not be considered as a substitute for its most directly comparable gaap measure and does not reflect the overall underwriting profitability of the company . ( 10 ) the company believes that this non-gaap ratio or measure is useful to investors when evaluating the company 's underwriting performance as trends in the company 's u.s. insurance operations may be obscured by prior accident year adjustments and premium deficiency charges . this non-gaap ratio or measure should not be considered as a substitute for its most directly comparable gaap measure and does not reflect the overall underwriting profitability of the company . ( 11 ) the company believes that this non-gaap ratio or measure is useful to investors when evaluating the company 's underwriting performance as trends in the company 's u.s. insurance operations may be obscured by premium deficiency charges . this non-gaap ratio or measure should not be considered as a substitute for its most directly comparable gaap measure and does not reflect the overall underwriting profitability of the company . ( 12 ) this is a non-gaap ratio that excludes the impact of prior accident year adjustments . the most directly comparable gaap measure is the loss ratio . 63 management 's discussion and analysis of financial condition and results of operation references various non-gaap measures related to combined ratio , loss ratio , expense ratio , net losses and loss adjustment expenses , and acquisition cost and other underwriting expenses throughout the discussion and should be read in conjunction with gaap measures and the reconciliations of non-gaap measures listed above . premiums the company 's insurance operations ' gross written , net written , and net earned premiums by product line are as follows : replace_table_token_18_th gross premiums written , which represents the amount received or to be received for insurance policies written without reduction for reinsurance costs or other deductions , was $ 230.0 million for 2014 , compared with $ 232.4 million for 2013 , an decrease of $ 2.4 million or 1.0 % .
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these liabilities include assumptions as to investment yields , mortality , withdrawals , and other assumptions based on the life insurance subsidiaries ' experience adjusted to reflect anticipated trends and to include provisions for possible unfavorable deviations . the company makes these assumptions at the time the contract is issued or , in the case of contracts acquired by purchase , at the purchase date . future policy benefits for individual life insurance and annuity policies are computed using interest rates ranging from 2 % to 6 % for life insurance and 2.5 % to 9.25 % for annuities . benefit reserves for traditional life insurance policies include certain deferred profits on limited-payment policies that are being recognized in income over the policy term . policy benefit claims are charged to expense in the period that the claims are incurred . current mortality rate assumptions are based on 1975-80 select and ultimate tables . withdrawal rate assumptions are based upon linton b or linton c , which are industry standard actuarial tables for forecasting assumed policy lapse rates . recognition of revenues and related expenses premiums for traditional life insurance products , which include those products with fixed and guaranteed premiums and benefits , consist principally of whole life insurance policies , and certain annuities with life contingencies are recognized as revenues when due . limited payment life insurance policies defer gross premiums received in excess of net premiums , which is then recognized in income in a constant relationship with insurance in force . accident and health insurance premiums are recognized as revenue pro rata over the terms of the policies . benefits and related expenses associated with the premiums earned are charged to expense proportionately over the lives of the policies through a provision for future policy benefit liabilities and through deferral and amortization of deferred policy acquisition costs . for universal life and investment products , generally there is no requirement for payment of premium other than to maintain account values at a level sufficient to pay mortality and expense charges . consequently , premiums for universal life policies and investment products are not reported as revenue , but as deposits . policy fee revenue for universal life policies and investment products consists of charges for the cost of insurance and policy administration fees assessed during the period . expenses include interest credited to policy account balances and benefit claims incurred in excess of policy account balances . story_separator_special_tag potential defaults were in the forefront . during this time , certain of the company 's trading securities were also negatively impacted resulting in losses of approximately $ 7.1 million during the second half of 2011. these losses primarily resulted from holdings relating to market volatility and options relating to u.s. treasury securities . the company had a positive earnings track record in its trading securities accounts up until this point . with the sudden market shift , historic correlations between investments ceased to function pursuant to historical norms . for example , as u.s. treasury yields shift , other debt securities such as corporate bonds typically follow . in this period , u.s. treasury securities saw a dramatic and sudden shift in value , while corporate debt remained relatively unchanged . indexes reflecting market volatility experienced historic increases over a three day period in august when u.s. treasury debt was downgraded . the company has reduced its holdings in these investments with a corresponding reduction in market exposure . management still believes its trading activities remain a viable and integral part of its overall investment strategy in the current economy . management is currently reviewing alternatives on how to better manage its exposure to such radical market shifts . the company 's investments are generally managed to match related insurance and policyholder liabilities . the comparison of investment return with insurance or investment product crediting rates establishes an interest spread . the company monitors investment yields , and when necessary adjusts credited interest rates on its insurance products to preserve targeted interest spreads , ranging from 1 % to 2 % . interest crediting rates on adjustable rate policies have been reduced to their guaranteed minimum rates , and as such , can not be lowered any further . policy interest crediting rate changes and expense load changes become effective on an individual policy basis on the next policy anniversary . therefore , it takes a full year from the time the change was determined for the full impact of such change to be realized . if interest rates decline in the future , the company wo n't be able to lower rates and both net investment income and net income will be impacted negatively . net realized investment gains ( losses ) were $ 11,562,629 and $ ( 640,538 ) in 2011 and 2010 , respectively . during 2011 , other-than-temporary impairments of approximately $ 3,360,000 and $ 982,354 were taken as a result of appraisal valuations and management 's analysis and determination of value on investment real estate and discounted mortgage loans , respectively . these losses were offset by realized gains of approximately $ 8,914,000 , and $ 7,321,000 from bond sales and real estate , respectively . during the fourth quarter of 2011 , the company took advantage of the unusually high price spreads on u.s. government treasury securities by selling a portion of its u.s. treasury holdings . the gain on real estate is mainly attributable to the sale of timber from cumberland woodlands , which is a one-time event . during 2010 , other-than-temporary impairments of approximately $ 610,000 and $ 740,000 were taken on bonds backed by trust preferred securities and on common stock , respectively . the other-than-temporary impairments were due to changes in expected future cash flows . additionally , an other-than-temporary impairment of approximately $ 129,000 was taken on a mortgage loan as a result of its appraisal valuation . these losses were partially offset by realized gains of approximately $ 811,000 on bond sales . story_separator_special_tag management continues to view the company 's investment portfolio with utmost priority . significant time has been spent internally researching the company 's risk and communicating with outside investment advisors about the current investment environment and ways to ensure preservation of capital and mitigate any losses . management has put extensive efforts into evaluating the investment holdings . additionally , members of the company 's board of directors and investment committee have been solicited for advice and provided with information . management has reviewed the company 's entire portfolio on a security level basis to be sure all understand our holdings , potential risks and underlying credit supporting the investments . management intends to continue its close monitoring of its bond holdings and other investments for additional deterioration or market condition changes . future events may result in management 's determination that certain current investment holdings may need to be sold which could result in gains or losses in future periods . such future events could also result in other than temporary declines in value that could result in future period impairment losses . there are a number of significant risks and uncertainties inherent in the process of monitoring impairments and determining if impairment is other-than-temporary . these risks and uncertainties related to management 's assessment of other-than-temporary declines in value include but are not limited to : the risk that company 's assessment of an issuer 's ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer ; the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated ; the risk that fraudulent information could be provided to the company 's investment professionals who determine the fair value estimates . in recent periods , management 's focus has been placed on promoting and growing tpa services to unaffiliated life insurance companies . the company receives monthly fees based on policy in force counts and certain other activity indicators , such as number of premium collections performed , or services performed . for the years ended 2011 and 2010 , the company received $ 2,021,348 and $ 1,724,880 for this work , respectively . these tpa revenue fees are included in the line item “ other income ” on the company 's consolidated statements of operations . during 2010 , the company obtained an additional contract for these services , which provides approximately $ 300,000 additional revenues annually . administration for this block of business began in the first quarter of 2011. the company intends to continue to pursue other tpa arrangements as well . the company provides tpa services to insurance companies seeking business process outsourcing solutions . management believes the company is positioned to generate additional revenues by utilizing the company 's current excess capacity and administrative services . in summary , the company 's basis for future revenue growth is expected to come from the following primary sources : expansion of tpa revenues , conservation of business currently in force , the maximization of investment earnings and the acquisition of other companies or policy blocks in the life insurance business . management has placed a significant emphasis on the development of these revenue sources and products offered to enhance these opportunities . ( b ) expenses benefits , claims and settlement expenses net of reinsurance benefits and claims , decreased $ 692,178 from 2010 to 2011. the decrease relates primarily to changes in the company 's death claim experience . death claims were approximately $ 712,000 less in 2011 as compared to 2010. there is no single event that caused the mortality variances . policy claims vary from year to year and therefore , fluctuations in mortality are to be expected and are not considered unusual by management . changes in policyholder reserves , or future policy benefits , also impact this line item . reserves are calculated on an individual policy basis and generally increase over the life of the policy as a result of additional premium payments and acknowledgement of increased risk as the insured continues to age . the short-term impact of policy surrenders is negligible since a reserve for future policy benefits payable is held which is , at a minimum , equal to and generally greater than the cash surrender value of a policy . the benefit of fewer policy surrenders is primarily received over a longer time period through the retention of the company 's asset base . commissions and amortization of deferred policy acquisition costs decreased $ 116,731 from 2010 to 2011. the company 's financial reinsurance agreement along with lower commissions makes up the decrease . the earnings on the block of business covered by the financial reinsurance agreement are utilized to re-pay the original borrowed amount . the commission allowance reported each period from this agreement represents the net earnings on the identified policies covered by the agreement in each reporting period . results from this agreement included in this line item were approximately $ ( 804,133 ) and $ ( 674,816 ) for the years 2011 and 2010 , respectively . as financial reinsurance , all financial results relating to this block of business are utilized to repay the outstanding borrowed amount from the reinsurer . securities are specifically identified and segregated in a trust account relative to this arrangement . should a gain or loss occur on one of these identified securities in the trust account , the results are included in the calculation of the current period financial results of the treaty with the reinsurer . while the agreement may result in variances in this line item , this arrangement has no material impact on net income . the overall impact to net income was $ 11,000 and $ 21,000 for the years 2011 and 2010 , respectively . a liability for the original ceding commission was established at the origination of the agreement and is amortized through this line item as earnings on the block of business are realized .
| management has extensive background and experience in the analysis and valuation of commercial real estate and believes there are significant opportunities currently available in the discounted mortgage loan arena . experienced personnel of fsnb have also been utilized in the analysis phase . this experience dates back to discounted loans during the resolution trust days where such loans were being sold from defunct savings and loans in the early 1990 's . the discounted loans are available through the fdic sale of assets of closed banks and from banks wanting to reduce their loan portfolios . the loans are available on a loan by loan bid process . prior to placing a bid , each loan is reviewed to determine interest level utilizing such information as type of collateral , location of collateral , interest rate , current loan status and available cashflows or other sources of repayment . once it is determined interest in the loan remains , the collateral is physically inspected . following physical inspection , if interest still remains , a bid price is determined and a bid is submitted . once a loan has been acquired , contact is made with the appropriate individuals to begin a dialog with a goal of determining the borrower 's willingness to work together . there are generally three paths a discounted loan will take : the borrowers pay as required ; a settlement is reached with the loan being paid off at a discounted value ; or the loan is foreclosed . during the fourth quarter of 2009 , the company had acquired $ 118,368,661 of discounted mortgage loans at a total cost of $ 35,224,022 , representing an average purchase price to outstanding loan of 29.8 % . during 2009 , the company recorded approximately $ 1,000,000 in income from this loan activity . during 2010 , the company acquired an additional $ 111,258,867 of discounted mortgage loans at a total cost of $ 36,283,278 , representing an average purchase price to outstanding loan
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the increase in operating income was primarily due to lower operating loss and lae and higher premium accelerations . shareholders ' equity increased since december 31 , 2015 due primarily to positive net income ( including the effect of the cifg acquisition ) , which was partially offset by share repurchases , lower net unrealized gains on available for sale investment securities recorded in aoci , and dividends . non-gaap operating shareholders ' equity and non-gaap adjusted book value also increased since december 31 , 2015 due to positive operating income ( including the effect of the cifg acquisition ) , offset in part by share repurchases and dividends . book value , non-gaap operating shareholders ' equity per share and non-gaap adjusted book value per share also benefited from the repurchase of 10.7 million common shares in 2016. key business strategies the company continually evaluates its business strategies . currently , the company is pursuing the following business strategies , each described in more detail below : new business production capital management alternative strategies to create value , including through acquisitions , investments and commutations loss mitigation new business production the company believes high-profile defaults by municipal obligors , such as the commonwealth of puerto rico , detroit , michigan and stockton , california have led to increased awareness of the value of bond insurance and stimulated demand for the product . the company believes there will be continued demand for its insurance in this market because , for those exposures that the company guarantees , it undertakes the tasks of credit selection , analysis , negotiation of terms , surveillance and , if necessary , loss mitigation . the company believes that its insurance : encourages retail investors , who typically have fewer resources than the company for analyzing municipal bonds , to purchase such bonds ; enables institutional investors to operate more efficiently ; and allows smaller , less well-known issuers to gain market access on a more cost-effective basis . on the other hand , the persistently low interest rate environment has dampened demand for bond insurance and , after a number of years in which the company was essentially the only financial guarantor , there are now two other financial guarantors active in one of its markets . 73 u.s. municipal market data and penetration rates ( 1 ) based on sale date replace_table_token_8_th ( 1 ) source : thomson reuters . 74 new business production replace_table_token_9_th ( 1 ) pvp and gross par written in the table above are based on `` close date , '' when the transaction settles . see “ – non-gaap financial measures – pvp or present value of new business production. ” ( 2 ) includes a structured capital relief triple-x excess of loss life reinsurance transaction written in 2016. gwp include amounts collected in the current year on upfront new business written , the present value of contractual or expected premiums on new business written ( discounted at risk free rates ) , and the effects of changes in the estimated lives of transactions in the inforce book of business . the decrease in gwp to $ 154 million in 2016 from $ 181 million in 2015 , was due primarily to changes in estimated lives . for the year ended december 31 , 2016 compared with the year ended december 31 , 2015 , pvp increased by approximately 20 % to $ 214 million , primarily due to an increase in secondary market u.s. public finance new business . outside the u.s. , the company generated $ 26 million of pvp in 2016 compared with $ 33 million of pvp in 2015. non-u.s. public finance business generally represents european infrastructure transactions . the company believes the u.k. currently presents the most new business opportunities for financial guarantees of infrastructure financings , which have typically required such guarantees for capital market access . these transactions typically have long lead times . the company believes it is the only company in the private sector offering such financial guarantees outside the united states . structured finance transactions tend to have long lead times and may vary from period to period in general , the company expects that structured finance opportunities will increase in the future as the global economy recovers , interest rates rise , more issuers return to the capital markets for financings and institutional investors again utilize financial guaranties . the company considers its involvement in both structured finance and international infrastructure transactions to be beneficial because such transactions diversify both the company 's business opportunities and its risk profile beyond public finance . this category also includes a structured capital relief triple-x excess of loss life reinsurance transaction . the difference between gwp and pvp relates primarily to the difference in discount rates used in the calculation of pvp compared with gwp and the inclusion in gwp of the effects of changes in lives of the existing insured portfolio . 75 capital management in recent years , the company has developed strategies to manage capital within the assured guaranty group more efficiently . in 2016 , agm sought and received approval from the nydfs to repurchase $ 300 million of its common stock from its parent , assured guaranty municipal holdings inc. ( agmh ) . the repurchase was effectuated on december 19 , 2016. subsequently , agmh distributed the proceeds as dividends to its immediate parent , agus , and in 2017 , agus began using these proceeds to pay dividends to agl . agl intends to use these funds predominantly to repurchase its publicly traded common shares . agm and agc have also been paying dividends to their parents , and mac may also pay dividends to its parents . see part ii , item 8 , financial statements and supplementary data , note 11 , insurance company regulatory requirements for additional information about dividends the company 's insurance companies may and have paid . in 2014 , agus issued 5.0 % senior notes for net proceeds of $ 495 million . story_separator_special_tag the net proceeds from the sale of the notes were used for general corporate purposes , including the repurchase of common shares of agl . from 2013 through february 23 , 2017 , the company has repurchased a total of 72.2 million common shares for approximately $ 1,857 million , excluding commissions . on february 22 , 2017 the board of directors authorized an additional $ 300 million in share repurchases . as of february 23 , 2017 , $ 407 million of authority remains under the company 's share repurchase authorizations . the company expects the repurchases to be made from time to time in the open market or in privately negotiated transactions . the timing , form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors , including free funds available at the parent company , market conditions , the company 's capital position , legal requirements and other factors . the repurchase program may be modified , extended or terminated by the board at any time . it does not have an expiration date . see part ii , item 8 , financial statements and supplementary data , note 18 , shareholders ' equity , for additional information about the company 's repurchases of its common shares . summary of share repurchases replace_table_token_10_th accretive effect of cumulative repurchases ( 1 ) replace_table_token_11_th _ ( 1 ) cumulative repurchases since the beginning of 2013 . 76 in order to reduce leverage , and possibly rating agency capital charges , the company has mutually agreed with beneficiaries to terminate selected financial guaranty insurance and credit derivative contracts . in particular , the company has targeted investment grade securities for which claims are not expected but which carry a disproportionately large rating agency capital charge . the company terminated investment grade financial guaranty and cds contracts with net par of $ 6.6 billion in 2016 , $ 2.8 billion in 2015 and $ 3.1 billion in 2014. alternative strategies the company considers alternative strategies in order to create long-term shareholder value . for example , the company considers opportunities to acquire financial guaranty portfolios , whether by acquiring financial guarantors who are no longer actively writing new business or their insured portfolios , or by commuting business that it had previously ceded . these transactions enable the company to improve its future earnings and deploy some of its excess capital . during 2016 , the company established an alternative investments group to focus on deploying a portion of the company 's excess capital to pursue acquisitions and develop new business opportunities that complement the company 's financial guaranty business , are in line with its risk profile and benefit from its core competencies . cifg holding inc. on july 1 , 2016 , agc acquired all of the issued and outstanding capital stock of cifgh , for $ 450.6 million in cash . agus previously owned 1.6 % of the outstanding shares of cifgh , for which it received $ 7.1 million in consideration from agc , resulting in a net consolidated purchase price of $ 443 million . agc merged cifgna with and into agc , with agc as the surviving company , on july 5 , 2016. the cifg acquisition added $ 4.2 billion of net par insured on july 1 , 2016. in 2016 , the acquisition contributed net income and operating income of approximately $ 2.41 per share and $ 2.38 per share , respectively , including the bargain purchase gain , loss on settlement of pre-existing relationships and activity since the the date of the cifg acquisition ( cifg acquisition date ) . shareholders ' equity benefited by $ 2.23 per share , non-gaap operating shareholders ' equity benefited by $ 2.23 per share and non-gaap adjusted book value benefited by $ 3.85 per share as of the cifg acquisition date . radian asset assurance inc. on april 1 , 2015 ( the radian acquisition date ) , agc completed the acquisition of radian asset for a cash purchase price of $ 804.5 million . in connection with the acquisition , agc acquired radian asset 's entire insured portfolio , which resulted in an increase in net par outstanding as of the radian acquisition date of approximately $ 13.6 billion , consisting of $ 9.4 billion of public finance net par outstanding and $ 4.2 billion of structured finance net par outstanding . in 2015 , the acquisition contributed net income of approximately $ 2.46 per share and operating income of approximately $ 2.13 per share , including the bargain purchase gain , settlement of pre-existing relationships and activity since the radian acquisition date . shareholders ' equity benefited by $ 1.04 per share , non-gaap operating shareholders ' equity benefited by $ 1.26 per share and non-gaap adjusted book value benefited by $ 3.73 per share as of the radian acquisition date . mbia uk insurance limited . on january 10 , 2017 , agc completed its acquisition of mbia uk insurance limited ( mbia uk ) , the european operating subsidiary of mbia . as consideration for the outstanding shares of mbia uk plus $ 23 million in cash , agc exchanged all its holdings of notes issued in the zohar ii 2005-1 transaction . agc 's zohar ii 2005-1 notes had a total outstanding principal of approximately $ 347 million and fair value of $ 334 million as of the date of acquisition . mbia insured all of the notes issued in the zohar ii 2005-1 transaction . as of december 31 , 2016 , mbia uk had an insured portfolio of approximately $ 12 billion of net par . mbia uk has changed its name to assured guaranty ( london ) ltd. ( agln ) . assured guaranty currently maintains agln as a stand-alone entity . assured guaranty is actively working to combine agln with its other affiliated european insurance companies .
| in 2016 , the company paid $ 306 million to repurchase 10.7 million common shares ; in 2015 , the company paid $ 555 million to repurchase 21.0 million common shares ; and in 2014 , the company paid $ 590 million to repurchase 24.4 million common shares . from january 1 , 2017 thr ough february 23 , 2017 , the company repurchased an additional 3.6 million common shares . as of february 23 , 2017 , the company had remaining authorization to purchase common shares of $ 407 million on a settlement basis . for more information about the company 's share repurchases and authorizations , see part ii , item 8 , financial statements and supplementary data , note 18 , shareholders ' equity . commitments and contingencies leases agl and its subsidiaries lease office space and certain other items . 118 the principal executive offices of agl and ag re consist of approximately 8,250 square feet of office space located in hamilton , bermuda ; the lease for this space expires in april 2021. agm entered into an operating lease as of september 30 , 2015 for new office space originally comprising one full floor and one partial floor at 1633 broadway in new york city . the company moved the principal place of business of agm , agc , mac and the company 's other u.s. based subsidiaries from 31 west 52 nd street in new york city to this new location in the third quarter of 2016. the new lease is for approximately 88,000 square feet and runs until 2032 , with an option , subject to certain conditions , to renew for five years at a fair market rent . the fixed annual rent , which commences after an initial rent holiday , begins at $ 6.2 million , rising in two steps to $ 7.3 million for the last five years of the initial term . in connection with the move and in return for rent abatement and certain other concessions , agm terminated its lease on its office space at 31 west 52 nd
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24 we generally generate more real estate services revenue per transaction from representing homebuyers than home sellers . however , we believe that representing home sellers has unique strategic value , including the marketing power of yard signs and digital marketing campaigns , and the market effect of controlling listing inventory . to keep revenue per brokerage transaction about the same from year to year , we expect to reduce our commission refund to homebuyers if a greater portion of our brokerage transactions come from home sellers . from 2019 to 2020 , the percentage of brokerage transactions from home sellers was essentially unchanged at approximately 44 % . aggregate home value of real estate services transactions the aggregate home value of brokerage and partner real estate services transactions is an important indicator of the health of our business , because our revenue is largely based on a percentage of each home 's sale price . this metric is affected chiefly by the number of customers we serve , but also by changes in home values in the markets we serve . we compute this metric by summing the sale price of each home represented in a real estate services transaction . we include the value of a single transaction twice when our lead agents or our partner agents serve both the homebuyer and home seller of the transaction . u.s. market share by value increasing our u.s. market share by value is critical to our ability to grow our business and achieve profitability over the long term . we believe there is a significant opportunity to increase our share in the markets we currently serve . we calculate the aggregate value of u.s. home sales by multiplying the total number of u.s. existing home sales by the mean sale price of these homes , each as reported by the national association of realtors ® . we calculate our market share by aggregating the home value of brokerage and partner real estate services transactions . then , in order to account for both the sell- and buy-side components of each transaction , we divide that value by two-times the estimated aggregate value of u.s. home sales . revenue from top-10 markets as a percentage of real estate services revenue our top-10 markets by real estate services revenue are the metropolitan areas of boston , chicago , denver ( including boulder and colorado springs ) , los angeles ( including santa barbara ) , maryland , northern virginia , portland ( including bend ) , san diego , san francisco , and seattle . this metric is an indicator of the geographic concentration of our real estate services segment . we expect our revenue from top-10 markets to decline as a percentage of our total real estate services revenue over time . average number of lead agents the average number of lead agents , in combination with our other key metrics such as the number of brokerage transactions , is a basis for calculating agent productivity and is one indicator of the potential future growth of our business . we systematically evaluate traffic to our website and mobile application and customer activity to anticipate changes in customer demand , helping determine when and where to hire lead agents . we calculate the average number of lead agents by taking the average of the number of lead agents at the end of each month included in the period . 25 properties transactions we record a properties transaction when we sell a home that we previously bought directly from a homeowner . redfinnow is our primary properties offering . the number of properties transactions is a useful indicator for investors to understand the underlying transaction volume growth of our redfinnow business . properties transaction volume is influenced by , among other things , the level and quality of our homes available for sale inventory , and market conditions that affect home sales , such as local inventory levels and mortgage interest rates . properties revenue per transaction properties revenue per transaction , together with the number of properties transactions , is a factor in evaluating revenue growth . changes in properties revenue per transaction can be affected by , among other things , the geographic mix of our transactions , the types and sizes of homes that we have previously purchased , our pricing , and changes in the value of homes in the markets we serve . we calculate properties revenue per transaction by dividing properties revenue by the number of properties transactions in any period . components of our results of operations revenue we generate revenue primarily from commissions and fees charged on each real estate services transaction closed by our lead agents or partner agents , and from the sale of homes . real estate services revenue brokerage revenue —brokerage revenue includes our offer and listing services , where our lead agents represent homebuyers and home sellers . we recognize commission-based brokerage revenue upon closing of a brokerage transaction , less the amount of any commission refunds , closing-cost reductions , or promotional offers that may result in a material right . brokerage revenue is affected by the number of brokerage transactions we close , the mix of brokerage transactions , home-sale prices , commission rates , and the amount we give to customers . partner revenue — partner revenue consists of fees paid to us from partner agents or under other referral agreements , less the amount of any payments we make to homebuyers and home sellers . we recognize these fees as revenue on the closing of a transaction . partner revenue is affected by the number of partner transactions closed , home-sale prices , commission rates , and the amount we refund to customers . if the portion of customers we introduce to our own lead agents increases , we expect the portion of revenue closed by partner agents to decrease . properties revenue properties revenue —properties revenue consists of revenue earned when we sell homes that we previously bought directly from homeowners . story_separator_special_tag properties revenue is recorded at closing on a gross basis , representing the sales price of the home . other revenue other revenue —other services revenue includes fees earned from mortgage origination services , title settlement services , walk score data services , and advertising . substantially all fees and revenue from other services are recognized when the service is provided . 26 intercompany eliminations intercompany eliminations— revenue earned from transactions between operating segments are eliminated in consolidating our financial statements . intercompany transactions primarily consist of services performed from our real estate services segment for our properties segment . cost of revenue and gross margin cost of revenue consists primarily of personnel costs ( including base pay , benefits , and stock-based compensation ) , transaction bonuses , home-touring and field expenses , listing expenses , home costs related to our properties segment , office and occupancy expenses , and depreciation and amortization related to fixed assets and acquired intangible assets . home costs related to our properties segment include home purchase costs , capitalized improvements , selling expenses directly attributable to the transaction , and home maintenance expenses . gross profit is revenue less cost of revenue . gross margin is gross profit expressed as a percentage of revenue . our gross margin has and will continue to be affected by a number of factors , but the most important are the mix of revenue from our relatively higher-gross-margin real estate services segment and our relatively lower-gross-margin properties segment , real estate services revenue per transaction , agent and support-staff productivity , personnel costs and transaction bonuses , and , for properties , the home purchase costs . operating expenses technology and development our primary technology and development expenses are building software for our customers , lead agents , and support staff to work together on a transaction , and building a website and mobile application to meet customers looking to move . these expenses primarily include personnel costs ( including base pay , bonuses , benefits , and stock-based compensation ) , data licenses , software and equipment , and infrastructure such as for data centers and hosted services . the expenses also include amortization of capitalized internal-use software and website and mobile application development costs . we expense research and development costs as incurred and record them in technology and development expenses . marketing marketing expenses consist primarily of media costs for online and offline advertising , as well as personnel costs ( including base pay , benefits , and stock-based compensation ) . general and administrative general and administrative expenses consist primarily of personnel costs ( including base pay , benefits , and stock-based compensation ) , facilities costs and related expenses for our executive , finance , human resources , and legal organizations , depreciation related to our fixed assets , and fees for outside services . outside services are principally comprised of external legal , audit , and tax services . for 2020 , general and administrative expenses also include expenses related to actions taken in response to covid-19 , as these costs were determined to be direct and incremental and not related to revenue generating activities . interest income , interest expense , and other , net interest income interest income consists primarily of interest earned on our cash , cash equivalents , and investments . 27 interest expense interest expense consists primarily of interest payable on our 2023 notes and the amortization of debt discounts and issuance cost related to our convertible senior notes . see note 15 to our consolidated financial statements for information regarding interest on our convertible senior notes . beginning in august 2019 , interest expense also includes interest on borrowings and the amortization of debt issuance costs related to our secured revolving credit facility . see notes 15 and 16 to our consolidated financial statements for information regarding interest for the facility . other income ( loss ) , net other income ( loss ) consists primarily of realized and unrealized gains and losses on investments . see note 3 to our consolidated financial statements for information regarding unrealized losses on our investments . story_separator_special_tag style= '' color : # 000000 ; font-family : 'arial ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > in 2020 , technology and development expenses increased by $ 14.5 million , or 21 % , as compared with 2019. the increase was primarily attributable to a $ 11.9 million increase in personnel costs due to increased headcount , and a $ 2.7 million increase in technology infrastructure expenses , primarily hosted services . in 2020 , marketing expenses decreased by $ 21.8 million , or 28 % , as compared with 2019. the decrease was primarily attributable to a $ 20.2 million decrease in marketing media costs as we temporarily ceased advertising campaigns during the three months ended june 30 , 2020 as a result of covid-19 . in 2020 , general and administrative expenses increased by $ 15.3 million , or 20 % , as compared with 2019. the increase was primarily attributable to a $ 7.9 million increase in direct and incremental costs associated with our actions taken in response to covid-19 , primarily from severance payments . these costs were partially offset by $ 1.3 million of employee retention credits claimed under the cares act . these costs for restructuring are classified as general and administrative expenses for employees across our organization , including approximately $ 6.5 million , net , that would otherwise be classified as cost of revenue . we had no such restructuring expenses for any periods prior to the twelve months ended december 31 , 2020. the increase was also attributable to a $ 4.0 million increase in personnel costs due to increased headcount , a $ 2.9 million increase in outside services costs , primarily legal services and contractors , and a $ 2.9 million increase in technology infrastructure expenses , primarily hosted services .
| properties transactions decreased during the period , because we had lower average inventory , due in part to pausing making new offers to purchase homes from mid-march to mid-may in response to covid-19 . cost of revenue and gross margin replace_table_token_7_th in 2020 , total cost of revenue increased by $ 18.3 million , or 3 % , as compared with 2019. this increase in cost of revenue was primarily attributable to a $ 50.7 million increase in personnel costs and transaction bonuses , due to increased headcount and increased brokerage transactions , respectively . this was partially offset by a $ 32.0 million decrease in home purchase costs and related capitalized improvements due to selling fewer homes by our properties business . total gross margin increased 770 basis point as compared with 2019 , driven primarily by our properties business contributing to a lesser proportion of revenue relative to our real estate services and other businesses , and improvements in real estate services and other gross margin . in 2020 , real estate services gross margin increased 720 basis points as compared with 2019. this was primarily attributable to a 270 basis-point decrease in personnel costs and transaction bonuses , a 220 basis-point decrease in home-touring and field expenses , a 60 basis-point decrease in listing expenses , and a 60 basis-point decrease in travel and entertainment expenses , each as a percentage of revenue . in 2020 , properties gross margin decreased 30 basis points as compared with 2019. this was primarily attributable to a 110 basis-point increase in personnel costs and transaction bonuses , and a 60 basis-point increase in home selling expenses , each as a percentage of revenue . this was partially offset by a 170 basis-point decrease in home purchase costs and related capitalized improvements as a percentage of revenue . 30 in 2020 , other gross margin increased by 1,880 basis points . this was primarily attributable to a 620 basis-point decrease in outside services costs , a 590 basis point decrease in personnel costs and transaction bonuses , a 200 basis-point decrease in personal technology expenses , and a
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mffo is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods , and in particular , after the offering and acquisition stages are complete and net asset value is disclosed . mffo is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining mffo . neither the sec , nareit nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate ffo or mffo . in the future , the sec , nareit or another regulatory body may decide to standardize the allowable adjustments across the non-listed reit industry and in response to such standardization we may have to adjust our calculation and characterization of ffo or mffo accordingly . 35 set forth below is a reconciliation net income ( loss ) to ffo and mffo for the years ended december 31 , 2012 and 2011 ( in thousands , except share information ) : replace_table_token_5_th ( a ) weighted-average sharesdiluted includes 4,046,700 and 5,274,900 limited partnership units that are convertible into common stock as of december 31 , 2011 and 2012 , respectively . ( b ) in evaluating investments in real estate , management differentiates the costs to acquire the investment from the operations derived from the investment . such information would be comparable only for non-listed reits that have completed their acquisition activity and have other similar operating characteristics . by excluding expensed acquisition costs , management believes mffo provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management 's analysis of the investing and operating performance of our properties . as discussed above , we will not pay any acquisition fees to our advisor in connection with our purchase of properties and we will reimburse our advisor for acquisition expenses only to a limited extent . as a result , acquisition fees relate to payments to third parties and acquisition expenses include payments to our advisor or third parties . acquisition fees and expenses under gaap are considered operating expenses and as expenses included in the determination of net income and income from continuing operations , both of which are performance measures under gaap . all paid and accrued acquisition fees and expenses will have negative effects on returns to investors , the potential for future distributions , and cash flows generated by us , unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property , these fees and expenses and other costs related to the property . in the event that proceeds from our initial public offering are not available to fund our reimbursement of acquisition fees and expenses incurred by our advisor , such fees and expenses will need to be reimbursed to the advisor from other sources , including debt , operational earnings or cash flow , net proceeds from the sale of properties , or from ancillary cash flows . the acquisition of properties , and the corresponding acquisition fees and expenses , is the key operational feature of our business plan to generate operational income and cash flow to fund distributions to its stockholders . 36 story_separator_special_tag activities ; proceeds from the sale of our common stock pursuant to our offering and our distribution reinvestment plan ; proceeds from future borrowings . on february 28 , 2013 , our board elected to extend our offering to june 10 , 2014. if we file another registration statement during the extension in order to sell additional shares , we could continue to sell shares in our offering until the earlier of 180 days after june 10 , 2014 or the effective date of the subsequent registration statement . nothing in our organizational documents prohibits us from engaging in additional subsequent public or private offerings of our stock . although we could continue public offerings indefinitely , and although we have not set a date or an aggregate amount of offering proceeds beyond which we must stop offering shares , we do not expect to continue offering shares beyond june 10 , 2014. as of december 31 , 2012 we have raised $ 3.2 million , including $ 0.2 million from unaffiliated investors , in net proceeds from our offering . we are substantially dependent on the net proceeds of our ongoing offering to meet our investment objective of acquiring a fully diversified portfolio of multifamily properties . if we are unable to raise a substantial amount of funds in our offering , we will make fewer investments resulting in less diversification in terms of the type , number and size of investments we make , and the value of an investment in us will fluctuate with the performance of the specific assets we acquire . further , we will have certain fixed operating expenses , including certain expenses as a publicly offered reit , regardless of whether we are able to raise substantial funds in our offering . our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income , reducing our net income and limiting our ability to make distributions . in addition , after we have acquired a substantial portfolio of diversified investments , we intend to limit our aggregate leverage to 65 % of the combined initial purchase price of all of our real estate properties . during the period when we are beginning our operations , we may employ greater leverage in order to more quickly build a diversified portfolio of assets . 37 cash flows as of december 31 , 2012 and 2011 , we maintained cash and cash equivalents of $ 2.5 million and $ 1.1 million , respectively . our cash and cash equivalents were generated from the following activities ( dollars in thousands ) : replace_table_token_6_th story_separator_special_tag mffo is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods , and in particular , after the offering and acquisition stages are complete and net asset value is disclosed . mffo is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining mffo . neither the sec , nareit nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate ffo or mffo . in the future , the sec , nareit or another regulatory body may decide to standardize the allowable adjustments across the non-listed reit industry and in response to such standardization we may have to adjust our calculation and characterization of ffo or mffo accordingly . 35 set forth below is a reconciliation net income ( loss ) to ffo and mffo for the years ended december 31 , 2012 and 2011 ( in thousands , except share information ) : replace_table_token_5_th ( a ) weighted-average sharesdiluted includes 4,046,700 and 5,274,900 limited partnership units that are convertible into common stock as of december 31 , 2011 and 2012 , respectively . ( b ) in evaluating investments in real estate , management differentiates the costs to acquire the investment from the operations derived from the investment . such information would be comparable only for non-listed reits that have completed their acquisition activity and have other similar operating characteristics . by excluding expensed acquisition costs , management believes mffo provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management 's analysis of the investing and operating performance of our properties . as discussed above , we will not pay any acquisition fees to our advisor in connection with our purchase of properties and we will reimburse our advisor for acquisition expenses only to a limited extent . as a result , acquisition fees relate to payments to third parties and acquisition expenses include payments to our advisor or third parties . acquisition fees and expenses under gaap are considered operating expenses and as expenses included in the determination of net income and income from continuing operations , both of which are performance measures under gaap . all paid and accrued acquisition fees and expenses will have negative effects on returns to investors , the potential for future distributions , and cash flows generated by us , unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property , these fees and expenses and other costs related to the property . in the event that proceeds from our initial public offering are not available to fund our reimbursement of acquisition fees and expenses incurred by our advisor , such fees and expenses will need to be reimbursed to the advisor from other sources , including debt , operational earnings or cash flow , net proceeds from the sale of properties , or from ancillary cash flows . the acquisition of properties , and the corresponding acquisition fees and expenses , is the key operational feature of our business plan to generate operational income and cash flow to fund distributions to its stockholders . 36 story_separator_special_tag activities ; proceeds from the sale of our common stock pursuant to our offering and our distribution reinvestment plan ; proceeds from future borrowings . on february 28 , 2013 , our board elected to extend our offering to june 10 , 2014. if we file another registration statement during the extension in order to sell additional shares , we could continue to sell shares in our offering until the earlier of 180 days after june 10 , 2014 or the effective date of the subsequent registration statement . nothing in our organizational documents prohibits us from engaging in additional subsequent public or private offerings of our stock . although we could continue public offerings indefinitely , and although we have not set a date or an aggregate amount of offering proceeds beyond which we must stop offering shares , we do not expect to continue offering shares beyond june 10 , 2014. as of december 31 , 2012 we have raised $ 3.2 million , including $ 0.2 million from unaffiliated investors , in net proceeds from our offering . we are substantially dependent on the net proceeds of our ongoing offering to meet our investment objective of acquiring a fully diversified portfolio of multifamily properties . if we are unable to raise a substantial amount of funds in our offering , we will make fewer investments resulting in less diversification in terms of the type , number and size of investments we make , and the value of an investment in us will fluctuate with the performance of the specific assets we acquire . further , we will have certain fixed operating expenses , including certain expenses as a publicly offered reit , regardless of whether we are able to raise substantial funds in our offering . our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income , reducing our net income and limiting our ability to make distributions . in addition , after we have acquired a substantial portfolio of diversified investments , we intend to limit our aggregate leverage to 65 % of the combined initial purchase price of all of our real estate properties . during the period when we are beginning our operations , we may employ greater leverage in order to more quickly build a diversified portfolio of assets . 37 cash flows as of december 31 , 2012 and 2011 , we maintained cash and cash equivalents of $ 2.5 million and $ 1.1 million , respectively . our cash and cash equivalents were generated from the following activities ( dollars in thousands ) : replace_table_token_6_th
| our interest expense increased $ 1.6 million to $ 3.3 million for the year ended december 31 , 2012 from $ 1.7 for the year ended december 31 , 2011. the increase is primarily attributable to the mortgage indebtedness used to finance the seven properties we acquired in 2011 , which were present for a full year in 2012. year ended december 31 , 2011 compared to the year ended december 31 , 2010 we generated $ 8.7 million of revenue during the year ended december 31 , 2011 as a result of the acquisition of six properties in april 2011 and one property in december 2011. prior to the april acquisition , we did not own any revenue-producing assets and as such the financial information for the year ended december 31 , 2011 is not comparable to the financial information for the year ended december 31 , 2010. our revenue for the year ended december 31 , 2010 was comprised of interest income on short-term loans to our former sponsor in the aggregate principal amount of $ 200,000. these loans had a weighted average interest rate of 5.8 % . we incurred $ 7.3 million of expenses during the year ended december 31 , 2011 , comprised primarily of property operating expenses of $ 4.5 million , acquisition expenses of $ 0.5 million and depreciation and amortization of $ 1.8 million . as discussed above , these expenses relate to the acquisition and ownership of the seven properties we acquired in 2011. we incurred certain general and administrative expenses related to audit and other professional fees , trustee fees and other federal and state filing fees during the year ended december 31 , 2011 of $ 0.6 million . we did not incur any expenses during the year ended december 31 , 2010. during the year ended december 31 , 2011 , we incurred $ 1.7 million of interest expense associated with the $ 82.2 million of mortgage indebtedness used to finance the seven properties we acquired in 2011. liquidity and capital resources liquidity is a measure of our ability to meet potential cash requirements , including ongoing commitments to repay borrowings , fund and maintain investments , pay distributions and other general business needs . we believe our available cash balances , other financing arrangements and cash flows from operations will be sufficient to fund our liquidity requirements with respect to our existing portfolio for the next 12 months . we expect to raise capital in our offering ,
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while we are working towards broader insurance coverage , uncertain physician economics have made new account acquisition challenging , and therefore the cost of a direct sales force can not be justified . for this reason , we have 1 ) prioritized our large installed base of active accounts , 2 ) restructured our organization to support active accounts , and 3 ) shifted to third-party distribution for new account acquisition . in 2011 , our goal is to manage neurodiagnostics to achieve a positive net cash contribution to the company . the restructuring instituted in january 2011 involved a 27 % reduction in headcount , realignment of responsibilities , and a charge of approximately $ 2.3 million related to severance and inventory . in accordance with generally accepted accounting principles , $ 2.0 million of the charge was recorded in the fourth quarter of 2010 , and the remaining $ 0.3 million will be recorded in the first quarter of 2011. story_separator_special_tag $ 54,000 in 2010 was earned from investments in cash equivalents and short-term investments . the decrease in interest income for the year ended december 31 , 2010 , as compared to the same period a year ago , reflects lower average invested balances and lower rates of return . warrants fair value adjustment warrants fair value adjustment represents net charges recorded during 2009 to adjust the liability for outstanding warrants issued in an equity financing in september 2009. during october 2009 , we executed addenda to these warrants such that upon a change in control , as defined , the warrant holders will receive the black-scholes value of the warrants in the same currency and same proportions as will be received by our common stockholders . following the addenda , the warrant liability in the amount of $ 19.7 million was reclassified to additional paid-in capital . comparison of years ended december 31 , 2009 and december 31 , 2008 revenues the following table presents a historical view of our active customers and studies performed : replace_table_token_9_th the following table summarizes our revenues from medical equipment and consumables : replace_table_token_10_th 44 medical equipment revenues consisting of the nc-stat and advance systems , related modules , and revenues from extended service agreement revenues , were $ 2.7 million for each of the years ended december 31 , 2009 and 2008. although fewer devices were sold in 2009 as compared with 2008 , the average selling price was higher in 2009. consumables revenues , consisting of sales of single use nerve specific electrodes , emg needles , and other accessories , were $ 23.4 million and $ 28.4 million for the years ended december 31 , 2009 and 2008 , respectively , a decrease of $ 5.0 million . this decrease resulted mainly from decreased volume in 2009 , as reflected by a 22.3 % decline in patient studies performed in comparison to 2008 , and a corresponding decline in electrodes used and sold . factors contributing to the decline include continued uncertainty surrounding reimbursement , as well as the overall state of the economy causing an overall reduction in health care purchasing . also contributing to this decline was our decision to reduce our direct sales force by approximately 40 % in the second quarter of 2008 and a generally higher turnover rate in the sales force in 2009. cost of revenues and gross margin the following table presents a breakdown of our cost of revenues : replace_table_token_11_th our overall cost of revenues decreased to $ 7.5 million , or 28.8 % of revenues , for the year ended december 31 , 2009 , compared to $ 9.0 million , or 29.0 % of revenues for the same period in 2008. medical equipment cost of revenues decreased $ 372,000 in 2009 to $ 861,000 from $ 1.2 million in 2008 reflecting the sale of fewer devices in 2009. consumables cost of revenues decreased $ 1.1 million in 2009 to $ 6.7 million from $ 7.8 million in 2008 , primarily resulting from decreased sales of consumables in 2009. our overall gross margin percentage of 71.2 % of revenues for the year ended december 31 , 2009 increased slightly from 71.0 % of revenues for the same period in 2008. gross margin on medical devices improved to 68.3 % in 2009 from 54.5 % in 2008 reflecting the effects of higher device average selling prices during 2009. gross margin on consumables declined slightly to 71.5 % in 2009 from 72.6 % in 2008 . 45 operating expenses the following table presents a breakdown of our operating expenses : replace_table_token_12_th research and development research and development expenses for the years ended december 31 , 2009 and 2008 were $ 5.6 million . the comparative results included a $ 263,000 decrease in the amortization of intangible assets and slightly lower employee compensation cost offset by a $ 316,000 increase in costs with respect to our pharmacologic compounds and legal fees related to intellectual property . sales and marketing sales and marketing expenses decreased $ 3.8 million to $ 10.8 million for the year ended december 31 , 2009 from $ 14.6 million for the year ended december 31 , 2008. the decrease largely reflected savings of $ 2.6 million in employee compensation due to the reduction of the size of our direct sales force in may 2008. further savings included $ 356,000 in travel and entertainment expenses , $ 232,000 in consulting costs , $ 202,000 in advertising and promotion expenses , $ 180,000 in the cost of meetings , $ 162,000 in shipping and freight , and $ 151,000 in the cost of subscriptions . these decreases were partially offset by an increase of $ 249,000 in recruiting costs . although overall sales and marketing costs have decreased , in the second half of 2009 , we expanded our sales force , including the hiring of clinical educators to provide direct clinical support to customers . story_separator_special_tag general and administrative general and administrative expenses decreased $ 2.9 million to $ 9.1 million for the year ended december 31 , 2009 from $ 12.0 million for the year ended december 31 , 2008. the decrease included savings of $ 1.8 million in reduced legal fees , largely related to the government investigations by the doj and the oig , to which we were subject , which were settled in the first quarter of 2009 and further savings of $ 310,000 in employee compensation , $ 297,000 in taxes , licenses , and fees , and $ 205,000 in insurance costs . goodwill impairment as of march 31 , 2008 , our publicly traded market value was significantly below our net book value indicating that an interim goodwill impairment test was required . we performed step two of the impairment test in which we assessed the fair value of all recorded and unrecorded tangible and intangible assets and liabilities , including eyetel imaging , inc. , or eyetel , and pnir ( peripheral nerve injury repair ) llc , or pnir , intangibles . we determined that our non-goodwill assets were 46 unimpaired ; however , we also determined that there was no residual value of goodwill . accordingly , we recorded a charge of $ 5.8 million to write off goodwill during the quarter ended march 31 , 2008. legal settlement as of december 31 , 2008 , we accrued $ 3.7 million for a settlement with the doj and oig which was included in `` accrued expenses '' on our balance sheet at that date and which was subsequently paid in the first quarter of 2009. intangible asset impairment and gain from deconsolidation of joint venture during the fourth quarter of 2008 , we dissolved our joint venture with cyberkinetics neurotechnology systems , inc , or cyberkinetics , which was focused on development of a product for the treatment of peripheral nerve injury . we recorded a charge of approximately $ 1.8 million for the remaining balance of intangible assets representing the value of the technological and intellectual property of the joint venture and booked a gain of $ 2.1 million representing our share in the assets of the joint venture on deconsolidation . other income and expenses the following table presents a breakdown of our other income and expenses : replace_table_token_13_th loss on available-for-sale investment in november 2007 , we purchased approximately 5.4 million shares of common stock of cyberkinetics , representing approximately 13 % of cyberkinetics ' common stock , for an aggregate purchase price of $ 2.5 million . on november 3 , 2008 , cyberkinetics disclosed that existing cash and cash equivalents were only sufficient to meet projected operating requirements for approximately 30 days and that it was in the process of winding down its operations . since the value of our investment in cyberkinetics was adversely affected , we then marked this investment to market as of december 31 , 2008 and recorded year-to-date charges of $ 2.5 million to write down this investment to zero . interest income interest income was $ 227,000 and $ 721,000 for the years ended december 31 , 2009 and 2008 , respectively . interest income was earned from investments in cash equivalents and short-term investments . the decrease in interest income for the year ended december 31 , 2009 , as compared to the same period in 2008 reflects lower average invested balances and lower rates of return . warrants fair value adjustment warrants fair value adjustment represents net charges recorded during 2009 to adjust the liability for outstanding warrants issued in an equity financing in september 2009. during october 2009 , we executed addenda to these warrants such that upon a change in control , as defined , the warrant holders 47 will receive the black-scholes value of the warrants in the same currency and same proportions as will be received by our common stockholders . following the addenda , the warrant liability in the amount of $ 19.7 million was reclassified to additional paid-in capital . loss from discontinued operations on september 30 , 2008 , we approved a plan to discontinue sales and support of digiscopes and digiscope related services , effective november 1 , 2008. on november 7 , 2008 , we sold substantially all of the assets related to the digiscope business to advanced diagnostics , llc in exchange for assuming certain identified commitments of approximately $ 400,000 and a cash payment of $ 50,000. loss from discontinued operations in 2008 includes loss on operations and sale of assets relating to the discontinued operations . liquidity and capital resources our principal source of liquidity is our cash and cash equivalents . as of december 31 , 2010 , these totaled $ 17.0 million . our ability to generate cash from operations is dependent upon our ability to generate revenue from sales of our products , as well as our ability to manage our operating costs and net assets . our ability to generate revenue will largely depend on the success of our shift in our business focus to diabetes , specifically detection and monitoring of diabetic neuropathy which is a common complication of the disease . at the same time , we will continue to support our neurodiagnostic business , which we intend to manage to optimize cash flow . a further decrease in demand for our products or unanticipated increases in our operating costs would likely have an adverse effect on our liquidity and cash generated from operations . the following sets forth information relating to our liquidity : replace_table_token_14_th we have a one year loan and security agreement , or the credit facility , with a bank , which permits us to borrow up to $ 7.5 million on a revolving basis . the facility expires in march 2012. amounts borrowed under the facility bear interest equal to the prime rate plus 0.5 % . borrowings are secured by our cash , accounts receivable , inventory , and equipment .
| consumables revenues , consisting of single use nerve specific electrodes , which are used with our nc-stat system and our advance system , and emg needles , which are used with our advance system , were $ 11.7 million and $ 23.4 million for 2010 and 2009 , respectively , a decrease of $ 11.7 million , or 49.8 % . three primary factors contributed to the decline between 2009 and 2010 : our installed base of customers contracted by 13.8 % ; patient studies contracted by 18.6 % ; and our electrode asp declined by 20.1 % from $ 34.61 for 2009 to $ 27.66 for 2010. cost of revenues and gross margin the following table presents a breakdown of our cost of revenues : replace_table_token_6_th our cost of revenues was $ 7.1 million , or 50.7 % of revenues , for the year ended december 31 , 2010 , compared to $ 7.5 million , or 28.8 % of revenues for the year ended december 31 , 2009. the decrease of $ 485,400 in cost of revenues was due to lower shipment volume , partially offset by inventory charges of $ 1.8 million related to a strategic change in direction for the company that was announced on january 4 , 2011. our gross margin percentage of 49.3 % of revenues for the year ended 42 december 31 , 2010 decreased from 71.2 % of revenues for the same period in 2009. the lower gross margin percentage for 2010 resulted primarily from the inventory charges , as well as lower electrode asp compared with 2009. operating expenses the following table presents a breakdown of our operating expenses : replace_table_token_7_th research and development research and development expenses increased to $ 5.9 million for the year ended december 31 , 2010 from $ 5.6 million for the year ended december 31 , 2009. the comparative results for 2010 included increases of $ 504,000 in expensed materials relating to the development of new products and $ 351,000 for license maintenance fees , partially offset by a $ 368,000 decrease in stock-based compensation , a $ 105,000 decrease in professional fees , a $ 73,000 decrease in the cost of design work , and a $ 55,000 decrease
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we intend to drive new customer acquisition by continuing to invest significantly in sales and marketing to engage our prospective customers , increase brand awareness and drive adoption of our platform and products . we also plan to continue to invest in building brand awareness within the development and operations communities . as of december 31 , 2020 , we had approximately 14,170 customers spanning organizations of a broad range of sizes and industries , compared to approximately 10,500 as of december 31 , 2019. our ability to attract new customers will depend on a number of factors , including the effectiveness and pricing of our products , offerings of our competitors , and the effectiveness of our marketing efforts . we define the number of customers as the number of accounts with a unique account identifier for which we have an active subscription in the period indicated . users of our free trials or tier are not included in our customer count . a single organization with multiple divisions , segments or subsidiaries is generally counted as a single customer . however , in some cases where they have separate billing terms , we may count separate divisions , segments or subsidiaries as multiple customers . expanding within our existing customer base our base of customers represents a significant opportunity for further sales expansion . as of december 31 , 2020 , we had 1,253 customers with annual run-rate revenue , or arr , of $ 100,000 or more , representing 78 % of our arr , up from 858 as of december 31 , 2019 , representing 75 % of our arr . we monitor our number of customers with arr of $ 100,000 or more , and believe it is useful to investors , as an indicator of our ability to grow the number of customers that are exceeding this arr threshold . we define arr as the annual run-rate revenue of subscription agreements from all customers at a point in time . we calculate arr by taking the monthly run-rate revenue , or mrr , and multiplying it by 12. mrr for each month is calculated by aggregating , for all customers during that month , monthly revenue from committed contractual amounts , additional usage and monthly subscriptions . arr and mrr should be viewed independently of revenue , and do not represent our revenue under u.s. gaap on a monthly or annualized basis , as they are operating metrics that can be impacted by contract start and end dates and renewal rates . arr and mrr are not intended to be replacements or forecasts of revenue . a further indication of the propensity of our customer relationships to expand over time is our dollar-based net retention rate , which compares our arr from the same set of customers in one period , relative to the year-ago period . as of each of december 31 , 2020 and 2019 , our dollar-based net retention rate was above 130 % . we calculate dollar-based net retention rate as of a period end by starting with the arr from the cohort of all customers as of 12 months prior to such period-end , or the prior period arr . we then calculate the arr from these same customers as of the current period-end , or the current period arr . current period arr includes any expansion and is net of contraction or attrition over the last 12 months , but excludes arr from new customers in the current period . we then divide the total current period arr by the total prior period arr to arrive at the point-in-time dollar-based net retention rate . we then calculate the weighted average of the trailing 12-month point-in-time dollar-based net retention rates , to arrive at the dollar-based net retention rate . we believe that our land-and-expand business model allows us to efficiently increase revenue from our existing customer base . our customers often expand the deployment of our platform across large teams and more broadly within the enterprise as they migrate more workloads to the cloud , find new use cases for our platform , and generally realize the benefits of our platform . we intend to continue to invest in enhancing awareness of our brand and developing more products , features and functionality , which we believe are important factors to achieve widespread adoption of our platform . our ability to increase sales to existing customers will depend on a number of factors , including our customers ' satisfaction with our solution , competition , pricing and overall changes in our customers ' spending levels . sustaining innovation and technology leadership our success is dependent on our ability to sustain innovation and technology leadership in order to maintain our competitive advantage . we believe that we have built a highly differentiated platform that will position us to further extend the adoption of our platform and products . datadog is frequently deployed across a customer 's entire infrastructure , making it ubiquitous . datadog is a daily part of the lives of developers , operations engineers and business leaders . we employ a land-and-expand business model centered around offering products that are easy to adopt and have a very short time to value . our efficient go-to-market model enables us to prioritize significant investment in innovation . we have proven initial success of our platform approach , through expansion beyond our initial infrastructure monitoring solution , to include apm in 2017 , logs in 2018 , user experience and network performance monitoring in 2019 and security monitoring in 2020. as of december 31 , 2020 , approximately 72 % of our customers were using more than one product , up from approximately 60 % a year earlier . we believe these metrics indicate strong momentum in the uptake of our newer platform products . 44 we intend to continue to invest in building additional products , features and functionality that expand our capabilities and facilitate the extension of our platform to new use cases . story_separator_special_tag we also intend to continue to evaluate strategic acquisitions and investments in businesses and technologies to drive product and market expansion . our future success is dependent on our ability to successfully develop , market and sell existing and new products to both new and existing customers . expanding internationally we believe there is a significant opportunity to expand usage of our platform outside of north america . revenue , as determined based on the billing address of our customers , from regions outside of north america was approximately 25 % of our total revenue for the years ended december 31 , 2020 and 2019. in addition , we have made and plan to continue to make significant investments to expand geographically , particularly in emea and apac . although these investments may adversely affect our operating results in the near term , we believe that they will contribute to our long-term growth . beyond north america , we now have sales presence internationally , including in dublin , paris , london , singapore , tokyo , seoul , sydney and amsterdam . components of results of operations revenue we generate revenue from the sale of subscriptions to customers using our cloud-based platform . the terms of our subscription agreements are primarily monthly or annual , with the majority of our revenue coming from annual subscriptions . our customers can enter into a subscription for a committed contractual amount of usage that is apportioned ratably on a monthly basis over the term of the subscription period , a subscription for a committed contractual amount of usage that is delivered as used , or a monthly subscription based on usage . to the extent that our customers ' usage exceeds the committed contracted amounts under their subscriptions , either on a monthly basis in the case of a ratable subscription or once the entire commitment is used in the case of a delivered-as-used subscription , they are charged for their incremental usage . usage is measured primarily by the number of hosts or by the volume of data indexed . a host is generally defined as a server , either in the cloud or on-premise . our infrastructure monitoring , apm and network performance monitoring products are priced per host , our logs product is priced primarily per log events indexed and secondarily by events ingested . customers also have the option to purchase additional products , such as additional container or serverless monitoring , custom metrics packages , anomaly detection , synthetic monitoring and app analytics . in the case of subscriptions for committed contractual amounts of usage , revenue is recognized ratably over the term of the subscription agreement , generally beginning on the date that our platform is made available to a customer . as a result , much of our revenue is generated from subscriptions entered into during previous periods . consequently , any decreases in new subscriptions or renewals in any one period may not be immediately reflected as a decrease in revenue for that period , but could negatively affect our revenue in future quarters . this also makes it difficult for us to rapidly increase our revenue through the sale of additional subscriptions in any period , as revenue is recognized over the term of the subscription agreement . in the case of a subscription for a committed contractual amount of usage that is delivered as used , a monthly subscription based on usage , or usage in excess of a ratable subscription , we recognize revenue as the product is used , which may lead to fluctuations in our revenue and results of operations . in addition , historically , we have experienced seasonality in new customer bookings , as we typically enter into a higher percentage of subscription agreements with new customers in the fourth quarter of the year . due to ease of implementation of our products , professional services generally are not required and revenue from such services has been immaterial to date . cost of revenue cost of revenue primarily consists of expenses related to providing our products to customers , including payments to our third-party cloud infrastructure providers for hosting our software , personnel-related expenses for operations and global support , including salaries , benefits , bonuses and stock-based compensation , payment processing fees , information technology , depreciation and amortization related to the amortization of acquired intangibles and internal-use software and other overhead costs such as allocated facilities . we intend to continue to invest additional resources in our platform infrastructure and our customer support and success organizations to expand the capability of our platform and ensure that our customers are realizing the full benefit of our platform and products . the level , timing and relative investment in our infrastructure could affect our cost of revenue in the future . 45 gross profit and gross margin gross profit represents revenue less cost of revenue . gross margin is gross profit expressed as a percentage of revenue . our gross margin may fluctuate from period to period as our revenue fluctuates , and as a result of the timing and amount of investments to expand our products and geographical coverage . operating expenses our operating expenses consist of research and development , sales and marketing , and general and administrative expenses . personnel costs are the most significant component of operating expenses and consist of salaries , benefits , bonuses , stock-based compensation expense and sales commissions . operating expenses also include overhead costs for facilities and shared it-related expenses , including depreciation expense . research and development research and development expense consists primarily of personnel costs for our engineering , service and design teams . additionally , research and development expense includes contractor fees , depreciation and amortization and allocated overhead costs . research and development costs are expensed as incurred . we expect that our research and development expense will increase in absolute dollars as our business grows , particularly as we incur additional costs related to continued investments in our platform .
| therefore , increases or decreases in new sales , customer expansion or renewals in a period may not be immediately reflected in revenue for the period . quarterly cost of revenue trends our quarterly cost of revenue has generally increased quarter-over-quarter in each period presented above primarily as a result of third-party cloud infrastructure hosting and software costs , as well as increase headcount , which resulted in increased personnel expenses . quarterly gross margin trends our quarterly gross margins have fluctuated between 73 % and 80 % in each period presented . our gross margins decreased in the last three quarters ended december 31 , 2020 as a result of an increase in our third-party cloud infrastructure hosting and software costs as well as increased headcount . quarterly operating expense trends operating expenses have fluctuated between 77 % and 87 % of revenue in each period presented above , with increases primarily due to the increased headcount , infrastructure and related costs to support our growth . we intend to continue to make significant investments in research and development as we add features and enhance our platform . we also intend to invest in our sales and marketing organization to drive future revenue growth . 54 quarterly other ( expense ) income , net trends other ( expense ) income , net consisted primary of interest expense related to our 2025 notes and of amortization of premiums on our marketable securities . we issued the 2025 notes in june 2020 and increased our investments in marketable securities , which both led to an increase in the interest expenses incurred during the 12 months ended december 31 , 2020. other income consisted primarily of interest income earned from investments in money market funds and marketable securities , which was increased due to the increase in the investment in marketable securities . liquidity and capital resources since inception , we have financed operations primarily through sales of subscriptions and the net proceeds we have received from issuance of equity and debt securities . in june 2020 , we issued $ 747.5 million aggregate principal
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all of the company 's property ownership , development and related business operations are conducted through the operating partnership and eqr has no material assets or liabilities other than its investment in erpop . eqr issues equity from time to time but does not have any indebtedness as all debt is incurred by the operating partnership . the operating partnership holds substantially all of the assets of the company , including the company 's ownership interests in its joint ventures . the operating partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity . the company 's corporate headquarters are located in chicago , illinois and the company also operates property management offices in each of its markets . as of december 31 , 2014 , the company had approximately 3,500 employees who provided real estate operations , leasing , legal , financial , accounting , acquisition , disposition , development and other support functions . 38 business objectives and operating and investing strategies the company invests in high quality apartment communities located in strategically targeted markets with the goal of maximizing our risk adjusted total return ( operating income plus capital appreciation ) on invested capital . we seek to maximize the income and capital appreciation of our properties by investing in markets that are characterized by conditions favorable to multifamily property operations and appreciation . we are focused primarily on the six core coastal , high barrier to entry markets of boston , new york , washington dc , southern california ( including los angeles , orange county and san diego ) , san francisco and seattle . these markets generally feature one or more of the following characteristics that allow us to increase rents : ▪ high barriers to entry where , because of land scarcity or government regulation , it is difficult or costly to build new apartment properties , creating limits on new supply ; ▪ high home ownership costs ; ▪ strong economic growth leading to job growth and household formation , which in turn leads to high demand for our apartments ; ▪ urban core locations with an attractive quality of life and higher wage job categories leading to high resident demand and retention ; and ▪ favorable demographics contributing to a larger pool of target residents with a high propensity to rent apartments . our operating focus is on balancing occupancy and rental rates to maximize our revenue while exercising tight cost control to generate the highest possible return to our shareholders . revenue is maximized by attracting qualified prospects to our properties , cost-effectively converting these prospects into new residents and keeping our residents satisfied so they will renew their leases upon expiration . while we believe that it is our high-quality , well-located assets that bring our customers to us , it is the customer service and superior value provided by our on-site personnel that keeps them renting with us and recommending us to their friends . we use technology to engage our customers in the way that they want to be engaged . many of our residents utilize our web-based resident portal which allows them to sign and renew their leases , review their accounts and make payments , provide feedback and make service requests on-line . acquisitions and developments may be financed from various sources of capital , which may include retained cash flow , issuance of additional equity and debt , sales of properties and joint venture agreements . in addition , the company may acquire properties in transactions that include the issuance of limited partnership interests in the operating partnership ( “ op units ” ) as consideration for the acquired properties . such transactions may , in certain circumstances , enable the sellers to defer , in whole or in part , the recognition of taxable income or gain that might otherwise result from the sales . the company may acquire land parcels to hold and or sell based on market opportunities as well as options to buy more land in the future . the company may also seek to acquire properties by purchasing defaulted or distressed debt that encumbers desirable properties in the hope of obtaining title to property through foreclosure or deed-in-lieu of foreclosure proceedings . over the past several years , the company has done an extensive repositioning of its portfolio from low barrier to entry/non-core markets to high barrier to entry/core markets . since 2005 , the company has sold over 166,000 apartment units primarily in its non-core markets for an aggregate sales price of approximately $ 16.1 billion , acquired over 67,000 apartment units primarily in its core markets for approximately $ 19.5 billion and began approximately $ 5.3 billion of development projects primarily in its core markets . we are currently seeking to acquire and develop assets primarily in the following six core coastal metropolitan areas : boston , new york , washington d.c. , southern california , san francisco and seattle . we also have investments ( in the aggregate about 12.1 % of our noi at december 31 , 2014 ) in the two core markets of south florida and denver but do not currently intend to acquire or develop new assets in these markets . further , we are in the process of exiting phoenix and orlando and will use sales proceeds from these markets to acquire and or develop new assets and for other corporate purposes . as part of its strategy , the company purchases completed and fully occupied apartment properties , partially completed or partially occupied properties and takes options on land or acquires land on which apartment properties can be constructed . we intend to hold a diversified portfolio of assets across our target markets . as of december 31 , 2014 , no single market/metropolitan area accounted for more than 17.5 % of our noi , though no guarantee can be made that noi concentration may not increase in the future . story_separator_special_tag 39 we endeavor to attract and retain the best employees by providing them with the education , resources and opportunities to succeed . we provide many classroom and on-line training courses to assist our employees in interacting with prospects and residents as well as extensively train our customer service specialists in maintaining our properties and improvements , equipment and appliances . we actively promote from within and many senior corporate and property leaders have risen from entry level or junior positions . we monitor our employees ' engagement by surveying them annually and have consistently received high engagement scores . we have a commitment to sustainability and consider the environmental impacts of our business activities . sustainability and social responsibility are key drivers of our focus on creating the best apartment communities for residents to live , work and play . we have a dedicated in-house team that initiates and applies sustainable practices in all aspects of our business , including investment activities , development , property operations and property management activities . with its high density , multifamily housing is , by its nature , an environmentally friendly property type . our recent acquisition and development activities have been primarily concentrated in pedestrian-friendly urban locations near public transportation . when developing and renovating our properties , we strive to reduce energy and water usage by investing in energy saving technology while positively impacting the experience of our residents and the value of our assets . we continue to implement a combination of irrigation , lighting , hvac and renewable energy improvements at our properties that will reduce energy and water consumption . the company was recently named as the 2014 north american residential – large cap sector leader by the global real estate sustainability benchmark ( `` gresb '' ) survey , a globally recognized analysis of the sustainability indicators of approximately 650 real estate portfolios worldwide . for additional information regarding our sustainability efforts , see our december 2014 corporate social responsibility and sustainability report at our website , www.equityresidential.com . current environment during the year ended december 31 , 2014 , the company acquired six consolidated rental properties consisting of 1,353 apartment units for $ 469.9 million and two land parcels for $ 28.8 million . we believe our access to capital , our ability to execute large , complex transactions and our ability to efficiently stabilize large scale lease up properties provide us with a competitive advantage , which was demonstrated in the archstone transaction that closed in 2013. the company currently budgets consolidated rental acquisitions of approximately $ 500.0 million during the year ending december 31 , 2015 to be funded with proceeds from rental dispositions ( see discussion below ) . the company started construction on six projects representing 2,267 apartment units totaling approximately $ 1.2 billion of development costs during the year ended december 31 , 2014 . the company significantly increased its development starts in 2014 as compared to the past few years and while construction activity will remain elevated in 2015 , starts should return to more normalized levels . the company has budgeted approximately $ 1.0 billion of combined new apartment construction starts on land currently owned during the years ending december 31 , 2015 and 2016 , with approximately $ 400.0 million occurring in 2015 and the balance occurring in 2016. we currently budget spending approximately $ 700.0 million on development costs during the year ending december 31 , 2015 . this capital will be primarily sourced with excess operating cash flow , expected debt offerings in 2015 and borrowings on our revolving credit facility and or commercial paper program . the company expects to continue to sell non-core assets and reduce its exposure to non-core markets as we believe these assets will have lower long-term returns and we can sell them for prices that we believe are favorable . the company sold ten consolidated rental properties consisting of 3,092 apartment units for $ 467.0 million , one unconsolidated rental property consisting of 388 apartment units for $ 62.5 million ( sales price for the unconsolidated rental property is the gross sales price and eqr owned an 85 % interest ) and three land parcels for $ 62.6 million during the year ended december 31 , 2014 . the company currently budgets consolidated rental dispositions of approximately $ 500.0 million during the year ending december 31 , 2015 , which includes the company 's three remaining properties in the orlando market . we currently have access to multiple sources of capital including the equity markets as well as both the secured and unsecured debt markets . in june 2014 , the company completed a $ 450.0 million unsecured five year note offering with a coupon of 2.375 % and an all-in effective interest rate of approximately 2.52 % as well as a $ 750.0 million unsecured thirty year note offering with a coupon of 4.5 % and an all-in effective interest rate of approximately 4.57 % . the company used the proceeds from these offerings to repay its $ 750.0 million unsecured term loan facility that was scheduled to mature on january 11 , 2015 and to repay the outstanding balance on its revolving credit facility . in february 2015 , the company entered into a $ 500.0 million commercial paper program , which will allow for daily , weekly , or monthly borrowing at low floating rates of interest . we believe this commercial paper program will allow the company to continue to reduce its already low cost of capital and expect to use the program to replace a portion of the amount that we would otherwise have outstanding under our revolving line of credit . the company has budgeted $ 950.0 million of secured or unsecured debt offerings during 2015 , excluding usage of the commercial paper program .
| year ended december 31 , 2013 : ▪ acquired $ 8.5 billion of apartment properties consisting of 73 consolidated properties and 20,914 apartment units ( inclusive of eight long-term ground leases ) at a weighted average cap rate ( see definition below ) of 4.9 % and 14 consolidated land parcels for $ 260.6 million , all of which we deem to be in our strategic targeted markets ; ▪ acquired three consolidated master-leased properties consisting of 853 apartment units ( inclusive of one long-term ground lease ) for $ 249.6 million at a weighted average cap rate of 5.6 % ; ▪ acquired two consolidated uncompleted developments for $ 36.6 million ; ▪ acquired one unconsolidated apartment property consisting of 336 apartment units for $ 5.1 million at a weighted average cap rate of 5.8 % and one unconsolidated land parcel for $ 6.6 million ; ▪ acquired two unconsolidated uncompleted developments for $ 14.9 million ; ▪ sold $ 4.5 billion of consolidated apartment properties consisting of 94 properties and 29,180 apartment units at a weighted average cap rate of 6.0 % generating an unlevered irr , inclusive of management costs , of 10.0 % ( excluding the sale of three archstone assets ) , the majority of which were in exit or less desirable markets ; ▪ sold seven consolidated land parcels and one consolidated commercial building for $ 130.4 million ; and ▪ sold one unconsolidated land parcel for $ 26.4 million ( sales price is the gross sales price and eqr 's share of the net sales proceeds approximated 25 % ) . the company 's primary financial measure for evaluating each of its apartment communities is net operating income ( “ noi ” ) . noi represents rental income less property and maintenance expense , real estate tax and insurance expense and property management expense . the company believes that noi is helpful to investors as a supplemental measure of its operating performance because it is a direct measure of the actual operating results of the company 's apartment communities . the cap rate is generally the first year noi yield ( net of replacements ) on the company 's investment . 42 properties that the company owned and were stabilized ( see definition below ) for all of both 2014 and 2013 as well as the 18,465 stabilized apartment
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to this end , we have leveraged our deep experience with rna sequencing , bioinformatics and statistics to expand the clinical utility of the gps cancer test , while also streamlining and improving our lab workflow by consolidating to next-generation sequencing as our sole testing platform . a fundamental result of this work is that the key cancer treatment biomarkers previously assessed using our proprietary quantitative proteomics platform are , beginning in april 2018 , now assessed solely via rna sequencing , gene expression and statistical analysis . this change is based on the established clinical and scientific utility of tumor rna sequencing . the tumor rna transcriptome reveals gene and somatic variant expression , identifies gene fusions and validates their expression , and determines the relevance of gene copy number alterations . gps cancer currently assesses rna expression of over 19,000 genes in a tumor sample and we have shown significant concordance between our rna and proteomics expression platforms . we believe this change will result in operational efficiencies , an improved cost structure and more rapid transfer of scientific advancements in expression analysis to our clinical report . we also believe that our proprietary quantitative proteomics platform remains the most advanced technology available and a strategic asset of nantomics . this platform continues to have potential commercial and research applications going forward . 2017 asset purchase agreement with allscripts on august 3 , 2017 , we entered into an asset purchase agreement , which we refer to as the `` apa , '' with allscripts healthcare solutions , inc. , or “ allscripts ” , pursuant to which we agreed to sell to allscripts substantially all of the assets of our provider/patient engagement solutions business , including our fusionfx solution and components of its nantos software connectivity solutions ( the “ business ” ) . on august 25 , 2017 , we and allscripts completed the sale pursuant to the apa . allscripts conveyed to us 15,000,000 shares of our common stock at par value of $ 0.0001 per share that were previously owned by allscripts as consideration for the transaction . we retired the shares of stock . allscripts also paid $ 1.7 million of cash consideration to us as an estimated working capital payment , and we recorded a receivable of $ 1.0 million related to final working capital adjustments . we are also responsible for paying allscripts for fulfilling certain customer service obligations of the business post-closing . - 82 - concurrent with the closing and as contemplated by the apa , we and allscripts modified the amended and restated mutual license and reseller agreement dated june 26 , 2015 , which was further amended on december 30 , 2017 , such that , among other things , the company committed to deliver a minimum of $ 95.0 million of total bookings over a ten-year period ( “ bookings commitment ” ) from referral transactions and sales of certain allscripts products under this agreement ( see note 3 of the consolidated financial statements ) . in the event of a bookings commitment shortfall at the end of the ten-year period , we may be obligated to pay 70 % of the shortfall , subject to certain credits . we will earn 30 % commission from allscripts on each software referral transaction that results in a booking with allscripts . we account for the bookings commitment at its estimated fair value over the life of the agreement . as of december 31 , 2018 , the estimated fair value was $ 16.9 million , and at december 31 , 2017 , the fair value was estimated not to be material . the sale of the business qualified as a discontinued operations because it comprised operations and cash flows that could be distinguished , operationally and for financial reporting purposes , from the rest of the company . the disposal of the business sold to allscripts represented a strategic shift in our operations as the sale enables us to focus on molecular sequencing and analysis , clinical decision support , connected care and payer engagement . 2017 corporate restructuring plan in august 2017 , we committed to and began implementation of a comprehensive restructuring plan that includes a wide range of organizational efficiency initiatives and other cost reduction opportunities . the plan will allow us to focus on our core competencies of molecular sequencing and analysis , clinical decision support , connected care and payer engagement . we incurred charges from this restructuring related to severance and other cash expenditures and recognized the majority of the expenses related to this restructuring in the year ended december 31 , 2017. non-gaap net loss from continuing operations and non-gaap net loss per share from continuing operations adjusted net loss from continuing operations and adjusted net loss per share from continuing operations are financial measures that are not prepared in conformity with united states generally accepted accounting principles ( u.s. gaap ) . our management believes that the presentation of non-gaap financial measures provides useful supplementary information regarding operational performance , because it enhances an investor 's overall understanding of the financial results for our core business . additionally , it provides a basis for the comparison of the financial results for our core business between current , past and future periods . other companies may define these measures in different ways . non-gaap financial measures should be considered only as a supplement to , and not as a substitute for or as a superior measure to , financial measures prepared in accordance with u.s. gaap . story_separator_special_tag non-gaap net loss from continuing operations excludes the effects of ( 1 ) loss from equity method investments including impairment losses , ( 2 ) stock based compensation expense , ( 3 ) intangible amortization , ( 4 ) corporate restructuring expenses , ( 5 ) acquisition related sales incentives , which have been recorded as contra revenue , ( 6 ) change in fair value of derivatives liability , ( 7 ) change in fair value of the bookings commitment , ( 8 ) non-cash interest expense related to convertible notes , ( 9 ) securities litigation costs , ( 10 ) impairment of investments without readily determinable fair value , and ( 11 ) the impacts of certain income tax benefits and provisions from non-cash activity . - 83 - the following table reconciles net loss from continuing operations to net loss from continuing operations - non-gaap and shares outstanding to shares outstanding - non-gaap for the years ended december 31 , 2018 and 2017 : replace_table_token_1_th the following table reconciles net loss per share to net loss per share non-gaap for the years ended december 31 , 2018 and 2017 : replace_table_token_2_th ( 1 ) corporate restructuring includes accrued bonus reversal of $ 0.5 million for the year ended december 31 , 2017. components of our results of operations revenue - 84 - we generate our revenue from the sale of software-as-a-service , software , hardware and services , sequencing and molecular analysis and home health care services . our systems infrastructure and platforms support the delivery of both personalized comprehensive sequencing and molecular analysis and the implementation of value-based care models across the healthcare continuum . we generate revenue from the following sources : software-as-a-service related - saas related revenue is generated from our clients ' access to and usage of our hosted software solutions on a subscription basis for a specified contract term . in saas arrangements , the customer can not take possession of the software during the term of the contract and generally only has the right to access and use the software and receive any software upgrades published during the subscription period . solutions sold under a saas model include our eviti platform solutions and navinet . software and hardware related - software and hardware related revenue is generated from the license of our software , on a perpetual basis , the sale of hardware and professional services that are complementary to the software and may or may not be required for the software to function as desired by the customer . the services are generally provided in the form of implementation and training services and do not include maintenance revenue . the software is installed on the customer 's site or the customer 's designated vendor 's site and is not hosted by us or by a vendor contracted by us . we also generate revenue from the resale of third-party software and hardware to our clients . our software license and hardware solutions include deviceconx software and hbox . maintenance - maintenance revenue includes ongoing post contract client support ( `` pcs '' ) or maintenance on software and hardware during the pcs term . additionally , pcs includes ongoing development of software updates and upgrades provided to the customer on a when-and-if-available basis . we sell our deviceconx solution with maintenance contracts . sequencing and molecular analysis - sequencing and molecular analysis revenue is generated by providing customers with reports of the results of performing sequencing and analysis of whole genome dna , rna , and or proteomic testing under our reseller agreement with nantomics , llc ( `` nantomics '' ) , and from blood samples via our liquid/blood-based tumor profiling platform through our subsidiary , nanthealth labs , inc. ( `` nanthealth labs '' , formerly liquid genomics , inc. ) . revenue is recognized at a point in time , when reports of results are transferred to the ordering physician or institution , or on a cash basis ; or ratably over time for the period of a stand-ready obligation to provide blood-based tumor profiling services . home health care services - home health care services revenue includes revenue related to nursing and therapy services provided to patients in a home care setting . cost of revenue cost of revenue includes associated salaries and fringe benefits , stock-based compensation , consultant costs , direct reimbursable travel expenses , depreciation related to software developed for internal use , depreciation related to lab equipment , and other direct engagement costs associated with the design , development , sale and installation of systems , including system support and maintenance services for customers . system support includes ongoing customer assistance for software updates and upgrades , installation , training and functionality . all service costs , except development of internal use software and deferred implementation costs , are expensed when incurred . amortization of deferred implementation costs are also included in cost of revenue . cost of revenue associated with each of our revenue sources consists of the following types of costs : software-as-a-service related - saas related cost of revenue includes personnel-related costs , amortization of deferred implementation costs , depreciation of internal use software , and other direct costs associated with the delivery and hosting of our subscription services . software and hardware related - software and hardware related cost of revenue includes third-party software and hardware costs directly associated with solutions , including purchasing and receiving costs , and includes direct costs associated with software implementation services provided to our customers . software and hardware related cost of revenue also includes hardware costs directly related to bringing manufactured products to their final selling destination . maintenance - maintenance cost of revenue includes personnel-related costs and other direct costs associated with the ongoing support or maintenance provided to our customers .
| this growth was primarily driven by higher revenue from our navinet product due to a higher number of implementations being completed during the year . maintenance revenue decreased $ 0.6 million , or 5.6 % , from $ 10.4 million in the year ended december 31 , 2017 to $ 9.8 million for the year ended december 31 , 2018 . this decrease was primarily driven by the timing of recognition of maintenance fees on an individual contract in the prior year , which had been deferred until implementation was complete under the previous revenue recognition guidance . this decrease was partially offset by a larger customer base for deviceconx post contract support maintenance services compared to the prior year . sequencing and molecular analysis revenue increased from $ 2.6 million for the year ended december 31 , 2017 to $ 3.1 million for the year ended december 31 , 2018. this increase was due to the acquisition of nanthealth labs and the resulting addition of the liquid gps test to our products during 2018 , which provided $ 0.8 million of revenue in 2018. gps cancer revenues declined slightly driven by a change in product mix on tests performed and reimbursed as we transitioned a part of our sequencing and molecular analysis business to the liquid gps test to accommodate a growing segment of the market . currently , we recognize revenue from customers with executed contracts , and from customers without a contractual agreement where we recognize revenue on a cash basis given the uncertainty of reimbursement . as the company gains additional insurance coverage , including coverage under government insurance programs , we expect to be able to reduce the portion of gps cancer revenue which is recognized on a cash basis . - 90 - the commercial team 's efforts are focused on increasing reimbursement of the gps cancer profile by developing partnerships , which include pilot arrangements with commercial insurance and self-insured employers , expanding physician
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operating cash costs : an overall benchmark used by us and a common industry metric to measure performance is operating cash costs per pound of copper produced . operating cash cost is a non-gaap measure that does not have a standardized meaning and may not be comparable to similarly titled measures provided by other companies . this non-gaap information should not be considered in isolation or as substitute for measures of performance determined in accordance with gaap . a reconciliation of our operating cash cost per pound of copper produced to the cost of sales ( exclusive of depreciation , amortization and depletion ) as presented in the consolidated statement of earnings is presented under the subheading , `` non-gaap information reconciliation '' on page 90. we disclose operating cash cost per pound of copper produced , both before and net of by-product revenues . we define operating cash cost per pound of copper produced before by-product revenues as cost of sales ( exclusive of depreciation , amortization and depletion ) , plus selling , general and administrative charges , treatment and refining charges net of sales premiums ; less the cost of purchased concentrates , workers ' participation and other miscellaneous charges , including royalty charges , and the change in inventory levels ; divided by total pounds of copper produced by our own mines . 74 in our calculation of operating cash cost per pound of copper produced , we exclude depreciation , amortization and depletion , which are considered non-cash expenses . exploration is considered a discretionary expenditure and is also excluded . workers ' participation provisions are determined on the basis of pre-tax earnings and are also excluded . additionally excluded from operating cash costs are items of a non-recurring nature and the mining royalty charge as it is based on various calculations of taxable income , depending on which jurisdiction , peru or mexico , is imposing the charge . we believe these adjustments will allow our management and stakeholders to see a presentation of our controllable cash cost , which we consider is one of the lowest of copper producing companies of similar size . we define operating cash cost per pound of copper produced net of by-product revenues as operating cash cost per pound of copper produced , as defined in the previous paragraph , less by-product revenues and net revenue ( loss ) on sale of metal purchased from third parties . in our calculation of operating cash cost per pound of copper produced , net of by-product revenues , we credit against our costs the revenues from the sale of all our by-products , including , molybdenum , zinc , silver , gold , etc . and the net revenue ( loss ) on sale of metals purchased from third parties . we disclose this measure including the by-product revenues in this way because we consider our principal business to be the production and sale of copper . as part of our copper production process , much of our by-products are recovered . these by-products , as well as the processing of copper purchased from third parties , are a supplemental part of our production process and their sales value contribute to cover part of our incurred fixed costs . we believe that our company is viewed by the investment community as a copper company , and is valued , in large part , by the investment community 's view of the copper market and our ability to produce copper at a reasonable cost . we believe that both of these measures are useful tools for our management and our stakeholders . our cash costs before by-product revenues allow us to monitor our cost structure and address with operating management areas of concern . the measure operating cash cost per pound of copper produced net of by-product revenues is a common measure used in the copper industry and is a useful management tool that allows us to track our performance and better allocate our resources . this measure is also used in our investment project evaluation process to determine a project 's potential contribution to our operations , its competitiveness and its relative strength in different price scenarios . the expected contribution of by-products is generally a significant factor used by the copper industry in determining whether to move forward with the development of a new mining project . as the price of our by-product commodities can have significant fluctuations from period to period , the value of its contribution to our costs can be volatile . 75 our operating cash cost per pound of copper produced , as defined above , is presented in the table below for the three years ended december 31 , 2018 : operating cash cost per pound of copper produced ( 1 ) ( in millions , except cost per pound and percentages ) replace_table_token_39_th ( 1 ) these are non-gaap measures , see page 90 for reconciliation to gaap measure . ( 2 ) net of metallurgical losses . 2018 compared to 2017 : our cash cost per pound before by-product revenues in 2018 was $ 1.54 , 3.4 % higher than in 2017. this increase in operating cash cost was mainly due to higher production costs , principally at our peruvian operations . however , our per pound cash cost for 2018 , when calculated net of by-product revenues was 5.4 % lower than in 2017. this improvement was mainly the result of higher prices for our major by-products . 2017 compared to 2016 : our cash cost per pound before by-product revenues in 2017 was $ 1.49 , 3.5 % higher than in 2016. this increase in operating cash cost was mainly the result of higher production costs . however , our per pound cash cost for 2017 , when calculated net of by-product revenues was 3.2 % lower than in 2016. this was the result of higher prices for our major by-products and higher zinc sales volume . story_separator_special_tag metal prices : the profitability of our operations is dependent on , and our financial performance is significantly affected by , the international market prices for the products we produce , especially for copper , molybdenum , zinc and silver . we are subject to market risks arising from the volatility of copper and other metals prices . metal prices historically have been subject to wide fluctuations and are affected by numerous factors beyond our control . these factors , which affect each commodity to varying degrees , include international economic and political conditions , levels of supply and demand , the availability and cost of substitutes , inventory levels maintained by producers and others and , to a lesser degree , inventory carrying costs and currency exchange rates . in addition , the market prices of certain metals have on occasion been subject to rapid short-term changes due to economic concerns and financial investments . for 2019 , assuming that expected metal production and sales are achieved , that 2018 tax rates are unchanged and giving no effect to potential hedging programs , metal price sensitivity factors would 76 indicate the following change in estimated annual net income attributable to scc resulting from metal price changes : replace_table_token_40_th business segments : we view our company as having three reportable segments and manage it on the basis of these segments . these segments are ( 1 ) our peruvian operations , ( 2 ) our mexican open-pit operations and ( 3 ) our mexican underground operations , known as our immsa unit . our peruvian operations include the toquepala and cuajone mine complexes and the smelting and refining plants , industrial railroad and port facilities that service both mines . our mexican open-pit operations include la caridad and buenavista mine complexes , the smelting and refining plants and support facilities , which service both mines . our immsa unit includes five underground mines , a coal mine , and several industrial processing facilities . segment information is included in our review of `` results of operations '' in this item and also in note 17 `` segment and related information '' of our consolidated financial statements . inflation and exchange rate effect of the peruvian sol and the mexican peso : our functional currency is the u.s. dollar and our revenues are primarily denominated in u.s. dollars . significant portions of our operating costs are denominated in peruvian sol and mexican pesos . accordingly , when inflation and currency devaluation/appreciation of the peruvian and mexican currency occur , our operating results can be affected . in recent years , we do believe such changes have not had a material effect on our results and financial position . please see item 7a `` quantitative and qualitative disclosures about market risk '' for more detailed information . capital investment program : we made capital investments of $ 1,121.4 million in 2018 , $ 1,023.5 million in 2017 and $ 1,118.5 million in 2016. in general , the capital investments and projects described below are intended to increase production , decrease costs or address social and environmental commitments . 77 the table below sets forth our capital investments for the three years ended december 31 , 2018 ( in millions ) : replace_table_token_41_th in 2019 , we plan to invest $ 1,752.8 million in capital projects . in addition to our ongoing capital maintenance and replacement spending , our principal capital programs include the following : projects in mexico : buenavista zincsonora : this project is located within the buenavista facility and includes the development of a new concentrator to produce approximately 80,000 tons of zinc per year which will allow us to double our current zinc production capacity . also , the project will produce 20,000 tons of additional copper per year . we have completed the basic engineering and we are working on the purchasing process for the main project components . water concessions have been requested . we estimate an investment of $ 413 million for this project and expect to initiate operations in 2021. pilaressonora : this project , located six kilometers from la caridad , will be developed as an open-pit mine operation . the ore will be transported from the pit to the primary crushers of the la caridad copper concentrator through a new 25-meter wide off-road facility for mining trucks , and will significantly improve the over-all mineral ore grade ( combining the 0.78 % expected from pilares with 0.34 % at la caridad ) . environmental permit studies were presented to the government 's environmental 78 authorities and additional land is being acquired . an investment of $ 159 million is estimated to produce 35,000 tons of copper in concentrates per year . we expect this project to start producing in early 2020. projects in peru : we currently have a portfolio of board approved projects in peru , with a total capital budget of $ 2,900 million , out of which $ 1,755 million have already been invested . toquepala expansion projecttacna : this $ 1,255 million project includes a new state-of-the-art concentrator which will increase toquepala 's annual copper production by 100,000 tons to reach 258,000 tons in 2019 , a 74 % production increase , when compared to 2017. through december 31 , 2018 , we have invested $ 1,227 million in this expansion . construction of the project was completed and production began in the fourth quarter of 2018. full production is expected to be reached by the second quarter of 2019. the project to improve the crushing process at toquepala with the installation of a high pressure grinding roll ( hpgr ) system , has as its main objective , to ensure that our existing concentrator will operate at its maximum annual production capacity of 117,000 tons of copper while reducing operating costs through ore crushing efficiencies , even with an increase of the ore material hardness index . the budget for this project is $ 50 million and as of december 31 , 2018 , we have invested $ 44 million .
| in addition to copper , we produce significant amounts of other metals , either as a by-product of the copper process or in a number of dedicated mining facilities in mexico . net sales in 2018 were $ 7.1 billion , the highest amount in southern copper history . in 2018 , we invested $ 1,121.4 million in capital programs , along with $ 29.6 million in our exploration efforts . we believe this commitment to growth will continue to benefit our company , our investors , our neighboring communities , and the countries in which we operate . we believe we hold the world 's largest copper reserve position . at december 31 , 2018 , our copper ore reserves , calculated at a copper price of $ 2.90 per pound , totaled 69.7 million tons of contained copper , at the following locations : copper contained in ore reserves thousand tons mexican open-pit 31,396 peruvian operations 23,516 immsa 231 development projects 14,567 total 69,710 outlook : various key factors affect our outcome . these include , but are not limited to , the following : changes in copper , molybdenum , silver and zinc prices : in 2018 , the average lme and comex per pound copper prices were $ 2.96 and $ 2.93 , approximately 5.7 % and 4.6 % higher than 2017 , 70 respectively . in 2018 , per pound lme spot copper prices ranged from $ 2.64 to $ 3.29. average molybdenum and zinc prices increased in 2018 by 45.9 % and 1.5 % , respectively , compared to 2017. the average silver price decreased by 8.1 % in 2018 compared to 2017. sales structure : in the last three years , approximately 80 % of our revenues came from the sale of copper , 6 % from molybdenum , 5 % from silver , 5 % from zinc and 4 % from various other products , including gold , sulfuric acid and other materials . copper : during the last quarter of 2018 , the lme per pound copper price
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in fiscal 2012 , we modified our pos business strategy to focus on growing our core technology products , which includes tumorgraft implants and drug studies . as part of this strategy , which we continued to execute during fiscal 2013 , we lowered our prices for these products to increase the number of patients to whom we sell these products and increase the number of tumors in our tumorbank . we will continue to offer related personalized oncology products , such as the personalized tumor panels and gene sequencing , to our customers ; however , we expect future pos revenues to be driven by our core products . during the second half of fiscal 2012 , we transitioned the laboratory activities that support the pos and tos businesses from a clinical research organization to a facility in baltimore , maryland that we rent , and at which our personnel conduct the pos and tos operations . we believe that having our own personnel perform these activities reduces the cost of providing our products and allows us to maintain a more competitive pricing strategy . to facilitate this strategy and support the increase in pos implants and drug study volume that resulted from our pos pricing restructuring strategy , we invested in our information technology and other infrastructure and increased our laboratory staff . we are evaluating options to increase our laboratory capacity to meet our expected increases demand in the future . on march 16 , 2011 , the company entered into an agreement with cephalon , inc. , a wholly-owned subsidiary of teva pharmaceutical industries ltd. , pursuant to which the company agreed to conduct tumorgraft studies on two proprietary chemical compounds provided by cephalon to determine the activity or response of these compounds in potential clinical indications . under the agreement , cephalon agreed to , under certain conditions , pay the company various amounts upon achieving certain milestones , based on the performance of the compounds in preclinical testing and dependent upon testing the compound in clinical settings and obtaining fda approval . potential milestone payments that could be received under the agreement totaled $ 27 million per compound . in addition , cephalon agreed to pay the company royalties on any commercialized products developed under the agreement . under certain conditions . cephalon reserved the right to exercise and pay a one-time fee of in lieu of the milestone or royalty payments , which are $ 460,000 for one compound and $ 880,000 for the second compound . 12 on november 30 , 2012 , cephalon exercised the option to pay this one-time fee of $ 880,000 to the company , in lieu of any future milestone or royalty payments , for one compound tested under the agreement described above . written notice was provided to the company on december 3 , 2012 and payment was received on december 19 , 2012. this fee has been recognized as revenue during the three and nine months ended january 31 , 2013. as of april 30 , 2013 , the remaining compound is still being evaluated . on january 28 , 2013 , the company entered into a securities purchase agreement with several accredited investors for the sale of an aggregate 18,600,000 shares of the company 's common stock at a purchase price of $ 0.50 per share , as well as issued warrants to purchase 1,860,000 additional shares of common stock , for aggregate proceeds of $ 9.3 million . this private placement transaction is discussed in further detail below in the “ liquidity and capital resources ” section . story_separator_special_tag based on the monte carlo simulation valuation model , impacted primarily by the quoted price of the company 's common stock . the revaluation of the warrant liability has no impact on our cash balances . inflation inflation does not have a meaningful impact on the results of our operations . 14 liquidity and capital resources our liquidity needs have typically arisen from the funding of our research and development programs and the launch of new products , working capital requirements , and other strategic initiatives . in the past , we have met these cash requirements through our cash and cash equivalents , working capital management , and proceeds from certain private placements of our securities . as of april 30 , 2013 , we had working capital of $ 7.5 million and cash and cash equivalents of $ 9.6 million . we believe that our cash and cash equivalents on hand at april 30 , 2013 is adequate to fund operation for at least through our fiscal 2014. should the company be required to raise additional capital , there can be no assurance that management would be successful in raising such capital on terms acceptable to us , if at all . on january 28 , 2013 , the company entered into a securities purchase agreement with several accredited investors for the sale of an aggregate 18,600,000 shares of the company 's common stock at a purchase price of $ 0.50 per share , for aggregate proceeds of $ 9.3 million , $ 0.5 million of which was sold to officers and directors of the company . as part of this transaction , the company also issued warrants to purchase an aggregate 1,860,000 shares of common stock at an exercise price of $ 0.66 per share . these warrants expire five years after the closing date . story_separator_special_tag the company also entered into an amended and restated registration rights agreement on january 28 , 2013 which provided certain registration rights with respect to the shares of common stock issued and the shares of common stock issuable upon exercise of the warrants , as well as shares of common stock issued and shares of common stock issuable upon exercise of warrants issued in a private placement in april 2011. furthermore , certain investors will have the right to require the company to redeem the purchased common shares held by all of the investors for cash of $ 0.50 per share upon a change of control or sale or exclusive license of substantially all of the company 's assets . the put option will terminate upon the achievement of certain financial milestones by the company , the sale of 25 % of the common shares purchased by an investor , with respect only to the shares owned by such investor , or in certain other circumstances as outlined in the securities purchase agreement . the investors also have certain participation rights with respect to future financings of the company . due to the put option described above , the company has accounted for common stock issued in the january 2013 private placement as temporary equity , which is reflected under the caption “ redeemable common stock ” on the consolidated balance sheets included in item 15 of this report . the total amount allocated to these common shares was $ 8.8 million , which is equal to the total proceeds of $ 9.3 million less the amount allocated to the fair value of the warrants of $ 0.4 million and is also net of the direct and incremental costs associated with the private placement of $ 0.1 million . the warrants issued in connection with the private placement contain certain exercise price reset provisions . under these provisions , the exercise price of the warrants may be adjusted downward should the company have future sales of its common stock for no consideration or for a consideration per share less than the per share price ( as such term is defined in the securities purchase agreement ) . cash flows the following discussion relates to the major components of our cash flows : cash flows from operating activities net cash used in operating activities was $ 4.3 million and $ 5.2 million for the years ended april 30 , 2013 and 2012 , respectively . the decrease of $ 0.9 million cash used in operations relates to reductions in net losses , as a result of increased revenues , better management of expenses and having our own personnel , instead of a cro , conduct our laboratory activities in-house . cash flows from investing activities cash used in investing activities was $ 0.1 million and $ 0.5 million for the years ended april 30 , 2013 and 2012 , respectively . these cash flows relate to the purchase of property and equipment . cash flows from financing activities net cash provided by financing activities was $ 9.1 million and $ 0.1 million for the years ended april 30 , 2013 and 2012 , respectively . these cash flows primarily relate to the private placement of common stock and warrants that occurred on january 28 , 2013 , which is explained more in liquidity and capital resources , and the exercise of stock options and warrants . 15 critical accounting policies we believe that of our significant accounting policies ( refer to the notes to consolidated financial statements contained in item 15 of this annual report ) , the following may involve a higher degree of judgment and complexity : general our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states or gaap . the preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty . these areas include the carrying amounts of long-lived assets and deferred taxes . we base our estimates on historical experience , our observance of trends in particular areas and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources . actual amounts could differ significantly from amounts previously estimated . revenue recognition we derive revenue from our pos and tos businesses . personalized oncology solutions assist physicians by providing information to help guide the development of personalized treatment plans for their patients using our core offerings , including testing oncology drugs and drug combinations on personalized tumorgrafts , and through other products . translational oncology solutions offer a tumorgraft platform to pharmaceutical and biotechnology companies using proprietary tumorgraft studies , which may be predictive of how drugs may perform in clinical settings . we recognize revenue when the following four basic criteria are met : ( i ) a contract has been entered into with our customers ; ( ii ) delivery has occurred ; ( iii ) the fee charged is fixed and determinable as noted in the contract ; and ( iv ) collectability is reasonably assured .
| this fee was recognized as revenue during the year ended april 30 , 2013. cost of personalized oncology solutions pos cost of sales was $ 2.7 million and $ 2.4 million for the years ended april 30 , 2013 and 2012 , respectively , an increase of $ 0.3 million , or 13 % . for the years ended april 30 , 2013 and 2012 , gross margins for pos were negative 12 % and 1 % , respectively . the increases in cost of sales and the declines in gross margins are attributed to increased volumes of implants and drug studies performed , at lower prices as discussed above . cost of translational oncology solutions tos cost of sales was $ 2.7 million and $ 2.5 million for the years ended april 30 , 2013 and 2012 , respectively , an increase of $ 0.2 million , or 4 % . for the years ended april 30 , 2013 and 2012 , gross margins for tos were 55 % and 47 % , respectively . the increase in gross margin was primarily the result of the cephalon one-time fee discussed above . research and development research and development expense was $ 1.9 million and $ 2.9 million for the years ended april 30 , 2013 and 2012 , respectively , a decrease of $ 1.0 million or 35 % . this decrease is primarily related to decreased laboratory maintenance costs associated with research and development efforts , as a result of lower unit costs associated with performing the work in our laboratory . additionally , the decrease can be attributed to decreased tumor costs , resulting from our strategy to source models from our pos business . sales and marketing sales and marketing expense was $ 2.7 million and $ 2.9 million for the years ended april 30 , 2013 and 2012 , respectively , a decrease of $ 0.2 million , or 9 % . general and administrative general and administrative expense was $ 4.7 million and $ 5.5 million for
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the impact and any associated risks related to this policy on bancorp 's business operations are discussed in the allowance for loan losses section below . the allowance for loan losses is management 's estimate of probable losses in the loan portfolio . loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . prior to the third quarter of 2013 , management measured the appropriateness of the allowance for loan losses in its entirety using ( a ) quantitative ( historical loss rates ) and qualitative factors ( management adjustment factors ) ; ( b ) specific allocations on impaired loans , and ( c ) an unallocated amount . the unallocated amount was evaluated on the loan portfolio in its entirety and was based on additional factors , such as national and local economic trends and conditions , changes in volume and severity of past due loans , volume of non-accrual loans , volume and severity of adversely classified or graded loans and other factors and trends that affect specific loans and categories of loans , such as a heightened risk in the commercial and industrial loan portfolios . bancorp utilized the sum of all allowance amounts derived as described above , including a reasonable unallocated allowance , as an indicator of the appropriate level of allowance for loan and lease losses . during the third quarter of 2013 , bancorp refined its allowance calculation whereby it allocated the portion of the allowance that was previously deemed to be unallocated allowance based on management 's determination of the appropriate qualitative adjustment . this refined allowance calculation includes specific 14 allowance allocations to loan portfolio segments at december 31 , 2013 for qualitative factors including , among other factors , ( i ) national and local economic and business conditions , ( ii ) the quality and experience of lending staff and management , ( iii ) changes in lending policies and procedures , ( iv ) changes in volume and severity of past due loans , classified loans and non-performing loans , ( v ) potential impact of any concentrations of credit , ( vi ) changes in the nature and terms of loans such as growth rates and utilization rates , ( vii ) changes in the value of underlying collateral for collateral-dependent loans , considering bancorp 's disposition bias , and ( viii ) the effect of other external factors such as the legal and regulatory environment . bancorp may also consider other qualitative factors in future periods for additional allowance allocations , including , among other factors , changes in bancorp 's loan review process . changes in the criteria used in this evaluation or the availability of new information could cause the allowance to be increased or decreased in future periods . in addition , bank regulatory agencies , as part of their examination process , may require adjustments to the allowance for loan and lease losses based on their judgments and estimates . additionally , management has identified the accounting policy related to accounting for income taxes as critical to the understanding of bancorp 's results of operations and discussed this conclusion with the audit committee of the board of directors . the objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity 's financial statements or tax returns . judgment is required in assessing the future tax consequences of events that have been recognized in bancorp 's financial statements or tax returns . fluctuations in the actual outcome of these future tax consequences , including the effects of irs examinations and examinations by other state agencies , could materially impact bancorp 's financial position and its results from operations . additional information regarding income taxes is discussed in the income taxes section below . overview of 2013 the following discussion should be read in conjunction with bancorp 's consolidated financial statements and accompanying notes and other schedules presented elsewhere in this report . in 2013 , bancorp completed a year of asset and deposit growth with net income totaling $ 27,170,000 , an increase of 5 % over 2012 , and the fourth consecutive year of increased net income . increased profitability was primarily due to an increase in net interest income , a decline in the provision for loan losses , an increase in non-interest income , partially offset by higher non-interest expenses and higher income tax expense . diluted earnings per share for 2013 increased 2 % over 2012 to $ 1.89 , exceeding the highest amount recorded in any prior year . bancorp 's results for 2013 included the effect of several non-core items . these items are discussed in the non-interest income and non-interest expenses section below . excluding these items , net income for 2013 , was $ 28.3 million or $ 1.97 per diluted share . see the non-gaap financial measures section for details on reconciliation to us gaap measures . on april 30 , 2013 , bancorp completed the acquisition of 100 % of the outstanding shares of the bancorp , inc. ( oldham ) , parent company of the bank oldham county , inc. as a result of the transaction , the bank oldham county merged into stock yards bank & trust company . since the acquisition date , results of operations acquired in the oldham transaction have been included in bancorp 's financial results . the oldham transaction has been accounted for using the acquisition method of accounting and , accordingly , assets acquired , liabilities assumed and consideration transferred were recorded at estimated fair value on the acquisition date . the fair value adjustments resulted in net assets acquired in excess of the consideration paid . accordingly , a non-taxable gain of $ 449,000 was recognized . story_separator_special_tag in connection with the oldham acquisition , bancorp incurred expenses totaling $ 1,548,000 related to executing the transaction and integrating and conforming acquired operations with and into bancorp . as is the case with most banks , the primary source of bancorp 's revenue is net interest income and fees from various financial services provided to customers . net interest income is the difference between interest income earned on loans , investment securities and other interest earning assets less interest expense on deposit accounts and other interest bearing liabilities . loan volume and the interest rates earned on those loans are critical to overall profitability . similarly deposit volume is crucial to funding loans and rates paid on deposits directly impact profitability . business volumes are influenced by overall economic factors including 15 market interest rates , business spending , consumer confidence and competitive conditions within the marketplace . bancorp 's loan portfolio increased $ 137 million , or 9 % , during 2013 to $ 1.7 billion . excluding $ 40 million of loans acquired in the oldham transaction , core loan growth was 6 % for 2013. record loan production of approximately $ 489 million was largely offset by loan payoffs , including the effects of normal payoffs and paydowns and increased competition from banks and non-bank financial firms . increased loan volume contributed to higher interest income in 2013 , but the increase resulting from volume was more than offset by declining interest rates on loans and investments over the past year . primarily as a result , interest income for 2013 decreased $ 437,000 over 2012. despite significant deposit growth , interest expense declined due to lower funding costs on deposits and borrowings . while rates paid on liabilities decreased , rates on earning assets decreased slightly more , resulting in a decreased net interest spread and net interest margin compared to 2012. net interest margin in 2013 reflected prepayment fees associated with loan refinancing activity . adjusting for these sources of additional income , bancorp 's more normalized or core net interest margin has trended downward throughout 2013 , declining to 3.66 % for 2013 from 3.88 % for 2012 . ( see non-gaap financial measures section for reconcilement of non-gaap measures to us gaap measures . ) total non-interest income in 2013 increased $ 545,000 compared to 2012 , and remained consistent at 34 % of total revenues , reflecting increases in investment management and trust services , service charges on deposit accounts , bankcard transaction revenue , and the gain on the oldham acquisition , partially offset by a decrease in mortgage banking revenue and brokerage commissions . higher non-interest expenses for 2013 resulted from one-time acquisition costs related to the oldham transaction , write-off of debt issuance costs related to redemption of trust preferred securities , increases in salaries and benefits and data processing expenses , partially offset by decreases in losses on foreclosed assets , furniture and equipment , and fdic insurance expense . bancorp 's efficiency ratio for 2013 of 60.8 % increased from 57.4 % in 2012. also favorably impacting 2013 results , bancorp 's provision for loan losses decreased to $ 6,550,000 compared to $ 11,500,000 for 2012 , in response to bancorp 's assessment of risk in the loan portfolio . the provision for loan losses is calculated after considering credit quality factors , and ultimately relies on an overall internal analysis of the risk in the loan portfolio . bancorp 's allowance for loan losses was 1.66 % of total loans at december 31 , 2013 , compared with 2.01 % of total loans at december 31 , 2012. bancorp 's effective tax rate increased to 29.2 % in 2013 from 27.2 % in 2012. the increase in income tax expense from 2012 to 2013 is the result of reduced tax exempt interest in 2013 as well as the recognition of certain federal historic rehabilitation tax credits related to an investment in redevelopment of a louisville landmark in 2012. tangible common equity ( tce ) , a non-gaap measure , is a measure of a company 's capital which is useful in evaluating the quality and adequacy of capital . it is calculated by subtracting the value of intangible assets and any preferred equity from the book value of bancorp . 16 a summary of bancorp 's tce ratios at december 31 , 2013 and 2012 is shown in the following table . replace_table_token_6_th see non-gaap financial measures section for reconcilement of tce to us gaap measures . challenges for 2014 will include , maintaining a stable net interest margin , achieving continued loan growth , managing credit quality and increasing regulatory requirements . · bancorp expects net interest margin to improve in 2014 as the interest expense from the redeemed trust preferred securities is eliminated . other than this , the margin is expected to remain consistent , as rates are expected to be largely unchanged through the fourth quarter of 2014. loan prepayments are expected to diminish while prevailing rates for new loans will likely result in a relatively unchanged net interest margin for 2014. considering prevailing rates , management expects little margin compression to continue in 2014. however , increased deposit and loan rate competition could negatively impact this expectation , as could a decrease in longer term interest rates . · the federal reserve board lowered its key short term rate in 2008 to unprecedentedly low levels , and rates have remained low through 2013. indications are that the federal reserve will likely keep short term rates low through 2014 and into 2015. approximately 35 % of bancorp 's loans are indexed to the prime interest rate and reprice immediately with federal reserve rate changes . however , approximately 55 % of variable rate loans have reached their contractual floor of 4 % or higher , meaning they will not reprice immediately when the prime rate increases . deposit rates generally do not reprice as quickly as loans .
| such loans remain on bancorp 's balance sheet as required by us gaap principles because bancorp retains some form of effective control ; however , bancorp receives no interest income on the sold portion of these loans . these participation loans sold are excluded in the calculation of margins , which bancorp believes provides a more accurate determination of the performance of its loan portfolio . prime rate and the five year treasury bond rate are included above to provide a general indication of the interest rate environment in which bancorp operated . approximately $ 598 million , or 35 % , of bancorp 's loans are variable rate ; most of these loans are indexed to the prime rate and may reprice as that rate changes . however , approximately $ 328 million of variable rate loans , have reached their contractual floor of 4 % or higher . approximately $ 112 million of variable rate loans have contractual floors below 4 % . the remaining $ 158 million of variable rate loans have no contractual floor . bancorp intends to establish floors whenever possible upon acquisition of new customers . bancorp 's variable rate loans are primarily comprised of commercial lines of credit and real estate loans . at inception , most of bancorp 's fixed rate loans are priced in relation to the five year treasury bond . average loan balances increased $ 110 million or 7.2 % in 2013 ; however , the declining interest rate environment drove average loan yields lower by 43 basis points . bancorp grew average interest bearing deposits $ 121 million or 9.2 % . average interest costs on interest bearing deposits decreased 19 basis points , again reflecting the declining interest rate market and a more favorable mix of deposits . average federal home loan bank ( fhlb ) advances decreased by $ 27.6 million or 45.9 % , with average rates decreasing by 136 basis points . in the fourth quarter of 2012 , bancorp prepaid $ 30 million of fixed rate advances , incurring $
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revenue is recognized when revenue recognition criteria are met for each element . we are generally unable to establish vsoe or tpe for non-software elements and as such , we use besp . besp is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings . we determine besp for a product or service by considering multiple factors including , but not limited to , major product groupings , geographies , market conditions , competitive landscape , internal costs , gross margin objectives and pricing practices . pricing practices taken into consideration include historic contractually stated prices , volume discounts where applicable and our price lists . we must estimate certain royalty revenue amounts due to the timing of securing information from our customers . while we believe we can make reliable estimates regarding these matters , these estimates are inherently subjective . accordingly , our assumptions and judgments regarding future products and services as well as our estimates of royalty revenue could differ from actual events , thus materially impacting our financial position and results of operations . product revenue is recognized when the above criteria are met . we reduce the revenue recognized for estimated future returns , price protection and rebates at the time the related revenue is recorded . in determining our estimate for returns and in accordance with our internal policy regarding global channel inventory which is used to determine the level of product held by our distributors on which we have recognized revenue , we rely upon historical data , the estimated amount of product inventory in our distribution channel , the rate at which our product sells through to the end user , product plans and other factors . our estimated provisions for returns can vary from what actually occurs . product returns may be more or less than what was estimated . the amount of inventory in the channel could be different than what is estimated . our estimate of the rate of sell-through for product in the channel could be different than what actually occurs . there could be a delay in the release of our products . these factors and unanticipated changes in the economic and industry environment could make our return estimates differ from actual returns , thus impacting our financial position and results of operations . in the future , actual returns and price protection may exceed our estimates as unsold products in the distribution channels are exposed to rapid changes in consumer preferences , market conditions or technological obsolescence due to new platforms , product updates or competing products . while we believe we can make reliable estimates regarding these matters , these estimates are inherently subjective . accordingly , if our estimates change , our returns and price protection reserves would change , which would impact the total net revenue we report . we recognize revenue for hosted services that are based on a committed number of transactions ratably beginning on the date the services are first made available to the customer and continuing through the end of the contractual service term . over-usage fees , and fees billed based on the actual number of transactions from which we capture data , are billed in accordance with contract terms as these fees are incurred . we record amounts that have been invoiced in accounts receivable and in deferred revenue or revenue , depending on whether the revenue recognition criteria have been met . our consulting revenue is recognized on a time and materials basis and is measured monthly based on input measures , such as on hours incurred to date compared to total estimated hours to complete , with consideration given to output measures , such as contract milestones , when applicable . business combinations we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed , assumed equity awards , as well as to in-process research and development based upon their estimated fair values at the acquisition 36 date . the purchase price allocation process requires management to make significant estimates and assumptions , especially at the acquisition date with respect to intangible assets , deferred revenue obligations and equity assumed . although we believe the assumptions and estimates we have made are reasonable , they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain . examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to : future expected cash flows from software license sales , subscriptions , support agreements , consulting contracts and acquired developed technologies and patents ; expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed ; the acquired company 's trade name and trademarks as well as assumptions about the period of time the acquired trade name and trademarks will continue to be used in the combined company 's product portfolio ; and discount rates . in connection with the purchase price allocations for our acquisitions , we estimate the fair value of the deferred revenue obligations assumed . the estimated fair value of the support obligations is determined utilizing a cost build-up approach . the cost build-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin . the estimated costs to fulfill the obligations are based on the historical costs related to fulfilling the obligations . in connection with the purchase price allocations for our acquisitions , we estimate the fair value of the equity awards assumed . the estimated fair value is determined utilizing a modified binomial option pricing model which assumes employees exercise their stock options when the share price exceeds the strike price by a certain dollar threshold . story_separator_special_tag if the acquired company has significant historical data on their employee 's exercise behavior , then this threshold is determined based upon the acquired company 's history . otherwise , our historical exercise experience is used to determine the exercise threshold . zero coupon yields implied by u.s. treasury issuances , implied volatility for our common stock and our historical forfeiture rate are other inputs to the binomial model . unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions , estimates or actual results . goodwill impairment we complete our goodwill impairment test on an annual basis , during the second quarter of our fiscal year , or more frequently , if changes in facts and circumstances indicate that an impairment in the value of goodwill recorded on our balance sheet may exist . in order to estimate the fair value of goodwill , we typically estimate future revenue , consider market factors and estimate our future cash flows . based on these key assumptions , judgments and estimates , we determine whether we need to record an impairment charge to reduce the value of the asset carried on our balance sheet to its estimated fair value . assumptions , judgments and estimates about future values are complex and often subjective . they can be affected by a variety of factors , including external factors such as industry and economic trends , and internal factors such as changes in our business strategy or our internal forecasts . although we believe the ass umptions , judgme nts and estimates we have made in the past have been reasonable and appropriate , different assumptions , judgments and estimates could materially affect our reported financial results . we completed our annual impairment test in the second quarter of fiscal 2015 and determined there was no impairment . the results of our annual impairment test indicate that the fair values of our reporting units are significantly in excess of their carrying values . accounting for income taxes we use the asset and liability method of accounting for income taxes . under this method , income tax expense is recognized for the amount of taxes payable or refundable for the current year . in addition , deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , and for operating losses and tax credit carryforwards . management must make assumptions , judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset . our assumptions , judgments and estimates relative to the current provision for income taxes take into account current tax laws , our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic 37 tax authorities . we have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities . in addition , we are subject to the continual examination of our income tax returns by the irs and other domestic and foreign tax authorities , including a current examination by the irs of our fiscal 2010 , 2011 and 2012 tax returns . we expect future examinations to focus on our intercompany transfer pricing practices as well as other matters . we regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from the current examinations . we believe such estimates to be reasonable ; however , the final determination of any of these examinations could significantly impact the amounts provided for income taxes in our consolidated financial statements . our assumptions , judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income , such as income from operations or capital gains income . actual operating results and the underlying amount and category of income in future years could render our current assumptions , judgments and estimates of recoverable net deferred taxes inaccurate . any of the assumptions , judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates , thus materially impacting our financial position and results of operations . we are a united states-based multinational company subject to tax in multiple u.s. and foreign tax jurisdictions . a significant portion of our foreign earnings for the current fiscal year were earned by our irish subsidiaries . in addition to providing for u.s. income taxes on earnings from the united states , we provide for u.s. income taxes on the earnings of foreign subsidiaries unless the subsidiaries ' earnings are considered permanently reinvested outside the united states . while we do not anticipate changing our intention regarding permanently reinvested earnings , if certain foreign earnings previously treated as permanently reinvested are repatriated , the related u.s. tax liability may be reduced by any foreign income taxes paid on these earnings . our income tax expense has differed from the tax computed at the u.s. federal statutory income tax rate due primarily to discrete items and to earnings considered as permanently reinvested in foreign operations . unanticipated changes in our tax rates could affect our future results of operations . our future effective tax rates could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned , by changes in , or our interpretation of , tax rules and regulations in the jurisdictions in which we do business , by unanticipated decreases in the amount of earnings in countries with low statutory tax rates , or by changes in the valuation of our deferred tax assets and liabilities .
| the financial institutions agree to deliver shares to us at monthly intervals during the contract term . the parameters used to calculate the number of shares deliverable are : the total notional amount of the contract , the number of trading days in the contract , the number of trading days in the interval and the average vwap of our stock during the interval less the agreed upon discount . during fiscal 2015 , we repurchased approximately 8.1 million shares at an average price of $ 77.38 through structured repurchase agreements entered into during fiscal 2015 and fiscal 2014 . during fiscal 2014 , we repurchased approximately 10.9 million shares at an average price of $ 63.48 through structured repurchase agreements entered into during fiscal 2014 and fiscal 2013 . during fiscal 2013 , we repurchased approximately 21.6 million shares at an average price per share of $ 46.47 through structured repurchase agreements entered into during fiscal 2013 and fiscal 2012. for fiscal 2015 , 2014 and 2013 , the prepayments were classified as treasury stock on our consolidated balance sheets at the payment date , though only shares physically delivered to us by november 27 , 2015 , november 28 , 2014 and november 29 , 2013 were excluded from the computation of earnings per share . as of november 27 , 2015 , $ 38.2 million of prepayments remained under the agreement . see note 13 of our notes to consolidated financial statements for further discussion of our stock repurchase programs . subsequent to november 27 , 2015 , as part of our $ 2 billion stock repurchase program , we entered into a structured stock repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $ 150 million . this amount will be classified as treasury stock on our consolidated balance sheets . upon completion of the $ 150 million stock repurchase agreement , $ 1.43 billion remains under our current
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non-gaap financial measures non-gaap financial measures are measures of our historical or future financial performance that are different from measures calculated and presented in accordance with u.s. gaap . we report ffo , ebitda and ebitda re , which are non-gaap financial measures that we believe are useful to investors as key measures of our operating performance . we calculate ffo in accordance with standards established by nareit , formerly known as the national association of real estate investment trusts , which defines ffo as net income ( calculated in accordance with u.s. gaap ) , excluding real estate related depreciation and amortization , gains ( losses ) from sales of real estate , impairments of real estate assets ( including impairment of real estate related joint ventures ) , the cumulative effect of changes in accounting principles and adjustments for unconsolidated partnerships and joint ventures . historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time . since real estate values instead have historically risen or fallen with market conditions , most industry investors consider presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves . by excluding the effect of real estate related depreciation and amortization including our share of the joint venture depreciation and amortization , gains ( losses ) from sales of real estate and impairments of real estate assets ( including impairment of real estate related joint ventures ) , all of which are based on historical 40 cost accounting and which may be of lesser significance in evaluating current performance , we believe that ffo provides investors a useful financial measure to evaluate our operating performance . the following table reconciles net income ( loss ) to ffo and ffo available to common share and unit holders for the years ended december 31 , 2019 , 2018 and 2017 ( in thousands ) : replace_table_token_8_th ebitda is defined as earnings before interest , income taxes , depreciation and amortization . the white paper issued by nareit entitled “ earnings before interest , taxes , depreciation and amortization for real estate ” defines ebitda re as net income or loss ( computed in accordance with u.s. gaap ) , excluding interest expense , income tax , depreciation and amortization , gains or losses on the disposition of depreciated property ( including gains or losses on change of control ) , impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate , and after comparable adjustments for our portion of these items related to unconsolidated affiliates . we believe that ebitda and ebitda re provide investors useful financial measures to evaluate our operating performance , excluding the impact of our capital structure ( primarily interest expense ) and our asset base ( primarily depreciation and amortization ) . the following table reconciles net income ( loss ) to ebitda and ebitda re for the years ended december 31 , 2019 , 2018 and 2017 ( in thousands ) : replace_table_token_9_th ffo , ebitda and ebitda re do not represent cash generated from operating activities as determined by u.s. gaap and should not be considered as alternatives to u.s. gaap net income ( loss ) , as indications of our financial performance , or to u.s. gaap cash flow from operating activities , as measures of liquidity . in addition , ffo , ebitda and ebitda re are not indicative of funds available to fund cash needs , including the ability to make cash distributions . critical accounting policies we consider these policies critical because they require estimates about matters that are inherently uncertain , involve various assumptions and require significant management judgment , and because they are important for understanding and evaluating our reported financial results . these judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods . applying different estimates or assumptions may result in materially different amounts reported in our financial statements . 41 hotel properties investment in hotel properties estimation and judgment is required to determine the fair values of our acquired hotel properties . upon acquiring a business or hotel property , we measure and recognize the fair value of the acquired land , land improvements , building , furniture , fixtures and equipment , identifiable intangible assets or liabilities , other assets and assumed liabilities . identifiable intangible assets or liabilities typically arise from contractual arrangements assumed in connection with the transaction , including terms that are above or below market compared to an estimated market agreement at the acquisition date . we determine the acquisition-date fair values of all assets and assumed liabilities using a combination of the market , cost and income approaches . these valuation methodologies are based on significant level 2 and level 3 inputs in the fair value hierarchy , such as estimates of future income growth , capitalization rates , discount rates , capital expenditures and cash flow projections , including hotel revenues and net operating income , at the respective hotel properties . estimates of future cash flows are based on a number of factors including historical operating results , known and anticipated trends , and market and economic conditions . acquisition costs related to business combinations are expensed as incurred . hotel renovations and or replacements of assets that improve or extend the life of the asset are capitalized and depreciated over their estimated useful lives . furniture , fixtures and equipment under capital leases are carried at the present value of the minimum lease payments . repair and maintenance costs are expensed as incurred . impairment we review our investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable . story_separator_special_tag events or circumstances that may cause a review include , but are not limited to , when a hotel property experiences a current or projected loss from operations , when it becomes more likely than not that a hotel property will be sold before the end of its useful life , adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and or new hotel construction in markets where the hotels are located . when such conditions exist , we perform an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel exceed its carrying value . if the estimated undiscounted future cash flows are less than the carrying amount of the asset , an adjustment to reduce the carrying amount to the related hotel 's estimated fair market value is recorded and an impairment loss recognized . in the evaluation of impairment of our hotel properties , we make many assumptions and estimates including projected cash flows both from operations and eventual disposition , expected useful life and holding period , future required capital expenditures , and fair values , including consideration of capitalization rates , discount rates , and comparable selling prices . we will adjust our assumptions with respect to the remaining useful life of the hotel property when circumstances change , such as an expiring ground lease or it is more likely than not that the hotel property will be sold prior to its previously expected useful life . new accounting pronouncements not yet implemented see note 2 to the accompanying consolidated financial statements for additional information relating to recently issued accounting pronouncements . liquidity and capital resources we expect to meet our short-term liquidity requirements through net cash provided by operations , existing cash balances and , if necessary , short-term borrowings under our senior unsecured revolving credit facilities . we expect our existing cash balances and cash provided by operations will be adequate to fund operating requirements , service debt and fund dividends in accordance with the reit requirements of the federal income tax laws . we expect to meet our long-term liquidity requirements , such as hotel property acquisitions , property redevelopment , investments in new joint ventures , and debt principal payments and debt maturities , through the net proceeds from additional issuances of common shares , additional issuances of preferred shares , issuances of units of limited partnership interest in our operating partnership , secured and unsecured borrowings , hotel property sales and cash provided by operations . the success of our business strategy may depend in part on our ability to access additional capital through issuances of debt and equity securities , which is dependent on favorable market conditions . we strive to maintain prudent debt leverage and intend to opportunistically enhance our capital position . 42 our debt consisted of the following as of december 31 , 2019 and december 31 , 2018 ( dollars in thousands ) : replace_table_token_10_th ( 1 ) borrowings bear interest at floating rates equal to , at our option , either ( i ) libor plus an applicable margin or ( ii ) an adjusted base rate ( as defined in the applicable credit agreement ) plus an applicable margin . ( 2 ) borrowings bear interest at floating rates equal to , at our option , either ( i ) libor plus an applicable margin or ( ii ) a eurocurrency rate ( as defined in the applicable credit agreement ) plus an applicable margin . ( 3 ) borrowings under the term loan facilities bear interest at floating rates equal to , at our option , either ( i ) libor plus an applicable margin or ( ii ) a base rate plus an applicable margin . as of december 31 , 2019 , approximately $ 1.6 billion of the borrowings under the term loan facilities was at a weighted-average fixed interest rate of 3.43 % , after taking into account interest rate swap agreements , and approximately $ 345.0 million was at a weighted-average floating interest rate of 3.32 % . as of december 31 , 2018 , approximately $ 1.2 billion of the 43 borrowings under the term loan facilities was at a weighted-average fixed interest rate of 3.46 % , after taking into account interest rate swap agreements , and approximately $ 1.2 billion was at a weighted-average floating interest rate of 4.26 % . unsecured revolving credit facilities we are party to a $ 650.0 million senior unsecured revolving credit facility maturing in january 2022 , with options to extend the maturity date to january 2023 , pursuant to certain terms and conditions and payment of an extension fee . as of december 31 , 2019 , we had $ 165.0 million of outstanding borrowings and $ 482.2 million borrowing capacity remaining on our senior unsecured revolving credit facility . interest is paid on the periodic advances under the senior unsecured revolving credit facility at varying rates , based upon either libor or the alternate base rate , plus an additional margin amount . the interest rate depends upon our leverage ratio pursuant to the provisions of the credit facility agreement . we have the ability to increase the aggregate borrowing capacity of our senior unsecured revolving credit facility to up to $ 1.3 billion , subject to lender approval . we intend to repay indebtedness incurred under the senior unsecured revolving credit facility from time to time out of cash flows from operations and , as market conditions permit , from the net proceeds of issuances of additional equity and debt securities and from the net proceeds of dispositions of hotel properties . we also have a $ 25.0 million unsecured revolving credit facility ( the `` phl credit facility '' ) to be used for phl 's working capital and general corporate purposes . this credit facility has substantially similar terms as our senior unsecured revolving credit facility and matures in january 2022 .
| the comparable properties increase was primarily due to increases in revenues at our san francisco properties after the renovation and re-opening of the moscone center in late 2018 and the re-opening of laplaya after its closure from hurricane irma in 2017. hotel operating expenses — total hotel operating expenses increased by $ 462.3 million . the comparable properties contributed a net increase of $ 12.0 million , primarily due to increases in revenues and expenses at our san francisco properties 39 after the renovation and re-opening of the moscone center in late 2018 and the re-opening of laplaya after its closure in 2017 from hurricane irma . the acquisitions of hotel properties through our merger with lasalle contributed to an additional $ 450.3 million increase which was offset by a decrease in expenses from the other non-comparable properties . depreciation and amortization — depreciation and amortization expense increased by $ 126.4 million primarily due to the additional depreciation expense of $ 117.2 million from the acquisition of the lasalle portfolio . real estate taxes , personal property taxes , property insurance and ground rent — real estate taxes , personal property taxes , property insurance and ground rent increased by $ 70.8 million primarily due to additional real estate taxes , personal property taxes , property insurance and ground rent from the acquisition of the lasalle portfolio . corporate general and administrative — corporate general and administrative expenses increased by $ 13.1 million primarily due to additional employee and share-based compensation costs relating to the merger with lasalle . corporate general and administrative expenses consist of employee compensation costs , legal and professional fees , insurance , state franchise taxes and other expenses . transaction costs — transaction costs decreased by $ 66.4 million as a result of the merger with lasalle which closed in november 2018. transaction costs consist of transfer taxes and financial advisory , legal and other professional service fees in connection with the mergers and integration costs related to professional fees and employee-related costs , including compensation for transition employees . ( gain ) loss on
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critical accounting policies and estimates our significant accounting policies are summarized in note 2summary of significant accounting policies included within the notes to consolidated financial statements section elsewhere in this annual report . certain amounts included in or affecting our consolidated financial statements and related disclosures must be estimated , requiring management to make certain assumptions with respect to values or conditions that can not be known with certainty at the time the financial statements are prepared . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( us gaap ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . we are also subject to risks and uncertainties that may cause actual results to differ from estimated results . estimates are used when accounting for depreciation and amortization of long-lived assets , employee benefit plans , self-insurance and litigation reserves , environmental reserves , allowances for doubtful accounts , asset valuation assessments and valuation of derivative instruments . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . any effects on our business , financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known to us . management has reviewed these critical accounting estimates and related disclosures with the audit committee of our board of supervisors . we believe that the following are our critical accounting estimates : allowances for doubtful accounts . we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we estimate our allowances for doubtful accounts using a specific reserve for known or anticipated uncollectible accounts , as well as an estimated reserve for potential future uncollectible accounts taking into consideration our historical write-offs . if the financial condition of one or more of our customers were to deteriorate resulting in an impairment in their ability to make payments , additional allowances could be required . as a result of our large customer base , which is comprised of approximately 1.2 million customers , no individual customer account is material . therefore , while some variation to actual results occurs , historically such variability has not been material . schedule ii , valuation and qualifying accounts , provides a summary of the changes in our allowances for doubtful accounts during the period . 28 pension and other postretirement benefits . we estimate the rate of return on plan assets , the discount rate used to estimate the present value of future benefit obligations and the expected cost of future health care benefits in determining our annual pension and other postretirement benefit costs . while we believe that our assumptions are appropriate , significant differences in our actual experience or significant changes in market conditions may materially affect our pension and other postretirement benefit obligations and our future expense . with other assumptions held constant , an increase or decrease of 100 basis points in the discount rate would have an immaterial impact on net pension and postretirement benefit costs . see liquidity and capital resourcespension plan assets and obligations below for additional disclosure regarding pension benefits . self-insurance reserves . our accrued self-insurance reserves represent the estimated costs of known and anticipated or unasserted claims under our general and product , workers ' compensation and automobile insurance policies . accrued insurance provisions for unasserted claims arising from unreported incidents are based on an analysis of historical claims data . for each unasserted claim , we record a self-insurance provision up to the estimated amount of the probable claim utilizing actuarially determined loss development factors applied to actual claims data . our self-insurance provisions are susceptible to change to the extent that actual claims development differs from historical claims development . we maintain insurance coverage wherein our net exposure for insured claims is limited to the insurance deductible , claims above which are paid by our insurance carriers . for the portion of our estimated self-insurance liability that exceeds our deductibles , we record an asset related to the amount of the liability expected to be paid by the insurance companies . historically , we have not experienced significant variability in our actuarial estimates for claims incurred but not reported . accrued insurance provisions for reported claims are reviewed at least quarterly , and our assessment of whether a loss is probable and or reasonably estimable is updated as necessary . due to the inherently uncertain nature of , in particular , product liability claims , the ultimate loss may differ materially from our estimates . however , because of the nature of our insurance arrangements , those material variations historically have not , nor are they expected in the future to have , a material impact on our results of operations or financial position . loss contingencies . in the normal course of business , we are involved in various claims and legal proceedings . we record a liability for such matters when it is probable that a loss has been incurred and the amounts can be reasonably estimated . the liability includes probable and estimable legal costs to the point in the legal matter where we believe a conclusion to the matter will be reached . when only a range of possible loss can be established , the most probable amount in the range is accrued . if no amount within this range is a better estimate than any other amount within the range , the minimum amount in the range is accrued . fair values of acquired assets and liabilities . story_separator_special_tag from time to time , we enter into material business combinations . in accordance with accounting guidance associated with business combinations , the assets acquired and liabilities assumed are recorded at their estimated fair value as of the acquisition date . fair values of assets acquired and liabilities assumed are based upon available information and may involve us engaging an independent third party to perform an appraisal . estimating fair values can be complex and subject to significant business judgment . estimates most commonly impact property , plant and equipment and intangible assets , including goodwill . generally , we have , if necessary , up to one year from the acquisition date to finalize our estimates of acquisition date fair values . story_separator_special_tag segment are revenues from other propane activities of $ 79.1 million for fiscal 2014 , which increased $ 4.4 million compared to the prior year . revenues from the distribution of fuel oil and refined fuels of $ 194.7 million for fiscal 2014 decreased $ 14.3 million , or 6.8 % , from $ 209.0 million for the prior year , primarily due to lower volumes sold , partially offset by higher average selling prices . fuel oil and refined fuels gallons sold in fiscal 2014 decreased 4.6 million gallons , or 8.6 % , to 49.1 million gallons from 53.7 million gallons in the prior year , primarily due to a decline in lower margin gasoline and diesel volumes . lower fuel oil and refined fuels volumes sold resulted in a decrease in revenues of $ 18.0 million for fiscal 2014 compared to the prior year . average selling prices in our fuel oil and refined fuels segment in fiscal 2014 increased 2.0 % compared to the prior year , resulting in a $ 3.7 million increase in revenues year-over-year . revenues in our natural gas and electricity segment increased $ 7.7 million , or 9.6 % , to $ 87.1 million in fiscal 2014 compared to $ 79.4 million in the prior year as a result of higher average selling prices for natural gas and electricity as a result of higher average wholesale costs , partially offset by lower electricity usage . cost of products sold replace_table_token_5_th the cost of products sold reported in the consolidated statements of operations represents the weighted average unit cost of propane , fuel oil and refined fuels , natural gas and electricity sold , including transportation costs to deliver product from our supply points to storage or to our customer service centers . cost of products sold also includes the cost of appliances and related parts sold or installed by our customer service centers computed on a basis that approximates the average cost of the products . unrealized ( non-cash ) gains or losses from changes in the fair value of derivative instruments that are not designated as cash flow hedges are recorded within cost of products sold . cost of products sold excludes depreciation and amortization ; these amounts are reported separately within the consolidated statements of operations . 31 in the commodities markets , propane prices were extremely volatile during fiscal 2014 as a result of the supply and logistics issues that started late in the first fiscal quarter and continued throughout most of the second quarter . overall , average posted prices for propane for fiscal 2014 were 24.8 % higher than the prior year while fuel oil prices were 2.1 % lower than the prior year . the net change in the fair value of derivative instruments during the period resulted in unrealized ( non-cash ) gains of $ 0.3 million and unrealized ( non-cash ) losses of $ 4.3 million reported in cost of products sold in fiscal 2014 and 2013 , respectively , resulting in a decrease of $ 4.6 million in cost of products sold in fiscal 2014 compared to the prior year , $ 4.4 million of which was reported in the propane segment . cost of products sold associated with the distribution of propane and related activities of $ 844.9 million for fiscal 2014 increased $ 232.6 million , or 38.0 % , compared to the prior year primarily due to higher wholesale costs and higher transportation costs associated with the extraordinary measures we took to ensure adequate propane supplies were delivered to our customer service centers to meet customer demand during the heating season . higher average propane costs resulted in an increase of $ 233.3 million , partially offset by a decrease of $ 4.3 million related to lower propane volumes sold during fiscal 2014 compared to the prior year . cost of products sold from other propane activities increased $ 8.0 million . cost of products sold associated with our fuel oil and refined fuels segment of $ 155.8 million for fiscal 2014 decreased $ 16.2 million , or 9.4 % , compared to the prior year . lower fuel oil and refined fuels volumes sold coupled with lower wholesale costs resulted in decreases of $ 14.8 million and $ 1.4 million , respectively , in costs of products sold during fiscal 2014 compared to the prior year . cost of products sold in our natural gas and electricity segment of $ 64.4 million for fiscal 2014 increased $ 8.5 million , or 15.1 % , compared to the prior year , primarily due to higher natural gas and electricity wholesale costs , partially offset by lower volumes sold . total cost of products sold as a percent of total revenues increased 5.2 percentage points to 55.8 % in fiscal 2014 from 50.6 % in the prior year , primarily due to the rise in wholesale propane costs outpacing the rise in propane average selling prices during fiscal 2014. operating expenses replace_table_token_6_th all costs of operating our retail distribution and appliance sales and service operations are reported within operating expenses in the consolidated statements of operations .
| however , the weather pattern during the winter heating season ( october 2013 through march 2014 ) was characterized by considerably colder than normal temperatures in our service territories in the east and midwest regions , whereas our service territories in the west experienced unseasonably warm temperatures throughout the period . average temperatures in the western territories during this past winter heating season were 11 % warmer than normal and 6 % warmer than the comparable period in the prior year , which negatively impacted volumes sold in those territories . additionally , volumes sold during fiscal 2014 were adversely affected by supply constraints resulting from industry-wide supply shortages and logistics issues , as well as customer conservation attributable to a significant rise in wholesale propane prices . during fiscal 2014 , we made significant progress , not only in our integration efforts with regards to inergy propane , but also in executing our strategic financing initiatives . to highlight a few key accomplishments for fiscal 2014 : we completed our system conversions and much of the physical blending activities associated with the integration of inergy propane ; we have installed our operating model across the entire platform and have migrated to one common brand ; we successfully refinanced our previous 7.5 % senior notes due 2018 with new 5.5 % senior notes due in 2024 , which effectively extended maturities on this portion of our debt by six years and reduced our cash interest requirement by more than $ 8 million annually ; and we have successfully transitioned our senior leadership team in accordance with board-approved succession plans . as we look ahead to fiscal 2015 , our anticipated cash requirements include : ( i ) maintenance and growth capital expenditures of approximately $ 34.0 million ; ( ii ) approximately $ 79.4 million of interest and income tax payments ; and ( iii ) approximately $ 211.6 million of distributions to unitholders , assuming distributions remain at the current annualized rate of $ 3.50 per common unit . based on our current cash position of $ 92.6 million
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our objective is to gradually increase our operating margins by capturing fixed cost leverage from comparable restaurant sales increases ; maximizing our purchasing power as our business grows ; and operating our restaurants as productively as possible by retaining the efficiencies we gained through the implementation of cost management initiatives . by efficiently scaling our restaurant and bakery support infrastructure and improving our internal processes , we strive to grow g & a expenses at a slower rate than revenue growth over the long-term , which should also contribute to operating margin expansion . · return on investment . return on investment measures our ability to make the best decisions regarding our allocation of capital . returns are affected by the cost to build restaurants , the level of revenues that each restaurant can deliver and our ability to maximize the profitability of restaurants through operational execution and disciplined cost management . our objective is to deploy capital in a manner that will maximize our return on investment . story_separator_special_tag our restaurant and bakery revenues , and excludes depreciation , which is captured separately in depreciation and amortization expenses . as a percentage of revenues , cost of sales increased to 25.5 % in fiscal 2011 compared to 24.9 % in fiscal 2010. this increase was due to continuing cost pressures from certain commodities , primarily dairy and some general grocery items . our restaurant menus are among the most diversified in the foodservice industry and , accordingly , are not overly dependent on a few select commodities . changes in costs for one commodity can sometimes be counterbalanced by cost changes in other commodity categories . the principal commodity categories for our restaurants include produce , poultry , meat , fish and seafood , dairy , bread and general grocery items . we attempt to negotiate short-term and long-term agreements for our principal commodity , supply and equipment requirements , depending on market conditions and expected demand . however , we are currently unable to contract for extended periods of time for certain of our commodities such as fish and many dairy items ( excluding cream cheese used in our bakery operations ) . consequently , these commodities can be subject to unforeseen supply and cost fluctuations . cream cheese is the most significant commodity used in our bakery products . we contracted for a substantial portion of our fiscal 2011 cream cheese requirements and also purchased cream cheese on the spot market as necessary to supplement our contracted amounts . as has been our past practice , we will carefully consider opportunities to introduce new menu items and implement selected menu price increases to help offset expected cost increases for key commodities and other goods and services utilized by our operations . we have taken steps to qualify multiple suppliers and enter into agreements for some of the key commodities used in our restaurant and bakery operations . however , there can be no assurance that future supplies and costs for these commodities will not fluctuate due to weather and other market conditions outside of our control . for new restaurants , cost of sales will typically be higher during the first three to four months of operations until our management team becomes more accustomed to optimally predicting , managing and servicing the sales volumes at the new restaurant . 31 labor expenses as a percentage of revenues , labor expenses , which include restaurant-level labor costs and bakery direct production labor , including associated fringe benefits , decreased to 32.3 % in fiscal 2011 compared to 32.4 % in fiscal 2010. this improvement was primarily due to leverage from increased comparable sales and favorable group medical insurance costs , partially offset by higher payroll taxes due to a benefit in fiscal 2010 from the federal hiring incentives to restore employment ( hire ) act , which resulted in lower employer fica costs in that year . other operating costs and expenses other operating costs and expenses consist of restaurant-level occupancy expenses ( rent , common area expenses , insurance , licenses , taxes and utilities ) , other operating expenses ( excluding food costs and labor expenses , which are reported separately ) and bakery production overhead , selling and distribution expenses . as a percentage of revenues , other operating costs and expenses decreased to 24.3 % for fiscal 2011 versus 24.6 % for fiscal 2010. this decrease was primarily due to leverage from increased comparable sales and lower marketing expenses , partially offset by higher year-over-year expense related to our self-insured workers ' compensation and general liability plans . general and administrative expenses general and administrative ( g & a ) expenses consist of the restaurant management recruiting and training program , as well as the restaurant field supervision , bakery administrative and corporate support organizations . as a percentage of revenues , g & a expenses decreased to 5.5 % for fiscal 2011 versus 5.8 % for fiscal 2010 due primarily to a lower fiscal 2011 accrual for incentive compensation and leverage from increased sales . depreciation and amortization expenses as a percentage of revenues , depreciation and amortization expenses decreased to 4.1 % for fiscal 2011 compared to 4.3 % for fiscal 2010. the decrease is primarily attributable to lower capital investments due to fewer restaurant openings in the past few years , as well as proportionately higher investment during those years in information systems , which have shorter useful lives than most restaurant capital expenditures . impairment of assets in fiscal 2011 , we recorded expense of $ 1.5 million , representing reductions to the carrying values of three previously impaired locations , consisting of one grand lux cafe and two the cheesecake factory restaurants . no impairment charges were recorded in fiscal 2010. if the economic recovery remains slow and or we are unable to implement initiatives to appropriately scale our infrastructure in a timely manner , we may be required to record additional impairment charges in future periods . story_separator_special_tag ( see note 1 of notes to consolidated financial statements in part iv , item 15 of this report for further discussion of our accounting policies regarding impairment of long-lived assets . ) preopening costs preopening costs increased to $ 10.1 million for fiscal 2011 compared to $ 5.2 million for the prior fiscal year . we incurred preopening costs to open seven the cheesecake factory restaurants in fiscal 2011 compared to opening three the cheesecake factory restaurant during fiscal 2010. preopening costs include all costs to relocate and compensate restaurant management employees during the preopening period ; costs to recruit and train hourly restaurant employees ; wages , travel and lodging costs for our opening training team and other support employees ; and straight-line minimum base rent during the build-out and in-restaurant training periods . also included in preopening costs are expenses for maintaining a roster of trained managers for pending openings ; the associated temporary housing and other costs necessary to relocate managers in alignment with future restaurant opening and operating needs ; and corporate travel and support activities . preopening costs can fluctuate significantly from period to period , based on the number and timing of restaurant openings and the specific preopening costs incurred for each restaurant . interest expense , interest income and other ( expense ) /income , net interest expense decreased to $ 4.9 million for fiscal 2011 compared to $ 16.8 million for fiscal 2010 due primarily to $ 7.4 million recorded in fiscal 2010 to unwind an interest rate collar . in addition , we had no outstanding borrowings under our facility during fiscal 2011 as compared to a $ 66.2 million average debt balance in the prior year . ( see notes 7 and 8 of notes to consolidated financial statements in part iv , item 15 of this report for further discussion of our long-term debt and derivative financial instruments , respectively . ) interest expense also included $ 3.8 million and $ 3.6 million in fiscal 2011 and fiscal 2010 , respectively , associated with landlord construction allowances deemed to be financing in accordance with accounting guidance . interest income increased to $ 0.8 million for fiscal 2011 compared to $ 0.2 million for the prior year due primarily to $ 0.7 million of interest income in fiscal 2011 related to the favorable resolution of litigation we filed against the irs relating to disallowed employee compensation expense as to tax years 2003 and 2004 , as described in note 9 of notes to consolidated financials statements in part iv , item 15 of this report . 32 we recorded net other expense of $ 0.2 million in fiscal 2011 compared to $ 0.5 million for fiscal 2010. this variance primarily relates to changes in the value of our investments in variable life insurance contracts used to support our executive savings plan ( esp ) , a non-qualified deferred compensation plan . income tax provision our effective income tax rate was 25.9 % for fiscal 2011 compared to 26.4 % for fiscal 2010. this decrease was primarily attributable to the hire act retention credit in fiscal 2011 and the favorable resolution of litigation we filed against the irs relating to disallowed employee compensation expense as to tax years 2003 and 2004 , as described in note 9 of notes to consolidated financial statements in part iv , item 15 of this report . these decreases were partially offset by non-deductible losses in fiscal 2011 as compared non-taxable gains in fiscal 2010 on our investments in variable life insurance use to support our esp . fiscal 2010 compared to fiscal 2009 revenues revenues increased 3.6 % to $ 1,659.4 million for fiscal 2010 compared to $ 1,602.0 million for fiscal 2009. restaurant revenues increased 3.4 % to $ 1,586.3 million for fiscal 2010 compared to $ 1,534.3 million for the prior fiscal year . comparable sales at the cheesecake factory and grand lux cafe restaurants increased by 2.0 % , or $ 30.0 million , from fiscal 2009 to fiscal 2010. at december 28 , 2010 , there were three the cheesecake factory restaurants not included in the comparable sales base . comparable sales at the cheesecake factory restaurants increased 2.0 % from fiscal 2009 driven primarily by improved guest traffic . we implemented effective menu price increases of approximately 0.6 % and 0.7 % during the first and third quarter of fiscal 2010 , respectively . on a weighted average basis , based on the timing of our menu roll outs within each quarter , the cheesecake factory menu included a 1.4 % increase in pricing for fiscal year ended december 28 , 2010. this increase in menu pricing was partially offset by menu mix shifts due to ongoing check management by guests , particularly with regard to their purchase of non-alcoholic beverages . comparable sales at our grand lux cafe restaurants increased 1.5 % from fiscal year 2009 , driven by improved guest traffic . we did not implement any price increases in fiscal 2010. however , menu price increases made in fiscal 2009 had a year-over-year impact in fiscal 2010. on a weighted average basis , the grand lux menu included a 0.7 % increase in pricing for fiscal year ended december 28 , 2010. this increase in menu pricing was offset by menu mix shifts due to ongoing check management by guests , particularly with regard to their purchase of non-alcoholic beverages . total restaurant operating weeks increased 1.4 % to 8,426 in fiscal 2010 from the prior year due to the opening of three new restaurants during the trailing 15-month period . in addition , average sales per restaurant operating week increased approximately 1.8 % to $ 188,000 in fiscal 2010 compared to the prior fiscal year due principally to the improvement in guest traffic . bakery sales increased 8.0 % to $ 73.1 million in fiscal 2010 compared to $ 67.7 million in the prior fiscal year due primarily to increases in warehouse club and national account sales .
| inclusive of our summer 2011 and winter 2012 menu changes , we are targeting an effective price increase of approximately 2.2 % for the first half of fiscal 2012. we plan to review our operating cost and expense trends in the spring of 2012 and consider the need for additional menu pricing in connection with our 2012 summer menu change . comparable sales at our grand lux cafe restaurants decreased 0.3 % from fiscal year 2010 on a 53 week basis driven by a decline in guest traffic , partially offset by an increase in average check . during the second quarter of fiscal 2011 , we implemented an effective menu price increase of approximately 1.4 % . on a weighted average basis , based on the timing of our menu roll outs within each quarter , the grand lux cafe menu included a 0.9 % increase in pricing for fiscal year 2011. this increase in menu pricing was offset by menu mix shifts due to ongoing check management by guests , particularly with regard to their purchase of non-alcoholic beverages . we generally update and reprint the menus in our restaurants twice a year . as part of these menu updates , we evaluate the need for price increases based on those operating cost and expense increases of which we are aware or that we can reasonably expect . while menu price increases can facilitate increased comparable restaurant sales in addition to offsetting margin pressure , we carefully consider all potential price increases in light of the extent to which we believe they will be accepted by our restaurant guests . additionally , other factors outside of our control , such as general economic conditions , inclement weather , timing of holidays , and competitive and other factors , including those referenced in part i , item 1a , risk factors , of this report can impact comparable sales . total restaurant operating weeks increased 4.2 % to 8,777 in fiscal 2011 from the prior year due to the opening of seven new restaurants during the trailing 15-month period . excluding the impact of the 53 rd week in fiscal 2011 , total operating weeks increased 2.1 %
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selling , general and administrative expenses replace_table_token_16_th the following table summarizes the increases and ( decreases ) in sg & a by expense type : ( dollars in millions ) store expenses $ 77 corporate expenses 46 distribution costs 6 marketing costs , excluding credit card operations ( 4 ) increase in net earnings from credit card operations ( 23 ) total increase $ 102 the increase in store expenses is primarily attributable to higher store payroll due to on-going wage pressure and omni-channel support of ship-from-store and buy on-line , pick-up in store operations . property taxes and common area maintenance also increased . corporate expense increased due to technology and infrastructure investments related to our omni-channel strategy and other various corporate costs . distribution costs , which exclude payroll related to on-line originated orders that were shipped from our stores , were $ 278 million for 2015 , $ 6 million higher than 2014. the increase is due to higher fulfillment costs related to our growing on-line business which were partially offset by lower store distribution costs . marketing costs decreased in 2015 as we decreased our spending in newspaper inserts and direct mail through optimized circulation and shifted spending to digital media . 20 earnings from our credit card operations , net of servicing and other credit-related expenses , were $ 456 million , $ 23 million higher than 2014. the increase is due to higher finance charge revenues and late fees , partially offset by higher bad debt expense , all which were the result of growth in the portfolio . additionally , lower marketing spend was partially offset by increased servicing costs . other expenses replace_table_token_17_th the increase in depreciation and amortization was due to higher it amortization which was partially offset by lower store depreciation due to maturing of our stores . the decrease in net interest expense was the result of refinancing our debt at lower interest rates during 2015. during 2015 , we completed a cash tender offer and redemption for $ 1,085 million of senior unsecured debt . we recognized a $ 169 million loss on extinguishment of debt which included a $ 163 million bond tender premium paid to holders of the debt and a $ 6 million non-cash write-off of deferred financing costs and original issue discounts associated with the extinguished debt . changes in our effective tax rate were primarily due to favorable state audit settlements during 2014. net income and earnings per diluted share replace_table_token_18_th we believe adjusted results are useful because they provide enhanced visibility into our results for the periods excluding the loss on extinguishment of debt in 2015. however , these non-gaap financial measures are not intended to replace gaap measures . inflation although we expect that our operations will be influenced by general economic conditions , including food , fuel and energy prices , and by costs to source our merchandise , we do not believe that inflation has had a material effect on our results of operations . however , there can be no assurance that our business will not be impacted by such factors in the future . liquidity and capital resources the following table presents our primary cash requirements and sources of funds . cash requirements sources of funds operational needs , including salaries , rent , taxes and other costs of running our business capital expenditures inventory ( seasonal and new store ) share repurchases dividend payments cash flow from operations short-term trade credit , in the form of extended payment terms line of credit under our revolving credit facility 21 our working capital and inventory levels typically build throughout the fall , peaking during the november and december holiday selling season . the following table includes cash balances and changes . replace_table_token_19_th operating activities net cash provided by operations increased $ 674 million to $ 2.1 billion in 2016. the increase reflects a 5 % decrease in inventory per store as a result of our inventory reduction initiatives and increases in accounts payable due to timing of spring merchandise receipts and negotiations which extended payment terms with many of our vendors . the decrease in inventory and increase in accounts payable increased our accounts payable as a percent of inventory ratio to 39.7 % , an 870 basis point increase over the prior year ratio . net cash provided by operations decreased $ 550 million to $ 1.5 billion in 2015. the decrease is due to increases in our inventory balances and decreases in our accounts payable balance , due in part to the port strike in 2014. investing activities net cash used in investing activities increased $ 75 million to $ 756 million in 2016 , primarily due to higher spending for a fifth e-commerce fulfillment center which we expect to open in 2017. net cash used in investing activities increased $ 88 million to $ 681 million in 2015. substantially all of the increase is due to proceeds from our final auction rate securities sales in 2014. despite the non-liquid nature of these investments following market conditions that arose in 2008 , we were able to sell substantially all of our investments at par . the following table summarizes expected and actual capital expenditures by major category as a percentage of total capital expenditures : replace_table_token_20_th we expect total capital expenditures of approximately $ 700 million in fiscal 2017 . the actual amount of our future capital expenditures will depend on the number and timing of new stores and refreshes ; expansion and renovations to distribution centers ; the mix of owned , leased or acquired stores ; and it and corporate spending . we do not anticipate that our capital expenditures will be limited by any restrictive covenants in our financing agreements . financing activities net cash used in financing activities decreased $ 468 million to $ 1.0 billion in 2016 , primarily due to lower treasury stock repurchases . we paid cash for treasury stock repurchases of $ 557 million in 2016 and $ 1.0 billion in 2015 . story_separator_special_tag share repurchases are discretionary in nature . the timing and amount of repurchases is based upon available cash balances , our stock price and other factors . 22 net cash used in financing activities increased $ 498 million to $ 1.5 billion in 2015. the increase was due to a $ 324 million increase in treasury share repurchases and $ 160 million net cash used for the debt refinancing in 2015. during 2015 , we completed a cash tender offer and redemption for $ 1.1 billion of our higher coupon senior unsecured debt . we recognized a $ 169 million loss on extinguishment of debt which included a $ 163 million bond tender premium paid to holders of the debt and a $ 6 million non-cash write-off of deferred financing costs and original issue discounts associated with the extinguished debt . in july 2015 , we issued $ 650 million of 4.25 % notes due in july 2025 and $ 450 million of 5.55 % notes due in july 2045. both notes include semi-annual , interest-only payments beginning january 17 , 2016. proceeds of the issuances and cash on hand were used to pay the principal , premium and accrued interest of the acquired and redeemed debt . on july 1 , 2015 , we entered into an amended and restated credit agreement with various lenders which provides for $ 1.0 billion senior unsecured five-year revolving credit facility that will mature in june 2020. among other things , the agreement includes a maximum leverage ratio financial covenant ( which is consistent with the ratio under our prior credit agreement ) and restrictions on liens and subsidiary indebtedness . though we have no current plans to do so , we may again seek to retire or purchase our outstanding debt through open market cash purchases , privately negotiated transactions or otherwise . such repurchases , if any , will depend on prevailing market conditions , our liquidity requirements , contractual restrictions and other factors . the amounts involved could be material . as of january 28 , 2017 , our credit ratings were as follows : moody 's standard & poor 's fitch long-term debt baa2 bbb- bbb during 2016 , we paid cash dividends of $ 358 million as detailed in the following table : replace_table_token_21_th on february 22 , 2017 , our board of directors approved a 10 % increase in our dividend to $ 0.55 per common share . the dividend will be paid on march 22 , 2017 to shareholders of record as of march 8 , 2017. liquidity ratios the following table provides additional measures of our liquidity . replace_table_token_22_th ( a ) non-gaap financial measure liquidity measures our ability to meet short-term cash needs . in 2016 , working capital decreased $ 89 million and our current ratio decreased 11 basis points from year-end 2015 due to a decrease in inventory and an increase in accounts payable , which was partially offset by an increase in cash . we generated $ 1.3 billion of free cash flow for 2016 ; an increase of $ 593 million over 2015. as discussed above , the increase is primarily the result of a decrease in inventory and an increase in accounts payable . free cash flow is a non-gaap financial measure which we define as net cash provided by operating activities and proceeds from financing obligations ( which generally represent landlord reimbursements of construction costs ) less 23 capital expenditures and capital lease and financing obligation payments . free cash flow should be evaluated in addition to , and not considered a substitute for , other financial measures such as net income and cash flow provided by operations . we believe that free cash flow represents our ability to generate additional cash flow from our business operations . see the key financial ratio calculations section above . return on investment ratios the following table provides additional measures of our return on investments . replace_table_token_23_th ( a ) non-gaap financial measure lower earnings , including impairments , store closing and other costs in 2016 and loss on extinguishment of debt in 2015 , caused decreases in all three of our return on investment ratios . see exhibit 12.1 to this annual report on form 10-k for the calculation of our ratio of earnings to fixed charges and the key financial ratio calculations below for the return on assets and roi calculations . we believe that roi is a useful financial measure in evaluating our operating performance . when analyzed in conjunction with our net earnings and total assets and compared with return on assets , it provides investors with a useful tool to evaluate our ongoing operations and our management of assets from period to period . roi is a non-gaap financial measure which we define as earnings before interest , taxes , depreciation , amortization and rent ( “ ebitdar ” ) divided by average gross investment . our roi calculation may not be comparable to similarly-titled measures reported by other companies . roi should be evaluated in addition to , and not considered a substitute for , other financial measures such as return on assets . capital structure ratios the following table provides additional measures of our capital structure . replace_table_token_24_th ( a ) non-gaap financial measure our debt agreements contain various covenants including limitations on additional indebtedness and a maximum permitted debt ratio . as of january 28 , 2017 , we were in compliance with all debt covenants and expect to remain in compliance during 2017 . see the key financial ratio calculations section below for our debt covenant calculation . the increases in our debt/capitalization ratios are primarily due to treasury stock repurchases in both years . the increases in our adjusted debt to adjusted ebitdar ratio were primarily due to lower adjusted ebitdar . adjusted debt to adjusted ebitdar is a non-gaap financial measure which we define as our adjusted outstanding debt balance divided by adjusted ebitdar . we believe that our debt levels are best analyzed using this measure .
| 2017 outlook our current expectations for 2017 are as follows : replace_table_token_8_th 16 results of operations - 2016 compared to 2015 net sales as our omni-channel strategy continues to mature , it is increasingly difficult to distinguish between a `` store '' sale and an `` on-line '' sale . below is a list of some omni-channel examples : stores increase on-line sales by providing customers opportunities to view , touch and or try on physical merchandise before ordering on-line . on-line purchases can easily be returned in our stores . kohl 's cash coupons and yes2you rewards can be earned and redeemed on-line or in store regardless of where they were earned . in-store customers can order from on-line kiosks in our stores . buy on-line and pick-up in store is available in all stores . customers who utilize our mobile app while in the store may receive mobile coupons to use when they check out . on-line orders may be shipped from a dedicated on-line fulfillment center , a store , a retail distribution center , direct ship vendors or any combination of the above . more than 75 % of our on-line customers also shop in our stores . because we do not have a clear distinction between `` store '' sales and `` on-line '' sales , we do not separately report on-line sales . comparable sales include sales for stores ( including relocated or remodeled stores ) which were open during both the current and prior year periods . we also include on-line sales in our comparable sales . the following table summarizes net sales : replace_table_token_9_th ( a ) net sales per selling square foot includes on-line sales and stores open for the full current period . drivers of the 2.4 % decrease in comparable sales were as follows : selling price per unit 1.5 % units per transaction 1.6 average transaction value 3.1 number of transactions ( 5.5 ) comparable sales ( 2.4 ) % from a regional perspective , the west , southeast , and midwest outperformed the company average in 2016. the south central , mid-atlantic and northeast underperformed the company average for the year . by line of business , footwear and men 's outperformed the company average in 2016. all other categories
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when the company sells assets , it may carry a portion of the sales price generally in the form of a short-term , interest bearing seller-financed note receivable . the company generates operating revenues primarily by leasing apartment units to residents and leasing office , retail and industrial space to commercial tenants . effective since april 30 , 2011 , pillar is the company 's external advisor and cash manager under a contractual arrangement that is reviewed annually by our board of directors . pillar 's duties include , but are not limited to , locating , evaluating and recommending real estate and real estate-related investment opportunities . pillar also arranges , for tci 's benefit , debt and equity financing with third party lenders and investors . pillar also serves as an advisor and cash manager to arl and iot . as the contractual advisor , pillar is compensated by tci under an advisory agreement that is more fully described in part iii , item 10 . “ directors , executive officers and corporate governance – the advisor ” . tci has no employees . employees of pillar render services to tci in accordance with the terms of the advisory agreement . prior to april 30 , 2011 , the company was advised by prime . effective since january 1 , 2011 , regis manages our commercial properties and provides brokerage services . regis is entitled to receive a fee for its property management and brokerage services . see part iii , item 10 . “ directors , executive officers and corporate governance – property management and real estate brokerage ” . the company contracts with third-party companies to lease and manage our apartment communities . the company has historically engaged in and may continue to engage in certain business transactions with related parties , including but not limited to asset acquisition and dispositions . transactions involving related parties can not be presumed to be carried out on an arm 's length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities . related party transactions may not always be favorable to our business and may include terms , conditions and agreements that are not necessarily beneficial to or in our best interest . critical accounting policies we present our financial statements in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) . in june 2009 , the financial accounting standards board ( “ fasb ” ) completed its accounting guidance codification project . the fasb accounting standards codification ( “ asc ” ) became effective for our financial statements issued subsequent to june 30 , 2009 and is the single source of authoritative accounting principles recognized by the fasb to be applied by nongovernmental entities in the preparation of financial statements in conformity with gaap . as of the effective date , we no longer refer to the authoritative guidance dictating its accounting methodologies under the previous accounting standards hierarchy . instead , we refer to the asc codification as the sole source of authoritative literature . the accompanying consolidated financial statements include our accounts , our subsidiaries , generally all of which are wholly-owned , and all entities in which we have a controlling interest . arrangements that are not controlled through voting or similar rights are accounted for as a variable interest entity ( vie ) , in accordance with the provisions and guidance of asc topic 810 “ consolidation ” , whereby we have determined that we are a primary beneficiary of the vie and meet certain criteria of a sole general partner or managing member as identified in accordance with emerging issues task force ( “ eitf ” ) issue 04-5 , investor 's accounting for an investment in a limited partnership when the investor is the sole general partner and the limited partners have certain rights ( “ eitf 04-5 ” ) . vies are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability , the obligation to absorb expected losses or residual returns of the entity , or have voting rights that are not proportional to their economic interests . the primary beneficiary generally is the entity that provides financial support and bears a majority of the financial risks , authorizes certain capital transactions , or makes operating decisions that materially affect the entity 's financial results . all significant intercompany balances and transactions have been eliminated in consolidation . in determining whether we are the primary beneficiary of a vie , we consider qualitative and quantitative factors , including , but not limited to : the amount and characteristics of our investment ; the obligation or likelihood for us or other investors to provide financial support ; our and the other investors ' ability to control or significantly influence key decisions for the vie ; and the similarity with and significance to the business activities of us and the other investors . significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these vies and general market conditions . for entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary , the entities are accounted for using the equity method of accounting . accordingly , our share of the net earnings or losses of these entities are included in consolidated net income . tci 's investment in arl is accounted for under the equity method . our investment in garden centura , l.p. was accounted for under the equity method until december 28 , 2011 , when it was sold to a third party . story_separator_special_tag 23 the company in accordance with the vie guidance in asc 810 “ consolidations ” consolidates 33 and 44 multifamily residential properties located throughout the united states at december 31 , 2013 and december 31 , 2012 , respectively , ranging from 32 units to 332 units . assets totaling $ 343 , 889 ,000 and $ 503,580,000 at december 31 , 2013 and 2012 , respectively , are consolidated and included in “ real estate , at cost ” on the balance sheet and are all collateral for their respective mortgage notes payable , none of which are recourse to the partnership in which they are in or to the company . assets totaling $ 16,427,000 and $ 18,077,000 at december 31 , 2013 and 2012 , respectively , are consolidated and included in “ real estate held for sale at cost ” on the balance sheet and are all collateral for their respective mortgage notes payable , none of which are recourse to the partnership in which they are in or to the company . real estate upon acquisitions of real estate , we assess the fair value of acquired tangible and intangible assets , including land , buildings , tenant improvements , “ above- ” and “ below-market ” leases , origination costs , acquired in-place leases , other identified intangible assets and assumed liabilities in accordance with asc topic 805 “ business combinations ” , and allocate the purchase price to the acquired assets and assumed liabilities , including land at appraised value and buildings at replacement cost . we assess and consider fair value based on estimated cash flow projections that utilize appropriate discount and or capitalization rates , as well as available market information . estimates of future cash flows are based on a number of factors including the historical operating results , known and anticipated trends , and market and economic conditions . the fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant . we also consider an allocation of purchase price of other acquired intangibles , including acquired in-place leases that may have a customer relationship intangible value , including ( but not limited to ) the nature and extent of the existing relationship with the tenants , the tenants ' credit quality and expectations of lease renewals . based on our acquisitions to date , our allocation to customer relationship intangible assets has been immaterial . we record acquired “ above- ” and “ below-market ” leases at their fair values ( using a discount rate which reflects the risks associated with the leases acquired ) equal to the difference between ( 1 ) the contractual amounts to be paid pursuant to each in-place lease and ( 2 ) management 's estimate of fair market lease rates for each corresponding in-place lease , measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases . other intangible assets acquired include amounts for in-place lease values that are based on our evaluation of the specific characteristics of each tenant 's lease . factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions , and costs to execute similar leases . in estimating carrying costs , we include real estate taxes , insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods , depending on local market conditions . in estimating costs to execute similar leases , we consider leasing commissions , legal and other related expenses . acquisitions from our parent , arl , have previously been reflected at the fair value purchase price . upon discussion with the sec and in review of the guidance pursuant to asc 250-10-45-22 to 24 , we have adjusted those assets , in the prior year , to reflect a basis equal to arl 's cost basis in the asset at the time of the sale . the related party payables to arl were reduced for the lower asset price . depreciation and impairment real estate is stated at depreciated cost . the cost of buildings and improvements includes the purchase price of property , legal fees and other acquisition costs . costs directly related to the development of properties are capitalized . capitalized development costs include interest , property taxes , insurance , and other direct project costs incurred during the period of development . a variety of costs are incurred in the acquisition , development and leasing of properties . after determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . our capitalization policy on development properties is guided by asc topic 835-20 “ interest - capitalization of interest ” and asc topic 970 “ real estate—general ” . the costs of land and buildings under development include specifically identifiable costs . the capitalized costs include pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs and other costs incurred during the period of development . we consider a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy , but no later than one year from cessation of major construction activity . we cease capitalization on the portion ( 1 ) substantially completed and ( 2 ) occupied or held available for occupancy , and we capitalize only those costs associated with the portion under construction . management reviews its long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates impairment in value . an impairment loss is recognized if the carrying amount of its assets is not recoverable and exceeds its fair value .
| the total property portfolio represents all income-producing properties held as of december 31 for the year presented . sales subsequent to year end represent properties that were held as of year end for the years presented , but sold in subsequent years . continuing operations represents all properties that have not been reclassed to discontinued operations as of december 31 , 2013 for the year presented . the table below shows the number of income-producing properties held by year : replace_table_token_9_th comparison of the year ended december 31 , 2013 to the same period ended 2012 : for the twelve months ended december 31 , 2013 , we reported net income applicable to common shares of $ 57.4 million or $ 6.82 per diluted earnings per share , as compared to a net loss applicable to common shares of $ 9.4 million or $ 1.12 per diluted earnings per share for the same period ended 2012. the current year net income applicable to common shares of $ 57.4 million includes loss on land sales of $ 1.1 million , $ 11.3 million of provisions on the impairment of notes receivable and real estate assets , and net income from discontinued operations of $ 60.8 million , as compared to the prior year net loss applicable to common shares of $ 9.4 million , which includes gain on land sales of $ 6.9 million , $ 2.3 million of provisions on the impairment of notes receivable and real estate assets , and net loss from discontinued operations of $ 2.7 million . revenues rental and other property revenues were $ 86.2 million for the twelve months ended december 31 , 2013. this represents a decrease of $ 0.4 million , as compared to the prior year revenues of $ 86.6 million . this change , by segment , is an increase in the apartment portfolio of $ 3.5 million , offset by a decrease in the commercial portfolio of $ 3.9 million . within the apartment portfolio , the increase is
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54 item 11. executive compensation executive compensation named executive officers for our fiscal year ended december 31 , 2019 , our named executive officers were : ( i ) michael macaluso , our ceo , who has served story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this report . some of the information contained in this discussion and analysis , including information with respect to our plans and strategy for our business and related financings , includes forward-looking statements that involve risks and uncertainties . you should read the “ risk factors ” section of this form 10‑k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . story_separator_special_tag operations—year ended december 31 , 2019 compared to december 31 , 2018 we recognized a net loss for the year ended december 31 , 2019 ( the “ 2019 period ” ) of $ 13.6 million compared to net income recognized of $ 34.0 million for the year ended december 31 , 2018 ( the “ 2018 period ” ) . the net loss during fiscal 2019 was attributable to operating expenses of $ 18.6 million , offset by the recognition of a non-cash derivative gain of $ 4.9 million . the 17.3 million warrant exercises during fiscal 2019 caused the valuation of the warrant liability to decrease , resulting in a non-cash derivative gain . this non-cash derivative gain was slightly offset by the increase in our stock price from $ 0.39 as of december 31 , 2018 to $ 0.58 as of december 31 , 2019 , which caused the valuation of the warrant liability to increase . the net income during fiscal 2018 was primarily attributable to the non-cash derivative gain of $ 45.3 million , which was partially offset by operating expenses of $ 11.2 million . the decrease in our stock price from $ 4.07 as of december 31 , 2017 to $ 0.39 as of december 31 , 2018 caused the valuation of the warrant liability to decrease resulting in a derivative gain during fiscal 2018. the operating expenses increased $ 7.4 million from the 2018 period to the 2019 period primarily due to a $ 5.8 million increase in research and development costs and a $ 1.6 million increase in general and administrative costs , which are both further explained below . 35 research and development research and development costs consist of clinical trials , direct labor costs , consultants , and stock-based compensation . these costs relate solely to direct research and development without an allocation of general and administrative expenses and are summarized as follows : replace_table_token_0_th comparison of years ended december 31 , 2019 and 2018 research and development costs increased $ 5.8 million , or 84.8 % , for the 2019 period compared to the 2018 period . clinical trials expense increased $ 5.4 million for the 2019 period compared to the 2018 period due to the commencement of the ap-013 phase iii clinical study ( “ ap-013 study ” ) in june 2019. salaries and benefits also increased $ 915,000 for the 2019 period compared with the 2018 period , primarily due to the favorable accrual adjustment resulting from the elimination of the 2018 annual incentive compensation accrual as a result of the repricing of employee stock options in october 2018 , which resulted in an adjustment totaling $ 488,000 for the 2018 period . this 2018 favorable adjustment was partially offset by a de minimis stock-based compensation expense from the repricing of employee stock options . in addition , during the 2019 period , we added three new positions to assist with the direct management and oversight of the ap-013 study and certain of our employees received merit increases effective at the commencement of 2019. these three new positions and merit increases were partially offset by the reduction of the cso position , which occurred during the end of the 2018 period . the increases in the clinical trial expenses and salaries and benefits were partially offset by a decrease in laboratory , regulatory/fda , and stock-based compensation expenses . laboratory expenses decreased for the 2019 period compared to the 2018 period as we finalized a quality control project related to the manufacturing of ampion . regulatory/fda expenses decreased for the 2019 period compared to the 2018 period as we finalized our discussions with the fda regarding our prior clinical trials . stock-based compensation decreased for the 2019 period compared with the 2018 period as previously awarded high-priced options became fully vested during the 2019 period . 36 general and administrative general and administrative expenses consist of direct labor , director fees , stock-based compensation , patent costs , professional fees ( for example : legal , auditing , and accounting ) and occupancy , travel and other ( for example : rent , insurance , investor/public relations , and professional subscriptions ) . these costs are summarized as follows : replace_table_token_1_th comparison of years ended december 31 , 2019 and 2018 general and administrative costs increased $ 1.6 million , or 36.7 % , for the 2019 period compared to the 2018 period . professional fees increased primarily due to an increase in legal fees related to ongoing current litigation and government investigation matters . the increase in professional fees was partially offset by a one-time cost related to a strategic assessment of the osteoarthritis environment report that occurred during the 2018 period . story_separator_special_tag labor costs for the 2019 period increased compared to the 2018 period due to the favorable adjustment totaling $ 325,000 during the 2018 period resulting from an accrual adjustment resulting from the elimination of the annual discretionary corporate bonus accrual . in addition , there was a separation agreement that was executed with our former chief financial officer ( “ cfo ” ) during the 2019 period resulting in an increase of $ 160,000 in labor costs . insurance expense increased from the 2019 period compared to the 2018 period primarily due to an increase of $ 500,000 in our d & o insurance premiums covering our new policy period as a result of the current litigation and government investigation matters . stock-based compensation increased due to the issuance of stock options related to the employment agreement for our new cfo , along with the cancellation and reissuance of previously awarded stock options for certain non-employee directors , which was partially offset by previously awarded high-priced options becoming fully vested during 2019. directors fees increased as more board meetings were held during the 2019 period as compared to the 2018 period . travel and meetings expenses increased from the 2019 period compared to the 2018 period as our clinical team performed site visits , increased frequency of non-deal roadshows and incremental travel and relocation related expenses consistent with our employment agreement with our new cfo . net cash used in operating activities during 2019 , our operating activities used approximately $ 15.4 million in cash , which was more than our net loss of $ 13.6 million primarily as a result of the non-cash gain from the warrant derivative totaling $ 4.9 million , non-cash charges related to depreciation and amortization , and stock-based compensation totaling $ 1.7 million ; partially offset by changes in operating assets and liabilities totaling $ 1.4 million . during 2018 , our operating activities used approximately $ 12.1 million in cash , which was less than the net income of $ 34.0 million primarily as a result of the non-cash gain from warrant derivative totaling $ 45.3 million , non-cash charges related to depreciation and amortization , stock-based compensation and loss from disposal of fixed assets totaling $ 1.9 million ; partially offset by change in operating assets and liabilities totaling $ 2.7 million . net cash used in investing activities during 2019 , cash used to acquire manufacturing machinery and equipment totaled $ 22,000 . 37 during 2018 , cash used to acquire manufacturing machinery and equipment totaled $ 564,000. net cash from financing activities during the 2019 , we received gross proceeds from the sale of common stock in a public offering of $ 12.0 million , which was offset by offering related costs of $ 1.2 million . in addition , we also received gross proceeds from warrant exercises of $ 3.9 million , which was offset by related costs of $ 277,000. during 2018 , we received gross proceeds from the sale of common stock in a public offering of $ 8.0 million , which was offset by offering costs of $ 844,000. in addition , we also received $ 4.9 million from option and warrant exercises . contractual obligations and commitments information regarding contractual obligations and commitments is contained in note 7 to the financial statements . liquidity and capital resources we have not generated operating revenue or profits . our primary activities since inception have been focused on research and development activities for advancement of ampion towards bla submission , which has required raising capital . as of december 31 , 2019 , we do not have sufficient liquidity to meet our obligations for the next twelve months . specifically , we had $ 6.5 million of cash and cash equivalents which we expect will fund our operations into april 2020. this projection is based on many assumptions that may prove to be wrong , and we could exhaust our available cash and cash equivalents earlier than presently anticipated . in addition , we anticipate that we will seek additional capital investments in both the near and long-term to enable us to primarily support ( i ) our existing ap-013 study , ( ii ) bla preparation and submission , ( iii ) existing base business operations and ( iv ) commercial development activities for ampion . we intend to evaluate the capital markets on an ongoing basis to determine the appropriate timing for such capital raise and which will depend on existing market conditions relative to our need for funds at such time . the audit reports on our financial statements for the fiscal year ended december 31 , 2019 and 2018 contained an explanatory paragraph indicating that there was substantial doubt about our ability continue as a going concern . in order to address the going concern , we have prepared a projection through march 31 , 2021. this projection reflects cash requirements for fixed , on-going expenses such as payroll , legal and accounting , patents and overhead at an average cash burn rate of approximately $ 900,000 per month . the projection also reflects costs related to regulatory approvals , clinical trials and outsourced research and development costs of approximately $ 900,000 per month through the second quarter of 2020 , which then decreases to $ 300,000 per month from the third quarter of 2020 through the fourth quarter of 2020. accordingly , we believe that it will be necessary to raise additional capital and or enter into licensing or collaboration agreements to fund the further development and regulatory activities that we plan to conduct . as of december 31 , 2019 , we have approximately $ 66.7 million available under the shelf registration statement with 118,382,387 authorized shares remaining . at this time , we expect to satisfy our future cash needs through private or public sales of our securities , option/warrant exercises , debt financings and or partnering/licensing transaction . in february
| as of december 31 , 2019 , we had $ 6.5 million of cash and cash equivalents which we expect will fund our operation into the second quarter of 2020. these existing and on-going 34 factors continue to raise substantial doubt about our ability to continue as a going concern ( see note 3 to the financial statements ) . as of december 31 , 2019 , we have approximately $ 66.7 million available under the shelf registration statement with 118,382,387 authorized shares remaining . however , we can not be certain that we will be able to secure additional financing or that funding , if secured , will be adequate to execute our business strategy . even if we are able to obtain additional financing , such additional financing may be costly and may require us to agree to covenants or other provisions that favor new investors over existing shareholders . our primary focus for fiscal year 2020 is completion of the ap-013 clinical study and the filing of a bla with the fda for ampion to treat the signs and symptoms of severe oak . significant accounting policies and estimates our financial statements were prepared in accordance with gaap . the preparation of the financial statements 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 expenses incurred during the reporting period . on an on-going basis , management evaluates its estimates and judgments , including those related to recoverability of long-lived assets , valuation allowance ( s ) , useful lives of assets and remaining useful lives , stock compensation , warrant derivative liability , right-of-use asset , lease liability , clinical trial accrual and the ability for the company to continue as a going concern . management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable and appropriate 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
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